ResMed Stock

Okay. Good morning, everyone. My name is David Bailey. I'm part of the health care team at Morgan Stanley, joined today by Mick Farrell and Aaron Bloomer from ResMed.

Welcome to you both. Great to have you here.

Before we begin, there are some disclosures. Please see the Morgan Stanley Research Disclosures website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

Thanks very much again for coming today. Great to see you in person. Topics-wise, we might go through growth, competition, GLP-1s, margins and strategy as broad topics. We'll see how we go in 35 minutes.

Yes.

Maybe just to begin, as we look back over the past 5 years, Mick, very strong growth across the business from a revenue perspective. U.S. devices, I did the calculation this morning, 15% per annum growth over fiscal '21 to '26. I think it would be good just to understand a little bit what you're seeing from a volume perspective in terms of patients coming into the system, some of the drivers that you're observing as to either pulling people into the funnel and...

Yes. Well, it's good to start on growth because we're a growth company, we're a growth story. What we're seeing in the market is very strong and steady growth. We talked about in our earnings call a couple of weeks ago -- we actually gave guidance for the first time. We've listened to you, our investors, and you asked for that. And we talked about 5% to 7% growth across the business, including removal of $75 million for Astral.

And if you added that back in, that would imply sort of organic growth was around 130 basis points, of Astral, that $75 million. It will be 6.3% to 8.3% growth guidance on the top line. We also gave bottom line guidance that implies some pretty strong leverage through the P&L down to EPS in the low double digits.

So yes, when we think about growth, we think about patients, right? And so what's our total addressable market? It's 1 billion people worldwide who suffocate every night. So that's the prevalence of our core obstructive sleep apnea market. We also add on 800 million who have insomnia, and we add on 400 million now who have restless legs syndrome. And we'll talk later about M&A, but we acquired Noctrix, a company that makes the world-leading restless legs syndrome treatment, noninvasive, completely reversible, drug-free therapy as well.

And the other part of our TAM is 480 million of chronic obstructive pulmonary disease patients. You add that all together, that's 2.7 billion people worldwide who have a sleep health or breathing health disorder and need our solutions, our health care technology, at-home solutions.

And so with that as our TAM, our goal is to -- that's 1 in 4 people on the planet, is to continue to grow steadily. And we've talked about growth of devices, Americas sleep devices, in the mid-single digits, and growth of the masks and accessories and other parts of our business in the high single digits. Our goal is to meet and beat that every quarter through demand gen, demand capture, demand curation.

And there's some pretty big megatrends that are actually supporting growth, to your question around growth. From big pharma bringing people into primary care like never before for the glucagon-like peptides. They're coming into PCPs. And we're educating those PCPs on, if they have obstructive sleep apnea, you have to write a script for the gold standard, which is CPAP, APAP and bilevel therapy. So we're seeing that come through.

The other big trend on growth is consumer tech. We talked 2 years ago, here at this conference, I think, about Apple just came out with sleep apnea detection on their Apple Watch 2 years ago following Samsung on the Galaxy Watch. The rumor is that Samsung's Galaxy Ring will have sleep apnea detection before the end of this calendar year. And we have formed a strategic alliance with Oura, who's a major player in the wearable space on the ring side. And before their IPO, I think in their S-1 document, ResMed was mentioned as a partner around sleep health.

So growth is strong, mid-single digits on Americas devices, high single digits on Americas masks and other, and pretty strong growth in rest of the world as well.

We think through some of the part of the pathway from patient diagnosis to therapy, we have noted an increased proportion of home sleep testing, which makes things a little bit easier. So I'm sort of wondering if there's anything else that ResMed is sort of focusing on, converting patients from that diagnosis into therapy, either through internal initiatives and/or acquisitions helping support that patient pathway, making it a bit easier to get through the funnel on the treatment.

Yes. No, it's a really good question, David, because we think about the whole sort of value chain from sleep-concerned consumer, part of that 2.7 billion total addressable market, all the way through to screening, diagnosis, treatment, management and being on therapy for life, which is where ResMed focuses our time.

To your point, this isn't just us going out there and advocating for work. We've done some internal development work, but also some acquisitions. So I'll talk about 3 of them.

We acquired a company called Ectosense, and they make a fingertip-sized home sleep apnea test called NightOwl. So it just fits around your finger, think like a Band-Aid size, around it. Bluetooth to your phone, and the data go to the cloud and go to the sleep doctor. So Ectosense and the product NightOwl.

We also made an acquisition of a company called Somnoware, which is software for the pulmonary physician to have seamless workflows for them. And the third acquisition or partnership that we created is, to understand that whole value chain and put all the part pieces together, is tying into our Brightree model and tying into our sort of overall ecosystem and creating a smooth pathway for the patients.

As we see those acquisitions happen, we've actually got to form partnerships and understand the channel better. I talked earlier about primary care physicians seeing a whole lot more patients coming in. We're now educating, and we've had interactions with 95,000 primary care physician continuous medical education or CME episodes with 55,000 unique clinicians. And most of them are primary care physicians. And that is reeducating, if you like, those people around gold standard treatment, writing prescriptions for CPAP, but making it really easy.

And how do you make it easy? That leads to the third acquisition. We bought a company called VirtuOx, which runs a home sleep apnea testing protocol. And the goal there is to create the Amazon one click for that primary care physician, because they're dealing with everything, from headaches to tinea, head to toe. When they identify sleep apnea, they need the one click. And with VirtuOx, we have that.

They can refer them to the #1 home sleep apnea testing protocol, which is VirtuOx, and they can get screened, diagnosed, get an independent diagnostic and testing facility approach with the numbers. If it's positive, they can refer to a board-certified sleep doctor within that state to write a prescription, can be virtual or in person. And then the patient can be sent to an HME and be taken care of.

So as you think about that demand generation from big pharma or big tech that I talked about earlier, our job is to do the curation and conversion all the way to prescription for gold standard therapy: CPAP, APAP, bilevel. Then making sure they get to a good DME that can get them on therapy. And then our goal then is to keep them on therapy for life and make sure they have masks and accessories and are well taken care of.

I think just adding onto that, 2 of the biggest growth opportunities I see for ResMed over the next mid to long term is, one, is that middle of the funnel. So Mick just talked about all these new patients that are coming in, whether it's through primary care, through the consumer tech companies. How do we help convert them, right, and partner with our HME partners in a country like the U.S. here? But making it more of a consumer-like experience, like the Apple, the Amazon experience that Mick talked about, that makes it easy for that patient to be able to go on and start and then stay on therapy.

The second big thing is we've got millions of people around the world that are loyal ResMed users every single night, helping them sleep. How do we make sure that we're getting them the latest up-to-date masks when they need it every couple of months? The latest up-to-date devices. We've had AirSense 11 now in market for over 5 years. How do we make sure all the patients around the world who are eligible can get an AirSense 11? And eventually when we launch our new platform as well. And so how do we just make sure that all of the loyal users that are using our devices are taking advantage of all the opportunities for them to use it as often as possible?

Some follow-up questions here. All those initiatives sound great. I suppose the question is, how far progressed are you in those initiatives? So thinking through the acquisitions, where do you see opportunity for PCP education, all that sort of stuff, and will support incremental growth over and above that mid-single digits? So that's probably one question. And just following on the masks and accessories piece, is there further opportunity for resupply from where we are now?

Yes. Look, as I said, our goal is to meet or beat that mid-single digits every quarter. I think what we are seeing, if you look at just last quarter we reported, we had 8% growth in devices -- sleep devices in the Americas. And if it's mid-single-digit growth, take the middle of that 5%, that's 300 basis points of extra growth that we're able to drive. Our goal is to meet or beat that mid-single digits every quarter.

It's an ongoing game. And it's not done. There are so many patients coming in. And if they come in because of an ad with Shaquille O'Neal or Eli Lilly saying, "Don't sleep on OSA," they come in with a goal there to the primary care physician. Our education is to make sure that primary care physician does the right thing and writes that script. But you can't guarantee that that person does go and get that set up for CPAP, APAP, bilevel. We did very well in Q4. Our goal is to do that in Q1, Q2, Q3, Q4 in and out every time.

To the question around growth on resupply, so we're not done with that. We're fighting all the time. On the resupply and engagement, if you like, as Aaron was talking about with our installed base, which is a huge part of our business on masks and accessories, 80% plus we've talked about in the past is around getting that patient motivated to come in and get a new fresh new mask every 3 months or a new tubing or a new tub for the humidifier.

We're doing very well with Brightree resupply. We've added Snap technology, which is an automated resupply approach. And we actually launched Snap Light, which is a resupply approach for people who don't -- HMEs who don't use Brightree, which is our sort of management system, our Oracle or SAP, if you like, for the HMEs. But for those who aren't on Brightree, Snap Light is able to drive resupply.

So all that together, David, means that I think we can meet and beat that high single-digit growth on masks. We beat it in Q4 on masks and we beat it in Q4 on devices. But it's an ongoing game of fighting for that referral, making sure they come through, and then contacting the patient.

One last thing I'll say on the resupply is we're now over 10 million users on our app, our portable app called myAir. And so 10 million users have downloaded ResMed myAir. Many, many millions of them every day will check their myAir Score. And you wouldn't think that these people would be that engaged. We're not like Meta where we make them addicts to their approach on Facebook or Instagram. But we are gamifying that.

And it's quite interesting when you look at that, we added on to myAir our generative AI product that we call Dawn. And Project Dawn is like dawn, the sun rising, not a person. But it's generative AI that has 37 years of respiratory medical knowledge. So all of ResMed's knowledge is in this generative AI, all the published and peer-reviewed public literature and sleep and respiratory medicine, and all the tips that you have about what good sleep comes from. So drinking 5 glasses of water a day actually helps you sleep better. Cardiovascular exercise of 30-plus minutes 3 to 5 times a week actually helps you sleep better. Those types of sort of general sleep health tips are in that.

We put Dawn, which had just been on resmed.com and available for anybody, we call it the digital sleep health concierge to help people work through that screening, diagnosis, treatment pathway, we put it on myAir, which is sort of like where the sleep nerds are, checking their data every day. And we thought, well, just an experiment, let's see how many times people engage with this generative AI, very knowledgeable sleep expert.

We've only put in, what, a quarter or 2 ago, a quarter and a bit. 1.5 million inquiries to date. These are people on therapy engaging. So to your question around resupply, is there more to do to engage the installed base? There's a lot more we can do.

And we're going to track that because little changes such as that probably drive up adherence. We've got peer-reviewed published evidence that just reaching out to a patient to talk to them about resupply, whether or not they get a resupply or new mask, increases adherence. And so engagement with the installed base and driving that. We're not done with it. And I think this new tech, particularly generative AI, is going to engage consumers like never before. And I look forward to a peer-reviewed published evidence that shows that engaging like that actually drives up adherence clinically as well. But we're early days in that journey.

Very good. Maybe just to round off the revenue piece, so guidance for the first time, top line. Maybe just thinking through the volume-versus-price equation to the extent we can, just comments there?

So as Mick said earlier, we guided for the first time, we guided to 5% to 7% on a core constant currency revenue basis. But as Mick alluded to earlier, we do have about a 130 basis point headwind coming from the field safety notice of Astral. So you strip that out, you're almost at 6.5%, 8.5%, so squarely within that high single-digit growth that we've talked about.

ResMed's philosophy has and will continue to be that we're going to get the vast majority of our growth coming from volume. We believe that volume is the way to drive sustainable, durable revenue growth over time. We do that through a lot of the initiatives Mick talked about. We do that through product innovation that we continue to bring to our customers and to our patients.

And so pricing in times of an inflationary environment, like we're in right now, is a lever that we can and will pull. But it's a small portion to the overall growth that we're seeing from a volume perspective.

Yes. Maybe we'll just jump to margins, if we can, to ask. And then I'll jump to the most frequent questions I get around competition and GLP-1s.

But maybe just on the margin piece, what are you seeing? Where is the inflation coming from? So oil linkage is one thing, potentially around plastics and resins, that type of thing. Maybe the other part might be on more of the component side of things, printed circuit boards. So can you maybe talk a little bit where the pressure points are coming from a cost of goods sold perspective?

Well, first, I'd just take a step back. And I think it's important to recognize just the tremendous work that the supply chain team at ResMed has done. Over the last 3 years, we've expanded our gross margins more than 500 basis points over that time period. And so just tremendous work. The productivity pipeline that they have, and I've seen firsthand, we have operating reviews and cadences around this every single month, it's really, really impressive to see.

But we're not immune. We're seeing inflation. Two key areas that we're seeing inflation. One is just on freight, fuel and logistics. And so obviously, everything that's happening with the Iran conflict is having a material impact on how we distribute products around the world. We are doing things like, for example, by moving more of our distribution network and manufacturing here in the United States, as well that will help mitigate that over time. But it's an overtime type of thing, right? So that's one big area.

And then the second is just on electromechanical components. And so again, the medical technology community is a very small purchaser of these components. And a company like ResMed, no different, right? And so we don't have the same purchasing power of some of these consumer electronic companies or AI and tech companies do. And particularly on some of our older devices. Like on AirSense 10, which has been out now for more than a decade, we're seeing pretty dramatic cost increases that we're having to incur. Again, we're doing everything we can to offset them, but we are passing on a very modest price increase to help offset some of that.

And just on that component piece, do you think it is a cyclical element? Or is it something more structural around certain technologies being stepped away from? Is it demand for AI taking away from -- so is it sort of a -- I suppose the question is, is it more of a cyclical thing or is it potentially a bit more structural as well?

I think it's both. I think it's definitely more acute right now just given the supply constraints that exist. But I also just think, again, with more and more of the demand going to the AI companies, I definitely think that we are going to have a smaller purchasing power.

And again, why? We're so focused on our productivity pipeline, driving margin expansion. Making sure that we're driving cost savings initiatives with our supplier base as well, doing things like Kaizen events and having cost-out initiatives and expectations with our suppliers on an ongoing basis. These are all levers that we have, that we can pull to be able to help offset some of that.

Yes. And I mean the net of all of that is that we are going to see low double-digit basis points improvements in ResMed's gross margin every fiscal year through 2030. We're remaining with that guidance. So we're going to deal with all these headwinds on freight and components, very modest price increases.

But as Aaron talked about, the supply chain team we have is very sophisticated and has a productivity pipeline. Like we've always had a really strong product pipeline, and we still do, smallest, quietest, most comfortable, most cloud connected, most intelligent devices. We've now got a productivity pipeline in our supply chain to be able to overcome these other aspects. So we'll be able to achieve that gross margin accretion on an annualized basis.

And as I look through my model, so I think you said first quarter could be a bit below, the PCP, so 62.0 1Q '26, a little bit below. But then you're guiding for double digits for the full year, so progressive increases over the years. So I suppose the question would be, is part of that price, is it productivity as well just so getting through to gradual gross margin improvement over the year? So is it a combination of those 2 things getting you to the double-digit increase for full year '27?

Spot on. So when you think about our productivity pipeline, it builds quarter on quarter-on-quarter. The inflationary impact that we have, and we saw it exiting Q4 and we saw a slight sequential decline quarter-over-quarter Q3 to Q4 in our margins, as an example, as a result of that. And so that's one.

And then two, pricing, we just started to implement price increases here in Q1. And so there's almost no impact on top line revenue or gross margin from a pricing perspective in 1Q. That will build as we go into Q2, Q3 and then in Q4.

Yes. One of the things you did touch on is maybe a bit more promotional activity, getting out there and sort of raising awareness to a degree, but also promoting the ResMed brand. We see bits and pieces in Australia with rugby teams and things like that. But maybe can you talk a little bit about the sales and marketing focus? Is there a cost associated with that, I suppose?

And the other part is that you've mentioned the gross margin has been a fantastic driver of growth over the past few years. Before that, the sales and marketing, the operating leverage was extraordinary. The question is where to from here on those lines, those operating cost lines? Are you going to be spending a bit more to pull people into the system?

Yes, it's a good question. Look, the goal isn't to change actually our profile on that. We have freed up some money to our marketing function. And yes, you've seen that in promotions on normalizing or destigmatizing CPAP therapy and showing not only is it normal and appropriate to have good breathing and good sleep, it's actually life-changing. It could save your job. It could save your marriage. It could save your life.

Those were the statements of the first patient. The reason ResMed exists is the first patient said that to my dad 37 years ago. And he said, "Well, I think we can make this device better than the one this person is using." And so we're finding examples of that.

Our latest approach on this is we have a NASCAR driver, who maybe you aren't followers of NASCAR, his name is Tyler Reddick. He was middle of the pack last season, wasn't performing. And his wife identified his sleep apnea through snoring and the stopping of breathing. By the way, a spousal bed partner witnessing you stopping breathing is the number one sign and symptom. Don't wait until your Apple Watch or your Oura ring tells you, people. Trust that bed partner. You don't need the objective data from your Oura ring or your Apple Watch. But if you do, then it'll just confirm what they said.

He listened to her eventually. And he's doing his whole podcast around how he won the first 3 races, Daytona 500 and the other -- the next 3, because of the treatment he got. And so they actually approached us and said, "We want to promote this therapy. It's life changing." And so we're engaging with that.

So that spend around marketing is really around destigmatizing and normalizing CPAP and showing that this is a normal part of life, and actually, life-changing, literally changing someone's career in how they perform in their job. But then the other part, some people are motivated by that, sort of the carrot, some are motivated by the stick, which is untreated sleep apnea leads to a heart attack or a stroke, or untreated sleep apnea can lead to a 6x increase in solid cell tumor cancer. And we've got data now around dementia, Alzheimer's and Parkinson's, that's peer-reviewed and published, that this repetitive hypoxia can lead to that. So some people are motivated by each. Getting that message appropriately to primary care but also to sleep-concerned consumers out there.

To your question about how does it hit the finances, we're actually freeing up that money for marketing from other parts of our SG&A. Aaron was talking about AI productivity and what we can do with that. Do you really need full-stack marketing teams in every country in Northern Europe and throughout Asia? No. And so we're working with the teams to say, well, how do we appropriately use GenAI and other just simple off-the-shelf marketing tools to do that to free up the cash to be able to invest in marketing programs like this?

And so our job is to get that demand generation, capture and curation without fundamentally changing the P&L. We've got to keep that money for R&D. That's how we keep ahead of the competition and keep the digital, the device and the mask systems right on the forefront.

And so one of the innovations we had there on the mask side, I actually consider this as important maybe as heated humidification was 15 years ago in driving adherence, is we have for the first time put fabric on these liquid silicone rubber LSR medical-grade masks. And so it took us 7 years of research to be able to get the fabrics engineering on these high-temperature, high-pressure, multi-cavity tools producing these masks. We're able to infuse fabric on them. So that for the patient, it feels like their bedsheets, it feels like natural to have the mask touching their face with fabric.

And so you watch innovations like that from R&D, you combine it with the marketing to make sure a patient is coming into primary care and will get that set up, that's how we get a patient on. When they start, those first 90 days, we get that adherence rate. We're up to 87% adherence with all our technologies in the first 90 days. Keeping them on therapy for life is the goal from there. So I don't know if you have anything to add there on our demand gen and marketing work.

I would just say that we're committed to continuing to grow double-digit earnings as well, right? So we're doing all of that. But look, we're a growth company, like Mick started off with. And so we need to make sure that we're making the appropriate investments to create the demand, the generation, to nurture that patient through the journey, as Mick was talking about. And so that is going to require some incremental marketing investments.

We've got KPIs around it. It's very disciplined, and we're going to make sure that, that's driving top line growth. And the great thing about managing a business is that we can get productivity and leverage elsewhere, in line with the P&L, to be able to self-fund that. Still deliver 12% to 14% core EPS growth this year in support of our top line.

Okay. Onto the -- that's great. We might move on to the 2 most frequently discussed topics. So the first one would be the GLP-1. So maybe just starting with your observations in terms of the impacts of GLP-1s. We've talked about the demand generation, but maybe some of the data that you presented. Maybe just start with that and I'll go to a couple of follow-ups after that.

Yes, David. So we're up to 2.5 million de-identified patients that we're following that have both a prescription for CPAP, our therapy, and a prescription for a GLP-1 latest generation. So like the Zepbound that has an indication for use to treat or half-treat sleep apnea.

What we're finding is these patients, as they come into the primary care physician, are incredibly motivated. It's a younger cohort and it's a more female cohort of patients than typically would show up at the primary care physician and talk about sleep apnea. And they are definitely brought in by big pharma doing this advertising. It's very interesting to track 2.5 million.

And we track 3 data points. What percent of them, after they get that prescription for CPAP, show up to the DME, to the HME or a virtual setup, and start therapy? And we're comparing the general population to this GLP-1 prescribed population. What we see is an 11% -- 11 absolute percentage points higher start rate on CPAP, APAP and bilevel therapy for the GLP-1 cohort versus the control group.

And then you say, well, maybe they just start up more, they're motivated just over the short term. So we're tracking them at 1 year, and now at 3 years post prescription start-up. And we track not only are they adherent, and our cloud connected system can tell us they're using the device, we go to did they purchase something in that period, in that 12-month period?

And what we're finding is at 1 year, there's 300 basis points higher resupply rate amongst the combo script, GLP-1 plus CPAP patient group, versus just CPAP group. And then you say, well, maybe it's just a 1-year thing. Does it last? At 3 years, the curves actually separate further. It's 6%, 600 basis points, higher resupply rate amongst the combination script of GLP-1 plus CPAP versus the control group.

And so very interesting that, I think 3 years ago, we would have been here at this Morgan Stanley conference saying, the world thinks GLP-1s are a headwind for med tech. Actually now, particularly in respiratory med tech, I can say we've got 2.5 million reasons that it's a tailwind. High start rate, high resupply at 1 year and even higher than that resupply at 3 years.

We're tracking this cohort very closely. It's an exciting development for bringing people into the funnel. As you said, it's not going to double our growth rate of America sleep devices. But can it get it up like 50, 75, 100, 125 basis points above what it would have been otherwise? Our data say yes, it can. And our goal is to achieve that.

The extension to that is, I suppose, we've got the initiation of therapy motivated. After 12 months or after a year, what happens to those people? So I suppose the question is adherence or continuation after 1 year of GLP-1 as well. Is there any observations around that or data that you've sort of observed around -- because you've got the people that are continuing to use it, right? There might be some people that potentially start. That's the biggest question we get. Do you have any views or data around the continuation of CPAP therapy after a period of time?

Yes. I mean we see that in those resupply data. Because if they were stopping therapy, we'd see those resupply rates go down because they wouldn't be using the therapy. So the baseline is covered in those 1 and 3-year data. We're watching this with absolute productive paranoia. And I can tell you, there is no downside of someone having a GLP-1 prescription.

And actually, I talked to a board-certified sleep physician around why. Why do you think that there's an increase in the adherence rate? Not a decrease, but an increase in the adherence rate for people who have the combined script. And this was a sleep physician who said, "Well, actually maybe, with some of the weight loss, it's lowering the Pcrit, the critical pressure, to keep the tongue off the uvula. And we have auto-setting devices, our APAP devices change the pressure on a breath-by-breath basis. And so a slightly lower pressure might actually lead to more comfort.

And so there's some observation in the literature that maybe these will lead to a higher adherence because of a lower Pcrit, a lower max pressure, a lower mean pressure for the patient if they're using an APAP device, which the vast majority of people do.

We don't actually know the causality. We just know the correlation, that a patient who gets a script for both is more adherent to our therapy at the start, 1 year and 3-year. No increased drop-off. Actually, increased adherence.

And the question is how much increase adherence will they be? And do they stick with the other medicine as well? Do they stick with the GLP-1? And does that change and then the pressure goes back? But we're tracking that cohort and seeing over the whole group, 2.5 million patients, solid start rate, solid resupply at 1 and 3 years. No increased dropout. Actually, increased adherence.

Okay. That's very good. Competition. So you've obviously done a pretty good -- obviously, a great job being able to supply most of the market. But one of the questions we do get quite regularly is your expectations for Philips' reentry. Just your thoughts there. Is there anything explicitly captured within your '27 guidance for reentry of Philips into the U.S. market?

Yes. Well, it's interesting, that competitor has never left this market for masks and accessories. And you look at our performance the last 5 years, the last 20 quarters in Americas in masks and accessories, we've done very well competing with them. And that's all their sales team could sell, was the masks and accessories.

We compete in 140 countries worldwide with that competitor, and they're back in devices in 139 of them. And every time they've come back, they've had to earn their position from 5 to 4 to 3. And sometimes they're not even #2 yet after 2 years in some of those markets, including their home markets in Western Europe, their home country.

So I want them back in the U.S. It's like an event horizon. I want them to come back because they're going to have to earn that #3 or #2 position. They've now moved their manufacturing, I believe, to Mainland China. So they're going to have a Chinese import product to sell into the U.S. The #2 player right now is a Chinese import player through Florida, a private company. I think that's where they're going to have to go for share. In every country they've come, they've kept price at a quite high level and tried to compete on value. And they've had to compete in Europe and Asia to achieve that #3 or #2 position. So we look forward to them coming back.

As to any impact on our guidance, absolutely not. We don't look back, we look forward in terms of our growth and where we're going.

And timing? No real sense as to when...

I'd be happy Monday morning.

Maybe just to finish off, portfolio management. So there's been some acquisitions, obviously, additive to fiscal '27, moving into new areas. But you've also got a recall there for Astral. But maybe just the portfolio -- a comment on portfolio management.

I'll try to do it in 2 minutes that we got here. So portfolio management, I'll talk about the M&A side first. I talked earlier, we invested $340 million into Noctrix, a great acquisition for restless legs syndrome. It's 400 million people worldwide who have it. Just here in the Americas, in the U.S. particularly, 17 million people have restless legs syndrome, where they're kicking all night, waking themselves up and literally waking up their bed partner physically.

We're very excited about that. We talked about it's around $20 million in revenue. When I go to Stanford Biodesign, which is where this came from, and meet that team, it feels like ResMed circa 1990, 1992, with this huge market, an amazing team with a noninvasive, drug-free, completely reversible device, that scripts are written by sleep doctors and distributed through DMEs, HMEs and the VAs. So a very exciting market, we'd like to see that grow.

And at the same time, we did portfolio management. We divested from our MatrixCare business and got $490 million from Frazier Partners, and exited sort of the slower growth Software as a Service market for nursing homes, hospice and senior living.

On the product side, we've also done some portfolio management. And we talked about our field safety notice and took a $42 million charge for Astral, in our global field safety notice there. One thing that we talked about was there will be no new sales in fiscal year 2027. And here today, I'm going to announce that we actually have started to talk to customers, just yesterday, that we are going to sunset the Astral platform. So after 15 years, we'll be sunsetting that platform. No new sales of that device. But what we are going to do is prioritize every single PCBA for a patient who is part of that field safety notification, so every patient is taken care of.

Where we are pivoting in our ventilation is actually to the AirCurve, which is on the Air 11 platform: the AirCurve S, ST and ST-A. These are noninvasive ventilators for COPD and overlap syndrome. And it sits on our very low-cost, high-quality Air 11 platform. So the same one as the AirSense 11 is now the AirCurve 11 S, ST and ST-A. And we just launched that into the U.S. this last quarter, and we're expecting great growth from it.

Pretty close to time there. Just anything on Stellar as well? Is there -- is Stellar still being...

No announcements around Stellar.

Okay. Great. We are pretty much on time. So thank you both very much for joining us today. Some really great insights there, and we'll catch up with you again soon.

Thanks, David.

Thank you.

Hello, and welcome to the Q4 Fiscal Year 2026 ResMed Earnings Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions] Also, please note, this conference call is being recorded. Later, we'll conduct a question-and-answer session. Let me hand the call over to Salli Schwartz, ResMed's Chief Investor Relations Officer.

Thanks, Kevin. I want to welcome our listeners to ResMed's Fourth Quarter Fiscal Year 2026 Earnings Call. We are live webcasting call, and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings presentation is available online now. Please note, we will be displaying our earnings presentation during our prepared remarks, and then we'll post the slides to our IR website after the conclusion of our remarks. During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. .

We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions However, our earnings results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. I'll now turn the call over to Mick.

Thank you, Salli. During the fourth quarter, we delivered another set of strong results, including: first, 9% growth in headline revenue or 8% growth on a constant currency basis; second, further progress in our supply chain efficiency initiatives leading to gross margin expansion year-over-year. Third, a strong bottom line result, with 16% growth in non-GAAP earnings per share. We closed out another great fiscal year for ResMed on June 30. For fiscal year 2026, our 10% headline revenue growth and 180 basis points of operating margin expansion drove more than $1.6 billion in free cash flow. We use this capital to invest in our business, both organically and inorganically and to return more than $1 billion to our shareholders through a combination of share repurchases and dividends. That's an increase of 72% versus the prior year.

I'd like to take this opportunity to thank the global ResMedian team, the ResMedians, for their unwavering dedication to our customers, including patients, providers and physicians in more than 140 countries worldwide. ResMed continues to build the world's leading digital health ecosystem encompassing sleep health, breathing health and health care technology delivered in the home. Across fiscal 2026, we executed against several key priorities. For fiscal year 2027, our attention is laser-focused on 3 priorities: one, continued operational excellence and innovation excellence to support ResMed's ongoing growth and transformation; two, active portfolio management across our product lines and our businesses; and three, leveraging our strong free cash flow to both reinvest in our business and return capital to shareholders.

A key focus area this year will be ResMed's growth and transformation work. ResMed's core markets remain largely underpenetrated. For many years, awareness has been our greatest challenge and our greatest opportunity. Now as wearables and GLP-1s gain traction, appreciation of the importance of sleep health is growing. In order to leverage this awareness opportunity effectively, ResMed needs to optimize the sleep health pathway. We're seeing greater sleep health awareness amongst consumers with more and more people tracking their sleep with wearables and non-wearable sleep technology in their bedrooms, all the while recognizing the clinical importance of good sleep health and its correlation to overall health. This increased attention needs to be met with high-quality, trusted data. As an example of this, let me talk about a recent ResMed partnership with the wearable ring-based technology company called AURA. With the ResMed Plus Aura partnership, we are looking to expand access to sleep health education and pathways to care. Early performance from our AURA partnership has exceeded expectations. Approximately 13,000 users have come to resmed.com from the Aura app with thousands of them taking the ResMed sleep assessment and approximately 75% of those assessed identifying as previously undiagnosed.

This highlights the potential of consumer wearables to drive earlier sleep health intervention. As another example of tech companies involved with sleep health, Samsung has just announced that its Galaxy ring is pursuing FDA clearance for its sleep apnea detection capability later this year. Another sleep pathway enabler glucogen-like peptides or GLP-1s. As we've discussed before, patients on GLP-1s both initiate CPAP more and stay on CPAP therapy with a higher adherence and resupply rate. As an update to our analysis built from a claims database of many tens of millions of patients, our specifically analyzed cohort now includes more than n equals 2.5 million de-identified patients.

We are still seeing that patients who have scripts for both PAP and GLP-1s are approximately 11% more likely to start on PAP therapy than patients who have a script for PAP alone. They're also more than 3% more likely to have a resupply event at 1 year and more than 6% more likely to have a resupply event at 3 years. As we've talked about before, sleep apnea risk factors include age, gender and craniofacial anatomy as well as weight. I would say, therefore, very often persists even after a significant weight loss and still needs to be treated with gold standard therapy. During the sleep medical conference this June, ResMed highlighted several interesting data sets, including one showing that among newly diagnosed OSA patients, PAP therapy was initiated earlier than GLP-1s.

Specifically, the data showed that at 90 days after a positive OSA diagnosis, more than 40% of patients had started on PAP versus less than 3% starting on a GLP-1. The proportion of patients with PAP increased rapidly immediately after diagnosis while GLP-1 initiations increased more gradually. We continue to see GLP-1 medications as a tailwind for ResMed's business. As we continue to study the OSA population -- patient population more broadly, we are seeing some significant demographic shifts. We're seeing higher percentages of women, and we're seeing higher percentages of younger patients coming into the pipeline. These changes are leading us to evolve ResMed's promotional efforts to evolve our product designs, including our software offerings and our educational content for consumers, for physicians, and for providers. Watch this space. It's an exciting opportunity.

Greater awareness in the clinical community is another key element to ensuring consumers have ready access to information, diagnosis, and the ability to get on and stay on treatment. Our Continuing Medical Education or CME programs include sleep physician society approved guidelines, including the benefits of CPAP, APAP, and bilevel PAP therapy as the gold standard, the frontline treatment for any patient diagnosed with sleep apnea. Our sleep apnea educational courses have now been completed more than 95,000 times by more than 55,000 unique clinicians. We've been tracking before and after training, specifically looking at the number of referrals for home sleep apnea tests and prescriptions for positive airway pressure therapy. It's still early days, but we've already seen increases.

It's great to observe that post training, clinicians are not only saying they intend to change their clinical practices, but they are actually changing them quantitatively. While education is important to getting patients through screening, diagnosis and then onto therapy, optimizing patients' experience with therapy requires continuous innovation across the sleep ecosystem. Our innovation machine has made significant steps to improve the patient experience with product launches across devices, masks and software.

On the devices side of our business, the AirSense 11 platform is the foundation of our connected care ecosystem. It brings together device innovation, personalized digital engagement through apps like Myair for patients and provide connectivity through our software platform called AirView. We have made further progress with the global rollout of the AirSense 11, including ongoing growth in the U.S., Europe and fast-growing penetration after our launch into the China market just last quarter. Expanding the AirSense 11 platform into global sleep health markets strengthens our ability to scale a common technology foundation while continuing to support the growing adoption of digital health and connected care software.

During the fourth quarter, we also reached an important milestone with the U.S. introduction of the AirCurve 11ST and the AirCurve 11 STA platforms. The STA and the ST are bilevel device platforms for patients who need more pressure support or who have complicated breathing disorders, including complex sleep apnea, overlap syndrome and beyond. We additionally just launched the AirCurve 11 platform in Hong Kong, Singapore, Australia, and New Zealand. We continue to see opportunities to leverage a shared technology and digital health ecosystem across a broader range of patient populations, helping simplify workflows for providers while creating a more consistent experience for patients.

Prioritizing patient care is also central to our ongoing Astral field safety corrective action. We reaffirm our commitment to supporting patients as our #1 priority period, patients come first. This includes patient-centric and quality-focused completion of the ongoing field action while providing home care provider customers with the certainty needed to plan for future ventilation needs. We are focusing all available PCBA and other electronic components on corrective activities and service support for existing patients prioritizing based on the highest clinical need and guided by expert clinical judgment.

Aaron will discuss the financial considerations as part of our fiscal year 2027 guidance in a few minutes. Beyond our device updates, we've continued our global rollout of our portfolio of novel fabric technology masks, including our AirTouch N30i and our AirTouch F30i masks. We also had strong uptake of our AirFit F40. The F40 is ResMed's smallest ever tube down full-phased mask. All of these masks are designed to deliver an elevated comfort experience for patients, and they are changing the basis of competition in mass technology, particularly this brand-new fabric technology. The correlation between new ResMed mask technology and patient outcomes is clear. We have data showing that the AirTouch N30i drives 6% higher 90-day compliance than its silicone equivalent.

Adherence is the single biggest driver of lifetime value, value for patients, value for physicians, value for payers and value for our HME partners and, of course, value also for ResMed. On the software side, our new Gen AI-powered digital sleep coach that's in the MyAir app has seen more than 1.5 million inquiries to date. This incredible technology helps patients find support wherever and whenever they need it on the patient's terms. As a side benefit for ResMed, this has significantly reduced customer service inquiries.

Our second priority is active portfolio management. We took actions in the fourth quarter to optimize our portfolio and focus our capital on what we can best allocate it to. On our last earnings call, I announced ResMed's acquisition of Norex highlighting their lead or our lead product called NIDA, an FDA de novo classified medical device that treats restless legs syndrome, called RLS, the world's third most prevalent sleep disorder after sleep apnea and insomnia. We closed this transaction on June 1, and we have begun integration of the business. As you may recall, RLS prescriptions are written predominantly by sleep physicians and the Noctrix device flows through the same HME, DME delivery channel that ResMed leads in market share for all of our other sleep health products.

We are thrilled to accelerate through trajectory of the Noctrix business, and we seek to help the 17 million people in the U.S. alone that suffer from RLS. With an estimated 400 million people worldwide suffering from RLS, we are again just lacing up our shoes for another sleep health marathon. Another recent portfolio action is the divestiture of our MatrixCare business, which we announced on July 7, and we expect to close on or around September 1. This strategic decision is the combination of the portfolio management work that I have mentioned to you on the last number of earnings calls. Divesting the MatrixCare business enables ResMed to sharpen focus on our core growth areas, which are sleep health, breathing health and connected digital home-based health care. These are areas that we continue to have sustainable competitive advantages strong innovation pipelines and attractive long-term growth opportunities in line with our 2030 strategy.

We expect this move to accelerate the growth and profitability profile across our core Residential Care Software or RCS business, which post transaction includes both the Brightree and MediFoxDarn offerings. In fiscal year 2027, we are planning for the RCS business to deliver high-single-digit revenue growth with operating leverage, reflecting both improved mix and execution focus. We intend to keep allocating capital towards our highest growth, highest return opportunities. This allows ResMed to accelerate the expansion of our digital health ecosystem to support continued innovation and scale and to drive strong progress towards the successful execution of our 2030 strategy.

In addition to investing in our business, we will also maximize the return of capital to our shareholders. For fiscal year 2027, we'll be significantly accelerating our share repurchase activity. We also announced today that ResMed's Board of Directors increased our quarterly dividend by 10% to $0.66 per share. That's 10% over the prior quarterly dividend. I'll let Aaron talk about details of our increased share buyback plans for fiscal year 2027. As a sneak preview, I'll just say that the total capital returns will be well north of $1.5 billion. Before I turn the call over to Aaron, I'd like to touch on the recent Section 301 tariffs that were announced in the U.S. late last month.

As you're aware, ResMed's products are used to treat patients with chronic respiratory disabilities and have been subject to the global tariff relief for decades under Chapter 98 protections and specifically under the Nairobi protocol. We have reconfirmed that this tariff release remains in place for our ResMed products, including in the context of the recent Section 301 announcement. This is great news for ResMed patients. Finally, I'd like to take a minute to thank you, our shareholders, for the feedback you've provided to ResMed through a variety of channels. Part of what we've heard from you is a keen interest in learning more details about our business and how we manage it.

Going forward, we will be increasing the transparency we provide to the market. You'll hear some of our additions to disclosure, including both revenue and EPS guidance for fiscal year 2027 from Aaron in a few moments. In fiscal 2026, ResMed again delivered high-single-digit revenue growth as well as earnings growth that steadily outpaced revenue growth. we remain confident in our 5-year outlook that features the same strong performance. That is high-single-digit revenue growth and earnings growth that's higher than revenue growth. ResMed has a tremendous market opportunity. We have the leading market position. We have an incredibly strong balance sheet and a solid track record of successful execution over decades. We are committed to keep delivering to the benefit of all of our constituents, but most importantly, for our patients. With that, I'll turn the call over to Aaron to go through a deeper dive into our financials and guidance and then we'll open the floor for your questions. Over to you, Aaron.

Thanks, Mick. I am excited to be on the call today. In my first 3 months, I've spent time getting to know the team and the business. This has included visiting customers, manufacturing and service center visits, new product pipeline reviews and geographic deep dives throughout the U.S., Europe, Australia and Asia. I am so impressed by the talent of the more than 11,000 ResMedians around the world and their commitment to serving patients. The first 3 months have reinforced my excitement to build on our strong foundation and the growth opportunity in front of us to impact more patients and create meaningful shareholder value.

In my remarks today, I will provide an overview of our results for the fourth quarter of fiscal year 2026. After that, I will comment on our guidance for fiscal year 2027. Unless otherwise noted, all comparisons are to prior year quarter in constant currency terms where applicable and on a non-GAAP basis. We've provided a full reconciliation of the non-GAAP to GAAP numbers in our fourth quarter earnings press release. We had a strong financial performance in Q4. Group revenue for the fourth quarter was $1.5 billion, a 9% headline increase and 8% in constant currency. Non-GAAP earnings per share increased by 16% to $2.95. Beginning this fourth quarter, we are increasing transparency into our revenue lines by introducing a split of our device revenue between sleep and life support devices for each of the Americas, Rest of World and global revenue.

Sleep devices will include revenue from our CPAP, APAP and bilevel devices as well as from our acquisition of Noctrix. Life support devices will include revenue from our ventilator products, including Astra. I'll move to a breakdown of revenue by business and geography. Starting in the Americas, sleep device revenue increased by 8%. Life support device revenue declined by 45% and masks and other revenue increased by 10%. In the rest of world, sleep device revenue increased by 13%. Life support device revenue decreased by 38% and masks and other revenue increased by 12%. Residential care software revenue increased by 2% in the fourth quarter, with growth coming from MediFox Dan and Brightree, partially offset by declines in MatrixCare.

Non-GAAP gross margin was 62.3% in the fourth quarter, up 90 basis points year-over-year. I'm proud of the work our supply chain team is doing to drive productivity and efficiencies, which more than offset inflation. During the fourth quarter, we took a $42 million provision for expected costs associated with the field safety notice on astral devices. This charge is excluded in our non-GAAP financials. Moving on to operating expenses. R&D expenses for the fourth quarter increased by 22% on a headline basis and 19% on a constant currency basis. The increase was primarily driven by the development of next-gen devices and masks as well as increased investment in AI-driven patient workflow solutions to help get patients on therapy faster and increase adherence.

SG&A expenses for the fourth quarter increased by 10% on a headline basis, and 7% on a constant currency basis. The Q4 increase was primarily from Virtuox and Natrix acquisitions as well as an increase in marketing and technology investments to drive growth. Operating margin in the quarter was 35.2%, down 10 basis points year-over-year. Net interest income for the quarter was $21 million. As a reminder, this includes additional net interest income associated with the 10-year Singapore dollar to U.S. dollar net investment hedge that was executed in February of 2026. We still expect this hedge to generate $9 million in net interest income on a quarterly basis going forward.

Our effective tax rate for the fourth quarter was 20.1% compared with 21.1% in the prior year quarter. Non-GAAP diluted earnings per share increased by 16% to $2.95, driven primarily by revenue growth, productivity and operating leverage. Movements in foreign exchange rates had a negative impact on earnings per share of approximately $0.05 in Q4, while Noctrix reduced non-GAAP earnings per share by approximately $0.02 in the quarter. Free cash flow for the quarter was $404 million, down 21% year-over-year, primarily due to the $42 million Astral provision, an increase in accounts receivable associated with higher revenue and an increase in capital expenditures. We ended the fourth quarter with a cash balance of approximately $1.5 billion.

During the quarter, we purchased approximately 972,000 shares totaling $200 million. Along with our dividend, we returned $287 million to our shareholders in Q4. ResMed delivered a strong 2026 and Full year revenue grew 10% on a headline basis and 8% on a constant currency basis. Non-GAAP earnings per share grew 17%, and we delivered $1.6 billion in free cash flow. We also made progress on several of our strategic imperatives. First, operational excellence and innovation. We grew gross margin by 290 basis points. We continued our global rollout of the AirSense 11, introduced our fabric masks and brought AI to patients through an FDA-approved smart comfort and on.

Second, we took actions on portfolio management. including integrating our Virtuox acquisition, expanding our core suite portfolio through the Noctrix acquisition and recently announcing the divestiture of the MatrixCare business. Third, we returned over $1 billion in cash to shareholders through buybacks and dividends. Turning to guidance. For fiscal year 2027, we will provide guidance for revenue and non-GAAP earnings per share on both a core constant currency basis and reported basis. For purposes of calculating the core constant currency revenue growth rate, we have removed 10 months of MatrixCare business revenue from fiscal year 2026, such that there are only 2 months of MatrixCare business revenue in each of both fiscal year 2026 and 2027, assuming an expected close date of around September 1.

We are also excluding Noctrix revenue. We believe this best represents the underlying organic growth of our core business. For fiscal year 2027, we expect year-over-year revenue growth on this basis to be in the range of 5% to 7%. This includes an approximately 130 basis headwind and or around $75 million, stemming from our decision to suspend sales of Astro to support our global field safety notice for the benefit of our existing Astral patients. Total reported revenue would be in the range of $5.75 billion to $5.85 billion. This assumes an approximately 50 basis point FX headwind based on rates as of fiscal year-end. This aligns with what you will see reported as headline revenue over the course of fiscal year 2027.

We expect non-GAAP earnings per share to be in the range of $12 to $12.25 and an increase of approximately 7% to 10% on a reported basis. This aligns with what you will see reported as non-GAAP earnings per share over the course of the year. If you were to exclude the approximately $0.30 of dilution from the MatrixCare business divestiture and $0.20 of dilution from the Noctrix acquisition, guidance implies year-over-year core EPS growth would be in the range of 12% to 14%. For gross margin, we expect low-double-digit expansion in fiscal year 2027, with continued productivity efficiencies and very modest strategic price increases slightly more than offsetting ongoing macro uncertainty and inflation across electronic components and freight. Our guidance also assumes a slight increase in operating margin percentage. We will drive productivity, efficiencies and operating leverage in targeted areas of SG&A to enable priority investments in the highest return areas that will drive growth in the near and long term. including targeted investments in both R&D and marketing.

As Mick noted, we previously announced that we signed a definitive agreement to sell our MatrixCare business. We expect this transaction to close on or about September 1, 2026, subject to regulatory approvals. For fiscal year 2026, the MatrixCare business represented approximately $220 million in revenue and $58 million of non-GAAP operating profit. We are entering into transition service agreements to ensure continuity across systems, processes, tools and day-to-day operations. We expect these TSAs to largely offset any stranded costs in year 1, while we work to mitigate and remove any remaining stranded costs over time. Our earnings per share guidance includes a total of $1.5 billion in share repurchases, including a $450 million accelerated share repurchase program that we intend to utilize with the proceeds from the divestiture of the MatrixCare business.

Today, our Board of Directors declared a quarterly dividend of $0.66 per share, representing an increase of 10% over our previous quarterly dividend. Between share repurchases and dividends, we expect to return over $1.85 billion to shareholders in 2027, an increase of over 75% year-over-year. This marks the second consecutive year of over 70% growth in capital returned to shareholders. We will also continue to invest in our business as a key capital deployment priority. We expect a step up in our capital expenditures to a range of $160 million to $180 million as we expand and further automate our U.S. and global manufacturing footprint to address the growing demand of our products. While we will not be providing quarterly guidance, we would like to share some of the trends that we are seeing in Q1.

ResMed has historically experienced some seasonality, including first quarter revenue typically down a few percentage points sequentially from the fourth quarter. On an underlying basis, excluding the MatrixCare divestiture, the Noctrix acquisition and revenue from Astral, we expect to see typical revenue seasonality again in the first quarter of fiscal year 2027. We expect slight year-over-year contraction in gross margin in Q1 and anticipate operating expense dollars to be roughly flat with Q4.

Before I conclude, I wanted to share my key priorities. First, helping to drive sustainable growth. ResMed has a significant market opportunity, supported by an increasing level of awareness and importance of sleep health. It will be increasingly important we optimize our patient experience to help navigate and nurture them through the journey from awareness to being a loyal ResMed user. We also have an opportunity to increase penetration with our millions of device users through patient engagement and collaboration with our customers. We are intent on capitalizing on that opportunity and will ruthlessly prioritize investments in our highest ROI opportunities, particularly in R&D and marketing to support our suite patients.

Second, supporting the continued transformation of ResMed to enable this growth. We will embrace change and transform in order to optimize how we serve our customers and patients. We will take a very disciplined approach to capital allocation. Our first priority remains reinvesting back in our business to drive growth, but also to operate more efficiently. As Mick mentioned, we are taking actions to actively manage our existing portfolio and evaluate M&A opportunities in spaces where we have sustainable competitive advantages, innovation and attractive long-term growth. We will leverage AI and technology to drive productivity through all aspects of our business.

Third, maximizing return to shareholders. We are providing additional clarity on our business, including additional revenue disclosures and providing annual financial guidance. We remain committed to the dividend and opportunistic share repurchases. Lastly, as we progress throughout 2027, we will evaluate our capital structure to ensure that we deliver premium shareholder returns while optimizing our balance sheet. What attractively most to ResMed is the strength of the opportunity ahead. we have a large underpenetrated market, strong competitive advantages and a proven ability to translate innovation and growth into shareholder value. I'm so excited to be a part of the journey and look forward to sharing our progress with you. And with that, I'll hand the call back to Kevin.

[Operator Instructions] Our first question today is coming from Steve Wheen from Jarden.

Yes. I just wanted to start with the gross margin movement sequentially. So it was down 50 basis points versus fourth quarter. I wonder if you could help us understand some of the components within that caused that drag? And what sort of price increases -- what sort of benefit the price increases that you seem to be putting through your customer base as called out by 1 of them just recently.

Steve, that's a great question. I mean I'll address the pricing part first, which is, look, we've got many customers across the 140 countries that we operate in. And I can tell you that nobody is immune to the global inflation that there is right now, and we see that in fuel cost, freight cost many of us see it in our grocery and bread, milk and gasoline and petrol and so on. And so what we're looking to do is work with all of our customers in 140 countries and sort of share the load with that. And we will be looking at modest price increases as we work with our customers. What I can say is for customers who work with us and we have contracts on volume and price, we will honor those terms if they honor their terms around volume and price. But as we go to negotiate new contracts and as we work forward, inflation has to be addressed, and we'll work with modest price or very modest price increases with our customers, understanding the capitated reimbursement environment that many of our customers are in and their tight margins.

But with that overview, the detailed question on the financials for GM for Q4 over to you, Aaron.

I think just building on the pricing piece, like Mick said, we're in an inflationary environment. And we've done everything we can, so proud of the work the supply chain team has done over the last couple of years. But just given the inflation, we can no longer offset inflation with productivity alone. And as part of actively managing our portfolio, are taking, again, very modest price increases that's going to build as we progress throughout fiscal year 2027. Specific to the quarter-over-quarter sequential decline in gross margin, you are right, it was down about 50 basis points quarter-over-quarter. I think importantly, still up 90 basis points year-over-year, a reflection of the strong productivity initiatives and efficiencies that the supply chain team continues to deliver.

That said, quarter-over-quarter, it's primarily driven by the increased inflation that we're starting to see, particularly in electronic components and freight costs. There was also about a 20 basis point impact from FX sequentially as a headwind from Q4 versus Q3.

I mean I'll just close with this, but look, ResMed's growth is based on volume. And so we're going to have very modest price increases. We're going to work with customers on. But what we are laser focused on is driving volume. Volume of patients into the funnel, repack, free supply ongoing software sales. So that's our answer to that question. Thank you, Steve, for that question.

Our next question is coming from Davin Thillainathan from Goldman Sachs.

Yes. thanks for the presentation and the additional transparency of the business. I just wanted to start on the revenue guide of 5% to 7%. Clearly, there's a few moving parts that you're working with. You ask for a recall, your new NIV product launch and your pricing increase. Could you sort of help us work out what would push the guide towards the top end, please?

Yes. Look, it's a great question, and thank you for your comment there. It's the first time we provided revenue and EPS guidance in the history of ResMed being a public company. But I think -- as you said, with the moving pieces, we bought Optrex, we're integrating Virtuox. We're selling off MatrixCare. We're not selling Astral for fiscal '27. There's so many moving pieces that we thought it's the right thing to do to provide that. As for the specifics, I'll hand to Aaron, the specifics of your question around revenue guidance. .

So overall, we're guiding to 5% to 7%. And importantly, that includes a pretty material headwind that we're seeing from the action that we're taking to focus on patients with Astral. And so if you back out that impact kind of the underlying core growth of the business is north of 6% to north of 8%. And if you look at kind of the components then within the business, I'll start with continued momentum around -- in our core sleep devices. We just grew 8% constant currency, both in the Americas as well as 9% globally this most recent quarter in a market that we've said is traditionally growing mid-single digits. So -- we've continued to see more patients come into the top of the funnel. As Mick talked about, we have an opportunity to increase the penetration through optimizing that patient experience and really helping them through that entire journey.

We continue to have good momentum on masks just put up double-digit growth again in Q4. That includes, obviously, the Virtuox acquisition, and so maybe just a tick lower that from an ongoing basis. And then on -- as it relates to RCS we took actions on MatrixCare. And as we've said, we'd expect that, that would return to high single-digit growth for the full year. And so again, that's another part of the portfolio that's going to build as we progress throughout 2027.

Our next question is coming from Matt Taylor from Jeffries.

All right. Great. This is Young Li for Matt. I guess just maybe a question just on the comment on active portfolio management and M&A opportunities. I was wondering just on M&A, if you can maybe help us understand and maybe rent sense the size of the deals that you're looking at some of the key ROI metrics? And then just your general thoughts on the valuations you're seeing out there along with your funnel for potential acquisitions?

Yes. Thanks, Yane. It's a great question around M&A. It allows us to talk to what we've done and what we're planning to do and without giving obviously details of the companies to give some broad overviews of the companies that are on our radar screen. Look, in terms of quantifying the order of magnitude, it's sort of in that order of $100 million to $500 million that we're talking about, which I would consider for a $30-plus billion company to be tuck-in acquisitions. So we're looking in that sort of tuck-in acquisition, $100 million to $500 million range roughly, right, that could be plus or minus. .

An example, acquisitions that we'll be looking at. And I'll talk about ones we've done, but talk about them as examples. So number 1 is Noctrix. So think of that as an amazing med tech innovation from these folks from staffed by design, first-in-class got reimbursement, starting to pick up and its sleep physician prescribed it goes through the DME, HME and VA channels. And it is a sleep health product that's aligned fully with ResMed's strategy. And we're a better owner of the asset and we can leverage our amazing commercial infrastructure and technology and marketing infrastructure to add value and accelerate growth.

So that's 1 type of sort of med tech acquisition that we're laser-focused on in neurostim and noninvasive, completely reversible drug-free neurostim. Secondly, an example is Virtuox, which is a company that -- obviously, that's homesiapnea testing virtually. But it's part of that sort of end-to-end pathway that we talk about for ResMed and sleep health going from screening, well, awareness screening to diagnosis, treatment and management full life. And so think of Virtuox and acquisitions that can help with anywhere along that pathway from awareness all the way through to ongoing management.

And the third example I'll give really briefly is SNAP technologies. which was a tuck-in to Bright tree, but actually expanded beyond Brightree, right? It was a resupply software that initially was Snap technology on Brightree ERP software, but we've now created Snaplight that can work with HME customers who are not on our Brightree ERP, and it actually works for anyone's ERP. And so that's a great technology to add value to our core ResMed, our core Brightree and beyond. So with that said around the sort of strategy side of it, I'll hand over to Aaron for some further detail on what we're looking at on M&A.

Yes. As Mick mentioned, think tuck-in size in terms of size of acquisition targets. We're going to consider from a metrics perspective, multiple metrics as we look at potential acquisitions and opportunities beyond strategic fit, growth opportunity that fit into the portfolio, but definitely looking at things like is the ROI over WACC over a short period of time as well as ensuring after we acquire the company that we're delivering accountability. We have a track record that includes some performing above expectations, some meeting and others not. And that's something that we're going to continue to monitor on all of our acquisitions moving forward. .

Our next question today is coming from Dan Hurren from MST.

Look, I may have missed it. Did you talk about -- talk to OpEx within your FY '27 guidance? And I'm only asking because it looks like R&D stepped up pretty materially in the fourth quarter and currently see a reason for it.

Yes, Dan. It's a great question. I'll hand to Aaron to go through details on OpEx and R&D. I'll say this just as a sort of strategic point. ResMed is an innovation machine. We delivered world game-changing fabric technology in the AirTouch F30i and the silicon-based F40 as well as game-changing technology with Genio the patient app with 1.5 million inquiries just since it was launched just a quarter or so ago. regimen is an innovation machine. We're always going to invest in innovation, but it's not unlimited, and I'll hand to Aaron to talk about our balancing of OpEx and R&D and SG&A and beyond. .

So as we thought about giving guidance for the first time, we felt like it was important we heard you, we wanted to give top line revenue guidance and then total earnings per share guidance. And what that's going to allow us to do, Dan, is to be able to reinvest back for growth and manage our business quarter-to-quarter. OpEx may fluctuate between R&D or SG&A in any given quarter over time. But I think the most important thing, right, is that we are committed to delivering world-class returns to shareholders, and that's what we did with the core revenue -- core EPS guide, excuse me, of 12% to 14%. And embedded in that, right, is low-double-digit gross margin expansion as well as slight operating margin expansion.

Our next question is coming from Jon Block from Stifel.

Jordan Bernstein on here for John. A lot of talk out there on some recent price dynamics for ResMed. Perhaps, Aaron, you can break down the 5% to 7% organic revenue growth price versus volume. I think that really helped to put some of that noise out there to bed. And then within that volume, however you're breaking your divisions out, if you could give us a little color how to think about masks and devices just because of that 5 to 7 with RCS at high-single, kind of implies some of that underlying sleep business maybe in that mid-single when I think we were -- we've been guided in the past, masks are high-single, devices are mid-single. Just how to think about that would be great.

Yes, Jordan, I'll go first that we are still saying and guiding that the market growth rate for devices is mid-single digits. And the market growth rate for masks is high single digits. We beat both in Q4. If you look at our core sleep devices and our masks growth. We won't be every quarter, but our goal is to meet or beat those with our share, we basically create the market growth, whatever our growth is the vast majority of the market growth. And so it's up to us to do demand generation, capture curation and follow through. But that is the market growth. And as Aaron said, if you take away that $75 million headwind that we are actively pulling away from Astral sales, we're pushing north of 6% to 8% growth of core across the business. But with all that preenvolope, I'll hand over to Aaron for any further detail you can give Jordan and his team.

Jordan. So the first thing I would do is just reemphasize what Mick said earlier, which is we have always and will continue to be focused on volume, and that is what is driving the predominance of our growth. On a historical basis, in 2027 and on a go-forward basis, -- not going to get into the specifics of how much exactly is embedded in the guide of volume versus price. But again, the predominance of our growth has and will continue to be coming from volume growth. I think one helpful piece, if you wanted to try to analyze it would be kind of look at our gross margin guide or some of the comments that we gave around that, which is low double-digit increases in our gross margin. and very modest price increases, right? And you kind of put those 2 things together, I think you end up with a very small contribution from price, and it's something that's certainly going to build as we progress throughout the quarters.

Our next question is coming from Craig Wong-Pan from RBC.

Great. Just wanted to keep going on the gross margin impact. The first quarter comments about gross margins declining, but then your guidance for the full year for an improvement. Just wanted to understand, is that mainly through the price increases coming through? Or are there other factors that are driving that gross margin improving for the full year?

The first thing I'd say is just, again, reiterate really, really proud of the manufacturing and supply chain team and almost 600 basis points of expansion on our gross margins, they've delivered against an inflationary environment the last couple of years. I've had the chance to tour a couple of the sites with the manufacturing team and just couldn't be more excited about the pipeline of opportunities that they have. They've got a flywheel and a lot of momentum around productivity and efficiencies. And if you think about Q1, what's effectively happening is on a year-over-year basis, inflation is certainly outpacing the productivity that we have line of sight to. But we do have a strong and robust pipeline that builds. One specific example I'd give is our distribution network optimization. We've got an expansion coming in the U.S. The benefits on that are going to start to feather in as we progress throughout Q2, Q3 and Q4. And the last thing I would come back to is we did talk about a very modest, slight price increase and really no benefit from that coming in Q4, and so that would certainly a net of the benefit on the top line as well as our gross margin expansion as we progress Q2, Q3 and Q4.

Our next question today is coming from Lyanne Harrison from Bank of America.

Aaron. I just wanted to understand a little bit more about the Astral field safety process. what happens here if there are? You mentioned there was a $40 million drag or $42 million drag on gross margin for this quarter. You mentioned that you're not selling the actual going forward. What other expenses can we expect into fiscal '27? And is that being included in the guidance that you've given?

Yes. Thanks for the question, Lyanne. Just want to be really clear. The $42 million charge we took in Q4 is our estimate for the total work that's needed for this field action globally. And we have taken a very conservative approach and a very patient first, quality-driven approach that ResMed is going to execute the best recall in the history of the med tech industry. And that's our aim and by the way, we've done probably 2 or 3 recalls over Astral, and we've done them incredibly well. We will do this 1 incredibly well. So all of that's encapsulated in that $42 million charge for Q4. The $75 million headwind for fiscal year 2027 means that we won't be selling any new product throughout all of fiscal year 2027.

You said stopping selling. We haven't made any decisions for fiscal '28 or beyond as yet. And we'll make those over time as we look and we keep ourselves laser-focused on every PCBA, every electronic component goes straight to the sickest and most severe patient first, and we work our way through clinical guidance of our customers and the physicians and their patients worldwide. Laser focused, patient first $42 million charge Q4, $75 million headwind for FY '27. And we'll talk about an ongoing quarters where we go from there. But Aaron, any further detail you want to provide Lyanne with regard to our Astral field action.

The $42 million we took in the fourth quarter, like Mick said, just to reiterate, that was kind of an all-in estimate that we were able to accrue for. This is a really complex recall. We wanted to make sure that we took a conservative approach to the accrual because we don't want to compromise patient safety. And this is a higher cost than what we've seen on a prior actual accrual that we took primarily just because it's impacting a higher population of devices out in the field based off of the failure mode that we have. As it relates to 2027, the only other thing that I would add on from what Mick said $75 million top line headwind, it is about a $0.15 earnings per share headwind, and that is embedded in that 12% to 14% core EPS growth. And so kind of excluding that, our core EPS growth is actually a tick higher.

Our next question is coming from Brett Fishbin from KeyBanc Capital Markets.

I guess I'll just continue on the Astral line of questioning while you're kind of on the topic. How does the 130 basis point expected headwind for the year related to the EPS guidance? What type of headwind is baked in from an earnings per share standpoint?

I think Aaron sort of went through that detail. But Aaron, you want to reiterate maybe or rephrase that for Brett? .

Thanks, Brett. So yes, it's about $0.15. And the impact of that is just the loss revenue translating down to the lost gross margin that we're going to have associated with it. And again, to reiterate, that is embedded in the 12% to 14% kind of core earnings per share growth. And so excluding the impact of Astral, again, it would be higher than the 12% to 14% growth.

Our next question is coming from Laura Sutcliffe from Citi.

Could you possibly talk a little bit to your early experience with the oral GLP-1s now that they've been on the market for a few months? Are they behaving in the same way as injectables when it comes to driving patients into the funnel. .

Yes, Laura, it's a great question. As you said, it's early days for oral GLP-1s. Obviously, we're looking at all the different injectables from the 2 major companies here from Indianapolis and from Europe. And we're analyzing our GLP data across our GLP-1 data across all of the above. We haven't seen a dramatic change. What we are seeing is the peer-reviewed published literature shows a lower level of adherence and a lower level of weight loss associated with those oral GLP-1s, which is likely correlated to a lower impact. So the tailwinds that are bringing people into the primary care physician funnel, Eli Lilly is spending tens of hundreds of millions of dollars on [indiscernible] and don't slip on OSA campaigns. It's bringing patients into primary care. And our education there with now 95,000 CME education episodes, 55,000 unique clinicians.

These are the types of primary care physicians who are making these decisions. when that patient comes in and says, either I want that injectable weekly or I want that daily pill, the doctor will walk through. And if they have a home sleep apnea test, which we're encouraging the doctors to get access to things like Virtex and their competitors, and it's positive -- what we're seeing from the data we presented at sleep is that there is a very fast uptake of prescriptions for CPAP, APAP and bilevel. And a final monitor sort of tenfold less increase in GLP-1 prescriptions. So there is a tailwind associated with this. It's not direct and proportional and immediate. But we think that if you look at our core Americas sleep device, right? U.S., Canada and Latin America, we were plus 8% constant currency in the quarter.

How much of that above mid-single digits is from that demand generation versus Apple Watch versus the Galaxy Watch versus our oral partnership, where people with these ring-based wearables are wearing these devices overnight during sleep. So it's a combination of all of the above, Laura. And we're not seeing a material change from them going from talking about injectables to pills. I think it will be a minority of their sales probably. But over time, those will be a tailwind for us, just at different levels and different rates. This combination therapy in this fact that there's 11% higher start rate 3% higher 1-year adherence resupply and 6% higher 3-year adherence and resupply that's the separation of the curves. And we're seeing that trend continue no matter how you're getting this glucagon-like peptide or awareness from wearables.

Our next question today is coming from Brandon Vazquez from William Blair.

Mick, I wanted to ask on Americas devices, only because American devices in the back half of the year was a couple of points lower than in the first half of the year. And interestingly, the international Devices business has done very well and remained elevated growth levels even though international probably is a little bit more competitive than the U.S. or Americas? Correct me if I'm wrong on that. So I'm just curious if you can talk about those dynamics, talk about the U.S. or -- sorry, the Americas devices dynamics, specifically how they ended the year and how we should expect that to trend into fiscal '27?

It's a great question. And we haven't broken out the new sort of sleep devices by quarter. throughout FY '26. We've just sort of given an over the whole year approach. And by the way, the Q4 devices growth is in line with that sort of overall year based approach. And so yes, the Americas, which is U.S., Canada, Latin America, the vast majority is the U.S. really solid growth there in Q4. And if you're asking me what I see for the year ahead. Look, I see mid-single digits is the start. And then our goal every quarter is to meet and beat that to go out and do demand generation demand, capture demand curation, particularly at the middle of the funnel, from that prescription to first-time setup. And from that first time set up to day 90 adherence, and we're very good once patients are in the funnel like that.

So we've got the tailwinds from big pharma and big tech, and it's our job to meet or beat that. But no, look, I think it's steady as she goes with opportunities for upside. That's the way I'm looking at the business. Now to your question about Europe, Asia and rest of world. clearly, we've got all players and all competitors out there, but we're also innovating. We're launching. We launched the Air 11 platform into China, which is a very fast-growing market. We're launching the air curve into Hong Kong, Australia, New Zealand, Singapore and beyond in Southeast Asia and Asia Pac. And so those can help contribute to our growth as well. So this isn't a 1 market or a 1 device approach. We're looking at a whole portfolio across 140 countries.

How do we help 1 billion with sleep apnea, 800 million with insomnia, 480 million with COPD, 400 million now with restless leg syndrome. How do we get them all into the funnel? And I think we're doing a pretty good job throughout our fiscal year '26. And FY '27, we're just out here and running and we're going to meet and beat every quarter as we go through. And I'm happy to have that full year guidance that allows our team to look at it and go from there.

Our next question is coming from Saul Hadassin from Barrenjoey.

Just a question on the AirSense 11. Just based on the -- when it was launched, I think it goes back now to 2021 was it official launch. It's 5 years effectively since that platform came to market. And you touched on the increase in R&D and you spoke to next-gen devices. So I'm just wondering in the context of the normal life cycle of your AirSense platform being around 5 years -- is this going to be an extended release, do you think because of what happened during Covenant supply constraints? In other words, should we expect a new platform to come to market in the next year or so? Or do you think it's going to take several years to bring a new platform to market because you want to get more benefit out of AirSense 11 sense because of that extended launch.

Yes. So look, it's a great question. You've followed us for many, many years, and you've known me for many, many years, and I don't talk about future product pipelines, and you're obviously sort of talking about, hey, after AirSense 11, what does AirSense12 look like and when would a likely launch fee, we will give no information on this call nor anywhere about that. But look, I think your question allows us to talk to the sort of nuance and the amazing situation that we've had these last 5 years, which was we were able to have the best and the second best CPAP, APAP, and bilevel platform in market for these last 5 years. The AirSense 11 is clearly the best worldwide based on market share and patient and physician and provider feedback. And the second best is the AirSense10, and that's allowed us to help customers in different parts of the world and move forward. And we haven't even got AirSense11 approval everywhere, right? We just talked about getting China quarter and so there are more markets to go for the aircurve11, which is the bi-level an ST range that we're launching around the world too. So there's a lot more runway left on the AirSense11.

Yes, we're increasing R&D. That's across devices, it's across masks and it's across software. And there's a lot in the pipeline, and I'm very excited about delivering on the guidance we talked for FY '27. But more excitingly, what we're going to do through 2030 and beyond. We make the smallest, quietest, the most comfortable, the most cloud connected and the most intelligent devices, systems, platforms and software, and we are not done. And now we're expanding into restless leg syndrome beyond sleep apnea insomnia.

We are now at the 60-minute mark. So I'll turn the call back over to Mick Farrell. .

Yes. Thanks, Kevin. And thank you to everyone who joined us on our earnings call today. I hope you appreciate the new format with slides. -- and engagement here into the 21st century for ResMed. But on behalf of the more than 11,000 ResMedians serving people in over 140 countries, we're pleased to deliver an incredibly strong quarter and annual performance to build value for all of our stakeholders, including our shareholders and most importantly, our patients. We look forward to speaking with many of you over the coming weeks, and thank you for your time. I'll hand back to Salli to close us out.

Great. Thank you, Mick. I'll let me thank you. We appreciate your time and interest. If you have additional questions, please don't hesitate to reach out directly to investor relations at resmed.com. Kevin, you may now close the call. .

That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Hello, everybody. My name is Brandon Vazquez. For those of you who I haven't met before, I'm 1 of William Blair's medical device analyst, also cover animal health for the firm. I am required to inform you for a complete list of research disclosures and potential conflicts of interest go to williamblair.com.

And with that, I am happy to say that we have the ResMed team here. We have Mick Farrell, the CEO; and Aaron Bloomer, the new CFO. Happy to join us here. They're going to give us a corporate presentation as many of the -- as we've been doing all day. We will actually stay in this room for the breakout session, so at the end, I'll come up here. I might give us like 5 minutes to let people trickle in if they're coming from another session. And then we'll do Q&A here.

With that, I'll turn it over to Mike.

Excellent. Well, thanks. And I've got the time here, so I'll stick pretty closely to the 29 minutes they got me here on the presentation. Look forward to a lot of questions and a good discussion around sleep health, breathing health and the health care technology delivered at home.

Forward-looking statements, you can read on your own.

Yes, ResMed is the global leader in the field of connected health and digital health. We have over 26 billion nights of medical data in the cloud. Over 30 million 100% cloud connectable medical devices sold in over 144 countries worldwide.

I think 1 of the takeaways from this slide is over our performance since our IPO on NASDAQ in '95 and then on the big board in the New York Stock Exchange in '99 and dual listing in Australian Stock Exchange and in 1999 is our bottom line performance. We'd be in the top quartile plus of S&P 500 with our GAAP and non-GAAP operating margins north of 34% and 36%, respectively. So we're a high performer, fast grower and strong leverage through the P&L in huge markets.

But the primary reason, I think, to consider us at a growth conference, like here at William Blair is that, number one, we're in a huge underpenetrated market. And number two, ResMed has the smallest, the quietest, the most comfortable, the most cloud-connected and the most intelligent devices and software solutions. So innovation leader.

And number three, just incredible financial performance that we've had, not just in the past, if you look back over 4, 8, 12 quarters. Look over 1, 3, 5, 10 years and then project that forward because given our huge markets, given our market leadership position, we are not changing any of that. And in fact, I'll talk to some megatrends that we believe will bring our company to even greater success on that top and bottom line growth.

I think I'll just say this as well, just recognizing the stock and where it's at today, where health care is what, 2 decade loads and medtech are at 15-year lows maybe relative to S&P. I think fadeaway of 15 to 16 on ResMed. I've been with the company 26 years. This is a once in every 2.5 decades opportunity to get into a growth story like ResMed. And we think -- I personally think we should be 5, 7 turns higher than that based on our profile of history and future.

This is the history. I won't go into the 5-year performance on top line and bottom line. I think 1 of the particular elements to take from this is not only the leverage we get through the P&L, primarily from gross margin, but also the free cash flow we generate. Really important in a market like this to have cash, and I'll talk to you about our uses of capital back into R&D, back into sales and marketing, but also into tuck-in M&A, and I'll talk through 1 particular acquisition that we just completed yesterday actually.

So this is the primary point I talked to on the first slide. We are an incredibly large, incredibly underpenetrated markets. Obviously, this Venn diagram, the 1 that draws you to the center is our core market of obstructive sleep apnea, over 1 billion people worldwide suffocate many times per hour of sleep every night of their life. And left untreated will lead to much greater increases in solid cell tumor cancer than the average patient, will lead to a 37% increase in all-cause mortality and a 55% increase in cardiovascular mortality. And when treated completely reversal on those mortality numbers.

The other circles here to look at, insomnia. I'll talk a little bit about our first play there with a software product, but I think there's lots of opportunity there for hardware in the future. Our COPD market, where our high-level bilevels, STs we just launched on our Air 11 platform for the U.S. is targeted at that overlap syndrome as well as core COPD patients with new CMS changes. And then restless leg syndrome, which is the third biggest sleep disorder, 400 million people worldwide, 7% of the adult population. And I'll talk about a technology that we literally just acquired completely drug-free, completely reversible and noninvasive. Sleep doctors write the prescriptions, it goes through our DME channel. I'll talk about all the synergies associated with it.

The only other takeaway I'll put here is that I flip those numbers around, I say 80% to 85% of the U.S. market is unpenetrated. And I don't care how you cut TAM and SAM, 80% to 85% in front of us in this country which is the most penetrated in the world is a huge opportunity. But then you look at Europe, where 90% of the opportunity is in front of us. And you look at Asia Pacific and Rest of World, where it's more than 95% of the market is underpenetrated and unpenetrated in our core markets.

And I'll talk a little bit about these megatrends. I mean I think awareness about sleep and sleep health is probably the highest it's been certainly in my 26 years in the company, probably in the history of our industry. Sleep is just becoming more and more aware. And it's not just the Apple Watch and Samsung watch, the Galaxy Watch from Samsung that have the ability to actually not only track your sleep, but detect sleep apnea and warn you if you have suffocation episode. But it's also Oura, and I'll talk about our engagement with that #1 ring-based wearable provider and what we're doing with Tom and his team there.

But it's also Whoop. It's Garmin. It's Google's Fitbit. These wearables are driving people to care about the 33% of their life that they should be unconscious in full regeneration of mind and body. Slow-wave sleep and REM sleep is where your body resets, the synapses from any stress of the day through REM sleep and regeneration of muscle. Whether you're into sports or whatever you do, your muscles need to regenerate and that happens during slow-wave sleep. If you have untreated sleep apnea or if you have untreated RLS or if you have insomnia, you are not getting deep sleep, slow-wave sleep and REM sleep. It's going to impact every aspect of your life, including your length of life, but most importantly, your quality of life.

I'll talk about GLP-1s a little later and talk about how this megatrend, this new drug portfolio -- drug profile, I think will have similar impact to blood pressure meds and statins in terms of cholesterol control. This weight prevention is very important, I think, as a group and as an industry. It's going to be a huge tailwind for ResMed over the next 1, 3, 5 years. I'll talk about the kinetics of that and about how those adds from a player in this field. I don't know if Lilly is at this conference, but when you look at what they're going to invest in the Don't Sleep on OSA campaign, it's going to bring more patients into the funnel than we could have ever afforded or any of the players, including the other pill makers and device makers, and we're going to talk about how we're training in the middle of funnel for our doctors, for primary care doctors and our sleep doctors to best respond to that and bring patients into the funnel.

The only other mega trend here is, obviously, you watch the valuation of the sector in tech and semiconductors and Gen AI. I believe that AI can only actually provide value as applied to each vertical. And our vertical of health care, particularly our vertical of med tech is completely untapped in terms of the efficiencies and capabilities that AI can bring in terms of reducing costs and improving outcomes and frankly, improving the engagement of our customers, but -- which includes the doctors, but also the patients and involving them even more in their care.

Just to talk really briefly about the strategic lines that we announced just last week with Oura. Obviously, they're going through a process of -- it's now public of going towards an IPO. One thing that we found is that partnering with people of a similar approach to sleep health has been very beneficial for us. And we obviously have partnerships with Samsung and with Apple and the data can go back and forth from our system to Apple Health or Samsung Health, however, you manage your health record.

But I think particularly not everyone wears that watch to bed. Very few people actually wear the watch overnight. The battery life isn't there. And so in the field of sleep health, we actually feel that ring-based wearables and some of those other Whoop, Garmin, sports-based wearables are probably a better play to fully understand your sleep health. And from the data that we get from that 33% of your life that you should be in this beautiful unconscious regenerative state, many of you are not. And sometimes, it's a sleep disruption due to breathing issues. And if it is, you're going to see it and you're going to start to see those data. And then our job is to follow this path and make sure that you get a referral to a primary care doctor who's educated in the field of sleep health and ultimately to a sleep specialist who can write a prescription for our products for life and to become a ResMed patient.

So this is the whole value change from Stage 1, which is just 8 billion people on the planet to Stage 7, which is people adherent to our therapy for over a year. We're very excited about the fact that we have 33 million patients within Stage 6, 7, right? They're in our ecosystem. We have them in AirView and myAir.

But if there's 1 billion people worldwide, 33 million is 3.3% penetration, and you add in all the competition, it's only 5% penetration. So the question is, what else can we do to improve top of funnel, Stages 1, 2, middle of funnel, Stages 3, 4, 5 and our bottom-of-funnel retention, resupply, re-PAP in Stage 6, 7.

One thing we have done in these last couple of years is use the incredible free cash flow we have to invest in some strategic acquisitions. We bought VirtuOx, which is a home sleep apnea testing provider, the #1 provider of home sleep apnea tests within the U.S. so that we can help that primary care physician, if they want to refer someone from a home sleep apnea test, they can refer to VirtuOx, and they can take care of it. One click is the goal there, that they're 1 referral and then that patient can be screened, diagnosed and prescribed.

On Stage 3, we bought NightOwl. I didn't bring the sample with me, but I don't know if Mike has 1 in the audience. We can do it in Q&A. You can pass around for those of you here in person, a home sleep apnea test, that's literally the size of my fingertip, which is this NightOwl product. It's technology from Belgium. We wanted to challenge -- we don't necessarily want to be the #1 diagnostic player in the planet, but we want to challenge the diagnostics players to say, shouldn't it be the size of a fingertip and as easy as Bluetooth into your phone and the data go to your sleep doctor? That's what NightOwl does. That's the Ectosense acquisition.

We also bought Somnoware, which is software for the sleep doctors as they manage their practices, so they can be more efficient and for their data to go back and forth to Epic and Cerner more easily.

And then, of course, we bought Brightree, which is basically an ERP or an EHR or both for HME customers. So our U.S. HME customers, the vast majority of them run on Brightree. And it's kind of like, I don't know, how you guys use Bloomberg or whatever your financial terminal, that's how DME's use Brightree. It's everything. That's what they first turn on in the morning. That's what they turn off at night and it helps them run their businesses, lower costs, improve efficiency and improve outcomes.

One extra area that we've applied there in terms of acquisitions in the value chain is Snap technologies. That was an add-on to Brightree that helps with resupply. So think every 3, 6 or so months, you need a new mask, you need your tubing, you need your filters. This is the system that allows that to happen. And Snap helps engage with the consumers, with the patients to help bring them through the system. What we just launched in the last 12, 24 months with Snap, it's available not on Brightree. So even though the vast majority of HMEs are on Brightree, those that aren't, we wanted the resupply technology to be there. So that's the Snap acquisition.

And then AirView and myAir are homegrown, but they're the software, the cloud-based software for the doctors is AirView, and the cloud-based software for consumers is myAir, and we now have over 10.5 million downloads of myAir.

So what have we done recently in terms of product launches? Well, look, we launched a brand-new technology on our AirCurve platform. This is the ST and ST-A lines. Think of this as using in that Venn diagram for overlap syndrome and COPD. CMS just changed its reimbursement criteria that bilevel ST product like this can be used as a primary treatment for COPD, chronic obstructive pulmonary disease, 480 million people worldwide, many tens of millions here in the U.S. COPD is the #2 cause for rehospitalization within the U.S. And so we're not only saving lives, we're saving money for the health care system as we treat COPD with these ST, ST-A products. These are incredible margin products for us, but more important than that, they're incredible for the health care system. So we're really excited to have these high-end bilevel noninvasive therapies, noninvasive ventilation therapies on our high-volume AirCurve 11 line. So watch this space as they just get launched this quarter in the U.S.

But our portfolio is much beyond that. It is the smallest, quietest, most comfortable devices. But if you look in the bottom left-hand corner here, it's also about that most connected and most intelligent therapies. We're making sure that consumers patients can be gamified in the way that Instagram or Facebook or X or whatever social media platform you're on wants to engage you for ads sold to you. We want to engage you for use of the device and improvement of your life to save your job, to save your marriage, to save your life. And the way we do that is driving adherence rate. I don't have the clinical data in this deck, but you can get it from Mike, our Head of Investor Relations, who's here today, leading us today. And we have data that shows that general adherence to CPAP, IPAP bilevel therapy, if you don't use any of the digital, it's sort of in that 60%, 65% of patients at day 90 are adherent to therapy.

If you just add on the doctor using our AirView system, the cloud-based data, that goes up to 70%. But if you go further and gamify it with the consumer, the patient is using myAir, it goes up to 87% adherence at day 90. And this is sort of the adherence rate that a pharmaceutical company would dream of for a drug that all you have to do is take a pill, we're asking you to put a medical device, turn it on and put a mask on and keep it on for the majority of the night to be defined as adherent. We get up to 87% adherence.

So when you hear about our ecosystem, it's not just about being tech and driving -- putting the tech back into med tech and writing the sort of AI wave, this is about actually lowering costs. We see a 50% cost reduction for the labor costs of setting a patient up on CPAP when they're using the digital portfolio, myAir for the patient, AirView for the doctor. We see that improvement in adherence up to 87%. So watch this space.

The only other takeaway from this slide is on the right-hand side, bottom right, may not look like much from your seat, but that difference between liquid silicon rubber and fabric that has been in a multicavity high-temperature, high-pressure tool adhered to it so that the consumer, the person, the patient feels fabric touching their face, not a medical device, but it feels more like the pillow or the sheet in the bedroom and it becomes more consumerized and more of a normal thing to happen at night.

We still get all the efficacy. We still keep the tongue off the uvula, prevent suffocation episodes and treat your obstructive sleep apnea, but now we do it with fabric. This is a first from ResMed. It changes the basis of competition. I think it's as important as heat and humidification or as what we did in digital 10 years ago to have fabric-based masks at scale at the level that ResMed can provide. So there's only 3 in the market right now. The N30 is about 1.5 years in, doing incredibly well, 1 of our best launches ever. But the F30, which has just launched in the comfort and clear areas and the comfort 1 has fabric all the way around the head. Watch this space on those. I think it changes the basis of competition. If you think of our industry as razor and razor blades, we just launched some of the best razor blades in the history of the industry.

I won't go into details on this. In the U.K. market that we've launched another part of our pathway to engage people within the NHS system. And this is less about lowering costs, the NHS cost, what it cost. It's more around driving efficiency so that you can get a 70% reduction in the time that a home care provider, a health care provider has to spend per patient, that frees up for higher volumes of patients coming through NHS. And so within a fixed reimbursement system like in Northern Europe or in the U.K. here, we think providing efficiency is really important to help those health care systems find efficiencies and get through the bureaucracies to help people find their pathway to therapy. So watch this space as that's launched.

So this is the acquisition I talked about earlier. This is a company called Noctrix. This came out of the Stanford bio design group and Shri and his amazing team of MDs, PhDs have had what I would call an incredible noninvasive drug-free completely reversible therapy that's able to solve this problem that happens to 7% of adults.

So you probably know someone who with or without knowing is kicking their leg all night. It's called restless leg syndrome. Sometimes it's so severe that it wakes them up, but it almost always wakes the bed partner up. But it definitely causes micro arousals and arousals that prevent them from getting slow-wave sleep and REM sleep, so refreshed sleep and waking up refreshed.

Right now, all the doctors have is, frankly, ADHD-type drugs and opioids, opiates. And these are not good medicines, and they have so many side effects when being used to treat a limb that's moving at night versus a brain health issue or a pain issue. And so we think that even though this is FDA de novo classified as second line treatment after those pharmaceuticals, I think you're going to see many sleep doctors as ResMed launches this technology and drives it through our channel, who start to say this should either be combination or frontline treatment ahead of the medicines. We're not there yet on the standards, but watch this space, we'll get there.

This was a pretty scarce and unique asset, and we're really excited. Sleep doctors write the scripts. It goes through the DME channel. It goes through the VA where we have incredibly strong relationships. It's completely noninvasive drug-free and reversible, and it feels and it looks just like the CPAP of 1989 or 1999 as ResMed was just ramping up. And I think this segment is completely underserved and we're the best owner of the asset, and watch this space as we begin to take this tuck-in acquisition and I think create not just value for restless leg syndrome patients, but maybe even a whole platform of product opportunities for ResMed to expand through the organic or inorganic approaches for noninvasive nerve stimulation to help with sleep health breathing, health and health tech at home. So I think PTSD, think depression, think insomnia as potential target markets for noninvasive nerve stems such as this Nidra product.

Okay. To address, as I talked earlier about this new class of medicines, these glycogen like peptides, these are data that we're using to track. Well, what's going to be the impact on our patients and their pathway as they go through this? And so we're tracking over 2.1 million patients with both GLP-1 and CPAP or positive airway pressure, PAP prescriptions. And by the way, these are 99% plus latest generation GLP-1, so tirzepatide and semaglutide. And we actually ran the sell analysis to say, well, how much of each? And it's well north of 50% that are actually tirzepatide. So the most effective in terms of weight loss and improvements.

And what we're seeing here is that patients with this combination therapy script, which by the way, was in Eli Lilly's own study show that the combo therapy was better than their drug alone. What we're seeing for us on our side is patients with the combination script actually start our therapy more than the average patient, about 10% higher probability of -- from that prescription actually setting up on day 1.

But then we looked at day 365. And then we looked at day 1,000 and whatever, 3 years out. And we saw the resupply rates. So this isn't just I'm adherent to therapy. This is on buying a mask or a tubing or accessories at year 1 and year 3 were up 3% and 6% roughly, and it's almost a separation of the curve over the average patient.

So in terms of our combination therapy, it's not only good from how the drug company sees it, it looks good from how the medical device company sees it. And I talked to a key opinion leader from University of California, San Diego about this, who was the PI on the Lilly study, Professor Atul Malhotra. And I said, why is this? Why are they using it more? If they're losing some weight, why would they use it more? And he said, "Listen, for 30 years I've been in this industry, I've always talked about loose weight, have that a diet and exercise and use your CPAP." He said, now I've got a drug helping with Part A versus just me talking to the patient and I'm seeing this improvement. I said, "Yes, but what goes beyond that?" And he said, "Well, maybe the reduction in weight reduces a little bit of that peak pressure, the peak grit just to keep the tongue off the uvula that you need at that REM sleep moment at 3 a.m. and has less arousals, less chance to wake someone up." So maybe that's why it drives higher adherence. We'll work on the mechanism, and I'm sure there'll be a peer-reviewed published paper that will talk about it. I'm just a simple engineer, not a medical doctor. I look at this and look at the black box and say, these 2 therapies together work well and have better outcomes in terms of adherence to our therapy. So we see it as a really good tailwind for the business.

We also do the sub-analysis of 2.1 million patients and said, okay, imagine you're on a CPAP first, and then you get a GLP-1 prescription subsequent to that. Do these numbers change? And we looked at 2-year and 3-year adherence rates, and they were both higher, roughly 5% and 6% higher. So pretty much in line with these data.

So we'll continue to look at this, and we'll do work with the companies for peer view published evidence as to why, but combination therapy seems good. These therapies seem to work better together. And the question is, once those patients show up to a primary care physician saying, what this injectable Don't Sleep on OSA thing, what does the primary care physician do? And this is where we're focusing in this middle of funnel to educate primary care positions, maybe reeducate them because they learn about sleep medicine back in medical school 5, 10, 15, 20 years ago.

We're up to now 80,000 CME continuous medical education trainings by over 45,000 unique identified clinicians, mostly primary care clinicians. The best part of that training is 78% of them saying, well, I'm going to do something different about sleep now that I'm more educated. I understand the gold standard is CPAP APAP bilevel. Silver is probably this dental device and then bronze, right? So 100% treatment, 100% AHI treatment from CPAP APAP bilevel when used as directed, right? 75% treatment for the dental and then about 50% reduction, half treatment from an injectable like a GLP-1 or an implantable.

So retraining on that's been really important. But 78% say they're going to do something, we've actually been tracking before and after training, how many referrals are there for home sleep apnea tests and how many referrals are there for that prescription for positive airway pressure? And it goes up, and we'll provide more and more data to show exactly quantified how much it goes up when the doctor has been trained, not just them saying they intend to change clinical practices, but they actually do quantitatively. So we'll update you as we go over time.

Finally, I've got 4 minutes left, I'll end on capital allocation. I have my new CFO here. So any questions on this in the Q&A can go directly to Aaron Bloomer, our amazing new joined us from Exact Sciences and knows a lot about helping people get involved in diagnostics and med tech.

We've got really disciplined capital allocation across our business. As you can see, this pie chart sort of breaks out where we put our capital. My best use, and I believe always will be of our capital is to put it back into the company. So we're investing 7% roughly of our revenues back into R&D, keeping the smallest, quietest, most comfortable, most cloud-connected and most intelligent devices.

We're putting around 19%, 20% back in the sales and marketing to make sure that sleep positions, DMEs, but also primary care physicians are fully educated and we can get those prescriptions and we can help the channel be there.

But we're also continuing our dividend, and we have a good dividend yield, and we've been increasing that over the years, and we think it's important for you as shareholders to get your cash back, so we'll continue to do that.

And then the share repurchases, where we've talked about north of $100 million then we entered $150 million a quarter, went to $175 million a quarter, our last public call. Since we're on Reg-FD here, I'll talk about this quarter that we put over $200 million into share buyback, just here right here in this Q4. And our goal for FY fiscal year 2027, which for us starts on July 1, we're at June 30 end, we plan to continue and increase that share buyback. So watch this space, north of $200 million a quarter, north of $800 million for the year, but potentially above that. And Aaron and I will give you a detailed overview after our Q4 numbers that we'll talk about on our August earnings call.

The other one, obviously, here is that M&A and what we're going to do with the dry powder there. So we talked about Noctrix, $340 million tuck-in acquisition that can create this new capability, watch this space for things around that order of magnitude for ResMed. Again, we have to be the best owner of the asset. It has to be in sleep health, breathing health, health tech at home, has to have a financial profile that's accretive to us on a growth level and gross margin level. And also, we have to be the best financial owner of the asset with a cultural fit and cultural stretch.

Cultural fit is integrity, honesty, cybersecurity, privacy. The cultural stretch is something new, like nerve stem tech that you got from Noctrix. So watch this space for the appropriate sort of tuck-in acquisitions in that $100 million to $500 million range roughly.

This is our outlook that we gave at New York Stock Exchange on our 25th anniversary there, 100 quarters on the big board. We talked about maintaining what we've had, which is high single-digit top line growth. And we talked about leverage through the P&L to get higher than that for NOP growth and obviously with share buybacks and beyond even more leverage down to our earnings per share.

I'll close where I started with why is ResMed a compelling investment opportunity. The first 1 had 7 bullet points, but here's just 3. One, our target markets are huge and underpenetrated. The TAM is over 2.3 billion people. That's 1 in 4 people on the planet that have a sleep health, breathing health or health tech problem that ResMed is uniquely positioned to solve.

Two, megatrends are in our favor. Apple, Samsung or Whoop, Garmin and Google Fitbit, they're going to bring patients into the funnel, and GLP-1s are going to do the same thing. This is a once-in-a-generation opportunity for us to see this level of patient flow, and it's on us to get that middle of funnel right, to get those patients prescribed and on our therapy.

And third, and I think most importantly in this space, we've got the best products, the best innovation pipeline about what we're going to do to treat sleep suffocation, to treat insomnia and to treat any sleep disorder, including now restless leg syndrome. And we've got supply chain flexibility. No matter what's happening in the world right now, it's Strait of Hormuz and costs, we're going to be able to do what we do best, which is get these products to people in 144 countries worldwide.

And with 19 seconds to go, I'm going to end and we'll go officially to Q&A, sir. Thank you very much.

Welcome to the Q3 Fiscal Year 2026 ResMed Earnings Conference Call. My name is Daryl, and I will be your operator for today's call. [Operator Instructions] Also, please note, this conference call is being recorded. [Operator Instructions]

Let me hand the call to Salli Schwartz, ResMed's Chief Investor Relations Officer.

Thanks, Daryl. I want to welcome our listeners to ResMed's third quarter fiscal year 2026 earnings call. We are live webcasting this call and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now.

During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of risk factors that could cause our actual results to differ materially from any forward-looking statements made today.

I'll now turn the call over to Mick.

Thank you, Salli. And before we get into the details discussing our results for the quarter, I'm sure all of you have had an opportunity to see our press release and our announcement that Brett will be retiring, and Aaron Bloomer has been appointed our next Chief Financial Officer here at ResMed. On behalf of our ResMed Board and over 10,000 ResMedians in 140 countries, I'd like to thank Brett who I've had the privilege to partner with for 26 years, including the last 55 quarters as a CEO and CFO team. Brett spin an integral part of my executive team that has delivered growth, expanded access and improved hundreds of millions of lives. Over two decades as ResMed's CFO, Brett has built a financial foundation that has allowed us to deliver strong growth, robust free cash flow and best-in-class operating margins. Brett has also helped shape the company's culture and his legacy is embedded in our impact on the lives of many millions of patients worldwide. Brett leaves ResMed in a position of strength with a very disciplined and experienced global financial team. I am tremendously grateful to Brett for his service, his leadership, his friendship and his commitment to ResMed.

I'd also like to now welcome Aaron Bloomer to ResMed. Aaron brings more than 17 years of global financial leadership, most recently serving as the CFO of Exact Sciences. He has a strong track record of driving strategic growth, operational excellence, financial discipline across complex global organizations, including prior financial leadership roles at 3M and at Baxter. Aaron's international perspective will be invaluable here at ResMed as we continue to execute on our global 2030 strategy to accelerate our business and to deliver long-term value for our shareholders around the world. We look forward to introducing you to Aaron over the coming quarters.

Okay. Now turning to the third quarter. We delivered another set of strong results, including 11% growth in headline revenue or 8% growth on a constant currency basis. We delivered operating leverage leading to margin expansion, both year-on-year as well as sequentially, resulting in 21% growth in non-GAAP earnings per share. A huge thank you to the global ResMed team for their steadfast dedication in serving patients in more than 140 countries worldwide. ResMed continues to build the world's leading digital health ecosystem encompassing sleep health, breathing health and health care technology delivered in the home.

I'd like to return to the three key themes that I've been highlighting over the past year. One that ResMed is an operational excellence machine and an innovation machine. Two, that ResMed's robust free cash flow and strong balance sheet position us to both invest in the business and return capital to our shareholders. And three, that ResMed remains a compelling investment opportunity, especially amidst global macro uncertainty. We just continue to deliver the results. I'll address each of these three themes in my prepared remarks here before we go to Q&A.

Our gross margin expansion in the quarter was strong. 290 basis points year-over-year and 50 basis points of market -- gross margin expansion sequentially. These results demonstrate the operational excellence that is a ResMed hallmark. We've continued to execute on our pipeline of supply chain optimization initiatives. These efforts, along with our experience from past supply chain perturbations, including COVID impacts, the major recall of a competitor and semiconductor chip shortages position us well to navigate the current geopolitical uncertainty and any other external impacts to our resilient global supply chain.

ResMed also remains an innovation machine. We've continued the global rollout of our portfolio of novel fabric-based masks. These masks are designed to deliver an elevated comfort experience for patients, and they are changing the basis of competition in mass technology. The ad touch N30i and more recently, the F30i Comfort as well as the F30i Clear have achieved strong early adoption, combined with incredibly positive patient feedback and home care provider feedback. And now we also have real-world data that shows that the AirTouch N30i drives 6% higher 90-day compliance than its silicone equivalent. Those of you that truly understand the clinical and business relevance of adherence, know that those 600 basis points of extra compliance will mean that as -- what the 600 basis points of extra compliance will mean as this technology expands. Adherence is the single biggest driver of lifetime value for patients, for physicians, for HME providers and for ResMed. Watch this space as fabric technology expands its impact in our full face category with the F30i product launch, both the F30i Comfort and the F30i Clear.

On the device side of our business, we have made further progress with the global rollout of the AirSense 11 platform, including most recently in markets in Latin America and just this month in our fast-growing China market. For our China market, as we've discussed before, we leverage a local digital ecosystem intentionally separated from our global ecosystems, including integration with platforms such as WeChat, then that creates a personalized patient engagement experience. This is an element of our broader strategy to scale our global ecosystem model encompassing devices, software and data, yet also customized for ecosystems models that tight local market needs. ResMed also continues to drive awareness in the sleep medicine clinical community.

Our continuing medical education or CME programs include sleep medicine, physician society approved guidelines, including the benefits of CPAP, APAP and bilevel therapy as the clinical gold standard, the frontline treatment for any patient diagnosed with sleep apnea. Our sleep apnea educational courses have now been completed more than 80,000 times by more than 45,000 unique clinicians. Surveys at the end of these courses show that 78% of these providers intend to change their clinical practices related to improving sleep health and breathing health based on what they learned. We're following up with these clinicians to ensure that their intentions can translate into actions that benefit patients on their screening, diagnosis and prescription journey. Early feedback suggests more patients being assessed for OSA and higher numbers of OSA diagnoses are occurring. We see this in our VirtuaOx numbers as well. We will remain laser focused on continued improvement of the sleep apnea pathway to ensure patients who need CPAP, APAP and bilevel therapy can readily access it and be treated for life.

On the clinical research front, we continue to invest in and track important studies that provide new evidence in sleep health. Last quarter, I noted a study in Garmin urology, where researchers found that early treatment of OSA with CPAP may reduce the risk of developing Parkinson's disease. Further in the field neurology and brain health, we are tracking an increased volume of clinical literature showing that sleep apnea is linked to higher risks of Alzheimer's disease as well as the broader field of dementia. Specifically, a large population-based study recently published in the medical journal 4x analyzed data for more than 2 million adults in the United Kingdom and found that obstructive sleep apnea was associated with an increased risk of all-cause dementia and vascular dementia.

Notably, individuals with OSA who were treated with CPAP and did not show -- they did not show an elevated risk of dementia compared match controls that did not have CPAP treatment. This is huge. Additionally, a meta-analysis published in the Journal [ Jira ] Science showed that individuals with apnea have a 33% high risk of developing dementia, and OSA was associated with a 45% increased risk of Alzheimer's disease. The growing body of evidence supports increased focus on screening, diagnosis and treatment of sleep apnea as part of broader health and aging strategies. This is an area of rising costs and rising relevance for payers, providers, health care systems, patients as well as their caregivers and loved ones.

On the GLP-1 front, I'd like to share some new data with you. We looked at patients on PAP who subsequently start GLP-1 therapy to see what happened to their PAP use versus a control group that only has PAP therapy. For this real-world analysis, we analyzed a cohort of N equals 1.7 million de-identified patient records and focused on the clinical and business relevant outcome of mask and accessory resupply. Our findings were that PAP patients who subsequently start GLP-1 therapy show higher PAP adherence rates than patients on PAP alone. Specifically, the 2-year resupply rates are 5.1% higher and the 3-year resupply rates are 6.2% higher for patients who are on PAP and then start GLP-1 therapy versus patients on PAP alone.

As highlighted by Eli Lilly's own clinical trials in this space, these two therapies are better together. This makes sense. Sleep apnea risk factors always include age, gender, craniofacial anatomy as well as weight. I would say, therefore, very often persists after even very significant weight loss and still needs to be treated. CPAP, APAP and bilevel therapy remain the gold standard for treatment of OSA. And the reason is simple because these therapies are the most efficacious.

Building on our ongoing real-world analysis in this space and the ongoing growth of our own mask and accessories business over the last number of quarters and years, we continue to see that patients on a GLP-1 both initiate CPAP therapy more and stay on CPAP longer. As an update to our ongoing large-scale claims analysis data that is built from a claims database of over 30 million patients. Our specifically analyzed cohort includes N equals 2.1 million de-identified patients. Our latest update to this analysis is that we are consistently seeing that patients who have scripts for both PAP and GLP-1 are approximately 11% more likely to start on PAP therapy than patients who have a script for PAP alone. They are also more than 3% more likely to have a resupply event at the 1-year time period and more than 6% more likely to have a resupply event at the 3-year time period. These data have remained consistent over the last years as have our very strong masks and accessories business growth. The data are in sync.

We believe GLP-1s are truly a megatrend and a once-in-a-generation demand gen opportunity for ResMed. Both GLP-1s and wearables alike are driving more patients to talk with their doctors. And ultimately, we believe this will lead to more patients coming into the ResMed ecosystem. In order to ensure that these patients receive the care they need, we're making meaningful investments both organic in our business and inorganic in capturing and channeling the increased consumer awareness. We want to educate the clinicians to manage the interest and questions that come to them, and we want to create life-changing health care technologies that people love. Watch this base for more investments and partnerships from ResMed in this exciting area better helping the 1 billion people worldwide impacted by sleep apnea to find their way to screening, diagnosis and ongoing therapy from ResMed.

This theme dovetails with my second message, which is that ResMed's strong free cash flow generation and robust balance sheet provide us with significant flexibility to both invest in our business and to return capital to shareholders. We will continue to invest in our digital sleep health concierge capabilities, expanding the ecosystems to help patients quickly move from awareness through testing, all the way to being inherent on our therapy for life. I'm excited to announce today that we are expanding our leadership across the broader sleep health market. This week, we signed an M&A deal to acquire Noctrix, a company with an FDA de novo classified medical device that treats restless leg syndrome, known in the medical community by the acronym RLS. RLS is the world's third most prevalent sleep disorder after sleep apnea and insomnia. RLS impacts approximately 7% of adults globally and around 17 million people in the U.S. alone. RLS has meaningful overlap with our core market of obstructive sleep apnea. RLS treatments from Noctrix are noninvasive, clinically proven and drug free, just like our CPAP/APAP and bilevel therapies.

RLS prescriptions are written predominantly by sleep physicians and the flagship product from Noctrix called Nidra, flows through the same HME, DME delivery channel that we here at ResMed lead in market share for our other sleep products.

We expect to close this transaction on or around June 1, 2026. The Brett will talk more about the expected impact to our financials in a few minutes, and we can discuss this strategic tuck-in acquisition in further detail during Q&A. I'll just say this that its revenue growth rate is higher than ResMed's and its gross margin is higher than ResMed, and we're very excited about this tuck-in. The reach of our ResMed brand among sleep physicians and HME providers as well as our national and international distribution channel strength makes us the best owner of this scarce asset. The market and clinical need is incredible. 7% of the world's adult population need our help.

Okay. With regard to our residential care software business, we continue our disciplined portfolio management approach and work, investing more in high-growth areas of the business and looking to find other solutions for the lower growth areas of the business. We've made significant process with our portfolio management work this quarter, and I remain confident that we will accelerate RCS revenue back to sustainable high single-digit growth with double-digit operating profit growth in fiscal year 2027. We'll have further updates for you over the coming months and beyond.

While investing back into our business is our first priority for capital allocation through R&D and sales and marketing, ResMed also returned significant capital to shareholders through our combination of dividends and share repurchases. During the third quarter, we returned $262 million to shareholders through this combination of our quarterly dividend and $175 million in share repurchases. As you've seen, we've picked up the pace of our share repurchases in the last couple of quarters, and we'll continue to deploy meaningful capital here. In concert with our ongoing investments, we delivered strong operating profit growth and robust free cash flow growth in the third quarter.

ResMed remains a compelling investment opportunity amidst global uncertainty. This is my final -- third and final point. During the third quarter, ResMed's strong revenue growth gross margin expansion and disciplined investment approach generated 18% growth in non-GAAP operating income and $520 million in free cash flow, another quarter of above 100% free cash flow conversion. Whether you look back at the last 12 months or at a compounded annual growth rate at CAGR across 3 years, 5 years or even 10 years, we've consistently been generating high single-digit revenue growth or higher and earnings growth that steadily outpaced revenue growth. This track record delivered by 10,000-plus ResMedians, combined with the enormous market opportunity we have in front of us, underpins our continued confidence in our 5-year outlook for high single-digit revenue growth and earnings growth higher than revenue growth.

We have a clear and sustained leadership market position. We are committed to keep delivering for consumers, for patients for physicians, for providers, for payers and for our communities that we serve. And of course, for you, listening to this call, our shareholders.

Okay. With that, I'll hand the call over to Brett in Sydney to go through a deeper dive into our financials, and then we'll open the floor for your questions. Brett, over to you.

All right. Thanks, Mick. In my remarks today, I will provide an overview of our results for the third quarter fiscal year 2026. Unless noted, all comparisons are to the prior year quarter and in constant currency terms were applicable. We had strong financial performance in Q3. Group revenue for the March quarter was $1.43 billion, an 11% headline increase and 8% in constant currency terms. Revenue growth reflected positive contributions across our device and mass portfolio and in our software business. Year-over-year movements in foreign currencies positively impacted revenue by approximately $39 million during the March quarter.

Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in the U.S., Canada and Latin America increased by 9%. Sales in Europe, Asia and other regions increased by 7% on a constant currency basis. Globally, on a constant currency basis, device sales increased by 6%, while masks and other sales increased by 12%.

Breaking it down by regional areas. Device sales in the U.S., Canada and Latin America increased by 6%. Masks and other sales increased by 14%, reflecting continued growth in both our mask portfolio and resupply as well as incremental revenue from VirtuOx, which we acquired in Q4 FY '25. Excluding the revenue contribution from VirtuOx, Americas Masks and other sales also grew at a double-digit percentage year-over-year. In Europe, Asia and other regions, the device sales increased by 6% on a constant currency basis and masks and other sales increased by 10% on a constant currency basis.

Residential Care software revenue increased by 4% on a constant currency basis in the March quarter underpinned by robust performance from our MediFox-Dan software vertical, partially offset by ongoing challenges in our senior living and long-term care vertical. 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 third quarter earnings press release. Gross margin was 62.8% in the March quarter and increased by 290 basis points year-over-year and by 50 basis points sequentially. The increases were primarily driven by component cost improvements in manufacturing and logistics efficiencies as well as a small positive impact from product mix and foreign currency movements.

Our supply chain team continues to focus on our pipeline of productivity initiatives despite some of the current headwinds around fuel costs and emerging component cost pressures, we remain focused on making ongoing long-term gross margin improvements. Looking forward and subject to currency movements, we still expect gross margin to be in the range of 62% to 63% for fiscal year 2026.

Moving on to operating expenses. G&A expenses for the third quarter increased by 14% on a headline basis and by 9% on a constant currency basis. The increase was primarily attributable to additional expenses associated with our VirtuOx acquisition and growth in employee-related expenses as well as marketing and technology investments.

SG&A expenses as a percentage of revenue increased to 19.5% compared to 19% in the prior year period. Looking forward and subject to currency movements, we still expect SG&A expenses as a percentage of revenue to be in the range of 19% to 20% for fiscal year 2026. The R&D expenses for the quarter increased by 12% on a headline basis and 8% on a constant currency basis. The increase was attributable to increases in employee-related expenses. R&D expenses as a percentage of revenue increased to 6.6% compared to 6.5% in the prior year period.

Looking forward and subject to currency movements, we still expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year 2026. During the quarter, we recorded acquisition and portfolio review related expenses of $6 million, reflecting costs associated with the evaluation of strategic transactions including legal and professional fees for due diligence and related consulting work. These expenses have been treated as a non-GAAP adjustment in our Q3 financial results.

Operating profit for the quarter increased by 18%, underpinned by revenue growth and gross margin expansion. Our operating margin improved to 36.7% compared to 34.4% in the prior year period. Our net interest income for the quarter was $12 million, which includes additional net interest income associated with a 10-year Singapore dollar to U.S. dollar net investment hedge that was executed in February 2026. We expect this net investment hedge will generate $9 million in net interest income on a quarterly basis going forward. As a result, we expect net interest income in Q4 FY '26 will be approximately $15 million. During the quarter, we recognized unrealized losses of $10 million associated with the write-down of several investments in our minority investment portfolio. This reduced our Q3 FY '26 earnings per share by $0.07.

Our effective tax rate for the March quarter was 20.9% compared to 20.1% in the prior year quarter. As we noted in our last quarter call, the increase in our effective tax rate was primarily due to the impact of global minimum tax legislation introduced in certain jurisdictions that became effective from July 1, 2025. We still estimate our effective tax rate for fiscal year 2026 will be in the range of 21% to 23%. Our net income for the March quarter increased by 20% and non-GAAP diluted earnings per share increased by 21%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.05 in Q3 FY '26. Cash flow from operations for the quarter was $554 million, reflecting strong operating results and disciplined working capital management. Capital expenditure for the quarter was $34 million, and depreciation and amortization for the quarter totaled $59 million.

We ended the third quarter with a cash balance of $1.7 billion. At March 31, we had $664 million in gross debt and $996 million in net cash. We continue to maintain a solid liquidity position, strong balance sheet and generate robust operating cash flows. As Mick discussed, we have entered into an agreement to acquire Noctrix Health for consideration of $340 million, which we expect to close on June 1, 2026. We will include Noctrix Health in our group results from the closing date. The current annual revenue run rate for Noctrix is approximately $24 million, and we'll report this revenue within our America's devices category. For Q4 FY '26, we expect Noctrix Health to reduce non-GAAP EPS by approximately $0.02. Today, our Board of Directors declared a quarterly dividend of $0.60 per share. During the quarter, we repurchased approximately 673,000 shares under our previously authorized share buyback program for consideration of $175 million. We plan to purchase shares to at least the value of $175 million during the fourth quarter of fiscal year 2026. In addition to returning capital to shareholders through a dividend and share buyback program we will continue to invest in growth through R&D and tuck-in acquisitions.

Finally, as you know, this is my last earnings call ahead of my retirement, and I would like to take this opportunity to thank you for your support over many years. For me, it has truly been a great honor and privilege to have worked for our investors over the last two decades. I will continue to be a huge advocate for the great company at ResMed is. Thank you so much.

And with that, I will hand the call back to Daryl.

[Operator Instructions] Our first question comes from the line of David Bailey with Morgan Stanley.

Brett, reduced component cost has been supportive of gross margins over the past couple of years. I wonder if you could please talk to some of the changes you're seeing in component costs in freight at the moment. And maybe also reference any contracting or supply chain changes you've made post COVID and the volatility we've seen in more recent years.

Yes. Thanks, David. I'll go first and maybe hand to Brett to talk about sort of broader gross margin implications. But David, it's a very good question. Obviously, we're seeing some geopolitical uncertainty in the Middle East and impacting fuel rates potentially with oil and gas supply. One thing -- and the good news for ResMed in terms of our logistics is we go across the Pacific Ocean on sea freight through the Panama Canal to East Coast, and we're not seeing any impacts from that geopolitical uncertainty impacting our core supply chain. But as you said, there are impacts on fuel, and we've done a very good job of going from air freight to a very, very vast majority of our work on sea freight. But there are some component costs we're looking at. I can tell you our pipeline of supply chain improvement opportunities is such that at this moment, we're not changing our guidance, which is that ResMed plans to have gross margin accretion through 2030 and double-digit basis points improvements each year from here to 2030, even amidst all the changes that are happening. Obviously, these changes happen daily and things continue to move, and we'll watch everything. But at this point, we still, as you saw, had very good gross margin accretion in the quarter-to-quarter and year-on-year. And we expect, as we look to FY '27, '28, '29, all the way through 2030 to be able to through our great pipeline of work to still achieve gross margin accretion. It is more difficult given the geopolitical and external circumstances. So with that, Brett, I'm not sure I left you much to go with there, but any thoughts.

No, you covered it well, Mick. Yes, I mean, look, we've done -- the team has done a pretty good job over the last few years on components and improvements there. It gets tougher, obviously, in this environment. And realistically, we'll see some cost inflation on components coming through. But if you think about it -- and Mick talked about that productivity pipeline, there's a lot of other things you can do that can offset that. And we've got think about the platform standardization, scale benefits, the vendor management, which we've done a great job on some longer-term contracts and improving those enormously and improving resilience as well. And then I think around execution on manufacturing, there's cycle times, there's asset utilization, logistics efficiencies, freight optimization. So there's many things that we can do that we think we can certainly offset that. And still our long-term objective is to increase that gross margin over time.

Our next question comes from the line of Steve Wheen with Jordan.

Just a question on or just to confirm, it's growing faster and it's got higher margins. Are you talking to gross margin? And any indication as to what they will do to your SG&A in R&D. And the other thing I just wanted to cover off on is how does it get reimbursed? And is there any opportunity for that reimbursement to change over time?

Yes, Steve, great questions. And I'll go first and ask Brett to jump in if he likes. Yes, Noctrix Health is -- they have a very novel technology and Nidra is the product. It's a noninvasive nerve stim device that has excellent efficacy in treating restless leg syndrome, particularly moderate to severe restless leg syndrome. And the current therapies for this RLS are all -- they're pharmaceutical options old drugs that have many side effects, and we think this is a huge opportunity for a noninvasive medical device with sleep doctors writing prescriptions, HME setting them up. So it is growing faster than ResMed and has higher gross margins than ResMed. Obviously, they're in the early development cycle, and we will be investing in R&D. We will be investing in sales and marketing. I don't know, Brett, how deep you want to go into the details of the P&L there. But I'll let you review that. But I'll just say this at a high level. This isn't just about one product coming into the sleep health portfolio for ResMed. We're the best owner of this asset, we can scale it faster than anyone. Our market access team and our knowledge of the CMS, DMAX, the DMEs and actually where we can go to drive reimbursement further is going to be incredible. I can tell you, though, that the start-up team from Noctrix Health has done a great job of going payer by payer and getting reimbursement and getting this FDA de novo classified product into the market quickly. Brett told you the run rate that they're hitting on the current quarter and multiply that by 4. We're going to expect to do better than that as they go into this year because they're growing faster than ResMed, as I said earlier. So space. We're going to help them get more market access, more reimbursement and grow faster than they are, and it's going to be a great team. And most importantly, we're going to take care of a whole bunch of patients. 7% of the adult population worldwide has RLS. And just where this product right now is focused on the U.S., 17 million people have RLS, and a very good portion of that are potentially addressable by this product. So watch this space. Brett, any further thoughts to Steve's questions further down in the P&L of Noctrix Health?

Yes. I mean the only thing I'd add is it's a strong growth trajectory. So we'll continue to invest in SG&A and R&D., so we'll certainly be doing that. And then probably the guidance I gave earlier on EPS impact or EPS dilution is it would probably be a good kind of estimate as we go forward. But obviously, we'll update that with a bit more clarity next quarter.

Our next question comes from the line of Saul Hadassin with Barrenjoey.

Maybe just a question on combined Europe Asia revenue growth again. another quarter of strong growth. It's now several quarters in a row that you've delivered robust growth rates, particularly in masks. I'm just wondering, is it the same measures that you've spoken to in the last few quarters that's driving that growth that looks to be above market. Any color you can give us on particular contracts or countries lumpiness in sales? Just some color as to what's driving I think that strong growth rate, please?

Yes. Saul, it's a great question. And as you know, our Europe, Asia and Rest of World category includes like 140 countries. But your question is sort of looking for highlights. I mean, look, I'll say this, I think our team in Western Europe have done a good job of partnering with our home care provider customers and in markets in Northern Europe where we've been able to achieve and continue on contracts with ongoing annual capabilities and growth. They've done well there. But also in our Asia Pacific markets, we've seen some really good sort of omni-channel approach in China, Korea, Australia and New Zealand, where the teams have got subscription protocols, direct-to-consumer sort of resupply opportunities. And in the omni-channel, leveraging the home medical equipment and hard care provider channel as well to drive resupply as well as re-PAP. And so we talk about mid-single-digit growth in devices and high single-digit growth in masks as being the general market. And to your point, robust mass growth that looks like we're taking share. If you're asking me why we're taking share and growing the market in the masks, I would look to the AirTouch N30i, our brand-new fabric technology mask. It's the first in the world where you can put fabric on top of silicon at scale and mass production from a world-leading company in the field of sleep apnea. As I said in my prepared remarks, this is changing the basis of competition and it's not just about the N30i and the most recently released ones we just launched the F30i Comfort and the F30i Clear in the full face category, which is a higher-margin area I think this changes the basis competition period in how mask therapy happens. Go to your channel checks, talk to patients, talk to providers, talk to respiratory therapist to do the set up every day. The compass is incredible, that's how I think we're achieving that. On the devices side, look, I think we are leveraging some of these sort of macro things in our favor from big pharma and big tech, but also ResMed's doing a better job. We've set up re-PAP programs that are getting out there and working in the U.S. And even in the tougher markets of Europe Asia, Rest of World. So it's a good question, Saul, and hard to cover 140 countries in 3 or 4 minutes there, but I hope I did an okay job.

Our next question comes from the line of David Low with UBS.

Mick, if you mentioned channel checks. We're increasingly hearing about the change in funding models, particularly Synap comes up from time to time and some caution amongst the DME customers of yours that this is going to be a challenge. Just wondering what you're seeing on that front, is there any trends that concern you?

Yes, David, thanks. It's a very interesting question because it sort of gets us to talk about the evolution of our U.S. HME business. And we had we call our HME Advisory Board just here in San Diego with a bunch of HME -- top HME customers across the U.S. And they were talking with our team, our commercial teams and sales and marketing and clinical and saying what they want over the next 1, 3, 5 years, and what they're seeing that their customers, the patients want to see small acquired more comfortable devices, more cloud kicker devices also on smoother pathways and all the work we're doing with our VirtuOx sleep apnea testing protocols and our Ectosense and NightOwl home-sleep testing products to sort of smooth the channel and middle of funnel work right, from that prescription to set up. They want to help with that. They did also bring up questions around the Synapse, and you know what they're doing in their experiments. I gave the perspective that, look, over the last 15 years, including 10 years ago when I was running -- most 15 years ago, I was running the U.S. market and a company called CareCentrix was coming out doing this exact of looking to do utilization management in the field. And I think ultimately, UnitedHealth bought them. Look, if you're looking at areas of waste and loss in health care system, I think you go to the hospital. You go to these high-cost areas where there's a lot of waste and a lot of reuse of of supplies and expensive technologies used when lower cost, lower acuity care, like ASCs, outpatient, including home care, where ResMed plays are the best play. I don't think this is a huge threat. I think it's just like CareCentrix was a decade ago. It might be something they work on for a while. I think the payers will find that the physicians want to work with an insurance company that takes care of the patients in the right way. We've had sort of utilization management approaches in France and Germany. And so I gave my U.S. customers like we can deal with the segment of the market that will go here. But I think employers physicians and others will choose and get Net Promoter Scores at insurance companies that really take care of the patients. And OSA, particularly CPAP is a very low cost, low acuity, high clinical return and high economic return, we can show the ROI for a payer provider like Kaiser or Intermountain or Geisinger. But even a payer alone, looking at models like this, they can see the ROI in Net Promoter Scores, satisfied patients and reduced ER costs. So we're working very closely with the payers to make sure that this forms part of the ecosystem. It's not a big fear for the HMEs and just working with them to understand how this can play out is the right thing to do. So yes, evolution of pay has happened. I love the U.S. market. I love the competition we have there. We do really well, and we partner really well with our HMEs through all the perturbations that the payers look at. I don't think this is a major issue for them and very manageable.

Our next question comes from the line of Dan Hurren with MST.

All the best to Brett. I'm sure we'll go into that later. But on the fabric masks, Mick, I don't think anyone's arguing about the effectiveness of the compliance of the new fabric masks. But when we do undertake these channels set you're recommending, we keep hearing that the price point is such that a traditional HME can't make any profit on either set up or resupply. So from a commercial perspective, it kind of makes the combined benefit of relevant. Is this correct, or are we hearing the wrong thing?

Yes, Dan, it's interesting, and it depends on the 50 states, and there's probably 5 to 7 payers per state, right, Blue Cross Blue Shield and United's variants and CVS, et cetera, et cetera, et cetera. And so you 250 matrix -- point matrix, if you like, when you think about payers and what they pay and where the correct price points are. And we obviously -- we want to work with all the different models, and we price for what is in terms of the extra cost that goes into those fabrics, but also the extra value that we see. There's a 6% increase in adherence. Now for people who have margin, and there are many parts of the country where there are much in at the current price points of an N30i that 6% increase in adherence and they can run the spreadsheet themselves. There is a forefront reason to put that mask on. The most important one, though, is that the patient is satisfied, and it's a better mask. So If you get the patient over the line and they love it and it's more comfortable, and there's the potential for the HME and the patient to both be able to do this on a sustainable basis. And that is there in many states and many payers we're driving that forward. It won't be the case in every state and every payer when you look across it. And so if your channel checks cover some that are below that line, the three are above the reimbursement, that's not going to be many parts I would hope that the dermis will work and help those patients find a way CPAP.com or ease become and get away if they really -- that's the best mask for them. But we work with the HMEs to make sure the economics are in line. And for the vast majority, we're able to get those economics to work within the reimbursed environment. I think, as I was saying earlier, in Eurobase risk world in the cash markets, it's really price elasticity in assessing that. And patients will pay for comfort in those types of markets. But in the HME driven ones and the partnerships we have there, we're trying to make sure the price points are that they make profit across the vast majority of customers. It won't be able to be there for every customer because payers do different things in each state and different payers within a state do different things as well. And we watch that very closely.

Our next question comes from the line of Brett Fishbin with KeyBanc Capital Markets.

I just wanted to ask about competitive dynamics in the Devices segment, mainly in the U.S. Just thinking about one of the competitive launches that took place late in 2025. I was just wondering if you could speak to the level of noise you've observed in the U.S. around that launch? And then if you've seen any level of market share shift and just your thinking about that?

Yes. Thanks for the question, Brett. Yes. Look, obviously, as the market leader here, we look at every new entrant every new technology, and I would say we're productively paranoid at looking at everything that could come up from competition. We love healthy competition I can tell you that there's been no launch in the last 12 months, there's something that we go, "Oh, wow, goodness, we didn't think of that. That's extraordinary. That's amazing." But what we do look at and say, "Hey, team, when is the last time we upgraded our order set algorithm." It was like a decade ago. And there's this new technology called AI. And so more difficult to adopt in the medical space, and we've already had one FDA glide product in a field of AI that we talked about in Smart Comfort last quarter, watch this space from ResMed. We are not looking back at the competition and launches and ideas and algorithms and devices they may launch. We're looking to the future and saying, what's ResMed going to do to have smaller, quieter, more comfortable, more cloud connected and more intelligent therapies in the space. And we will bring out more intelligent therapies over time. We'll continue to have smaller acquired and more comfortable and watch this space on that. But yes, as you saw in the device number, very solid in the U.S., 6% growth, not seeing an impact, and we look at new patient starts, we look at new customer adoption. We look at all the new technologies and yes, no new competitive threat that we're worried about. But I love using those moments if you like, in the market, to challenge my team to get stuff to market faster, in market faster and get it from the bench get it to those clinical trials and to feel when it's quality, regulatory and through the line that it's ResMed standard, and it's what we do as the market leader in this space. And Yes, watch this space for more algorithms coming from ResMed over the coming quarters and years.

Our next question comes from the line of Anthony Petrone with Mizuho Group.

And Brett, great working with you and good luck on the next chapter. Maybe one on primary care engagement, Mick, on the CME program, educational program you have, how often does that turn into a new prescriber? Like how often are these primary care physicians actually new to the CPAP world, they take an educational program and then they begin writing prescriptions. So what's the conversion rate there? And just a quick follow-up would just be any updated chatter on the Philips return to the market.

Yes, Anthony, and very cheeky to get two questions in there. I'll answer the first one first. PCP engagement, yes, 80,000 CME programs out there, 45,000 unique clinicians. We track very closely and without going too much into the depths of our sort of clinical and marketing commercial teams data. I can tell you that we tend to aim to target through the ads on Doximity and the Medscape and the work on the CME. We try to target PCPs, primary care physicians, who already are engaged at some level in home sleep apnea testing. It might be one patient referred per month over the last 12 months. So it might be 3 or 5 or 7 or some higher number for some of them. And so what we don't want to do is go and do sort of pure evangelistic work with somebody just hasn't heard of sleep apnea. We look at someone who's already contacted whether it's VirtuOx or one of the competitors. We're sort of agnostic to that. But we say, okay, if you've engaged already and hopefully [indiscernible] your testing, and you get this education, and you want to step up, what's the change in volume of referrals? Does it go from 1 sleep apnea referral per month to 3 to 5? Does it go from 5 to 7 to 9? Does it go from 9, et cetera, to 12, 15 referrals per month per PCP? And that's where we look at the volume. If you look at the volume that we released on the data on our VirtuOx which was double-digit increase in home [indiscernible] through that VirtuOx thing. And the VirtuOx team just had their national sales meeting just this -- earlier this week. And I can tell you they're hyped up and they're ready to go to those PCPs and watch this space for more partnerships from ResMed to continue that growth in primary care physicians. So it's less about brand-new greenfield getting a PCP that never did anything in sleep to suddenly do it after a CME program. It's more about someone who's doing a little to now knowing more signs and symptoms, the Q&A, the history and physical, the right questions to ask and then the gold standard therapy that you have an obligation to write for, but also when used as directed, is the only one that can 90-plus percent eliminate AHI. None of the other therapies can do it. And so making sure that, that's there. We're seeing that work. We're seeing the volumes increase. You see that in our VirtuOx numbers. And frankly, you've seen our device numbers growing at 6%, where the market might be a little bit below that. And we're able to take, I think, create new market growth and then take that share as the market leader.

Our next question comes from the line of Davin Thillainathan with Goldman Sachs.

Brett, I just want to thank you for all these systems over the years and all the best with your new chapter. I guess a question on U.S. devices, just given it gets a disproportionate focus with the investment community. Appreciate it that you tend to talk about mid-single-digit growth, and that's what you have achieved. But I was just wondering for this particular quarter or some of our channel checks were suggesting some sort of one-off events that may have held back growth, particularly to do with weather events. Just start I'll get your thoughts there and also perhaps your views given the oral GLP-1 rollout, how that part of the portfolio can grow over the next few quarters?

Yes. Gavin, it's an interesting question because -- well, firstly on the first part, we really -- I mean there were weather impacts in some parts in the Midwest with some tornados and things. But we really didn't see a major weather event that has impacted our U.S. devices and quarter. We did talk about seasonality from our Q2 to our Q3. And you saw that in some of the numbers where high deductible health plans and health savings accounts from our Q2 numbers were it was more like 7% or 8% growth in devices in our Q2, and it went to 6% here in our Q3, so some seasonality there, but no, not weather related. And I would actually argue that, yes, mid-single digits, 4, 5 or 6, we're at the high end of that at 6% growth in devices. We're doing pretty well. Look, what I will say is, to your question about leveraging GLP-1 pills versus the 2, 3 years now of an IFU for an injectable looks outbound in the field. We're seeing a good flow of patients in the primary care, a good flow of patients into that diagnostic funnel, the conversion of getting that CPAP set up that sort of middle of funnel work. There's a lot more work ResMed can do. That's why we bought somewhere. That's why we bought the VirtuOx, and that's why we bought the capability for Nidra to help with that flow. And also the partnership with our HMEs to deal with the higher volumes and sometimes virtual referrals that come from primary care physicians versus other traditional channels that they might get self-referral from a sleep position. So we're watching it carefully. Every quarter is to say, look, if it's sitting at 5%, how do we drive that up, 50, 75, 100 basis points, stay at 6% like we did this quarter. We're not going to be able to do it every quarter, but when we can, where we get the demand gen, the capture, the creation, we can make it happen. And the team made it happen this quarter. I'm very proud of them. and we're ramping up for the next one. And more importantly, looking at the next 1, 3, 5 years, to the last point I'll make on this is, as you go from those injectables to the pills, it will be a broader population that they'll be appealing to some people just have this psychological thing about putting a needle into them. I think more patients will come through on that. But yes, there's once in a generation demand opportunity, I think, from GLP-1s, bringing patients in and the advertising that big pharma is going to do. I think it's more of like a 1-, 3-, 5-year tailwind for us versus 1, 3, 5 quarter. And so we're looking at the marathon here, and we're looking at this kilometer marker for the metric system people or [ Milemaker ] for the U.S. folks. And this [ Milemaker ] was pretty good in what we did in demand capture, curation and conversion. Thanks for the question, Davin.

Our next question comes from the line of John Block with Stifel.

Jordan Bernstein on for John. Just going to continue down the same road a bit on the U.S. devices. I would call an increasing amount of ad spend from the likes of Eli Lilly, and there's outbound OSA brand campaigns, don't sleep on osa.com, and the broader population for the pills out there like you just spoke to, I think the question for you would be, in that perspective is that bound OSA patient walks into their PCP or their sleep dock, are they walking out with the GLP-1 and CPAP prescriptions. And if they are, how would you describe that patient's behavior? Are they getting that CPAP description filled? And maybe you could talk about their journey exiting the doctor?

Yes. Jordan, it's a really good question, and obviously, one that we've thought a lot about and are analyzing really closely, right? Because we didn't pay for the demand gen. We're not going after these new patients, someone else is, as you said, there's a don't sleep on OSA campaign. I'd love to have a spare $100 million to put into a campaign like that. I'm glad somebody else does because it's a huge benefit and gets a patient in that we never would have gotten. But once they're there, once they're at that PCP and as we're targeting high-volume GLP-1s and people with home sleep apnea testing providers, that PCP is writing a prescription for because they're going to talk to the patient. But it's kind of a legal or clinical obligation to write for the lowest cost, most efficacious therapy. And a patient sort, CMS has already set up and most payers have set up this sort of 90-day, you've got to get to a 70% of trailing 30 days in that first 90-day period to qualify for 91st day, the device isn't taken away. It's an interesting game theory that when that approach to reimbursement was put in 15, 20 years ago. I think some of the industry saw as a threat. ResMed saw it as an opportunity to say, well, we've got a 90-day sprint to help this patient find their way to the lowest cost completely reversible and most efficacious therapy on the planet to treat obstructive sleep apnea. So the PCPs and particularly sleep doctors know this. They don't get every patient adherent we brag about our 87% adherence at day 90. That means 13% don't go there. Are we going to get 87% with every patient that Eli Lilly brings into that PCP that sleep apnea? No. But are we going to get close to it? And what can we do to maximize this once in a generation opportunity for us. That's our challenge. That's what we're educating the PCPs on. That's what we're educating the primary care positions on the sleep doctors on because they know what's gold sand therapy, and they know it's not simple to get a patient adherent in those first 90 days. And they know if they're not here 90 days the device comes back, and it's just not good for the patient, not good for us. But anyway, that's our 30-year journey here. The fact that someone else is playing for the demand, and we've got a capability to maximize the probability of setup is incredible. What I love is that the company who makes this product on their own education says the combination therapy is better. Their own clinical data show that so that their reps will be saying that if they're following the rules and several hours. And so that education to the PCP will be the same. And the sleep doctors obviously know this back to front. Weight loss, if you look at the sort of primary investigators on the trials that drove this for Lilly. They say there's always been about tracking age, tracking gender, tracking craniofacial anatomy, but also tracking weight and realizing that weight management and spend cement management go hand in hand. Go back and look at our data. Now on 2.1 million patients. These patients, when they have this combination prescription, start more, stay on more and stick with our therapy over the long term, 3 years plus now. And we were asked the question, wait a second, what if they start CPAP and then get a GLP-1, we've now answered that with an equals 1.7 million to show these patients also if you sort and then at a GLP-1, you're there and going. If you get the prescription at the same time, that's the next phase, and we're looking at it, and we are seeing, I think, in terms of the age and the gender and the approach of these people in line approach. I'd like it to be better. And so that's what we're working on. But it's a great question, Jordan, and very pertinent.

Our next question comes from the line of Brandon Vazquez with William Blair.

Mick, I was wondering if you could -- you talked a little bit about reiterating expectations next year and through 2030 for high single-digit growth. and then better kind of leverage on the bottom line. Maybe from a high level, I'm sure we'll get into it more next quarter. But for a high level, talk to us about what the growth drivers are. You see -- are there any new product launches, anything like that as we go into fiscal '27? And then, Brett, maybe on your end, like how do we think about what the levers are on a go-forward basis in '27, kind of more of the same with efficiencies, or is there anything else new that we should be contemplating?

Yes. Thanks, Brandon. It's a really good question. And you've followed us for many years, you know I don't release product pipeline ahead of where we go. But I can talk about the N30i and it's great takeoff, the F30i Comfort, F30i Clear are doing really well and at premium prices. Obviously, our core masks are doing well. We talked about the AirSense 11 expansion across Latin America now, Brazil, Argentina, beyond. We talked about the China launch, and that's a fast-growing consumer-driven market where we're a premium but very successful brand there. And we're talking about Korea omni-channel, Australia, New Zealand, Singapore and the growth there as well. So I won't go in to promise the future product pipeline, but I can tell you, there's a lot in it, and I've challenged the team to get time to market faster. I did talk earlier about algorithms and how those can come along and those are digital upgrades, but can also come with hardware upgrades at the same time. So watch this space on that. Brett, any color for Brandon there on our go-forward guidance of high single-digit revenue growth and better than that for bottom line.

No. I mean we'll do what we're doing. We're focused on driving top line, and we've got really good operating margins. So whatever we deliver on top line will fall through to the bottom line. So it's important for us to keep executing on our strategy, and that's what we'll continue to do into FY '27.

We are now at the 60-minute mark, so I will turn the call back over to Mick Farrell.

Well, thank you, Daryl, and thank you to all for joining us for our earnings call today. On behalf of the more than 10,000 ResMedians, serving people in 140 countries. I'm pleased to say we're able to deliver another strong quarter of performance and continue to build value for all of our stakeholders and many of our ResMedians are shareholders. So well done to you as well. And Brett, 55 quarters. Thank you for being a great partner and friend, and best wishes on your retirement, and welcome to Aaron Bloomer going to be an amazing firecracker CFO that's going to take us to the next level and build on the amazing foundation that Brett has set up. Over to you Salli.

Thank you, Mick, and thank you as well, Brett. I just want to echo thank you to everyone who joined us today. We appreciate your time and interest. If you have any additional questions, please don't hesitate to reach out directly to investor relations at resmed.com. Daryl, you may now close the call.

Ladies and gentlemen, thank you so much for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and enjoy the rest of your day.

Greetings, and welcome to the ResMed Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Salli Schwartz, Chief Investor Relations Officer. Please go ahead.

Thanks, Kevin. I want to welcome our listeners to ResMed's Second Quarter Fiscal Year 2026 Earnings Call. We are live webcasting this call, and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now.

During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers.

In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. I'll now turn the call over to Mick.

Thank you, Salli, and good morning, good afternoon and good evening to all of our shareholders, and welcome to all to ResMed's second quarter fiscal year 2026 earnings call. We delivered another strong quarter with 11% headline revenue growth or 9% growth on a constant currency basis. We drove operating leverage leading to margin expansion sequentially and year-on-year, and we achieved GAAP EPS growth of 16%, strong double-digit bottom line growth.

I'm very proud of our global team of 10,000-plus ResMedians, who continue to innovate and evolve the digital sleep health pathway to expand access to our life-changing technology across over 140 countries worldwide. Our team drove high single-digit growth in global devices revenue and double-digit growth in global masks, accessories and other revenue.

Last quarter, I expressed confidence that we would reaccelerate our Europe, Asia and Rest of World masks, accessories and other category to high single-digit growth in the second quarter. The team from EMEA and APAC has delivered, and we achieved 8% growth on a constant currency basis across Europe, Asia and Rest of World, driven by continued strategic expansion of our mask portfolio, including our new fabric masks, a focus on improved mask resupply through education, awareness and execution as well as targeted initiatives and focus in some of our direct-to-consumer markets around the world. And I'll spend a little time on that later.

So well done to our EMEA and APAC teams. Last quarter, I also talked about our portfolio management work that we're doing in ResMed's residential care software or RCS business. We are making strong progress with that work, and I remain confident that we will be back to sustainable high single-digit growth and double-digit operating profit growth in fiscal year 2027.

For this March and the June quarters, we expect to continue our portfolio management process and maintain mid-single-digit growth across our RCS business as we go through that portfolio management. This software business, this RCS business remains a key synergistic enabler of our sleep health and breathing health business, particularly through Brightree in the Americas and through MEDIFOX DAN in Germany, and it remains a core part of our long-term growth strategy.

During the quarter, we also continued to drive operating leverage. Our global supply chain team delivered 310 basis points of year-over-year gross margin expansion, incredible result. These results, along with our disciplined approach to business investments in both R&D and SG&A translated to another quarter of strong mid-teens earnings per share growth.

A huge thank you to the entire ResMed global team for their ongoing commitment to serving patients across 140 countries worldwide. ResMed continues to build the world's leading digital health ecosystem, encompassing sleep health, breathing health and health care technology that's delivered in the home.

Over the recent quarters, I've been highlighting 3 key themes: 1, that ResMed is an operating excellence machine and an innovation machine. 2, that ResMed is a compelling investment opportunity, especially amidst global macro uncertainty; and 3, that ResMed has an excellent free cash flow and a very strong balance sheet, and they both position us well to invest in the business as well as to return capital to our shareholders.

So let me cover these 3 themes briefly in these prepared remarks. On the topic of operational excellence, I've shared with you ResMed's pipeline of margin improvement drivers. These efforts helped deliver 310 basis points of year-over-year gross margin expansion in the second quarter and 30 basis points of sequential gross margin expansion. We will continue to execute on these opportunities over the remainder of fiscal year 2026 and beyond.

As I shared at a recent health care conference earlier this month, I have challenged our supply chain team to deliver double-digit basis points improvement in gross margin every year through 2030. I've also highlighted the evolution of our global manufacturing footprint. We're making very good progress on our newest U.S. distribution center in Indiana. We recently signed lease and started construction in that state, and we are on track to be up and running during calendar year 2027.

Once this facility comes online, ResMed will be able to ship to around 90% of our U.S. customers in less than 2 business days. This is in addition to our recently announced expansion of our Calabasas, California plant, which doubles our U.S. manufacturing capacity.

Ultimately, ResMed will be able to deliver the only made in America CPAP, APAP, bilevel and mask systems. ResMed remains an innovation machine. Our R&D investments in the next generation of market-leading masks, cloud-connected medical devices and digital health care software position us to keep delivering the world's smallest, quietest, most comfortable, most connected and most intelligent therapy solutions for sleep apnea and expansions into insomnia, respiratory insufficiency and beyond.

We recently launched the F30i Comfort as well as the F30i Clear range of masks. These are the first compact full-face fabric masks available from ResMed. And they're in select key markets now, and we will continue to roll them out around the world as we get regulatory approvals. Patient and provider feedback on these new fabric masks has been incredibly positive.

It's still early days into the launch, but we expect strong adoption of these masks over time. These latest variants expand ResMed's AirTouch portfolio of fabric-based mask offerings, which not only deliver advanced comfort, mobility and interchangeability for patients, but they also change the basis of competition for masks and for ResMed.

Artificial intelligence is another vector for our product innovation. At ResMed, we view AI as a resource that will amplify and personalize care. Last quarter, I talked about our limited beta launch of Comfort Match, an AI-enabled comfort setting recommender within the myAir software platform.

This is ResMed's first FDA-cleared AI-enabled medical device. Comfort Match is intended to help people become more confident and more comfortable with CPAP, APAP and bilevel therapy. What I expect to see is having an AI algorithm that is effectively a sleep coach to help you start therapy that can really help you improve not just short-term adherence, but also long-term adherence as you get used to therapy. There are a bunch of comfort settings on these devices and many people do not adjust them. With help from AI, we think this technology will unlock decades worth of comfort features that have been underutilized by consumers and patients alike.

Moving on to ResMed's SG&A initiatives and investments. We remain focused on demand generation, demand capture and demand curation as critical components to our long-term growth. We continue to drive selected targeted direct-to-consumer campaigns to build sleep apnea awareness as well as to drive ResMed brand awareness globally and to drive patients into the funnel.

This past quarter, we supported various holiday-related campaigns. We focused on 11/11 or Singles Day in China, and we also had some promotions around Christmas holidays and Black Friday within the U.S. markets. I can tell you, we've successfully encouraged consumers to give the gift of great sleep, and we highlighted our portable travel AirMini device, which is lightweight and compact size as perfect for travel, and we had good success in the December quarter.

We also are driving awareness in the clinical community. Earlier this year, we expanded our offering of Continuing Medical Education or CME programs that review sleep medicine guidelines, including the benefits of gold standard CPAP, APAP and bilevel therapy. It's the frontline treatment for any patient diagnosed with sleep apnea, and we're educating PCPs around the U.S. on this fact.

To date, these CME programs have been completed nearly 60,000 times. That's a 50% increase from our first quarter 2026 earnings call numbers that we shared with more than 35,000 unique clinicians completing the CME training. That demonstrates that actually many of these health care providers have taken multiple courses, so not just sleep 101, but sleep 201, sleep 301. Surveys at the end of these courses now show 77% of these providers intend to change their clinical practices related to sleep apnea and sleep health and breathing health based on what they learned.

On the clinical research front, we continue to stay abreast of important studies that highlight evidence of sleep health and how it impacts the body and the brain and overall health. One important area of analysis is the link between sleep apnea and sleep health and brain health. A recent study published in JAMA Neurology looks at a cohort of more than 11 million U.S. veterans, where researchers found that Obstructive Sleep Apnea, or OSA, was associated with a higher incidence of Parkinson's disease over time.

The authors of the study also found that early treatment of OSA with CPAP may reduce the risk of developing Parkinson's disease in the first place. The study's findings align with prior evidence linking OSA with cognitive disease, gait instability and fall risk. Growing evidence also now shows that OSA may meaningfully alter dementia risk.

Adherence to CPAP appears to counteract several of the biological pathways that link disrupted sleep to neurodegeneration. A large cohort studies have shown that untreated moderate to severe OSA increases the likelihood of developing dementia by 30% to 45%, while patients who remain adherent to positive airway pressure therapy experienced substantially lower risks and rates of Alzheimer's disease and cognitive decline over time.

Mechanistic studies reinforce this signal. CPAP use has been shown to partially restore lymphatic clearance as well as the brain's oversight waste removal system that becomes impaired during OSA, and this reduces a key Alzheimer biomarker. Even short-term CPAP adherence around 5 hours a night can improve memory, attention and executive function in older adults with mild cognitive impairment, suggesting that consistent early intervention with CPAP may help stabilize some cognitive trajectories.

Watch this space for more on this front between sleep health and brain health. It's increasingly clear that treating OSA, getting on, staying on CPAP, APAP and bilevel has implications to brain health as well as cardiovascular health, diabetes health and beyond. In fact, it is literally a matter of life and death. Research published last year in the Lancet Respiratory Medicine Journal found that CPAP therapy significantly reduces the risk of overall death for people with obstructive sleep apnea.

More specifically, this study showed that CPAP therapy lowers the overall chance of dying by 37% and the chance of heart-related or cardiovascular-related death is reduced by 55%. The study, which analyzed data from more than 1 million sleep apnea patients worldwide, underscores the importance of consistent CPAP therapy for improving survival outcomes in OSA patients. So this therapy saves lives, but also improves quality of life.

We're also excited to announce that our medical affairs team has launched the ResMed Science of Sleep Apnea Advisory Group, bringing together leading external physicians in various specialties from around the world to provide strategic clinical and scientific guidance to our innovation efforts. Watch this space for results of their work.

Before I move on, I'd like to spend a minute on our latest real-world evidence that we shared during a recent health care conference. As you know, we've been tracking claims data now reflecting more than 1.95 million patients. What we've consistently seen is patients, who have scripts for both a latest generation GLP-1 or GLP-1 and CPAP prescriptions are 10% to 11% more likely to start their CPAP therapy than patients who only have a script for CPAP.

These patients that have a combined script, they are also 3% more likely to have a resupply event at 1 year, meaning they're buying a new mask, a new accessory of some type, a hose, filter and beyond. But that doubles, and we see more than 6% likelihood to have a resupply event at 3 years. This is the first time we had 3-year data to share, and we shared that. It's encouraging to see that the motivation of these patients lasts and even accelerates over time. Ultimately, what we're finding is patients on a GLP-1 get on CPAP more and stay on CPAP therapy longer.

Even as we've continued our investments in both R&D and SG&A, ResMed again delivered strong operating profit growth in the first quarter. Indeed, ResMed remains a compelling investment opportunity amidst global macro uncertainty. That's my second key message I'll spend a couple of minutes on and then get to Brett and we'll get to the Q&A. We continue to closely monitor the global trade environment and the evolving regulatory landscape.

As you saw in December, CPAP, APAP and bilevel products are not included in CMS' upcoming competitive bidding program. That's the first time in 15 years that's happened, and we're very happy that, that result, we think, will be great for not just U.S. citizens and Medicare recipients, but also for our HME partners and the overall sleep health and breathing health industry.

Also, because ResMed's products are used to treat patients with chronic respiratory disabilities such as obstructive sleep apnea and respiratory insufficiency, they've been subject to global tariff relief for decades. This relief has continued in the context of prior Section 232 investigations, and we expect it to remain true no matter what the result of those types of investigations are for medical supplies announced in the late September investigation that's currently underway. So the so-called Nairobi protocol we see in play.

We are fortunate to be able to remain fully focused, therefore, on executing on our 2030 strategy, including delivering value to all of our constituents. ResMed remains a very strong free cash flow generation machine. We have an incredibly robust balance sheet, and that provides us with significant flexibility to both invest in our business and return capital to shareholders. This is my third and final key message here.

We'll continue to selectively invest in our digital sleep health concierge capabilities, including screening tools, clinical tools, seamless workflows and cloud connected pathways. We'll be looking to expand and speed up the diagnostic funnel to keep up with new patient flow and even accelerate it over time from our own ResMed demand generation efforts.

The greater awareness of sleep apnea generated by big pharma medications as well as the consumer wearables from big tech are capable of driving growth of patients into our funnel, if ResMed does the work of curating and helping those patients find a pathway.

As I said at JPMorgan earlier this month, I'm predicting that at least 1, 2 or 3 of these wearable companies will follow Apple Watch and Samsung Galaxy Watch to develop and launch sleep apnea detection capabilities that have passed through the FDA workflow. So watch this space on that.

So with both big tech and big pharma bringing people into the funnel and primary care education from ResMed driving like never before, we need to be prepared to address this ongoing and growing awareness of sleep apnea as well as other sleep health and breathing health disorders. I spoke a few minutes ago about our CME courses. I also talked about some of our ongoing product innovation, such as our newer fabric masks. You've seen our prior acquisition of companies like VirtuOx and the Nidal product from a company called EctoSense as well as Somnaware, which is the software for pulmonary and sleep medicine physicians.

Ultimately, through this M&A and organic developments, we're expanding the ecosystem to help people quickly and swiftly move from sleep apnea awareness through testing all the way to being diagnosed and treated and adherent on our therapy for life.

With investing going back into our business is our absolute first priority for capital allocation. We invest over 6% to 7% of our revenues in R&D and 19% to 20% in SG&A. But we're also returning capital to shareholders through dividends, and we've been increasing those, and we've added an increase to our share repurchases.

During the second quarter, we returned another $263 million to our shareholders through our quarterly dividend and our $175 million in share repurchases. I noted at JPMorgan earlier this month that we are increasing our share repurchases to more than $600 million for fiscal year 2026.

We picked up the pace of our share repurchases in the second quarter, and we'll continue to deploy meaningful capital through our share repurchase program. Quarter-after-quarter, ResMed has and will continue to demonstrate an ability to consistently deliver both financially and operationally. We've established a leading market position globally in underpenetrated markets, and we still have a very long runway of growth ahead. We're in mile 1 of the marathon.

This underpins our confidence in our ability to deliver for consumers, for patients, for physicians, for providers, for payers and for our communities that we serve. And of course, to all of you listening here, our shareholders. With that, Brett, I'll hand over to you to go into a deeper dive on our financials, and then we'll open up the floor for your questions. Brett, over to you.

I dropped off the call.

Why don't you speak through Teams and then you can -- we can get you live here. If you just speak through Teams, Brett...

Brett Sandercock, I'm in the ResMed call I'm about to speak. Could you get me on, please? Brett Sandercock.

Kevin, how are you? Sorry about dropped out, but I'm back now. I'm ready to go, Mick?

Okay.

Right. Great. Thank you, Mick. In my remarks today, I will provide an overview of our results for the second quarter of fiscal year 2026. Unless noted, all comparisons are the prior year quarter and in constant currency terms where applicable.

We had strong financial performance in Q2. Group revenue for the December quarter was $1.42 billion, an 11% headline increase and 9% in constant currency terms. Revenue growth reflected positive contributions across our device and mask portfolio and our software business.

Year-over-year movements in foreign currencies positively impacted revenue by approximately $25 million during the December quarter. Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in U.S., Canada and Latin America increased by 11% other regions increased by 6% on a constant currency basis.

Globally, on a constant currency basis, device sales increased by 11%. Masks and other sales increased by 14%. Breaking it down by regional areas, Canada and Latin America increased by 8%. Masks and other sales increased by 16%, reflecting continued growth in both resupply and new patient setups as well as incremental revenue from our VirtuOx acquisition, which we acquired in Q4 FY '25.

In Europe, Asia and other regions, device sales increased by 5% on a constant currency basis and masks and other sales increased by 8% on a constant currency basis. Residential care software revenue increased by 5% on a constant currency basis in the December quarter, underpinned by robust performance from our MEDIFOX DAN software vertical, partially offset by ongoing challenges in our senior living and long-term care vertical.

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. Gross margin was 32.3% in the December quarter and increased by 110 basis points year-over-year and by 30 basis points sequentially. The year-over-year increase was primarily driven by component cost improvements and manufacturing and logistics efficiencies as well as a modest positive impact from foreign currency movements.

Our supply chain team continues to work and make progress on our pipeline of gross margin productivity initiatives, and we remain focused on making sustained long-term gross margin improvements. Looking forward and subject to currency movements, we now expect gross margin will be in the range of 62% to 63% for fiscal year 2026.

Moving on to operating expenses. SG&A expenses for the second quarter increased by 15% on a headline basis and by 12% on a constant currency basis. The increase was primarily attributable to growth in employee-related expenses and marketing and technology investments as well as additional expenses associated with our VirtuOx acquisition. SG&A expenses as a percentage of revenue increased to 19.6% compared to 18.8% in the prior year period.

Looking forward and subject to currency movements, we still expect SG&A expenses as a percentage of revenue to be in the range of 19% to 20% for fiscal year 2026. R&D expenses for the quarter increased by 12% on a headline basis and 10% on a constant currency basis. The increase primarily reflects increases in employee-related expenses. R&D expenses as a percentage of revenue increased to 6.4% compared to 6.3% in the prior year period.

Looking forward and subject to currency movements, we still expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year 2026. During the quarter, we recorded a restructuring-related charge of $6 million, reflecting the finalization of our global workforce planning activities, which we initiated in the first quarter of fiscal year 2026. Restructuring charges were comprised of employee severance and other onetime termination benefits.

The restructuring charge has been treated as a non-GAAP item in our second quarter financial results. Operating profit for the quarter increased 19%, underpinned by revenue growth and gross margin expansion. Our operating margin improved to 36.3% of revenue compared to 34% in the prior year period. Our net interest income for the quarter was $8 million.

Our effective tax rate for the December quarter was 21.1% compared to 18% in the prior year quarter. As we previously noted in our Q1 earnings call, the increase in our effective tax rate was primarily due to the impact of global minimum tax legislation introduced in certain jurisdictions that became effective from July 1, 2025. We still estimate our effective tax rate for fiscal year 2026 will be in the range of 21% to 23%.

Our net income for the December quarter increased by 15% and diluted earnings per share increased by 16%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.04 in Q2 FY '26. Cash flow from operations for the quarter was $340 million, reflecting strong operating results, partially offset by increases in working capital.

Capital expenditure for the quarter was $29 million and depreciation and amortization for the quarter totaled $50 million. We ended the second quarter with a cash balance of $1.4 billion. And at December 31, we had $664 million in gross debt and $753 million in net cash. We have approximately $1.5 billion available for drawdown under our revolver facility. We continue to maintain a solid liquidity position, strong balance sheet and generate robust operating cash flows.

Today, our Board of Directors declared a quarterly dividend of $0.60 per share. During the quarter, we purchased approximately 704,000 shares under our previously authorized share buyback program for consideration of $175 million. We plan to continue to repurchase shares for a total value of more than $600 million for fiscal year 2026. In addition to returning capital to shareholders through a dividend and share buyback program, we will continue to invest in growth through R&D and tuck-in acquisitions.

And with that, I will hand the call back to our operator, Kevin, for Q&A.

[Operator Instructions] Our first question today is coming from Jon Block from Stifel.

Great. Thanks, guys. Appreciate it. Really strong U.S. mask number, I think it was 16%. Maybe if you could just help us out a little bit. Was that -- we're counting roughly a 400 basis point benefit from VirtuOx when you think about that? And then Mick or Brett, any movement or stocking, if you would, from F30, relatively new, good reception. So should we calibrate any sort of benefit or stocking from that dynamic? And then if I could ask a follow-up.

Yes. I'll go first, Jon, and then hand to Brett to go through the -- with and without VirtuOx. As you said, the mask, accessories and other does include some contributions from the VirtuOx part. And so even taking that out, though, we had very solid growth. I'd say -- I'm going to say double-digit growth in our masks and accessories in the U.S. even taking out VirtuOx. And so really, really solid.

Look, yes, I think when we launch a new mask, it can have some good cycles. Our channel doesn't tend to really stock ahead of demand. They tend to buy when a new product comes and they start to see demand, buy more. I can tell you that the new F30i Clear and particularly for me, the F30i Comfort, which has fabric, not just at the nasal interface, but also around the headgear that goes around the head.

I think this is changing the basis of competition and I think we're going to see some really good adoption of these masks over time. Obviously, we also have the high deductible health plans and health savings accounts, which are a factor in the U.S. market as they clear at the end of the December there as well. So we will have some seasonality associated with that, I'd say.

But Brett, anything to add there specifically to the numbers that Jon mentioned on with and without VirtuOx?

No, I think you covered it pretty well, Mick. Even without VirtuOx, it's still double-digit growth, so still really strong. And we had a -- VirtuOx had a really good quarter as well. So across the board, and there's probably -- I think we'd see some seasonality impact from that. I think you're right, Mick. And the early -- I think early days for the mask launches, but off to a good start that's kind of not as bigger impact necessarily, but it's certainly there. It's incremental, I think, really on the new fabric masks.

Our next question is coming from Anthony Petrone from Mizuho Group.

Congrats on an excellent quarter here. Maybe, Mick, you gave an update on just the GLP-1 landscape here, the claims data, obviously, holding solid here on the attach rate for CPAP post starting GLP-1 therapy. We now have orals out there, and it's been almost a year, since the initial clearance. Maybe just an update on the impact to the front end of the funnel more specifically in the latest channel checks that we're hearing is that this indeed is actually bringing more patients in and it's resulting in a high CPAP attach rate. So maybe walk through that dynamic a bit and how you see that playing out the rest of the year.

Yes. Thanks, Anthony. It's a really good question. And as you noted, we're now tracking 1.95 million patients in our claims data analysis there, and that shows that 10%, up to now, 11% higher start rate. So at the top of funnel, as you mentioned, there's just a really -- I would say a motivated patient group.

We don't fully understand the psychology. We see the correlation, don't know the causality. But our assumption as we do our channel checks, talk to the doctors, talk to the pulmonary doctors, then the primary care physicians, who are starting to see the patients brought in by GLP-1s, and they're saying these are motivated patients. And so I think that's what gets us at the top of funnel, that sort of inspiration to come back into the health care system with this new class of medicines, whether it's the injectables or the pill, which will go broader market.

But then the interesting part, and the new data this quarter is the 3-year data showing a 6% higher, I think, 6.2% higher resupply rate at 3 years. And so this impact it seems to be not only a motivated patient when I show up to the PCP or the pulmonary doc, but that motivation seems to last a long time. And as Carlos Nunez said, Dr. Carlos Nunez is on the stage at the Healthcare Conference earlier this month, it seems to stay -- motivation for our therapy even longer than the motivation for the other therapy. So whether or not they stay on the GLP-1, where the adherence rate often is only 30% or 40% at one year, they're more motivated on our therapy over the long term.

So we're watching it very closely. We've now got 3 years of data. We'll continue to watch that. But to your point, it does bring more patients in. They are more motivated and your channel checks confirm what we're hearing with our sleep doctors that this is bringing people in.

And now with the primary care doctors, they're getting motivated to get trained, 60,000 CME trainings and many of them are saying 77%, I'm going to change what I do on my screening, referral and pathways and so on, and we'll be there to help them with VirtuOx and all these virtual pathways, we'll also support our pulmonary physicians in our HME industry to scale to the flow that we need to deal with this increased demand.

Our next question is coming from Dan Hurren from MST.

A question for Brett. Can I just ask about the SG&A. The SG&A growth is uncharacteristically ahead of revenue growth. I'm just wondering if there's any transient expenses in there as you settle these acquisitions? Or is this a rebasing higher with promotional activities in sales force, et cetera?

Yes. I mean, there was some impact from the VirtuOx acquisition, Dan. So that -- if you excluded that, you'd get -- we would be at high single digits for SG&A growth. So tracking pretty close on revenue growth. But as Mick mentioned in his remarks, we're also doing some around -- some marketing programs and we've done, for example, China, Singles Day and things like that. So there's some promotions we ran during the quarter as well on that. So overall, if you look at more underlying, it's more tracking to kind of revenue growth on that, I think.

Next question is coming from Laura Sutcliffe with Citi.

Another one on the patients funnel, if I can, please. Which sort of areas or stage is the patient funnel from -- all the way from an initial visit to a PCP through to their first night with a ResMed device do you think you've had the most impact on in the last couple of years? And where do you think there's most work left to do?

Yes. Thanks, Laura. It's a great question. It's a complex one because that funnel, obviously, we map every single decision process and step along it from consumer, sleep-concerned consumer, considering diagnostic then prescription therapy and then therapy for life, year one and year x, right, year-end.

So I would say the most progress we've made is probably in the top of the funnel area. I think we are being given some I would say, without having to pay for it some extra awareness from big pharma in bringing patients into the funnel with their GLP-1 medicines. They're spending a lot of money on direct-to-consumer advertising with Zepbound and other products to follow. So that brings patients in.

And then from big tech, the fact that your Apple Watch or Samsung Galaxy Watch and -- as I predicted at least one more of the others, Whoop, Garmin, Oura Ring, Ultrahuman, someone else is going to add that in.

That brings patients in too. So that top of funnel, I think that's moved a lot. Our challenge at ResMed is to partner with our channel to say, "Can we scale home sleep apnea testing?" And so that's why we bought Ectosense, and we have the NightOwl out in the U.S. That's why we bought VirtuOx, which is a home sleep apnea testing service company to help primary care physicians and pulmonary physicians with a very efficient home sleep apnea testing service.

And then you saw us buy Somnaware, which is software that can help a pulmonary or sleep clinic be more efficient and more capable. So really focusing on expansion of that top part of the funnel. And then, of course, we're partnering with our HME customers to say, "How can we help you grow?" Now that we're not in competitive bidding, CPAP, APAP, all out, there's no distractions, let's grow our businesses together.

And so we're helping them understand how to scale their setup process, to run their business more efficiently with Brightree so that they can cope with the greater flow of patients through the funnel. And I've said this publicly, I don't think this is going to be like some crazy doubling of growth rates of devices in the U.S. But you certainly can see in the numbers we reported today that there is some good improvements there. And I think if the market is growing at mid-single digits on devices and high single digits on masks, we clearly drove extra market growth and/or took share this quarter.

And it's our goal to do that every quarter. Will we do it every quarter? No, but will we try? Absolutely. And as Brett said, we invested in some of these programs on Singles Day in China and some D2C work around the holidays in Australia, New Zealand, Korea, Singapore and even in the U.S., we make sure there's an ROI to every program. And if there is, we continue with it and if there isn't, we stop and then reevaluate and try another program. And so watch this space.

There's no particular area, Laura, but I would say that top-of-funnel, middle of funnel is the area we're laser focused on now because once they've got that prescription, we are a machine at getting that 87% adherence with our technology at day 90 and keeping them on therapy for life. And also the symptom relief that you get from CPAP keeps them there as well. Thanks for the question, Laura.

Next question is coming from Lyanne Harrison from Bank of America.

I'd like to come back to Anthony's questions on GLP-1. Obviously, you're tracking a lot of patients now and you've got 3 years' worth of data. But with the GLP-1 prices coming now in pill form, we expect more people be on GLP-1 for longer. Are you seeing any changes in compliance or therapy for those GLP-1 OSA patients in the cohort you're tracking who have been with you for 3 years now, in particular, those who have mild or moderate sleep apnea?

Yes. Thanks for the question, Lyanne. And look, we have those aggregate numbers that we shared. And clearly, at 3 years, we see more purchases. And so these people are motivated and buy more from us.

To your specific question of tracking individual patients and where they go through this therapy, what we're finding is patients who have this therapy, even if they have so-called mild to moderate sleep apnea and their AHI might be reduced somewhat. The symptomatic relief that they get from CPAP, APAP, bilevel, you never really -- you don't cure this disorder by lowering your AHI. You can mitigate some of its severity. But what we're finding is the symptomatic relief and the care that patients have on therapy is such that they stick on our therapy full life.

The side effects of these medicines are in the early stages, nausea, diarrhea or in some aspects, you have to get used to GLP-1 medicines. For CPAP, it's the opposite. You have symptomatic relief, your bed partner says, "Wow, you stopped snoring. We can now sleep here in the same room together. The sleep divorce is over." We have aspects of the patient themselves, but they wake up refreshed in the morning versus morning headaches. They're not tired in the afternoons at their jobs are in front of the television and movies with friends.

And so that symptomatic relief and change of life is very addictive. So even if patients go from an AHI of 40 to 20 or 20 to 10, they are sticking with therapy. And it's out there in those aggregate numbers. But we're actually looking and we'll do case studies around people where the combination therapy which, by the way, was shown in Lilly's SURMOUNT-OSA study to be the best outcome in their own analysis, is one that we would encourage. Weight loss and treating your sleep apnea has always been part of the care of pulmonary doctors. They now have a new injectable/pill to cover with weight loss versus just eat less and exercise more.

So it's a combination of all of the above that's leading to these numbers. But yes, no, we're looking at our adherence on the short, medium and long term, not seeing any reductions and particularly within this cohort of patients, we're actually seeing patients that are more adherent to therapy, more motivated to start and stick with therapy. So watching very carefully, but the thesis that this could be a headwind is completely gone.

It's a tailwind. And the question is now, how much of a tailwind will it be? How many PCPs can we educate to get combination prescriptions. And when are patients on therapy, how can we meaningfully engage with them, so they stay adherent for life. And we're having good success with this new cohort of patients. Thanks for the question, Lyanne.

Next question is coming from Matt Taylor from Jefferies.

Mick, you actually sort of led into what I wanted to ask about, which is you've given a lot of positive stats about how GLP-1s are helping the funnel and your business. I guess I was wondering if you tried to quantify that now with some of the data that you have. Could you help us understand how much of a tail end it is now or it could be in the future? Or if they didn't exist, how much would you be growing? Would it be a material difference?

Yes, Matt, it's a really good one that we're wrestling with internally to go from the macro and claims data down to the individual. How many basis points -- to your point, how many basis points of that really good U.S. devices growth in the quarter was 8%. How much of that was driven by big tech and Apple and Samsung identifying someone that came to a PCP versus big pharmas advertising a new injectable or pill that brought someone into PCP, so they got the referral to the specialists and prescription.

And we've got a lot of that macro data. We also, through myAir, we now have 11 million users of myAir. And obviously, on a voluntary basis, every person who signs up to myAir can tell us how did you hear about sleep apnea? Was it your bed partner? Was it snoring? Was it a big pharma? Was it a GLP-1? Or was it big tech? Was it a wearable?

And so we're asking those questions and we're getting early data. We're not prepared to publicly talk about it yet. But I can tell you that it is a contributor, and it's one that we are working very carefully to quantify and also to work out how we can continue to scale with to make sure that our funnel, the primary care physicians, the home sleep apnea testing capabilities, the prescription capabilities of a sleep doctor. Sleep Doctors are very busy. They have a long waiting lists, how can we help them with Somnoware and Brightree to better manage their practice and their DME if they have that part.

And then for our DME customers to really help them scale. We're seeing a great demand for Brightree and its ability to lower costs and improve outcomes. And although we are completely out of competitive bidding, our HMEs have other products that are in there. So the more costs we can help an HME take out of their business with Brightree and then we'll resupply, we can help them drive to where a patient wants that new mask or accessory. That's what's going to get us to where we need to be.

So yes, thanks for the question, Matt. We are quantifying it, not yet ready to sort of release that. But we may peer review and publish some evidence on this through a scientific part of our business to really get it out there in the peer-reviewed press, and then I can start to talk about it publicly. But it is a contributor, and we'll quantify it over time. But really excited to have this moment, if you like, sleep health is having a very good moment in health care right now, and we're leveraging that.

Your next question today is coming from David Bailey from Morgan Stanley.

One of the most frequent questions we get is the potential return of Philips back into the U.S. device market. Just thoughts on any potential timing of that reentry to the extent you've got any thoughts there? Are there potential impacts? And where they have reentered your observations in relation to the competitive dynamics, that would be great.

Yes. Thanks for the question, David. And I'll just default to what that company's CEO said at a conference earlier this month and what their CFO said at a conference I was at the quarter before, which is they don't know. So if they don't know, then I don't know. But -- and frankly, I don't really look back to the #2, 3 or 4 competitor, which that company is in the various markets, 140 markets we compete in.

I look forward to say the last 5 questions, how do we deal with this new flow of patients in. I can say this, though, they're backing over 100 countries in Europe, Asia, Rest of World, and some they've been back for 12, 18, 24 plus months so we've lapped it multiple times in these quarterly calls. And I don't know if you looked into the Europe, Asia, rest of the world device growth in the quarter, pretty solid. They're at 5%, like right in line with market, maybe a little demand gen that we're driving. We're holding share and competing well with that competitor. But more importantly, frankly, in some of those regions, other competitors that have taken that #2 spot that, that competitor you mentioned has to fight with to get back to #4, #3 and even #2 space.

So I welcome competition. I think competition is fantastic. I'm not fearful at all about that player that we're going to be making products that I think go in Thailand now and shipping them to the U.S. and Europe. I look forward to that. I think we've got a better product. It's smaller. It's quiet. It's more comfortable, it's more connected and it's more intelligent.

And that ecosystem, what we developed with myAir and AirView and Brightree, that ecosystem is very hard to match and none of our competitors really can compete across the board on that. But no, I have no idea of the U.S. devices entry, but they've been in the U.S. for masks and accessories these last 20 quarters, and we've been competing very well against them and meeting and beating their growth and taking share when that's all they could sell in that market. I'm very happy to have them back Monday morning or next year, and it really won't affect us in terms of how we grow to the market. They'll have to fight to get that #3 or #2 position from another player that took it, and we welcome that competition. Thanks for the question, David.

Next question is coming from Davinthra Thillainathan from Goldman Sachs.

It's good segue to my question, Mick, on the question about devices for the ex-U.S. markets, sort of 5% constant currency growth. Could you sort of help us understand that growth a little bit better. Clearly, it's a market that is quite lumpy. Was there any sort of pull forward of demand that have been in the previous quarters that sort of weighed on the growth this quarter? How do we think about, I guess, some of the demand generation activities that you are doing?

Yes. No, it's a really good question. And look, I think 5% growth across Europe, Asia, Rest of World is very solid in where we're at and it's in line with market. There were some -- if you take this quarter a year ago, there was some lumpiness from our Japan market, where it's kind of a fleet management market, and there was sort of increased purchases of devices in the Japan market. But look, the way I look at it is we've got 140 countries we sell in across there. Our job the portfolio of managing all of those is to continue to grow across them. And I think our teams did very well. There were some good promotional work that we did in China and Korea and Australia and New Zealand markets that can help that market and not just in the December quarter, but that's a particularly good one for D2C markets with the holidays and Airmini particularly. But yes, there was some lumpiness in the year before.

But look, there are no excuses. Markets are growing mid-single digits. Our team has to grow mid-single digits in devices and high single digits in masks. And I'm very proud of our EMEA and APAC teams that they delivered in the December quarter. And now they're on to March and June, and we'll continue to deliver. And our goal really is to across those 140 countries, emulate our best approach to help be that digital sleep health and breathing health concierge and drive patients in the funnel and through the funnel for their best path to get to therapy.

Brett, anything to add on that for Europe, Asia, Rest of World devices?

No, we're pleased with that result. And the only thing I'd say is that the prior year comp that you mentioned, Mick, was 9% last year. So it was very strong comparable. But overall, I think -- yes, no, pretty solid, pretty happy with it.

Your next question is coming from Brandon Vazquez from William Blair.

Mick, I wanted to ask, it's been a little bit over a year now that you started kind of stepping up the investments within the PCP channel. Talk to us a little bit about what are you seeing from that channel? How excited are you about it? And what can it mean for growth on the devices side? And what kind of metrics should the investors be looking for as maybe like positive ROI on these investments within the PCP channel?

Yes, Brandon, it's a great question. Yes, in the prep remarks, I talked about the 60,000 trainings we've done on CME with PCPs or GPs as they're known here in Australia and Europe. What's exciting for that -- for me is that, I mean, it was the #1 downloaded PCP training in the last quarter. And it was up 50% just in the quarter. That's a metric on a very leading indicator, but it's a metric you can think about, which is what's the demand for knowledge about this.

A primary care physician, they've got a tough job, they got to do with everything from headaches to [ tenure ], head to toe, every complication. And in general, particularly in the U.S. market, they've got very little time. I think it's on average 5 to 7 minutes with a patient on an annual basis. And that's -- and they've got to assess everything.

And so the fact that we can get sleep health on their radar, but maybe a pharma company has told them come in and ask for an injectable that might help with your sleep health and then -- and your breathing health. And then they come in and talk to the PCP. If they've done our education, that PCP knows where to send a patient to a home sleep apnea testing protocol. They know what is gold standard CPAP, APAP and bilevel, the only therapy that can completely eliminate your AHI back to zero, if used perfectly and as directed.

And they know what the backup plan is on dental and the backup to the backup plan, which is a pharma solution. And they're writing prescriptions. And so it's happening. As I said earlier, we're not yet quantifying exactly how much that we are seeing that comes through PCPs or from referrals of big pharma and big tech into PCPs versus that are coming sort of organically through our demand generation that we're driving or through the general organic demand that we've seen over the last decades in our space. But we are investing in this PCP channel. We're going to continue to invest in education.

What I love about doing it is CME education is it's pure. It's true. Yes, it has the ResMed brand on the last page, we get a little bit there. But it's all done according to the American Academy of Sleep Medicine guidelines. So it's in line with what the doctors are saying on those guidelines, and it just helps the PCP say, "Okay, here's the pathway and here's what I should do." And look, many of you of the sell side here are doing channel checks and talking to everyone. Even ENT surgeons are saying, "No, gold standard, of course." Even though they make money from doing the surgery, they're saying gold standard is this noninvasive, completely reversible incredibly effective positive air pressure therapy.

So we're seeing that. The PCP is not, and it's just helping them find a pathway. So here's a screening protocol. Here's a home sleep apnea testing service. And here's a referral pathway to a specialist and a DME, that's going to take care and get very high adherence for you, and you'll get the update on the next physical with this patient through a digital platform into your Epic or your Cerner or your Allscripts, whatever you use because we have API calls going in and out hundreds of times a second into and out of our AirView system to the doctor systems.

Thanks for the question, Brandon. And we'll continue to update you on those leading metrics for PCP education and more as we get more comfortable sharing across that new channel that we're developing. Thanks for the question.

Next question is coming from Nathan Treybeck from Wells Fargo.

Great. Congrats on a great quarter. Are you seeing anything that would suggest that U.S. mass strength that you saw in fiscal Q2 will persist at that level into the second half of the year?

Yes. Thanks for the question, Nathan. Yes, I mean, U.S. markets, accessories and other growth was 16% in the quarter and incredible performance from our U.S. and broader Americas team. Look, I mean market growth is in the high single digits. So we don't expect to outperform by whatever. If you take 9% as high single digit by 700 basis points every quarter.

And as Brett said earlier, there was some contribution from VirtuOx, on that accessory side. So even taking out that -- and we've had double-digit growth in VirtuOx, by the way, which is great and does feed the core business in new patient flow. But even taking out VirtuOx, we're still in the high single -- we're still in the double digits. So still beating the high single-digit market growth.

And so what do we do? Well, we have promotion campaigns. We talk to people about getting a new mask, and we engage with people through Brightree, through myAir and through our DME partners. And in other parts of the world, we did this as well. And so we're having some success with that. You can't do that every quarter, and you can't drive it every quarter, but I do think we can meet and beat that high single-digit growth of masks every quarter as we go meet and/or beat.

And the beat is like this come where we get the brand ROI, we get the demand gen ROI and we have good promotional programs that play out there. So it's a portfolio management, it's a balance, and we're balancing our investments, I think, pretty well, 6% to 7% into revenue and 19% to 20% into R&D from revenue and 19% to 20% of revenue into SG&A, the sort of sales and marketing programs. And I think we're doing a very efficient job. And I can tell you, on the marketing team, now one global team is looking at the ROI of every single program down to the return on advertising spend, the ROI of that individual metropolitan statistical area, what program did we run? How did it go?

And if it's profitable, of course, we'll continue to do it. If it's not, we stop and then rejoin. And so it's not perfect and smooth we won't outperform every quarter, but I'm really proud of the team and proud to report these numbers. And I challenged them to outperform every quarter. I just expect them to meet and/or beat that high single-digit growth, and they clearly beat it this quarter. Thanks for the question, Nathan.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Mick for any further closing comments.

Well, thanks, Kevin, and thank you to everyone for joining us on our earnings call today on behalf of more than 10,000 ResMedians serving people in 140 countries worldwide. I'm pleased to say we're able to deliver another strong quarter of performance and continue to build value for all of our shareholders. We'll talk to you -- many of you over the coming days and weeks. And we'll talk to many of you right here in 90 days. And with that, Salli, I'll hand over to you to close out the call.

Great. Thank you, Mick. I'll echo Mick's thank you to everyone for listening. We really appreciate your time and interest. If you have any additional questions, please don't hesitate to reach out directly to investor relations at resmed.com or anyone on the ResMed IR team. Kevin, you may now close out the call.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Okay. Good morning, and welcome again to the JPMorgan Healthcare Conference. My name is Chris Cooper. I cover the Australian health care stocks here at JPMorgan. This man needs no introduction, but I'd like to hand over here to Mick Farrell, the CEO of ResMed.

Great. Well, thanks, Chris, and look forward to having about 20 minutes of presentation and then 20 minutes of Q&A. So get your questions ready. I know Chris has a whole bunch from sell side, corporate side and now back to the sell side. So welcome back, Chris, to ResMed.

This presentation is on investor.resmed.com. You can read our full disclaimers there about the forward-looking statements.

Some of you are new to the ResMed story. I see a lot of familiar faces in the room, and I see some folks who are new. ResMed is a 36-year-old start-up. It's a spinout from Baxter. My father bought the technology for about AUD 1.2 million, so about USD 800,000. I just checked the market cap on the New York Stock Exchange, and we're sitting at $37 billion today. So that's a pretty good ROI from the old man. But not just in the 36 years, really the last 5 years, if you look at what we've done to accelerate through COVID through supply chain challenges and what we've achieved.

Here is a summary of the company. Trailing 12 months, $5.3 billion in revenues, really solid gross margin there and net margins, too, net operating profit margins above 30%, pushing 33%, as you see here on a non-GAAP and GAAP basis, 33% and 35%. Our business is pretty evenly distributed. We are #1 provider of sleep health, breathing health and health care technology solutions at home in 140 countries worldwide. 58% is U.S., Canada, Latin America, but a really strong showing from Europe, Asia and rest of world.

That 12%, that sort of purple on my screen is our software business. That's a combination of Brightree, MEDIFOX and these other Software-as-a-Service capabilities that get us beyond just a product company. We're a product company, a hardware company, a software company and really a solutions company and someone that thinks about how to get people from -- maybe I have a problem sleeping and breathing through the -- what you would probably call broken health care system to find their way to a great solution. And I'll talk a lot about what we're doing with our flow of patients through the funnel.

So we're here at JPMorgan, it's investment conference. So why is ResMed a compelling investment opportunity amid what I would say is some pretty strong geopolitical and tariff and tax macro uncertainty? Well, number one, we've got incredible target markets. They're huge, and I'll talk about not just sleep apnea, but insomnia, chronic obstructive pulmonary disease and all those who need health care technology solutions at home.

Two, huge key megatrends are out there. Big tech through the Apple Watch, Samsung with their watch have sleep apnea detection capabilities built into their wearables. This little ring I'm wearing, and many of you will be wearing wearables like Whoop, Oura, Garmin, Happy Ring and Ultrahuman and so on. My prediction here in this calendar year 2026 that at least 1, 2 or 3 of those wearable companies will also follow Apple and Samsung and have sleep apnea detection capabilities. So big tech is moving to identify sleep suffocation, as I call it. Apnea is Greek for without breath. I call it sleep suffocation.

Big pharma is bringing patients in these new miracle drugs, of GLP-1s, the GIP/GLP combination is bringing people into the health care system to primary care like never before. And ResMed's leveraging that megatrend. And I'll talk to you about how we're working with primary care physicians and educating them.

Three, we're well positioned. We're an innovation machine, and we're an operating excellence machine. Strong cash flow, $1.8 billion in the last 12 months we generated. And I'll talk about how we distribute that between R&D, share buybacks and dividends and tuck-in M&A.

Balance sheet is very strong and experienced management team, I was just thinking about, Chris, how long you've been following us. We went through the global financial crisis and did incredibly well back there in '08, '09, '10. We went through COVID and we're there with ventilators. We saw the supply chain and semiconductor issues and got through them incredibly well and strongly. So I'll talk about ResMed being a very sort of steady ship in a stormy sea of world right now.

And I'll talk a little bit about some advocacy that I'll be doing as the new Chairman of AdvaMed, the Industry Trade Association for MedTech.

Okay. You've all seen these numbers who followed us. 1 in 4 people on the planet have a disease or a disorder that ResMed is uniquely positioned as the #1 provider to take care of them. 1 billion people with sleep apnea, over 850 million have insomnia, inability to get to sleep, stay asleep and wake up refreshed and just under 0.5 billion have chronic obstructive pulmonary disease. You all think about smoking, now vaping. It's not just that. It's genetic as well. It could be pollution, it could be cities and beyond.

And the little circle down the bottom right there, people who need health care technology at home. It's not sized. I think it's undersized on this chart. People want to get health care at home. It's the lowest cost, highest care, lowest acuity place you can get health care.

People call our software post-acute software. We call it out-of-hospital software. We don't believe you have to go to the hospital to be post-acute and get care in the home. We think care should be delivered in that fantastic environment, which is the home and we'll talk about that.

Key megatrends. I talked to the big tech and big pharma here, but it's beyond that. People are getting more interested in their own health. And it's not just Open AI and ChatGPT and all these GenAIs that are able to be a primary care doctor for you in your fingertips on your phone.

It's the way in which people are taking more control, not just of their health, but their wellness. They're not waiting until they're sick and saying, I need to get this problem taken care of. They're thinking holistically about nutrition, what they eat.

They're thinking more about exercise and cardiovascular exercise and they're thinking more about that other 1/3 of what's that's the Triumvirate of health according to Bill Dement, may he rest in peace, Stanford Professor. He called it the Triumvirate of sleep: Nutrition, diet; cardiovascular exercise; and sleep. We're really focused on that last third, but people are thinking holistically about all of them. Payers are thinking about this too. I'll show you data and Carlos, our Chief Medical Officer is here to talk about mortality, studies we have that show that untreated sleep apnea compared to treated sleep apnea has a 37% increase in mortality.

And if you look at cardiovascular disease mortality, it's 55% higher amongst untreated sleep apnea patients versus treated patients. And that's from real-world evidence that Carlos and his team published within the last 12 months. And of course, AI and digital health and what we're doing with our ecosystem.

I said ResMed is an innovation machine. I mean you can see all the things that we produced in the last decades. But really, in this last year, we've done some pretty interesting things. On the right-hand side of the chart, we, for the first time ever, took high-temperature, high-pressure injection molding of liquid silicon rubber. And at the end of that, we put fabric on that mask.

So you sleep on cotton sheets. And if you're rich, maybe in this room, some bankers you have silk pillows, but you have fabric that you sleep on. Why would you have something touching your face that's made of medical-grade rubber. Why not have fabric there, too. And so ResMed has got through, what I would call, a very big manufacturing challenge to be able to put fabric on our masks. And it's a huge -- I think it's a changing of the basis of competition of how positive airway pressure is delivered to the uvula, the upper airway to give this pneumatic stent, that keeps our patients sleeping and breathing well. So watch this space.

We launched the AirTouch N30i and we have a full face product called the AirTouch F30i in 2 variants, and that's out in the market just a couple of quarters in. I think it's -- we're changing the basis of competition in mask technology.

The other one is we launched -- everyone's talking about AI. Everyone here in this whole conference, every conference right now, I don't talk about AI that we do internally. If I lower our manufacturing costs, if I improve our customer service, that's for us. And you'll see that in the leverage we're showing in gross margin and net margin. But I'll talk about what we do publicly. And so this is our first FDA-cleared AI-enabled medical device. There are all these comfort settings that people have on a CPAP and APAP or bilevel. And 95% of people don't adjust them. It's temperature, it's humidification. It's all these comfort features that are not medical, but they really do impact the adherence, the amount of patients that stick on therapy at 90 days, 1 year, 3 year and beyond. And I'll show you some data on that.

But what we found is if you coach people and you get some demographics that they want to share and you ask them some questions, you can really start to say, well, do you like walks in the Swiss Alps or do you like walks along the beach in Costa Rica? Seems a silly question, but we're going to know if you like high humidity, high temperature or low humidity, cooler temperatures and from that question can increase your adherence rate. So we don't have peer-reviewed published evidence on this yet, but we will, right, Carlos? We will. And what we're going to show is that actually having an AI algorithm that is sort of a sleep coach for you during your first periods of CPAP, APAP and bilevel can really improve your -- not just short-term adherence but long-term adherence with the therapy, which as I talked to earlier, is a case of life and death of adhering to the therapy. So that's in the market.

We also have a non-FDA-cleared product because it's just a concierge that I call our digital sleep health concierge. It's called Dawn. Not as in a woman, but as in the sun rising over the horizons that you wake up refreshed. And this is a digital sleep health concierge to help you with questions about exercise, drinking water, balancing your day life to have a better sleep life, stopping caffeine after sort of 5 clock, not having alcohol after 8, which I'm sure no one will break here at JPMorgan conference.

Okay. So this slide talks to the pathway of getting people from awareness, testing, all the way through to being adherent on therapy for life. ResMed has invented all the technologies in the middle here, the best smallest, quietest, most comfortable, most cloud-connected and most intelligent therapies for CPAP, APAP, bilevel mask therapies. But we've made a bunch of tuck-in acquisitions.

If you look back at the last 12, 24, 60 months, really, if you go back to Brightree plus -- but we're putting together an ecosystem to help a person get access to care.

So if you look right up the front of the funnel, this sort of GenAI stuff I'm talking about Dawn is right up there at stage 1. It's in awareness, what am I going to do here? Big pharma is going to help us. They're going to bring more patients into the funnel to primary care physicians. But when they're there, we need that PCP educated on sleep apnea. How to diagnose it and how to get it treated. We actually bought a home sleep apnea testing company called VirtuOx within the last 12 months. They're the #1 provider of home sleep apnea testing capabilities within the U.S. market. And so we're helping scale there.

We bought a Belgian company called Ectosense, that has a product called NightOwl. Their sleep apnea, home sleep apnea test is size of my fingertip, and it wraps around with a little Band-Aid has Bluetooth and has the ability, very high sensitivity and specificity to get a patient through home sleep apnea testing versus having to go to a hospital or sleep lab.

We bought a company called Somnoware. Subath is in the office next door to me now as Head of Innovation and helping us find other entrepreneurs like him that could be part of our ecosystem. That software for pulmonary and critical care medicine doctor -- sleep medicine doctors helps them run their practices more efficiently.

I talked about Dawn. Brightree is software as a service for the home medical equipment companies. Really think of it like an Oracle or an SAP for our customers. Helps them be more efficient, which helps us get more products to more patients more quickly. And I won't talk about myAir and AirView, but our app is up to 11 million patients now that have downloaded the myAir app and have access to their data.

So big data has been talked about for about a decade. With the releases of the latest sort of NVIDIA chips and the capabilities in AI, ML AI and GenAI, what we can do with 24 billion nights of medical data, with 31.5 million 100% cloud connectable medical devices sold into 140 countries is incredible.

The stat that might be interesting for those of you who think about, gosh, is this in action? Is this just words? Is in the bottom left, 405 API calls per second in and out of our ecosystem. So people are using our data. Doctors are accessing it in Epic and Cerner. Patients are accessing it every day. There's gamification. The app was down a couple of summers ago for a week or 2. I've got a hammered on social media. I didn't realize people were looking at it every day. I thought it was those first 90 days in this little epox, I'm sick, how am I doing with my CPAP. It's like checking your Fitbit score or how many steps you took, how many calories you got from tennis or pickleball, it's addictive, and it's gamification. And it drives adherence.

So we'll talk about not just the peer-reviewed published evidence that we're going to put out there in the market, but how we're using this to encourage people to adhere to therapy, and we're providing data to show you can prevent heart attack, stroke, solid-cell tumor cancer by sixfold down by sticking with this therapy. And so we're using these data to combine with other health care data to show those outcomes beyond just the sleep health and breathing health to cardiovascular health, to diabetes, obesity and beyond.

I talked about each of these, more to come. This is an interesting one because I think 2 years ago, there was an idea, not just in ResMed, but a lot of Medtech that the new class of GLP-1 medicines are going to sort of take away patients from the patient pool. They're going to sort of half cure or treat some of these diseases that we take care of from the device side, and you're not going to need devices. And I think I won't speak to every vertical.

But if you look at it across, I think most of us have shown that actually this new class of medicines from Eli Lilly mostly and with Zepbound in our space and Novo with Ozempic across the other side. These new class of medicines is actually inspiring a bunch of people who weren't coming into the health care system to come into the health care system -- you need to, to get the prescription, you have to go to see a primary care physician, you can do it online or in person. But these patients, these people, as they come in and ask for, look, I've seen this, I could lose weight, what's this injection? What does that look like?

The doctors there and they're doing a full body assessment. They're thinking about their full health, their cardiovascular health, their diabetes health and their sleep apnea health. And what we're finding is these are very motivated patients. The first column there shows that 10.8% higher probability of a patient who has a GLP-1 prescription of starting CPAP from a prescription for CPAP versus control versus the rest of people because not everyone who gets a prescription takes it, right? In pharmaceuticals, it's often a 50% dropout rate. Ours is less than that. But that funnel dropout is a concern for everyone in health care that you get a prescription, you're being diagnosed with a deadly disease or disorder and you might not get treatment. That fallout is a really important thing for us.

What we find is people with the GLP-1 fall out less. So they're actually really motivated people. And you can say, well, that's just on that early phase. It's not going to last. We got 1-year and 3-year data now. This is the first time here at JPMorgan, we're presenting the 3-year data. 3.1%, 310 basis points higher resupply rate at year 1 and 620 basis points, 6.2% higher resupply rate at 3 years. We've now got 3 years of data for GLP-1 prescription patients. And what's the end here, 1.95 million patients. This is not a small study. This is real-world evidence.

Patients on GLP-1s get treatment more and stay on more for CPAP. And we think this of the 1 billion people worldwide bragging, we got 31.5 million devices out there. What's that? 3% penetration? Throw in all the competition, 5% penetration. The opportunity is huge, and we need to get them in and thank you, big pharma for bringing them in and watch this space as to what we're going to do to educate the primary care physicians.

We have now completed -- this is an online educational CME programs. And this is sponsored by ResMed, but that's like the last slide that's sponsored by ResMed. The rest of it, it's with medical doctors from the American Academy of Sleep Medicine, and it's all covered in terms of just general education about sleep suffocation. What it is, how you tongue and your uvula form and fall back and craniofacial geometry, gender risks, age risks, right? It's mostly a male disease until perimenopause and menopause. It's 40% females.

And then when you hit perimenopause, post-menopause, female prevalence goes above male. And so people think of it as centrally obese middle-aged male. No, it's a young athletic female or it's anyone over 65 is at risk. And so what we're doing is educating primary care physicians around that so that they have all the data. 60,000 CME courses, it's was the #1 rated, downloaded primary care CME course, 60,000 [endeavor]. So we just put it up a couple of quarters ago and 35,000 unique clinicians. So up to 25,000 and not just getting sleep 101 but sleep 201, sleep 301 and understanding more about sleep health and sleep medicine.

The stat that I love the most from this page is one at the bottom. 77% of them say, we're going to change our protocols in our practice here -- our primary care physician practice of how we deal with obstructive sleep apnea, who we refer to and how we refer to it. And we're targeting. We're targeting high-volume GLP-1 providers because you know who they are. And then we're targeting people that already have access to homes sleep apnea testing protocol, whether it's VirtuOx or one of our competitors, we don't mind. We're actually agnostic to the diagnostic but we want you in that funnel.

If you show up at a primary care physician and you have sleep apnea, we want them to know exactly which group to send to a friendly home sleep apnea testing or lab that they know and it's in network and ready to go. So watch this space, that education is happening, and we're going to start to see patients coming through that part of the funnel.

Okay. Switching internally a little bit. I've got 2 minutes left before going to Q&A. I see my Head of IR tapping her watch. We've got a really strong manufacturing footprint in Asia. Our original manufacturing in Sydney, Australia is still there as an advanced manufacturing, the R&D engineers and the advanced manufacturing engineers are just right there on an old sheep station in Northwest Sydney. There's a river in the middle, I call it the innovation stream. The more you walk across it and get manufacturing and design and product design talking to each other, the better the outcomes are design for manufacturability, thinking about the patient and thinking about how it can be manufactured.

Our scale manufacturing is in a beautiful place called Singapore. Love that government. We have a 5-year partnership with the Singapore government through the EDB. We love to partner there and it's -- they trust IP. We have incredible robotics. Great labor force across the bridge from Malaysia and really great scale there. We also manufacture in Johor for some of the mask fabric stuff as well. But the big news is we're expanding here in the U.S. And this wasn't based upon the current administration, but it does completely overlap with their Made in America push and the VA and many other U.S. customers that like Made in America.

We have a 467,000 square foot facility in Atlanta, Georgia. We've just doubled our U.S. manufacturing capacity, actually manufacturing, not just motors, which we've done for a long time in Calabasas, California, but actually mask systems. We're going to be bringing devices over, and we're opening a brand-new facility in Indianapolis, Indiana. It will be distribution, but capable of manufacturing. So watch this space. We're going to have a lot more. ResMed will actually be the only Made in America, CPAP, APAP and mask systems. So watch this space as we continue to expand there.

Global margins look, gross margins, I won't talk too much about this incredible performance by our operating excellence team from -- native of around 59% there up to 62% in the last quarter. I challenged my Chief Supply Officer, who came to us from Kimberly-Clark and Mars. So fast-moving consumer goods and sort of very low-margin Medtech. I think earbuds and things like that from Kimberly-Clark is bringing incredible excellence -- operating excellence to our team. And I challenge them to get double-digit improvements in gross margin every year through 2030, and that's on our horizon.

As I said at the start, incredible cash flow generation. We've distributed over $3.7 billion of capital in the last 3 years. The best way to put our capital is back to work with our team, back to R&D. We put 6%, 7%. So trailing 12 months, $5 billion, that's $350 million to make the smallest, quietest, most comfortable, most cloud connected and most intelligent therapies. But we also look at tuck-in M&A. And I call tuck-in up to sort of $0.5 billion, maybe a little more. But you saw what we've done in the flow of patients through the funnel, watch this space. There's more to go there.

We've got really strong dividends. We've increased those at double digits recently 13% in the last fiscal year to $240 million. And we do share repurchases, of course, we did $300 million in FY '25. We talked this year of doing at least $150 million a quarter. So more than $600 million in share repurchases will happen here in our fiscal year 2026, give you back to your cash.

We pivoted to a new operating model. I don't like talking too much about internally. So I'll talk about the right-hand side of this, what does our product-led customer-centric brand enhanced ResMed internal 2030 operating model mean for you? It means increased product velocity, Air 11 is getting out to more countries. myAir apps are being updated more, more mask technology. It also means increased profitable growth, driving that gross margin improvement and net operating profit improvement. And brand enhanced, what does it mean? It means that when a patient is choosing a mask in a cash pay country or a doctor is writing a prescription, they know our brand. And we're the #1 in our industry, but we're trying to get beyond that as well. So watch this space on brand ROI.

I won't talk to the financials. You can see them all on our website, but incredible performance, not just the last 36 years, but really these last 5 years. If you look at those 20 quarters and what our team did with global perturbations, COVID, craziness happening in the health care market. We were able to have really strong top line growth at 12% CAGR and bottom line with 200, 300 bps of leverage on NOP and a little bit more 200 to 400 bps of leverage on our non-GAAP and GAAP EPS.

Our forecast is high single-digit growth and leverage down through the P&L and I won't talk about my role as Chairman of AdvaMed, I'll take that offline with you. But what I like about that is representing my fellow Medtech companies and being able to be there in Washington, D.C. and Brussels and Beijing and Tokyo and talk about zero-for-zero tariffs and lobby for that for our industry and also talk about what Medtech does to save lives and improve outcomes. So watch this space on that.

And I will close out as I started. We're a compelling investment opportunity for all the reasons on this slide, and we got 17 minutes for questions, Chris.

Thanks, Mick. I'll take it. If there's any questions in the room, please feel free to submit them through the app or raise your hand.

Perhaps I'll kick it off, though, please, with one on the competitive landscape. So it's obviously been an unusual situation in the last few years. You've had a major competitor out of the market here in the U.S. You also have a smaller competitor launching a new CPAP mask at the moment. So maybe just start with some comments on the competitive landscape in the U.S. device market in particular, but also some comments on masks will be useful.

Yes. Chris, it's a great question. And we love competition. We've got really strong competitors and always have in U.S., Asia and Europe. And I mean, I love being the #1, and I do love the fact that we innovate better than our competitors do. But competition is really good. It's good for patients because we have the challenge of making the smallest, quietest, most comfortable, most connected, and most intelligent therapies. We have a big lead over our competitors, not just because of the hardware, the smallest and the quietness of the devices, but it's really around the chips and the communication technology and what we do to create an ecosystem for the doctor or the provider or the patient themselves. So we drive higher adherence rates, so we have more patients using our products than our competitors. And we have lower costs of setting up a patient on therapy when they're using our technology, the hardware and the software together.

But yes, look, within the U.S. market, you asked to talk to, we've had a competitor out for about 4 years on the device side. They have never been out on the mask side. So have a look at our mask market share over the last 4 years against that competitor. It's never been out, and that's all they could sell against us for 4 years. And we did very well. And that competitor is back in -- I don't know, we're in 140 countries. They're back in 139 countries for 12, 18, 24 months in some and they're struggling to get from #4 to #3 to #2 because they made a mistake and had to come back into the market.

So I welcome them back in those markets, and I welcome our great growth that you see in Europe, Asia, Rest of the world as they've come back over these last 2 years there. And the same will happen here. We'll continue to grow. I look forward to competing with them and continuing to beat them.

Changing gears slightly. The CMS confirmed last month, month before now, I lose track that PAP therapy is not going to be part of the next round of competitive bidding. Your thoughts on that? I mean, is this the final decision for this round? And if so, does that change any of your approach or your plans? Had you anticipated some degree of inclusion there?

Yes. I'll let Carlos talk to this in a sec because he [helps] not just as global medical affairs, but also our global market access and our work in D.C. with CMS and beyond to do this. But yes, CPAP and all its accessories are not included in this round of competitive bidding. It's a great win for our industry because frankly, if you look over the last 15 years, we've had 15 years of this competitive bidding program. The differential price between government -- what government is paying for our therapy and what private pay, 15 years ago, there was a big delta. That's why they started the competitive bidding program.

Now it's right at equilibrium. And so there was no real need economically to do it. And there were other DME products that maybe had a larger differential. And so I think that's where Dr. Oz and CMS are focusing now on the differential in those other areas. But yes, CPAP is completely out for this round of competitive bidding. And I think it's a really good thing for us for the patients and for the industry, allows us just to focus on what we do well.

Yes. Not too much more to add. I mean, Mick covered it well. We've done a very, very good job over the last 6 or 7 years, building a government affairs capability globally, not just in D.C. And we have -- but like our government affairs leader likes to say, have the friends in place before you need them and when competitive bidding reared its ugly head, so to speak. We worked very closely with the administration to make the same points that Mick made. There was a reason why it made sense in the past. At this point, the market is pretty stable.

And so it was completely excluded, and it was the right decision.

Perhaps another one on the sort of theme of the regulatory landscape. Your latest thinking on tariffs, Mick and the Section 232 investigation.

Yes. Well, look, on tariffs, there's been a lot of -- across many industries, a lot of sort of turbulence from the talk and the Supreme Court and what's going to happen and what does that look like. ResMed has been actually back to the steady, ship in a storm thing, very steady through this. In fact, early on, 15 years ago when there was some work in Asia with the Obama administration, we actually created some work with CBP, Customs and Border Protection and reaffirmed a Nairobi Protocol, which gave us the ability because patients with sleep apnea and COPD, have a disease or disorder that's a disability. And you can't discriminate based on a disability in International Law. And so we have this Nairobi Protocol in place for decades. And we went back to CBP at the start of last year. And again, just recently to confirm that we have the Nairobi Protocol, and we've been in place for that for a while.

So ResMed is kind of immune to this right now, but we're not immune to the noise. And so just making sure that we're there. I think as Chairman of AdvaMed, I will definitely argue for zero-for-zero tariffs of all of Medtech on a humanitarian basis. But look, the administration will do what it can and what it wants to do. But we'll just make sure our voice is heard there across our industry. But for ResMed, steady ship in the storm, Nairobi Protocol has been proven, and we're ready to go there.

On the 232 investigation, it's interesting. I think there are 15 industries that have been looked at. If you're asking me, do I think in that pie chart flow of GDP, whereas Medtech, like it's a tiny little sliver. And do I think the administration is going to spend much time on it? No, there's not much juice to squeeze from that orange. And secondly, we're a really good industry for the U.S. 70% to 80% of the manufacturing for global Medtech is right here in the U.S. Almost all the products are provided to U.S. citizens are made in the U.S. And so we're actually a very good industry based upon Made in America and based upon sort of a U.S. focused approach and very much in line with the current administration.

So I think on both of those, tariffs, we've got a very steady shift through it. And 232, I think will resolve for the whole industry relatively quickly here. But more to see there. And I'm just happy that ResMed has got a clear path through this.

You talked again today, Mick, about sort of couple of developments I think, that have been enabling additional patients to come into the funnel. So wearables is one, you speak to again this morning, and GLP-1s is another. Are you able to help sort of contextualize those in some way for us? Are you seeing additional patient flow, which you can identify to one or the other of those 2 pathways. And how much runway are we thinking about for the next 12 months, 24 months ahead?

Well, I'm going to hand to my Chief Medical Officer because he's also my Chief Nerd Officer, and he was -- or Check Officer, and he was at CES just last week. On stage, actually with Dr. Oz on stage with a number of folks in the diagnostic space because ResMed is a Medtech company, but also a tech-driven company. And so being a consumer electronic show allows us to talk to how we interact with this ecosystem of wearables and so on. So Carlos, any thoughts on the flow of patients from...

Sure. Yes. Thinking about the big tech tailwinds that we face. So as Mick mentioned, in the last 1.5 years or so, Samsung and Apple, the 2 largest consumer technology companies on the planet, both announced the FDA-cleared sleep apnea detection on their wearables. As a result, what we've seen is at the CES Conference every January, where all the big tech equipment companies come, they have in the last 2 years moved the digital health floor space next to the smart home space and created this combined approach to Smart Home Tech, where the smart home of the future will be the healthy home of the future.

The health tech that ResMed delivers at home is all over the floor at CES. And probably the most important thing was it was not just Apple and Samsung talking about sleep apnea detection. Every booth in the digital health floor space at CES this year, had some mention of sleep and how sleep is connected to human health and wellness. So sleep is truly having a moment driven by big tech fully evident at CES. And if you want to look at my sleep score for the days I was there, fully evident that I didn't get enough sleep because we were so busy at CES last week.

And GLP-1s?

Yes. So the other megatrend. Look, I think -- if you look at those education numbers, the 60,000 CME trainings, Primary care physicians are hungry for more knowledge about this space. The patients are coming. They have questions, awareness of sleep issues even for the ones that don't yet claim that they have sleep apnea detection, they're starting to say, oh, goodness, I see some disturbed breathing in your sleep or they start saying these things and patients have questions. Primary care physicians want answers. And us educating them on the medicine and the flow is really strong.

I think as you look forward towards 2030, Chris, you'll see, I think, a really solid flow of patients through the funnel. And I think we probably won't be calling out and cutting out this 20 basis points, this 30 basis points of extra growth is from big tech and this is from big pharma, but we will be internally because we know these megatrends are coming and it's on us. It's our obligation to help train those primary care physicians. It's our obligation also to make sure that the consumer, the person is trained so that they can recognize signs and signals of sleep suffocation, often the bed partner.

Witnessed apneas if you ever hear this from the person sleeping beside you, sorry, that was supposed to be a 10 second pause. I can't do a proper apnea anymore. It has to be 10 seconds. That gap of no noise. And then that's actually -- it's called a witnessed apnea. You need to get that person to a test immediately, immediately because the witnessed apnea is there.

Wearables allow that bed partner to become a quantified self. And sometimes people don't trust this person I've been married 25 years. They don't trust the person they've had on their bedside for 25 years. You snore, you stop breathing. Yes. Whatever. But they trust the wearables.

Suddenly, the device says, you're snoring the thing and then they go in and get tested. And it's true. Objective data, quantifiable data. So that's why I think these trends are going to drive patients in because we've seen it in the early days, and we're there. And our job, though, is to make the funnel so it can actually keep up with the flow. But there are enough sleep labs. There are enough home sleep apnea testing for the flex that's needed and there are enough, I would say, scalable models to get patients set up on therapy, not just here in the U.S., but in 140 countries worldwide.

Just a couple of quick points about GLP-1. So as Mick said and showed the data on the slide earlier, we've been tracking this now for a couple of years, 2 million patients, and we see exactly what we expected. Not just big tech, but the GLP-1s are bringing patients into the system. They become better patients for ResMed. And now we see the separation we're at 3 years. They're twice as likely as they were at 1 year to order new supplies from us. So they're not just good patients at the beginning. They become good long-term patients.

But the other interesting data that started to come out as we see wider and wider adoption of these GLP-1s move into things like oral GLP-1 medications, double agonist, triple agonist, we are still seeing when you look at the data that at 1 year, the majority of patients are off of GLP-1 therapy. So it's interesting to see that curve separate where we see patients coming off of GLP-1 therapy but staying good CPAP patients because they've realized, I may or may not be able to tolerate this drug or afford this drug, but I can't go another day without a good night sleep.

And so we are seeing that awareness show up. We're also seeing some really interesting data. Older patients are dropping off of GLP-1s faster and more predictably than younger patients. It's the older patients who probably need these drugs because they're tend to be more obese, tend to have more type 2 diabetes, et cetera. So I think we're starting to see a separation where there is potentially the younger populations using it more for weight loss and the older populations using it for things like diabetes and obesity are still not adhering to the drugs as well as we'd like.

So the data is really interesting. These drugs are going to get better, as Mick said. They are an amazing development for people who struggle with their weight. I've been on GLP-1s, myself, sleep apnea patients struggle with my weight, et cetera. They're only going to get better. But it's also going to make that tailwind for us even better because you need to treat everything the patients show up with, including their sleep apnea, and that's what we see. They get on their CPAP therapy and they stay on their CPAP therapy for life, whether or not they stay on their GLP-1s.

Quickly on the new masks you've launched. The fabric mask. So maybe just some thoughts on early uptake and just some comments on how this is going to settle into the portfolio over the medium term?

Yes. Look, early days with the AirTouch N30i and the AirTouch F30i, but I can tell you that when we look at these clinical studies, preference studies and so on, how do you feel, not just quantitative, which is significantly higher, patients enjoying the mask relative to the one we're comparing to. But what they say qualitatively, it feels like I'm sleeping on pills. It feels like it's part of my bedroom and feels like it's part of my routine. And I think for too long, Medtech is focused on just the medical and not thought about the whole person and that psychological aspect, particularly for us, where people have a choice every night, whether they use our therapy or not. It's a choice every night. So the more comfortable we can make it, the better.

Early days with AirTouch N30i, just 3 or 4 quarters in, but F30i, just a couple -- one or two quarters in. But I can tell you anecdotally and early data is very strong and uptake. And I think this is a changing of the basis of competition within the industry. It's not just 2 masks, one in nasal, one in full face. This will go well beyond that. And I challenged the team.

I personally use our pillars device, which is just like the size of cannula, sits right here. It's much more difficult to just get fabric there because it's right near you, areas nearing nostrils, But I'm challenging them to like, give me a fabric, get me -- I do have a prototype that I'm using now. I can tell you, I think this space has a lot of room to move. You ask anyone on therapy, could it get better? Yes. And our job is to make it better before the competition does and to have IP, manufacturing capabilities and things that just make it very difficult for someone to catch up, but focus on the patient, focus on their care.

Just one on the financials. If you don't mind, the gross margin in the last quarter was up, I believe, it was 280 basis points. I think that was more COGS driven than ASP, but maybe just some comments on various moving parts we've seen in that line in the P&L over the last couple of years and what we should expect going forward?

So we've got 1 minute and 45 seconds left. I won't give a full detailed breakdown of our gross margin expansion. What I will say is 80 basis points of improvement, yes, over these last 12 -- 300 basis points if you go back 18 months, incredible work by our supply chain team. As you said, it was about parts, pieces efficiency, capabilities in manufacturing, distribution and beyond. There was some pricing in there, but I think it's a relatively benign pricing environment. I think competitive bidding. CPAP being out gives us even more credibility to have a benign pricing environment.

What I want to do here at ResMed is drive volume, drive patients into the funnel. 1 billion people need our help. We've got to get them in there. That continues to drive scale, which allows us to take more cost out. That's why I'm challenging my Chief Supply Chain Officer, get me double-digit improvements and leverage on gross margin every year through -- and basis points every year through 2030.

Thank you.

All right. I think we'll leave it there, Mick. Thanks very much for your time.

Thank you.

Hello, and welcome to the Q1 Fiscal Year 2026 ResMed Earnings Conference Call. My name is Kevin. I'll be your operator for today's call. [Operator Instructions] Also, please note, this conference call is being recorded. [Operator Instructions]

Let me hand the call over to Salli Schwartz, ResMed's Chief Investor Relations Officer.

Thanks, Kevin. I want to welcome our listeners to ResMed's First Quarter Fiscal Year 2026 Earnings Call. We are live webcasting this call, and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now.

During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers.

In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today.

I'll now turn the call over to Mick.

Thank you, Salli, and good morning, good afternoon and good evening to everyone on the various time zones, and welcome to ResMed's First Quarter Fiscal Year 2026 Earnings Call. I'm very proud of our global team of 10,000-plus ResMedians, who have delivered a strong quarter with 9% reported revenue growth or 8% on a constant currency basis, with multiple areas of high performance.

Across U.S., Canada and Latin America, our team drove high single-digit growth in devices at 8%, and the same team also delivered double-digit growth in the masks and other category with 12% growth. For Europe, Asia and Rest of World devices, the team achieved high single-digit growth at 7% on a constant currency basis. These businesses collectively comprise more than [ 75% ] of our quarterly revenue. For Europe, Asia and Rest of World in the masks and other category, we had mid-single-digit growth at 4% on a constant currency basis, following a strong comp from Q1 last year, where we grew at 11% in constant currency in this category and region. I'm confident that we will accelerate to high single-digit growth in this category, starting in the current quarter.

We are focused on continued strategic expansion of our mask portfolio with new product innovation, which I'll talk about in a couple of minutes. And we're also focused on driving mask resupply through education, awareness and execution. Increased mask resupply benefits patients, home care providers as well as payers and health care systems. And yes, it also benefits ResMed. This increase focused on mask and accessory resupply is fully aligned with our ongoing investments to accelerate growth in our direct-to-consumer markets around the world, including China, India, Korea, Australia and New Zealand. As I noted above, I'm confident these efforts will accelerate our Europe, Asia and Rest of World masks and other category with solidly and sustainably back to high single-digit growth.

ResMed's residential care software or RCS business delivered mid-single-digit growth with 6% reported and 5% constant currency growth. We saw strong performance from our Medifox platform, our core RightTree platforms with good growth in the MatrixCare home health business, yet a challenging growth environment for the skilled nursing facilities segment.

Now that we have integrated our RCS business into our global revenue team, we will drive portfolio management with increased investment in the high-growth higher-margin parts of that RCS portfolio while reducing exposure to the lower growth, lower-margin areas, such as the services businesses. We're confident that we will execute successfully on our portfolio management work and reaccelerate growth in our RCS platforms, moving from mid-single-digit growth here at the start of fiscal year 2026, accelerating to mid- to high a single-digit growth in the back half of fiscal year 2026 and achieving sustainable high single-digit growth with double-digit operating profit growth in 12 months from now.

RCS is a key synergistic enabler of our core sleep and breathing health business through demand generation and especially through resupply programs. In this way, our RCS business forms a core part of our long-term growth strategy.

During the quarter, we also continued to execute well on our ongoing work, driving operating leverage. Our global supply chain team delivered 280 basis points of year-over-year gross margin expansion. These results, along with our disciplined approach to business investments in both R&D and SG&A translated to another quarter of strong double-digit earnings per share growth. I'd like to take this opportunity to thank not just our supply chain team, but the entire ResMed global team for their ongoing commitment in serving patients in more than 140 countries worldwide. ResMed continues to build the world's largest digital health ecosystem, encompassing sleep health, breathing health and health care technology delivered right in the home.

Over the recent quarters, I've highlighted 3 key themes for these earnings calls, one that ResMed is committed to operating excellence and driving operating leverage while simultaneously delivering new products to the market. We are an innovation machine and an operational excellence machine. Two, ResMed is a compelling investment opportunity with huge addressable and growing markets and strong executable growth especially amidst global macro uncertainty. And three, ResMed's excellent free cash flow and strong balance sheet position, position us to both invest in the business and simultaneously return capital to our shareholders.

Our first quarter results are another demonstration of these important business elements, and I'll talk briefly about each of these 3 themes. On the first theme of operating leverage, I shared with you last quarter that ResMed has a pipeline of opportunities. One key area of focus has been optimization of our freight expense. Another area of focus has been our multiyear productivity programs that include improved planning systems and large-scale automation. These efforts, among others, helped deliver the 280 basis points of year-over-year gross margin expansion that we saw in this first quarter. We will continue to execute on these opportunities over the remainder of fiscal year 2026 and beyond. We'll update you here every quarter as we continue to deliver great results.

I've also previously highlighted the evolution of our global manufacturing footprint. In addition to our recently announced expansion of our Calabasas, California facility, which doubles our U.S. manufacturing capacity, we are pleased to announce that with our strong ongoing growth in the United States that we are investing to establish a third facility, a third distribution center. This new facility will be in Indianapolis, Indiana, the heartland of the Midwest, and it will expand our distribution capacity. It will improve product velocity of delivery and enhance our overall network resilience by positioning inventory closer to our customers. We expect the Indianapolis facility to be operational in 2027.

Once this facility comes online, ResMed will be able to ship to around 90% of our customers within 2 days. These efforts will also increase the capacity for our Made in America product to build on what we already do right here in the U.S.

On the topic of ResMed as an innovation machine, our R&D investments in the next generation of market-leading masks, cloud connected device platforms and digital health software position us well to keep delivering the world's smallest quietest, most comfortable, most cloud-connected and most intelligent therapy solutions for sleep apnea, insomnia, respiratory insufficiency and beyond. Just this week, we rolled out 2 world firsts for ResMed. These are the first 2 full face fabric masks available on the market. This brand-new AirTouch F30i mask platform is so innovative. We are launching 2 mass variants right out of the gate.

First, the F30i comfort, which is a premium price mask with a fabric-wrapped frame as well as an incredibly comfortable fabric-based oronasal patient interface. This amazing new product was launched earlier this week in Australia and will be launched into additional markets in the near future.

Second, just yesterday here in the U.S. market, we launched the F30i Clear, which is a traditional silicon frame mask, but it still has that innovative, incredibly comfortable fabric oronasal patient interface. This variant will be launched into our B2B channels and our home care provider customers as we continue to launch to additional markets beyond the U.S. These products expand ResMed's AirTouch portfolio of fabric-based mask offerings, delivering advanced comfort, mobility and interchangeability for patients. They're designed to help more people start, stay and be on therapy, CPAP therapy for life.

We're also excited to continue executing against our road map for incorporating ML, AI and generative AI technology into our digital health products. Last quarter, I talked about how we integrated our personal sleep health digital assistant that we call Dawn into our Myer platform in the Australian market. Dawn allows ResMed to provide personalized 24/7 support to our users, giving them an intuitive, empowering way to get help right at the moment they need it, right on their own time. Based on that success, during the first quarter of fiscal year 2026, we launched Dawn on the Myer platform right here in the U.S. market. Ultimately, Dawn strengthens the role of myAir as the central hub for therapy support for patients. This connectivity leads to increased long-term adherence, which in turn leads to better patient outcomes, lower total cost of care for payers and better resupply volumes for providers and for ResMed. Watch this space as we build and scale this amazing AI-based technology globally.

We also recently launched in a limited beta program in Australia, a new feature that we call Comfort Match. Now Comfort Match is an AI-enabled comfort setting technology that sits on the Myer platform. Comfort Match is intended to help people become more confident, more comfortable and more adherent to therapy. By engaging with patient settings such as humidification levels, air temperatures, heated tubing options and beyond, we will help patients define their optimal sleep health and breathing health environment faster, more easily and more efficiently, right from the start of their therapy journey.

Drink set up, the Comfort Match technology receives information about a person's profile and through advanced machine learning suggests a personalized combination of comfort settings with the goal of maximizing adherence. We will measure the success of this technology in consumer engagement, improved patient perceived comfort as well as hard clinical outcomes such as patient adherence. Based on early trials, we are very excited that this technology will deliver for patients, for physicians, for providers and for payers and beyond.

At ResMed, we view AI as a technology resource that will amplify and personalize care by identifying patents surfacing insights and enabling personalized interventions, we are creating AI-based technologies that will help caregivers spend more time focusing on people rather than paperwork. For our patients, our AI technology translates health data into clear guidance, clear support and encouragement, empowering them to take an active role in their own therapy. As a result, we believe that our AI tech investments will provide returns through accelerated access to care through improved patient outcomes while also making care more personal, more proactive and ultimately more effective.

Moving on to ResMed's SG&A investments. We remain focused on demand generation, demand capture and demand curation, as critical components to our long-term growth. Earlier this year, we expanded our offering of continuing medical education or CME programs to educate and to enforce or reinforce with physicians the benefits of CPAP, APAP and bilevel therapy as the clinical gold standard frontline treatment for any patient diagnosed with sleep apnea in accordance with Sleep Medicine guidelines.

We have continued to see incredible uptake from primary care physicians or PC piece. To date, the CME programs have been completed nearly 40,000 times by more than 22,000 unique PCPs, demonstrating that health care providers have taken multiple courses. Surveys at the end of these courses have consistently shown that 75% of providers intend to change their clinical practices related to improving sleep and breathing health based on what they learned.

We will continue to drive select and targeted direct-to-consumer awareness campaigns to build sleep apnea awareness as well as ResMed brand awareness globally. The ultimate goal is to help undiagnosed patients to find their optimal path weighted treatment. With more than 2.3 billion people worldwide who need our solutions for sleep apnea, insomnia or respiratory insufficiency, it is our clear obligation to help them know the world's leading brand in the field, which is ResMed. Immediately after that, though, our role is to be what I call a digital sleep health concierge to help that person find a path to screening, to diagnosis and ultimately, to therapy for life.

On the sleep medicine clinical research front, you will see ResMed continue to invest in important studies that highlight new evidence in sleep health. In late August, we announced the publication of a landmark study in the Lancet Respiratory Medicine Journal projecting a significant rise in obstructive sleep apnea, or OSA, prevalence in the U.S. over the coming 3 decades due to a variety of factors, including an aging population and increased chronic disease awareness.

The study estimates that by 2050, OSA will affect nearly 77 million U.S. adults representing a relative increase of nearly 35% from 2020, and ultimately impacting nearly half of all adults age 30 to 69. These epidemiology data include all of the estimated impacts of new drug classes, including GLP-1s. The bottom line from this epidemiology research is that the prevalence of sleep apnea will continue to increase. So our work is ongoing to help the many millions here in the U.S. and the billions worldwide who need us.

Last month, ResMed announced the launch of the Sleep Institute, a global clinical insights initiative, which is partnering with clinicians, researchers, policymakers and health system leaders to deliver objective noncommercial evidence-based insights that help inform care innovation, support policy decisions and elevate sleep as a global health priority. The Sleep Institute debuted at the World Sleep Congress in Singapore with an expert-led symposium examining barriers in diagnostic pathways for OSA and new scalable solutions to help improve access and outcomes.

Even as we have continued our investments in both R&D and SG&A, ResMed again delivered strong net operating profit growth in the first quarter. Indeed, ResMed remains a compelling investment opportunity amidst global macro uncertainty. We continue to closely monitor the global trade environment and the evolving regulatory landscape. As I noted last quarter, because our products are used to treat patients with chronic respiratory disabilities, they have been subject to global tariff relief for decades, and we have reconfirmed that with U.S. authorities earlier this year.

It's important to note that this relief has continued in the context of other Section 232 investigations, and we expect it to remain true for the investigation of medical supplies that was announced in late September. ResMed was one of the many organizations across Medtech that submitted formal public comments regarding this investigation to the U.S. Department of Commerce. There were over 800 official comments made from our industry which we see as a good show of strength from our colleagues in the field. Our submission at ResMed focused on ResMed's significant and expanding, in fact, doubling of our U.S. manufacturing, our broad domestic hardware and software R&D teams our global headquarters that's located right here in San Diego, California as well as our expansion of not just our U.S. manufacturing, but also our many U.S. jobs in research, development, and commercial operations here in the U.S.

As the incoming Chairman of the industry group called AdvaMed from January 1, I'll be -- on the front lines of our med tech industry's response to this 232 investigation. Of 14 industries that has been investigated by the department. And I see our industry actually quite analogous in potential outcome to that of the aircraft industry. And the aircraft industry saw some very favorable outcomes after their investigation and the details of their commentary. We are confident that ongoing tariff relief should still apply for ResMed and for our many patients with important disabilities that need access to care.

Let me also briefly comment on the competitive bidding program that CMS has stated that it plans to resume. Late August, its comments on the proposed methodology that will apply to our home medical equipment or HME customers. We remain committed to advocating for policies that protect patient access to care and for policies that promote fair and sustainable reimbursement for HMEs. At this point, like everyone else in the industry, we are awaiting further information, including intended timing for the program, product categories that will be included or not included in bidding methodology details.

ResMed will continue to support our HME customers and the millions of U.S. Medicare beneficiaries who rely on us, both for access to market-leading, high-quality sleep and respiratory care at home. We are fortunate to be able to remain fully focused on executing our 2030 strategy, including delivering value to all of our constituents. ResMed's strong free cash flow, our robust balance sheet provide us with significant flexibility to both invest in our business and return capital to shareholders.

You will see us continue to selectively invest in our digital sleep health concierge capabilities, including screening protocols, clinical tools, seamless workflows and cloud connected care pathways. We'll be looking to expand the diagnostic funnel to keep up with the new patient flow that will come from ResMed's own demand generate -- demand generation efforts as well as the greater awareness of sleep apnea that has been and will be generated by the promotion of GLP-1 medications that can be used to partially treat or, as I say, half trade OSA. And the accelerating momentum in consumer wearables that are capable of not just sleep health monitoring, but also sleep apnea detection. ResMed's ability to integrate with multiple other wearable ecosystems and the growth in patients using ResMed products has driven the number of API calls per second up more than 40% year-over-year in this quarter.

The first quarter of fiscal year 2026 was the first time that we had more than 3 billion total API calls in a single quarter. The bottom line is that interoperability works, digital health works. People want to combine health data for lower costs, better outcomes and to bend the curve of chronic disease and to better manage the disorders and diseases that they have and that we treat.

ResMed also returned significant capital to shareholders through a combination of dividends and share repurchases. As you're aware, last quarter, ResMed's our Board of Directors authorized another increase in the quarterly dividend for fiscal year 2026. We also increased our targeted share repurchase activity for fiscal year 2026. And during the first quarter, we returned over $238 million to our shareholders.

Before I turn the call over to Brett, I would like to take this time to thank the ResMed Board Director has just recently announced his retirement, Rich Sulpizio, for his amazing years of contribution to ResMed. We announced that Rich will not stand for reelection at our upcoming annual meeting of shareholders, which will be November '19, 2025, and he will retire after that meeting. Rich has been a long-time mentor to me and to many executives in the technology and health care industries, including at Qualcomm, CI Technologies and of course, right here at ResMed. Rich had always brought Canada, Energy and a people-first mindset to every boardroom conversation. We'll continue to do that in his legacy.

I'd also like to formally welcome Nicole Mowad-Nassar to ResMed's Board of Directors. The call was elected to our Board August 15 and has been appointed to the Compensation and Leadership Development Committee. Nicole is President of the Global Allergan Aesthetics business, and she's a Senior Vice President at AbbVie. Nicole brings 3 decades of pharmaceutical industry experience, a sharp commercial lens, a deep commitment to patient access and a strong orientation towards digital health as well as consumer and patient engagement. Nicole is a great addition to the ResMed board.

One final note on the Board, I'd like to congratulate Chris on his recent appointment as Chief Financial Officer of Ulta Beauty in the consumer cosmetics retail industry. We are fortunate to have both Chris and Nicole bring their experience with consumer-driven aesthetics products and retail products to our Board discussions. Their insights will be increasingly critical as ResMed builds its brand presence with consumers around the world to augment our amazing B2B businesses.

Quarter-after-quarter, ResMed has demonstrated its ability to consistently deliver both financially and operationally. We've established a leading market position globally in an underpenetrated market that still has a very long runway for growth. This dampens our confidence in our ability to deliver for consumers, for patients, for physicians, for providers for payers, for our communities and, of course, for you, our shareholders.

With that, I'll hand over to Brett to go through a deeper dive into our financials, and then we'll open the floor for questions. Brett, over to you in Sydney.

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the first quarter of fiscal year 2026. Unless noted, all comparisons are to the prior year quarter and in constant currency terms, where applicable.

We had strong financial performance in Q1. Group revenue for the September quarter was $1.34 billion, a 9% headline increase and 8% in constant currency terms. Revenue growth reflected positive contributions across our product and resupply portfolio. Year-over-year movements in foreign currencies positively impacted revenue by approximately $16 million during the September quarter.

Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in U.S., Canada and Latin America increased by 10%. Sales in Europe, Asia and other regions increased by 6% on a constant currency basis. Globally, on a constant currency basis, device sales increased by 7%, while masks and other sales increased by 10%.

Breaking it down by regional areas. Device sales in the U.S., Canada and Latin America increased by 8%. Masks and other sales increased by 12%, reflecting continued growth in resupply, new patient setups and incremental revenue from our recent VirtuOx acquisition, which we acquired in Q4 FY '25. In Europe, Asia and other regions, device sales increased by 7% on a constant currency basis, and masks and other sales increased by 4% on a constant currency basis, impacted by a strong prior year comparable.

Residential care software revenue increased by 5% on a constant currency basis in the September quarter, led by robust performance from our MEDIFOX DAN business, partially offset by weaker performance in our senior living and long-term care software business. As Mick mentioned, we are reviewing our investment priorities within RCS and are working on initiatives to drive improved growth in the RCS portfolio.

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 first quarter earnings press release.

Gross margin was 62% in the September quarter and increased by 280 basis points year-over-year and by 60 basis points sequentially. The increases were primarily driven by component cost improvements and manufacturing and logistics efficiencies. Changes in average selling prices had a minimal impact on our gross margin, both on a year-over-year and on a sequential basis. Our supply chain team continues to make progress on our pipeline of gross margin expansion initiatives, and we remain focused on making sustained long-term gross margin improvements. Looking forward and subject to currency movements, we still expect gross margin to be in the range of 61% to 63% for fiscal year 2026.

Moving on to operating expenses. SG&A expenses for the first quarter increased by 8% on a headline basis and by 7% on a constant currency basis. The increase was primarily attributable to additional expenses associated with our VirtuOx acquisition and growth in employee costs as well as ongoing marketing and technology investments. SG&A expenses as a percentage of revenue improved to 19.4% compared to 19.5% in the prior year period. Looking forward and subject to currency movements, we still expect SG&A expenses as a percentage of revenue to be in the range of 19% to 20% for fiscal year 2026.

R&D expenses for the quarter increased by 10% on both a headline and constant currency basis. The increase was primarily attributable to increases in employee-related expenses. R&D expenses as a percentage of revenue were 6.5%, consistent with the prior year period. Looking forward and subject to currency movements, we still expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% and for fiscal year 2026.

During the quarter, we recorded a restructuring related charge of $16 million, following a company-wide workforce planning review to better align our capabilities with our 2030 strategic priorities. Restructuring costs were comprised of employee severance and other onetime termination benefits. The restructuring charge has been treated as a non-GAAP item in our first quarter financial results.

Operating profit for the quarter increased by 19%, underpinned by revenue growth and gross margin expansion. Our operating margin improved to 36.1% of revenue compared to 33.2% in the prior year period. Our net interest income for the quarter was $9 million.

During the quarter, we recognized unrealized losses of $6 million associated with our minority investment portfolio. This negatively impacted our Q1 earnings per share by -- sorry, by $0.04. Our effective tax rate for the September quarter was 22.3% compared to 19.2% in the prior year quarter. As we noted in our last quarter call, the increase in our effective tax rate was primarily due to the impact of global minimum tax legislation introduced in certain jurisdictions that became effective from July 1, 2025.

We still estimate our effective tax rate for fiscal year 2026 will be in the range of 21% to 23%. Our net income for the September quarter increased by 15% and non-GAAP diluted earnings per share increased by 16%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.02 in Q1 FY '26. The Cash flow from operations for the quarter was $457 million, reflecting strong operating results and disciplined working capital management. Capital expenditure for the quarter was $43 million, and depreciation and amortization for the quarter totaled $48 million.

We ended the first quarter with a cash balance of $1.4 billion. At September 30, we had $669 million in gross debt and $715 million in net cash, and we have approximately $1.5 billion available for drawdown under our revolver facility. We continue to maintain a solid liquidity position, strong balance sheet and generate robust operating cash flows. Today, our Board of Directors declared a quarterly dividend of $0.60 per share. During the quarter, we purchased approximately 523,000 shares under our previously authorized share buyback program for a consideration of $150 million. We plan to continue to purchase shares to the value of approximately $150 million per quarter during the remainder of fiscal year 2026. Going forward, we will continue to invest in growth through R&D, deploy further capital for tuck-in acquisitions and continue our dividend and share buyback program.

And with that, I will hand the call back to our operator, Kevin, to provide instructions for our Q&A session.

[Operator Instructions] Our first question today is coming from Davinthra Thillainathan from Goldman Sachs.

Yes. Mick and team, I appreciate the time. Can we just touch on your new mask that you have launched in Australia and in the U.S. Could you just highlight the unique attributes of this product? And also, if I understand this right is in the full face category and it builds on the near the launch towards the back end of calendar year '24. So if you could just help explain just the importance of that full face category and tie that into your ambitions to accelerate growth in March, especially in ex U.S. regions?

Yes. That's a great question, David. And so yes, it's the AirTouch F30i and really incredible, I would say, fabric-based technology that, as you know, in Singapore, we've had a fabrics engineering team working for a while. And we had recently launched our AirTouch N30i, a couple of quarters ago and have had really good success with that nasal mask with fabric touching the face. And so we had this in development. We accelerated it up. And you're right, this is a full-face mask. So it's high price, high margin. It's about the roughly 30%, 40% of people bread through both their nose and their mouth while they sleep. So they need an oronasal mask. And so for those people, 1/3 plus of people, the AirTouch F30i is coming to market. And we've got 2 variants of it, one, which I'll call sort of the premium one, which would be more, as you said, in the sort of direct-to-consumer cash pay markets. I think China, Australia, New Zealand, India, Korea, Singapore, et cetera, et cetera. And that's called the F30i comfort. And that has fabric not only in the part touching the face, but all over the head gear as well. every part touching your body is like the sheets that you sleep in the bed.

The other variant is called the F30i clear. And that is for markets sort of that are B2B markets, our home care provider markets, where we have a more economical version, but it's still has the advanced technology where the part touching the face has this new fabric or nasal patient interface. So watch this space. We've seen really good success with the N30i over the last couple of quarters. I think we're going to do the same in the full face category here. We're changing the basis of competition in masks away from liquid silicon rubber LSR away from silicon to fabrics. We're going to sell both, but I think this is going to be a very exciting product and it will help us, not only have high single-digit growth in the Europe/Asia rest world category, which we're going to be back to that this quarter and continue on it. I'm more excited about what it can do for patients around the world who want more comfort and more care and these masks do that. Thanks for the question, David.

Your next question is coming from Laura Sutcliffe from Citi.

I think you spoke at the end of the prepared remarks to potential sort of tuck-in acquisitions. I think historically, you've said there'll be focus sort of refining the patient funnel improving retention within the funnel. I assume that because there's most for you to gain here. So could you just talk to how much work there is to do, how leaky is the funnel right now and perhaps sort of allude to how that fits into the ResMed 2030 strategy?

Yes. Thanks for the question, Laura. Look, it's a good one. And as you saw, we have done a couple of tuck-in acquisitions in this area of the patient funnel, helping with access to very easily usable home sleep apnea testing tools like our Ectasense acquisition and the Knight our product. that is now being launched to our U.S. sales force. We did that at the sales meeting a couple of months ago.

And so then in addition to that, we acquired a home sleep apnea testing services company called VirtuOx. And that team is hard core, dedicated entrepreneurs that now have -- and they came to our salesman here in the U.S. as well. They now have access to the ResMed capabilities. And I actually just got the quarterly update from the team on the advisory board and their numbers are doing really well. We are doing really well in terms of getting nights, getting other homes sleep apnea tests to bringing them through the funnel. So that really strong 8% growth we saw in U.S. devices. I do think that sort of, I would say, beating sort of that mid-single-digit growth, which we say is the market growth without that, some of these tuck-in acquisitions of VirtuOx and the Nihal product have helped with that.

In addition, of course, we had the tuck-in of the Somnerware acquisition, which is software, for pulmonary and sleep medicine practices. So we're helping provide efficiency, seamless flows, so that the pulmonary doctors and the PCPs have better interactions and easier interactions with each other.

Yes, I'm not going to single exactly what we are looking at for the future, but I can tell you like that technologies and capabilities to help with that seamless, frictionless flow from sleep concern consumer to screening, diagnosis, treatment and set up. As you said in your question, Laura, there is churn in the channel. There is leakage in that funnel. And our goal is not only to bring more patients into the funnel at the top through demand generation, capture and curation, like our CME programs that I talked about in the prep remarks, but also to minimize the lots of people as they go through there. And how do you do that? You interact better. You provide seamless and easier alternatives to go through the system. So I think having done our generative AI product, there's sort of digital sleep health Concierge, improving access to that capabilities of that, interoperability of that. Think of the 3 billion calls, API calls into and out of our eView system. That means people want to know about their sleep health and their breathing health. And we need to combine it with all those other data around chronic disease.

So I really do think the investments from big pharma, they're putting in D2C advertising, including using basketball stars and all this late night stuff don't sleep on OSA campaign. It's going to bring patients into that funnel. And so ResMed's goal is to maximize the opportunity of getting that screening, positive diagnosis, positive therapy for the gold standard, whether or not they have additional therapies like GLP-1s or others, making sure the gold standard happens at that time and that we maximize that 90-day adherence, year 1 adherence and beyond. So the game is not done. There's a lot more to do. We're going to keep executing on night hour and VirtuOx and solvent wear and looking at others that can help drive further growth in the future. Thanks for the question, Laura.

Next question is coming from Saul Hadassin from Barrenjoey.

Mick, you touched on this made in America strategy, Mick, and the Indianapolis distribution center expansion. I'm wondering if you can talk to your plans as it relates to actually manufacturing in the U.S., and I know you spoke about this last quarter at Calabasas. But just to be clear, how do you see product manufacturing evolving in the U.S. as it relates to being able to develop all products, CPAPs, masks, not just the motors. If you could touch on that, that would be great.

Great question, Saul. And I won't go into the detailed plans that we have to expand in Calabasas and Reno Valley in Indianapolis and Atlanta. But I can tell you across our footprint here in the U.S., we've got a really broad manufacturing and distribution capacity world-class. And Shane Asi and his supply chain team not only looking at inbound supply, but that manufacturing distribution, getting 90% of customers within 2 business days of delivery is sort of world-class and well above top tier for Medtech. And so that's where we're looking at going.

Yes, look, we do see certain policies coming in from Washington and being the incoming Chairman of Avivatan very much across all that is coming and may or may not come. And you think about customers like the VA and others that the U.S. government approach. I think it's just a good strategy for ResMed to not only have our maiden America motors, as you said, our made America masks that we already have, but to have capability for made American devices. And so we will be setting up lines for that and be able to flex up and down as the needs of our U.S.-based customers and our global customers go there. The bottom line is the vast majority of our global volume does come out of the U.S. It's well over 50%, 60% of our global volume. So bringing more manufacturing here. And we learned this in over that having manufacturing close to where the demand is, is needed when there's uncertainty -- geopolitical uncertainty. And so we're looking at all that and saying ResMed is a steady ship all this macro uncertainty. We've been so good with all these changes in up and down. I'm just being really good at delivering for our customers.

We want to have the ability to do that no matter what happens. And so we're preparing for that. And we're doing things for the long term. We're not doing them in response to a particular government. We're saying, well, what's right for us in 2030, 2035 and then what overlaps what rules may or may not come in. And that's why we're doubling our U.S. manufacturing capacity and broadening from just motors to masks and potentially devices as well. So watch this space.

Our next question today is coming from Lyanne Harrison from Bank of America.

I might ask on U.S. devices. Obviously, very strong growth there in comping a strong previous quarter as well. Can you talk about the demand in initiatives that you have in place? And how do you measure which ones are really delivering in terms of generating that demand? And you do mention mid-single-digit growth for the device market. But certainly, what we are seeing this quarter is at high single digits. Can we expect high single digits going forward, given all those demand initiatives that you have in place?

Yes, Lyanne, look, it's a really good question. And you and many of the other analysts here have followed our work here very closely on demand gen, demand capture demand curation. And so you know it's not a simple algorithm. It's not a simple customer acquisition cost to lifetime value that you might see in a retail industry or an online-only type company where those equations are relatively simple. Turis dial, you get this response. It's quite complicated in health care. And so we've actually become quite sophisticated, I think, in where, how and when we have targeted social media and digital media driven demand gen campaigns where we look at not only is there an age group and a demographic that's open to that demand gen, so that it's available demand gen, but the capacity for screen diagnosis and prescription of referrals is there within that particular demographic, geography and capability. And so -- yes, look, I do think we outperformed what the market growth would have been without good execution there in Q1, right, with 8% growth in our U.S., Canada and Latin America devices on a reasonable comp as you noted.

I'm not here to raise our guidance and say, "Oh, we're suddenly going to go to high single-digit growth in devices on a consistent basis in the U.S." But I do think that we can systematically move up 25, 50, 100 basis points from what the growth will be. We can move ahead sometimes and do really well and then we can just slowly and steadily move it up as well. And what we're looking for is that sustainable market demand, demand generation improvement. It is nice to have the tailwinds of $400 billion, $500 billion pharma company throwing a lot of D2C advertising that we can't afford to do with our P&L. That don't sleep on OSA campaign and all their other stuff is going to bring patients into the funnel.

So our question then comes like -- how many of those 22,000 PCPs were trained are actively now prescribing CPAP as gold one front line therapy to every patient that comes through. They say they're going to do that close to the education, but what happens in practice? Have we connected them to a VirtuOx? Have we connected them to other home sleep apnea testing services because it doesn't have to all be from us. We want that patient well taken care of and brought through the funnel. So yes, I think it was a great work by the team in U.S., Canada and Latin America in the quarter. And let's not forget, they also did great work and resupply You saw 12% growth of U.S., Canada and Latin America masks and other categories. So that very good growth in the mask resupply and the VirtuOx services and all the other parts that go into that. So very excited about this growth and its ability to continue it. But it's an ongoing game of innovation in marketing technology, demand generation technology and then also channel evolution, which relates to Laura's question about making sure the infrastructure is there as well. So we're combining all this together well. U.S., Canada and Latin America team did very well in the quarter, and we're going to continue to execute on that. Thanks for the question, Lyanne.

Our next question is coming from Steven Wheen from Jarden.

Just a question for Brett in response to the global minimum tax jurisdiction and the impact on your tax rate. I think from your previous calls, you've indicated that there's other benefits that you're likely to get through R&D sort of credits or offsets or sort of staff concessions. I wonder if you could sort of help us understand what the sort of compensating factors may be for that lift in the tax rate in -- out of Singapore?

Yes, sure, Steve. Yes, we now have an agreement under refundable investment credit or ROIC with the Singapore government, which is now effective into this quarter. So we are getting some offset that would flow through COGS, SG&A, R&D through the P&L. So that offsets it to some extent, but not completely, but we do get some benefit that's coming through. You'll see that over time. I think that will build over time as well. through FY '26 into FY '27. So we are getting the benefit of that, but it's not -- it doesn't offset the tax impact.

Our next question is coming from David Bailey from Morgan Stanley.

Yes. Mick, just the commentary around PCP awareness rising prevalence in the U.S. in relation to First part is, where do you think the penetration of the U.S. market is at the moment? And then secondly, in terms of rePAP as an opportunity for growth, how do you sort of see that at the moment and going forward as well?

Yes, David, it's a good question because it looks at the rePAP, which is a growing part of our devices side and the new patient flow that we spend a lot of our time for in the devices category. Look, I think PCP awareness is key. I want all 40,000 of the PCPs that I think will be targeted by this work from the pharmaceutical industry that are high-volume GLP-1 providers, and that already have access to home sleep apnea testing protocols. And so we're going to work through really strongly to make sure that we hit all of those primary care physicians and make sure their education is there and that we are there with commercial solutions for them to be able to drive that.

And yes, the rising prevalence from the data that was published in the Lancet. We're ready for that. We know there's an aging population. We know there's increased chronic disease awareness, and we know that people are finding out more, not just in the big pharma ads, which is sort of temporal compared to these wearables that people are now managing their health and their fitness. And when it starts to identify sleep breathing disturbances or of course typically sleep apnea. They're going to seek treatment and they are. And so we've got to be aware for both of these at the primary care level. To your question around penetration in the U.S. market. Look, I think when you take those numbers up to $77 million by 2050, where we're at in our penetration rates and the growth towards that. The U.S. market is sort of in that sort of 15% -- under 20%, sort of 15% to 20% penetration. The Europe market is in that sort of 10% to 15% penetration rate. And of course, in Asia Pacific and Rest of World, we're well sub-5% penetration. And our growth rates are struggling to keep up with the rise of prevalence. And so those percentages don't change as fast as I'd like them to change in terms of penetration. I'd like them to increase higher and higher because ResMed is finding better and better to get there. But we're defining more and more patients as people age and get aware, frankly, of these chronic diseases. And so both of those are good things. But yes, sort of in that next 20% sort of in the U.S. range is sort of where we see penetration now. And thanks for your questions. It's a complex equation of getting that PCP aware and driving people appropriately into the funnel, but we're working on it and the team performed very well this quarter.

Next question is coming from Brett Fishbin from KeyBanc Capital Markets.

Nice overall quarter for Sleep & Respiratory, but I think the 1 area to maybe nitpick was just the mid-single-digit growth trend in SaaS which is a little bit below your typical levels. I was hoping you can maybe just unpack a little bit more in terms of the incremental headwinds you saw in those couple of end markets. And then just the assumptions underlying your expectation of returning to mid- to high single-digit growth near term and high single-digit growth next year?

Great. It's a good question. And yes, as you know, the Software as a Service part of our RCS business is incredibly strong, and that's where we're really looking to focus. So core Medio, Core Brightree and then MatrixCare Home Health, all Software-as-a-Service businesses that have higher growth and higher margins. So we are investing in those. What you saw in the quarter and what I talked about for this fiscal year is that we're going to focus less on what I would call the lower margin, lower growth areas. Their services revenue, IT services, implementation services, which you need to have some of, right, for new customers that are coming on board with your ecosystem, but you don't need to expand on them and have them beyond what is needed. And you can actually use third parties to provide those lower-margin areas where private companies are happy with lower growth, lower margin areas and they're not best suited as part of a strategic like ResMed in a global RCS platform. So I'm going at portfolio management that we're looking at. for that, where we're going to invest more and more in the SaaS platforms, as you noted, and less and less in the services part of that. And that was what contributed to the couple of hundred basis points delta there. from Q4 to Q1.

But as I said in the prepared remarks, and we've got the plan and we're executing on it. I spent a lot of time. We've now rolled this business into our global revenue side. So Mike Plus, our Chief Revenue Officer, and really importantly, with Holcim who runs our Medifox business, Tim who runs our MatrixCare business and Greg, who runs our Brightree business, we're looking at every element of portfolio management is saying, let's invest for the long term. Let me get investment into the core platforms that are really servicing these home medical equipment companies, really servicing this home nursing and home health companies and our expandable and sustainable growth and can get us back to where we should be, which is high single-digit growth in the top line, but also double-digit growth on a net operating profit basis. So once this base as we go through that. I think it's the right time to do this because our core business is performing so well. And I think it's the right thing to do for the long term because there's great synergistic impacts -- look at the growth of masks and accessories in our U.S. at 12% this quarter. That was helped by our Brightree, not only Brightree resupply but Snap and not just able right tree, but snap for other areas. And so have we over-indexed on the resupply and a little less on the core platform maybe. And so I think what we're signaling here is we're going to invest in the core platform in Brightree and really make sure that's not only best in class and best market share, which it is, but it's innovating faster and faster to help more and more HME customers come on board.

So I think it's the right time for this portfolio management, and we're investing with those businesses. We've got 3 really strong leaders that are putting their plans together and executing and I met in person with them all this quarter. And I'm really excited about what we've got ahead for our SaaS-based businesses in Brightree high medical equipment and synergistic impacts as well as our work in MetiFox and Home Health and MatrixCare.

The next question is coming from Mike Matson from Needham & Company.

This is Joseph on for Mike. I appreciate taking our questions. I guess maybe just a quick one on Nydal. Obviously, it's pretty early days into the launch, but I was just wondering if you could give any more color around metrics? And how it's converting fleet patients and lowering that pretty high fleet patient backlog that you guys have called out? Much appreciated.

Yes. Thanks for the question, Joseph. And yes, we don't really split out exactly what the night-out numbers are. But what I can tell you is, compared to where we thought we'd be in the growth of our VirtuOx, which is the onsite sleep apnea testing service that runs Nidal as well as ApneaLink as well as even competing diagnostic tools, but mostly Our we're seeing really good growth. That team is performing well and driving patients through the funnel. I mean, you saw that in the 8% growth in devices in U.S., Canada, Latin America.

Do I think there's more room for growth? 100%. Do I think that the big pharma, big tech, bringing patients in is going to be a tailwind? For sure. But it's an ongoing game of saying, let's make sure we get those night house to every geography, to every primary care position who needs them. And more importantly, frankly, offer the service to that primary care physicians so they don't have to buy the diagnostics because most of them want a service that can provide it for them. So it's really a combination of wrapped in the VirtuOx service as well as providing for the pulmonary physician growth of somewhere, so that they can manage the systems and read the studies and get them back to the primary care physicians who can then see their own patient, write the prescriptions and then the care can be managed for life. So a bit of a complex equation. But I can tell you that the growth is good in VirtuOx, growth is good in -- and that's what's contributing to our core business growth, which was strong, not just in the U.S. but also in Europe, Asia, Rest of the World. We saw good sort of 7% growth in devices across Europe, Asia, Rest of World this quarter. And obviously, not driven by -- not as available there, test some more on larger, more complex sleep apnea testing systems and in lab, but we're even doing well in driving patients through there. So no patient left behind. We want to make sure the $2.3 billion have access to care and the $1 billion with sleep apnea have a better approach and a good part of that.

Our next question today is coming from Andrew Goodsall from

Sorry, it's actually Dan Haran. Look, thanks for your comments that you made before around competitive bidding. But sort of reflecting back, I'm not sure you actually gave us your thoughts on what you think the range of outcomes will be. But your commentary is bullish and confident as ever. So I guess you must have a view on how competitive bidding will play out, So perhaps I'll push you there a little bit just to narrow your thoughts on the range of outcomes there?

Yes. Thanks for the question, Dan. I mean look, this is our 15th year probably 60th quarter of watching the competitive bidding landscape right from when this launched in sort of 2010. And I think the HME customers are very sophisticated. They understand their costs and they understand how to bid, and so they're working through all that. So no matter what the scenarios are, the last round that we saw in 2021, just 4 years ago, they did a really good job of looking at their costs and bidding appropriately. And then we saw those bidding rates be right in line with what they thought. And then the government sort of went back and reassessed. Look, maybe we'll just stick to an inflationary adjustment approach. Look, I think the HMEs will do the same thing. They'll bid appropriately. They know where ResMed is, which is we're here to support you. But this is something where we know where the costs are, their costs have gone up from 2021 to now, there's been inflation across it. They should bid appropriately in there working through the process through AA home care and all these groups to work out how to do that well. So I think we've got a mature sophisticated HME base that will bid appropriately. And I think the outcomes will be appropriate for them because they know the inputs they put into that system are the outputs they'll get. And they know that ResMed will be here to support them with the best smallest quiet, most comfortable most cloud-connected and most capable systems, and that together will help take cost out of the system by keeping people out of hospital, out of ERs and that this is about really that equation, which is sleep apnea diagnosis and treatment is a cost saver for the health care system. That's what I advocate for us as Head of there about all of Medtech. There's an ROI of Medtech for the U.S. government. So very good investment for them. And so that applies to both the lobbying on the 232 as well as on competitive bidding. So I'm confident that the outcome of this will be good because the sophisticated players going in and they know what to do and they know that the beneficiaries are the ones they should focus on. And that's what we're all here to serve them.

Thank you. We are now at the 60-minute mark, I'm going to turn the floor back over to Mick for any further closing comments.

Well, look, thank you for joining us for the earnings call today. Our fiscal year 2026 is off to a great start, strong 9% headline, 8% constant currency growth. On behalf of more than 10,000 ResMedians serving people in 140 countries worldwide, I'm pleased that they were able to deliver you another strong quarter of performance and for all our shareholders. We look forward to speaking with many of you over the coming weeks and to all of you here in 90 days. I'll hand back to Salli.

Great. Thank you, Mick. I'll echo Mick, thank you for everyone for listening, and we appreciate your time and interest. If you have any additional questions, please don't hesitate to reach out directly. Kevin, you may now close the call.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Good afternoon, everybody. My name is Lyanne Harrison. I am the Australian health care analyst here for Bank of America, and I cover ResMed.

Today, I have the pleasure of introducing Mick Farrell, Chairman and CEO of ResMed; and Carlos Nunez, the Chief Medical Officer for ResMed. Welcome, gentlemen.

Thank you.

Mick, we might start off with you with some opening comments about ResMed and before we go into question and answers, and we can open up to the audience as well.

Yes. Okay. I'll just do a look at 5 minutes overview of the company and then refer to our ResMed 2030 strategy. And then, yes, happy to get into discussions with you and now my Chief Medical Officer to my left.

Look, ResMed is the global leader in cloud connected and digital health for Three verticals for Sleep Health, for Breathing Health and for Health Care Technology delivered in the home, whether it's products, hardware or software. We've got the biggest virtual asset in the field of digital health of everyone in health care, not just everyone in Medtech, everyone in health care.

We have 13 million 100% cloud connectable medical devices that we've sold into 140 countries, the most expensive real estate in the world, which is your bedside table and we have 23 billion nights of medical data from respiratory medical data from those devices.

The company was founded in 1989. There was an invention from the University of Sydney from Professor Colin Sullivan. We're now headquartered in San Diego, California and listed on the New York Stock Exchange and the Australian Stock Exchange through chest deposit instruments.

ResMed 2030 strategy, you can hear the full strategy. Just about exactly a year ago, at the New York Stock Exchange is available at investor.resmed.com I had myself and all of my top C-suite present. It was our 25 years on the New York Stock Exchange, 100 quarters. We're celebrating now ringing the bell, but then we had a detailed Investor Day, so you can go and refer to that. But at a high level, in the last 12 months, we changed 154 million lives by providing them with a device, a CPAP and APAP or bilevel or a full mass system or a software product that changed their life, whether it was myAir or AirView or Brightree or beyond.

Our goal is to improve 500 million lives by 2030. So in growing the volume of impact across devices, masks and software double digits every year for the next 5 years. We make the smallest, the quietest, the most comfortable, but also the most cloud connected and the most intelligent software and hardware systems and sleep health, breathing health and health tech at home.

And we make products that people love. When Carlos and I go through Heathrow, we both have our little ResMed bags. I guarantee you one of us will get a second look from someone, and they will say, "Are you ResMed? And we'll say, yes, I am. And I'll say, thank you. That product saved my job, it saved my marriage, it saved my life. And actually, those were the words of Eddie Merck, he was the first patient who spoke to my dad when this thing was the size of a swimming pool pump on Rube Goldberg glue-on mask, whereas now it's our little travel perhaps like 3 iPhones on top of each other and the mask is like a nasal cannula.

We lead the industry in market growth and in profitability and quality and cybersecurity and operability. So that's ResMed 2030 in a nutshell. I know you want to go in further detail. Three themes from our last quarter. We end our fiscal year June 30. So Q4 fiscal '25 was June 30. Three themes from that. One, ResMed has an incredibly strong balance sheet with very strong cash flow. We generated over $1.7 billion of free cash flow in the last 12 months. That's point one. Very strong financial position. Point 2 operational excellence and innovation excellence. We delivered 230 basis points year-on-year of gross margin accretion in Q4 and 150 basis points Q-on-Q from Q3 to Q4. 150 basis points of gross margin appreciation in those quarter-to-quarter. And innovation excellence, we're delivering products faster than ever before.

Part of the 2030 strategy pivot was to become product-led customer-centric and brand enhanced. And how you see that as investors is the product-led means increased product velocity. The customer-centric means increased profitable growth. So gross margin expansion all the way down to NOP and our net operating profit margins in the 33%, 34-plus percent range.

And then the other part of this innovation excellence is the delivery of products. I talk about the basis of competition being small, acquired and more comfortable, more connected, more intelligent but we've also changed the basis of competition in old school hardware for the first time in the history of our space, putting fabric on the patient interface. So not like a medical product or liquid silicon or silicon rubber, think for where the nasal stent or the pneumatic stent is delivered through the nose. We put fabric in a product we call the AirTouch N30i.

We won't stop with that one product. But getting a multi-cavity tool at high-pressure, high-temperature to produce mass at the costs and the volume that we can do with fabric is pretty unique. And I think it changes as a basis of competition for the mass business. We also launched the F40. And we bought a company called Ectosense from Belgium here and a technology called the NightOwl, which is a home sleep test, which is the size of my fingertip here and it fits around there, and it's fully FDA cleared and can get a patient on to therapy.

And the third and final point from our last call is that we're a steady ship in a pretty topsy-turvy world of tariffs and geopolitics. ResMed has through our work with CBP and the U.S. government. We have the Nairobi protocol that protects and gives complete tariff relief for all ResMed products, whether it's made in Singapore or Australia or in Atlanta, no tariffs on anything that we deliver. And so that's it. That's my intro, back to you Lyanne.

Thanks Mick. Very, very helpful. Let's start with where you started on that cloud connected device and 30 million bits of data there, 23 billion nights of sleep data what are you doing with that data to leverage it? And how is that supporting ResMed?

I'm going to hand that to Carlos since I just did the whole intro. What are we doing with that data Chief Medical Officer?

As you heard, I'm the Chief Medical Officer. So I lead our medical affairs and government affairs functions and the medical affairs function has the privilege of accessing that data, all permitted by our patients in a de-identified manner to do really one of a few things, make our products better, make our services better and more importantly, contribute to the peer-reviewed research that we publish quite often to make the field better, to make the science and the medicine better.

So for example, we recently published a study in Lancet Respiratory Medicine, a very, very good journal, just about 1.5 months ago that showed an epidemiologic projection of the prevalence of sleep apnea in the United States through 2050 using real-world evidence using access to this data.

We published a study about 4 months ago that showed those diagnosed with sleep apnea, someone who accepts treatment with a CPAP, someone who refuses treatment over the next 3 years. If you don't treat your sleep apnea, you have a 35% higher risk of all-cause mortality and a 55% higher risk of cardiovascular mortality. And it goes on and on and on. We do so much research with these data to again show the 1 billion nights of people with sleep apnea was real-world evidence data that ResMed published and sponsored adherence increase with a connected device from 50% to 73%. And then when you download the app to 87%, all of that, again, real-world evidence data.

So yes, we are extremely prolific and use these data that we are privileged to have to make sure we can continue to scope the size of the problem, the dimensions of the problem and why it's important to find and treat these 1 billion people with sleep apnea.

And to what extent is that research looking at cases outside of the United States in terms of helping reimbursement and payers incentivized to...?

Quite a bit. So I'll use France as an example. So France has the largest claims database on the planet. Almost every single French citizen is in there. We collaborated with the French government and with key opinion leaders and researchers in France to look at their claims data. And that was actually the first mortality data that we saw.

We also worked with the French government to show that adherence is better when a device is connected to the cloud. So when a doctor can see how the patient is doing, the patient does better, and it saves the health system thousands of dollars a year per patient. And so France started a differential reimbursement scheme, where a run-of-the-mill regular CPAP gets reimbursed at a lower level, but a connected device like a ResMed device gets reimbursed at a higher level.

We also did a study in England here in the U.K. because the NHS did not reimburse for mild sleep apnea. So we did a real-world evidence study called the MERGE study, we showed such overwhelming benefit to treating patients who were symptomatic even with mild sleep apnea the NHS changed their guidelines to allow reimbursement for mild sleep apnea and to incentivize -- prioritize connected devices over nonconnected devices.

And all in all, we just came from Singapore, the world sleep sorry, the World Sleep Congress in Singapore, where we unveiled the results of the study, looking at OSA prevalence in Asia. So we -- it's not exclusive to the U.S., the billions of nights of data come from all 140 countries where we do business.

And one of the things I'm interested in is that, that difference in terms of mask reimbursement between the United States, which is 4x a year versus rest of the world, which might be 2x a year. Is there any work that you're doing around that to try and support increased reimbursement outside the U.S.?

Yes. We've got -- well, I mean, look, the U.S. allows up to 4 masks per patient per year in Medicare and many of the other payers, but no one really goes up to that level. It's sort of a theoretical maximum. What we want to do is empower a person no matter where they live, no matter which country they're in, 140 countries we do business in around the world that when a person wants access to fresh equipment, whether it's a mask or a filter or tubing accessories, that it's available to them.

And so in a cash pay market like Australia and New Zealand, Singapore or China, that's our job to engage with that person and let them know there's an easy way to access a new mask or a new accessory. And so there, there's no theoretical maximum limit in a cash pay market, but it's really about helping the person the ultimate customer is always that patient, helping the person get access to it. So whether they're in a reimbursed system like the U.S., where there's a maximum of 4, let's just engage with them, make sure they've got Brightree systems running through the HME, make sure there's SNAP technologies for people who aren't on Brightree and engage with the patient.

And we have now over 10.3 million downloads of myAir, the app that we have that patients can use. And so engaging with patients through the app, engaging with doctors through AirView and engaging through the DMEs as well. Yes, as you said, in Europe, with the sort of capitated approach of up to two masks per year, sometimes people don't even know that and get access to it. So we need to empower patients through myAir and through communications to know that they can get up to 2 masks per year. And yet, why is there a theoretical limit on that? Why isn't it more? And a patient can always go and buy cash pay, even in Europe at cpapeurope.com and find access to it.

So there's no real limits to it. But making sure the person has access knows how to get it, knows what the cost will be and that we make it easy and make it seamless. I think MedTech can learn so much from consumer tech. Look at what Amazon can do and just to empower people to know that at one click, they can get something delivered right to their home. Why can't we in MedTech provide similar services. And I think with the relatively low cost of our equipment, first-time setup and the masks, we can get there.

The final thing I'll say, and Carlos can talk about the actual study this came from, is just putting a patient on a resupply or adherence protocol improves their adherence, right? So Carlos talked about up to 87% adherence we're able to get with people on doctors using AirView patient using myAir. But putting them on a resupply program, just that idea of reaching out to them helps them understand the value of their care and it engages them more. So adherence actually goes up and it saves the health care system money because an adherent patient is less showing up to the ER, less showing up to emergency rooms and less cost of their chronic disease because the suffocation is treated.

So there's an overlap, if you like, of altruism and the profit mode for optimizing, not maximizing, but optimizing mask renewals at the patient level. But it's all about empowering the patient no matter what system they're in.

Okay. So whilst we're talking about that in terms of adherence and resupply, let's move on to GLP-1s or weight loss drugs. And you shared some data previously about people who are on these weight loss drugs, 10% more likely to start CPAP therapy, more likely to engage in resupply. Have you looked at that data since then? Is there any updates that you can provide to us?

Yes. We look at the data. We refresh that data every quarter so that Mick has something to talk about when he meets with all of you every quarter. No, but it's important data because what we are seeing is we've looked at over 1.6 million patient records now. And for patients who carry a prescription for CPAP and GLP-1, they are nearly 11% more likely to start on CPAP than someone who just has a CPAP prescription alone. And after a year, they're more likely to order resupply masks. After 2 years, they're even more likely.

So as we know, the data for GLP-1s is starting to come out that at 1 year, the drop-off is pretty significant. At 2 years, it's even more significant. Those patients who started with CPAP and the GLP-1 at 2 years are still ordering masks from us, even though they may have dropped off of their GLP-1 therapy. So the thesis that we had going back 2-plus years that this would be a tailwind for us has really played out for us in the market, at least in the data we can see. And obviously, you see how our results have been through these 2 years where everyone thought the wheels were falling off. But in reality, ResMed has taken advantage of exactly what we thought the tailwind from GLP-1s and also from big tech entering the sleep apnea have truly been the tailwinds we expected them to be.

And I get asked, why is that? Why is the 300 basis points higher, not just adherence, but resupply rate at 1 year? Why is it the curve separate and it's 500 basis points higher resupply rate for a patient who has a GLP-1 plus CPAP prescription versus just the CPAP prescription. And we don't actually know. I mean I have a medical doctor to my left. The engineers' opinion is, I actually think these people have just motivated patients that this promise of the miracle injection drug has brought them back into the health care system. They weren't there before. I think they're actually participating more probably in the hypertensive meds, their diabetes products, but we know they're getting more masks from us.

We don't truly know why, but I think it's they're more motivated. They're in the system. They're getting half improvement of their apnea. The final thing I'll say is I actually think with some weight loss reduction, there's probably a reduction in the mean and maximum pressure that has to be delivered from the APAP device. And that may generally lower pressures lead to higher adherence. That's a hypothesis, but that could be part of it as well.

Okay. And then you mentioned, Carlos, that you noticed that people or these patients tend to stay on CPAP even though they've stopped taking the GLP-1s. What can you share with us in terms of how long have they been on a combination therapy? And do they restart the GLP-1 therapy at a later point in time?

Yes. It's hard to know because the claims data give us they have a GLP-1 prescription, but we can't then tell do they show up and fill the prescription or actually take it. So we can just track whether or not the prescription is still active. So it's hard for us to tease out all of the data. But going anecdotally, so I know someone very well who was diagnosed with sleep apnea years ago.

And also a couple of years ago, BMI went above 30 and became obese. That's me. If you haven't figured it out, that's what. I took a GLP-1. I lost 20% of my body weight. I was the perfect SURMOUNT-OSA success story, and I decided to stop using my CPAP and that lasted all of one night. I woke up the next morning with horrible bruising on my side because my wife was going upstairs all night long, reminding me that my sleep apnea didn't go away. So what we are starting to see in the data that we can see, we see that it is very real for cost, for side effect profile for whatever reason, people are not staying on GLP-1s as long as they should. They're supposed to be on them for life for things like diabetes.

And what we are seeing is that those patients who have a connected device, who have downloaded the app, who are using the most comfortable masks, the best devices are adherent, 87% adherent in the first 90 days, and then they become better patients for us and for the DMEs because they stay on therapy. And why? Because even though maybe after a year or so, and I had to stop taking the GLP-1s because of side effects, and I have struggled to not rebound. It's not been easy, but it's very real. I actually had very severe side effects. People struggle with that.

But if you are symptomatic and you start sleeping with a CPAP, as Mick says, it immediately. One night is all it takes to change your life to potentially save your marriage from a sleep divorce where you're down the hall and your bed partner is in the bedroom. And it's real. People love their CPAP. Mick mentioned that part of our new strategy is to be brand enhanced because for now, most people don't know ResMed's brand unless you follow us like you do or you really, really love your CPAP and you stop people like us in the airport.

But our goal is to make sure that the 1 billion people, 90% of whom are undiagnosed and untreated, understand that this is life-changing therapy. It's easy to do. It's just taking the air from your bedroom and putting it in your lungs where you belong. There's no needles, there's no knives, no surgery, no drugs. It is natural and it is -- it again, saves your life, your marriage, your job and makes you feel better immediately.

And do you see those people who are taking -- so obviously, you see the prescription data. So people who might be on GLP-1. Do you see any fluctuations in that adherence over a short period of time, similar to like what you said you might stop for a short period of time and then start up again?

No, we're watching really closely. Churn is something -- well, I look at it the other way. Churn is what people say is a negative, but I talk about adherence rates, and we're watching laser-focused on our adherence rates. And for the 15 years, GLP-1 has been around the 5 years, most recent Jan and even just since this IFU from December, we haven't seen any change in the churn and the reverse of that, the adherence rates. We're watching super closely. Everyone was there's going to be this impact. What it is doing is it's bringing people into primary care physicians.

And as we look at that, our job isn't to educate all 370,000 primary care physicians in the high-volume market for GLP-1s, which is the U.S. But what we want to do is take actually a very significant subset. It's around 10%. So there's around 40,000 primary care physicians that are high-volume GLP-1 prescribers and overlap the circles, they're also users of home sleep apnea testing protocols. And they've used 1, 3 or 5 per month referrals for home sleep apnea tests from these primary care physicians within that trailing 12-month period. Those 40,000 primary care physicians, we want to educate, and we are going to them with continuous medical education, CME programs and we already have 20,000 unique PCPs trained as part of that group, 32,000 trainings. So up to 12,000 of them did not just sleep 101, but sleep 201 or 301. And here's the best stat from all that education.

At the end, we do a survey, did you like the education and the gold standard, CPAP, standard, dental brown standard half treatment from an injectable or an implant. 75% of the primary care physicians at the end of that said they're going to change their sleep health protocols of how they screen, diagnose and refer patients.

So from the survey to what actually happens, watch this space, but we are laser-focused to say, we're not going to waste this opportunity where Eli Lilly because of the Zepbound with its IFU to half treat sleep apnea, they're going to be putting patients into the funnel like never before. They're going to be told go see a doctor. We know which doctors they're going to go to. We know which geographies. We want to make sure those doctors are trained to know hippocratic oath and liability, you better write a prescription for CPAP immediately on that and that we're going to give them protocols to send to good DMEs that are providing the highest level of adherence.

And so watch this space. It's a once-in-a-generation opportunity for demand generation, driven by big pharma. And the other one as Carlos said earlier, the wearables, Apple watch and Samsung watch both have FDA clearance to detect sleep apnea, not to diagnose but to detect sleep apnea. Those patients will have to come into the funnel as well. And so what we're doing is focusing a lot of our investments with VirtuOx, which is sleep apnea testing acquisition we did. NightOwl when I talked about the Belgian company with the wearable and Somnoware, which is software for the pulmonary physicians. So putting together this sort of end-to-end seamless frictionless pathway for screening, diagnosis, treatment referral and management.

And I just wanted to emphasize something Mick said that might get lost in the translation a little bit. It is very...this is a strange english.

No, no, no. Not your accent. No, no, not you accent just because you made the point very quickly, but it's a subtle point. The average patient who is showing up at that primary care physician's office who says, "Hey, I heard of these numerical drugs. I've been struggling with my weight for years.

When they walk into that primary care's office, let's say they're diagnosed with hypertension and obesity at the exact same time. They can be put on a GLP-1 and told it's going to take you 1 year, 2 years to lose all the weight, maybe your blood pressure will be easier to manage. But I need to start treating your blood pressure right now because you could have a stroke tomorrow. Same thing happens when they walk in and they're diagnosed with OSA. I'll put you on the GLP-1. It may take you 1 year or 2 years to have the results you saw in that fancy commercial.

But if I don't treat your sleep apnea today, you could leave my office, fall asleep at the wheel and die right now, and I would be liable for ignoring your sleep apnea or you can die in 20 or 30 years when you've forgotten all about GLP-1s and that sleep apnea that's untreated is causing your hypertension, your stroke, your cardiovascular disease, your dementia, all of those things. So what the dynamic we're seeing is everyone just assumed you show up, get put on a GLP-1 and everything else doesn't matter. And in reality, everything matters right now and the GLP-1 has a very long and delayed effect. And so you have to do both.

Is there anything you can share with us, whether it'd be anecdotal about what sort of rates of increase in referrals that the sleep labs are getting from this work you're doing with primary care physicians?

Yes. Look, I think it's very early days on this because the IFU for Eli Lilly Zepbound came through in December. They didn't start any advertising until June. It's been very light sort of don't sleep on OSA general market awareness advertising, not at scale in specific geographies. And -- but I do think if you look forward the next 1, 3, 5 quarters, the next 1, 3, 5 years, you're going to see increased advertising as they do with these drugs to bring them in.

And I think you're going to see increased pull from not just big pharma, but from consumer tech, too, as people start to engage more with the sleep health wearables. And so both of those -- I've said this, I think it can lead to 25, 50, 75, even 100 basis points of increased growth of new patients coming through, which would impact both the devices and then over time with resupply, the masks revenue for us. But it's not immediate. It's not some step change. It's just like boom, there it is. It happened on June 20. But I think we're doing a lot of experiments. We're going to very specific geographies and saying, okay, we've got flexibility in the home sleep apnea testing protocols in this 5 metropolitan statistical areas.

Let's do some demand capture curation conversion in Dallas-Fort Worth or Phoenix. And then you run the experiment, you put in the investment in the demand gen capture curation and then you track screenings, prescriptions and then ultimately, first setup of CPAP and mask system. And then you can see, okay, there's an ROI. So it's not just brand development, it's brand ROI. I want to see a return on investment for every single investment we make there. And if you get it, you keep going. If you don't, you stop, you pivot and you go to another place. And so that sort of overall portfolio of the 50 states and the 140 countries should lead to some sort of what I would call some acceleration of the flow of patients into the funnel.

And let's talk about demand capture. So you've got VirtuOx now, you've got NightOwl. Can you tell us what you're doing to ramp that up to ensure that you're capturing these patients that you're identifying for the demand generation side of things? And is that currently U.S. focused at the moment? Or are you looking broader than that?

Yes. Well, I mean, obviously, VirtuOx is a U.S.-based home sleep apnea testing approach. And -- but the NightOwl product is Belgian technology. It's available. It's FDA cleared for the U.S., and we just launched it to our North America sales team last month at the sales meeting. So -- and it's the biggest market in the world. And so there will be a lot of emphasis there. But there's a lot of learnings that we get from the U.S. that we then take to our global markets and vice versa, too.

We learn a lot about consumer markets from Australia, New Zealand, Singapore, China, where we have direct-to-consumer and consumer-driven markets, we bring that learning back to North America as well. So -- but look, how they're all coming together, you've got VirtuOx, we've got some scale there. We've got the NightOwl, we've got some scale there. We're creating this seamless experience. We're very careful though when you go from that positive diagnosis, let's say a primary care physician has checked the box, look, I want to have home sleep testing by VirtuOx, and one sleep doctor to review the test because they're going to the expert. I want them to write the prescription.

And yes, I'm happy for you, VirtuOx to choose the DME. Obviously, we're not going to choose exactly where it goes other than to say what is the DME in this area that gives the highest level of adherence. And if it's -- and that they have scope, scale to be able to keep up with the new patients. If they have the scope and they have the scale and they have the highest adherence, they would get the referral and be driven by an algorithm linked to highest adherence. And then it will be our job to have the most highest adherence, which we do, devices, masks to capture that downstream. And so sort of a little bit of a separation of the church and state, but it's setting up algorithms that drive towards the best outcomes for the patient, the physician, the provider and long-term care.

Okay. Great. I might pivot a little bit because this is a question I get asked all the time. I'm sure you do as well. So I feel the need to ask it here. And it's about your key competitor that's out of the market because of the recall. Are you hearing any murmurings through the CPAP grapevine in terms of when they might come back to market?

Well, that company was here at this conference earlier today and gave no new information. So I don't have any -- they don't. I got to tell you, we operate in 140 countries worldwide. And even in our largest country, that competitor was never out of the mask market. And we've been dealing with them very well last 5 years when all they could sell was masks. So not fearful at all of them coming back for devices in the U.S. I look forward to it. I look forward to them competing for the #3 position against React BMC. That's 120 countries of the 140 roughly, they're already back, been back 6, 12, 18, 24 months, some countries, they never left. And they're fighting for that #3, #4, #2 position versus Löwenstein in Europe and BMC in Asia, and they will do the same versus React over here.

Look at our Europe, Asia and Rest of World device sales over the last 2, 4, 8, 12 quarters and ask me, do you think there's been a big impact? No. So do I think there'll be a big impact here? No. So when do they come back? I don't care. I mean I look forward to it. I like having competition. But I actually think -- the game has changed. The basis of competition has changed. This isn't about just a device or a mask. It's about a software. It's about an ecosystem. It's about providing the best value. One fact we didn't talk about is that we lower the labor cost because of this ecosystem. We lower the labor cost of setting a patient up on CPAP, APAP bilevel by 50%. So what's your price discount to get that? I'm very confident that we'll go the right direction here. And the real competition is ignorance, lack of education, lack of awareness and the ability to get to the 1 billion people, the 77 million in the U.S., the 1 billion people worldwide.

And we've now got a big pharma company and a bunch of big tech companies going to be talking to those consumers on their own dime for their own purposes, but it's going to bring people into the funnel like never before. We've never seen this, and it's an opportunity of a generation.

And I just wanted to mention -- I mentioned that last week, I was at the World Sleep Congress in Singapore, and Philips was there, full-size booth, all their stuff, even devices. So again, as Mick said, in 120-some-odd countries, we're competing with them already.

Okay. Great. I'm mindful of the time. I just wanted to check if there's any questions from the audience, otherwise, I'll keep going.

Perhaps just one question following the one on Philips. Have you seen anybody else sort of starting to take their place in the U.S. or like newcomers that might have profit from that?

Yes, it's a good question. Well, on the mask side, they never left. So it's just us and them and F&P. On the device side, yes, the React BMC took that #2 position, much smaller share on the device side and the mask side. Look, I think customers always want two players out there. And when that competitor comes back, those two can fight out for who's #2.

You mentioned the strong cash flow. Maybe a few words on capital deployment?

Yes. Really good question. So if you missed it on the webcast, capital deployment with really strong cash flow, what are you doing? Look, I actually think the best use of our cash flow is to reinvest in our business. So we put 6% to 7% of our revenues back into research and development, smallest, quietest, most comfortable, most cloud connected, most intelligent, most ML and AI-driven, launched our first Gen AI product, dawn to the market. It's on resmed.com. It's going on to myAir Australia and New Zealand and go beyond that. Best use of capital, R&D, 6% to 7% of revenues.

Next best is to invest in all the sales and marketing to do the demand capture curation. It's about 19% to 20% of our revenues. We're investing back in SG&A. And then, of course, we've got our dividend that we just increased at double-digit rates this year and our share buyback that we've increased up to $600 million a year, $150 million a quarter. So they're very good uses of capital. Beyond that, though we have extra cash, right? And so we do have cash available for acquisitions.

I speak more in the lines of tuck-in acquisitions, sort of along the lines of VirtuOx, which was $140 million for $45 million in revenue. And is it really just about that? Yes, that asset alone is worth that and has a great return. But more than that, it opens up the funnel and allows us to scale home sleep apnea testing and to encourage competition from all the other players to deal with this wave of patients that will come through. Same with Ectosense, Belgian company, great technology, want to bring it to world markets, Somnoware, amazing entrepreneur, Subathan team, we've incorporated that into the front end of our funnel, the way we did with Brightree on the back end of our funnel.

Are we looking at other M&A? For sure. There's some great tuck-ins out there in the field of sleep health, breathing health and health tech at home. But I can't tell you because otherwise, you guys are get in before I do so. Watch this space.

I might come back to what you talked about market growth. And you've consistently mentioned that the device market, in particular, is a low -- is a mid-single-digit growth market. But then if I look at ResMed over the last few years, it's been consistently growing at sort of 6%, 7% on average. I guess that's supported by some of the demand gen work that you're doing. How long do you think you can sustain that above-market growth?

Yes. Look, I mean, it's -- as the market leader now in 140 countries, we can't just accept market growth. So we've got to actually actively participate and drive market growth. And so mid-single-digit device growth would happen even if we didn't do anything in ResMed. And so the question is what -- of all these experiments, what's going to work? And of course, the number keeps getting bigger. It's now trailing 12 months revenue of $5 billion, right?

So even just keeping it a constant growth of 5% is hard in devices. But can we be at 7% every quarter or 6%, no. But can we say 25, 50, 75, 100 basis points ahead as often as possible when we're doing demand gen that's working. We're getting the brand ROI. We're getting demand capture ROI, but the PCP training is leading to prescriptions that are going through 100%. And then on the masks, too, that's high single-digit growth. Everyone is focused a lot on the devices, they're lower margin. The masks are making sure that we have that high single-digit growth. We've been doing pretty well, sort of not just 7%, 8%, 9%, but getting 9%, 10%, 11%, 12% growth on masks. And so both of those, we're not just going to accept mid-single-digit growth on devices and high single-digit growth on masks and high single-digit growth on the software.

We're going to try to drive each of them up 25, 50, 75, 100 basis points every quarter. Do you get it every quarter? No. But are we going to invest to? Yes. And I do think some of these other factors out there that are driving the input are going to help us achieve it, but it's our job to convert that and make sure it happens.

Can you talk about the device growth dynamics then within North America and outside North America? Can we expect -- we're certainly seeing higher growth rates outside of the United States because of devices coming off allocation. But can that be maintained going forward, particularly in the medium term?

Yes. Look, I mean, it's the same challenge in the U.S. as externally. It's just different because we've got 140 different health care systems, business models, ways that we go to market. So there's just huge scale you can get in the U.S. I can do one investment in VirtuOx and scale that across 50 states because we've got a sales force that goes across it. It's not the United States of Europe. There are no United States of Asia, but we can -- and we have done some really strong targeted investments in China that I think are really helping us on the direct-to-consumer side and going through the dealer side. Some really good experiments in Singapore and Korea that are working on that. We even did some vertical integration work in Korea in terms of multichannel, right? So through traditional DME as well as through cash pay.

But I think that whole omnichannel market is a huge opportunity for us. And our experience in omnichannel markets is they add to each other so that when you have a cash pay market plus a distributor market plus others, they actually multiply and everyone does better, but watch this space.

Great. If I can then come to gross margin. So obviously, you mentioned very good gross margin expansion this quarter. Can you talk to us about the room for growth there, which factors would probably drive that most over the next 12 months?

Yes. Well, I mean, I'll go further. I'll look out towards 2030, right? I mean we only give guidance in that sort of 12 months. So we've said 61% to 63% gross margin is our guidance number. But look, if you look at that, as you said, that pretty incredible gross margin expansion. I mean, coming out of COVID and supply chain crisis and going from air freight to sea freight and all that sort of stuff. But 230 basis points year-on-year, incredible, 150 basis points quarter-on-quarter, incredible for Q4. Are we going to do that every year? No. And our guidance sort of says that.

But when I sit down with Shane Azzi, our new Chief Supply, I shouldn't say new. He's been with us a year now. But he came from Hasbro, Kimberly-Clark, Mars Confectionery Company with much lower margins and broad SKU profiles. And so he sees lots of opportunity. And so what we've done is we've established what we'll call a pipeline. We've got a product pipeline. We actually have a supply chain pipeline of gross margin opportunities, not at the same quantum as you saw in those last 12 months. But I say I want double-digit bps improvement every year from here through 2030. So go get me, 50 bps every year between here and 2030. Now is it going to happen every year or every quarter? No. But having that pipeline and being able to turn the dials to get there using ML and AI and all the off-the-shelf tools, but also using some of the skills and capabilities that just MedTech can learn so much from retail and fast-moving consumer goods, I think all of us can do better, and we've got a pipeline of opportunities ahead.

Great. I'm just mindful of the time. Thank you so much, Mick. Thank you, Carlos. Really appreciate it, and thank you, everybody, for listening in.

Thanks, Lyanne.

Thank you.