Welcome to the Q2 Fiscal Year 2021 ResMed Earnings Conference Call. My name is Shentel, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Please note that this conference is being recorded. I will now turn the call over to Amy Wakeham, Vice President of Investor Relations and Corporate Communications. Amy, you may begin.

Great. Thank you, Shentel. Good morning and good afternoon, everyone, and welcome to ResMed's second quarter fiscal year 2021 earnings call. Thanks for joining us. This call is being webcast live and the replay along with a copy of the earnings press release and our updated investor presentation will be available on the Investor Relations section of our corporate website later today. On the call today to discuss our quarterly results are our CEO, Mick Farrell; and CFO, Brett Sandercock. And several other members of management will be available during the Q&A following our prepared remarks. During today's call, we will discuss some non-GAAP measures. For a reconciliation of non-GAAP measures, please review the notes to today's earnings release and earnings presentation. As a reminder, our discussion today may include forward-looking statements, including, but not limited to, expectations about ResMed's future performance. We believe these statements are based on reasonable assumptions; however, our actual results may differ. You are encouraged to review our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. With that, I'd now turn the call over to Mick.

Thanks Amy. And thank you to all of our shareholders for joining us on today's call. On this our first call for calendar year 2021. We are happy to see the steady growth of production, distribution and availability of vaccines around the world. Clearly, we all want to see faster production and wider distribution so that people can be safe from COVID-19 and free to open up their communities and free to get back to their lives. We continue our work here at ResMed to support frontline respiratory therapists and pulmonary physicians, critical care physicians as well as providers, patients and ResMedians around the 140 plus countries that we operate in. In our core markets, the patient diagnosis trends in sleep apnea, COPD, and asthma are steadily increasing, modestly improving on the trends we saw in the September 2020 quarter. We're seeing this improvement of patient flow even as second and third waves come through northern winter hemisphere nations, because physicians and providers are adopting digital health, which enables patient engagement, even when people cannot or do not want to meet live and in person. In my remarks today, I will provide a high-level overview of our December Q2, FY21 business results and then hand the call over to Brett for further detail on the financials. I will also review progress towards our ResMed 2025 strategic goals, including execution highlights against our quarterly and annual operating priorities. Today, we have published and reported solid, high single digit growth in top line revenue and strong double-digit growth in both net operating profit as well as earnings per share. These results once again speak to our ResMed team's ability to work innovatively and deliver results, even when facing lower patient activity and little to no incremental benefit from ventilator sales. During the second quarter of fiscal year 2021, we generated over $170 million of cash, allowing us to return over $57 million in dividends to shareholders. We have also grown research and development investments in digital health technology as well as hardware, software and clinical research. We forecast increasing digital health demand from patients from physicians from providers and from healthcare systems as they embrace remote patient monitoring, and they adopt data driven population health management systems. We have an exciting pipeline of innovative solutions that will generate both medium and long-term value for our customers with an industry leading IP portfolio including over 6,000 patents and designs. Our digital health ecosystem is an important competitive advantage for ResMed that offers integrated care to drive superior clinical outcomes, to drive better patient experiences, and to drive lower health care system costs. We now have over 8 billion nights of respiratory medical data in our cloud-based Air Solutions platform. We have sold over 13.5 million, 100% cloud-connectable medical devices into the market from ResMed. And we have over 15 million patients enrolled in our AirView solutions in the cloud. With these data liberated to the cloud, we can unlock value for all of our customer groups. We can unlock value for patients through Maya, we can unlock value for physicians through AirView, and we can unlock value for IDNs, payers, providers as well as private and government insurance for data driven population health management. That's the future of healthcare. The goals we share with all of our customers are these three. One, to improve patient outcomes, patient quality of life, patient chronic disease outcomes. Two, to lower overall healthcare system costs, and three, to bend the curve of chronic disease progression. To be clear, the spectrum of chronic diseases that we look at here at ResMed are of course, including our core focus areas of sleep apnea, COPD and asthma, but it also includes biological systems interaction with cardiovascular disease, with cancer, with type two diabetes, with neuromuscular disease, Alzheimer's and beyond. During our last earnings call, I discussed how COVID has continued to accelerate the rapid adoption of digital health technology around the world. We are seeing the recognition of the value of remote patient screening, virtual diagnoses, remote patient management, and the rapid evolution of digital reimbursement models in many of the nations that we serve patients. As an example of just one of these, Germany during the quarter approved reimbursement for mandibular repositioning devices including our digital 3D printed dental sleep apnea product called NARVAL. This is the first time Germany has approved such a product type to treat sleep apnea. In addition, several German states are looking at experimenting with digital health reimbursement models. These are exciting developments and we expect this will benefit our German business over time. We've also seen other national governments including France, Japan, and the United States, where they've adopted models and taken action to accelerate digital health adoption. Remote healthcare is of incredible importance during this COVID-19 pandemic. But digital health is also valuable well beyond the impact of COVID because it provides better availability of healthcare. It provides excellent quality care for patients, and it provides significantly lower costs for healthcare systems worldwide. These trends are key to ResMed's 2025 strategy. We believe the accelerated adoption of digital health solutions represents a significant and permanent shift of the adoption curve for ResMed market leading digital health solutions. Let me now briefly update you on our top three strategic priorities. These three priorities are one, to grow and differentiate our core sleep apnea, COPD and asthma businesses. Two, to design, develop and deliver world leading medical devices as well as globally scalable digital health solutions. And three, to innovate and grow the world's best software solutions for care delivered outside the hospital, and especially in the home. In our core market of sleep apnea, we continue to see sequential improvement in new patient diagnosis trends, as well as very strong resupply activity, both of which has supported another quarter of solid revenue growth that you can see in the numbers we just released. Within 70% to 90% of the pre-COVID patient flow coming through our biggest market in the United States. And to take an example of a European country in Germany, we're already back to 85% to 90 plus percent in some states of Germany of pre-COVID patient flow. Even in countries like China, in our large Asia region, where we saw the sharpest declines at the start of this crisis with very severe lockdowns in Asia and particularly in China, we're now back to already seeing around 70 plus percent, 70% to 75% of pre-COVID patient flow coming through the mainly hospital clinics in our China market. Obviously, the recovery rates of new patients starting sleep apnea therapy may be impacted by the typical seasonality we see in our largest market here in the United States in the March quarter as a result of insurance deductibles resetting at the start of the calendar year as per normal. This seasonal impact affects devices more than it affects mask systems, given the relative price points of the two categories, and the fact that the vast majority of mask revenue is returning customers on resupply programs. The resiliency of our mask and accessory resupply has been strong throughout the COVID-19 pandemic. And we see it as remaining strong through the recovery and strong in a post-COVID peak world. We continue to produce clinical research showing that diagnosing and treating sleep apnea saves money and improves quality of life for patients. This quarter, we are now showing data that treating sleep apnea is actually a life and death decision. The latest data from the European Respiratory Journal, which published during the quarter results from a 30-year study. The high-level summary of these results were that treating sleep apnea increases patient quality of life and extends quantity of life. It also showed the comorbidity side in that not treating sleep apnea leads to a significantly higher incidence of heart attack, type 2 diabetes and ischemic heart disease, leading to significantly higher healthcare costs, treating those diseases and ultimately leading to early death. Let me now turn from sleep apnea to a discussion of our respiratory care business, focusing on our strategy to better serve COPD and asthma patients worldwide. Our goal is to reach more patients in our core Respiratory Care markets, including non-invasive ventilation, life support ventilation, as well as newer areas including pharmaceutical drug delivery and high-flow therapy. We make the smallest, quietest and most comfortable devices on the market. And they are all 100% cloud-connectable. We continue to see rapid adoption of the AirView for Ventilation software solution that we launched in Europe in the midst of the peak of the COVID-19 crisis there about nine months ago; we accelerated the time to market to meet the needs of physicians and patients during the COVID peak. And it's proved to be very useful during the peak and beyond the peak. The value being provided for this platform has helped healthcare systems in the markets they operate in, where we ensure we are making digital health part of the standard of care for respiratory care, not just in Europe, but worldwide. During the quarter we decided to exit the portable oxygen market and shut down our concentrator business in that category. We entered the POC market in 2016 as a way to engage with stage two and stage three COPD patients. Since then, over the last five years we have acquired Propeller giving us access to COPD patients even earlier in their COPD disease progression, including stage one and stage two COPD patients. Additionally, and especially during COVID, we've seen more rapid adoption of high-flow therapy that can support some COPD patients. And of course, we have our core non-invasive ventilation and life support ventilation solutions for more severe COPD patients in markets globally already. In short, we don't need POC to help in our end-to-end digital health pathway for COPD. Additionally, given no positive changes to POC reimbursement in the latest round from the US government, and the economics of our customer acquisition cost versus lifetime value, the POC market itself is not as attractive as it was five years ago. The bottom line is this: we have pharmaceutical drug delivery management through Propeller to support COPD patients in stage one and stage two COPD. We have the emergence of high-flow therapy for stage two and stage three COPD. And we have growing use of non-invasive ventilation and life support ventilation to support patients in stage three and stage four COPD. So in summary, we are very well positioned to help patients, physicians, providers and payers with an end-to-end digital health management pathway for COPD. Let me now review our software as a service business. During the quarter our SaaS business grew in the mid-single digits year-on-year, driven by continued strong uptake of our Brightree HME resupply solutions. Impact of COVID on surgical procedures and other in-hospital and out-of-hospital visits has impacted discharge rates that particularly affect the census at skilled nursing facilities and hospice. On the other hand, the flow of patients in home medical equipment and home health has been recovering well, even stronger. So as we look across our portfolio of out of hospital care settings, including home medical equipment, skilled nursing facilities, home health and hospice, life plan communities, private duty home care and senior living, we expect that the weighted average market growth rate of these verticals will be in the low to mid single digit range for fiscal 2021. We expect this weighted average market growth rate portfolio to return to mid-single digits and then to high single digits as hospital discharge and ambulatory surgery center discharge rates return. Our offerings are very well received in each of the verticals that we serve. So we will not just accept these market growth rates, we will look to meet and beat that group market growth rate as we did this quarter, getting a return from our significant investments in R&D within Brightree and MatrixCare and through expansion of our partnerships with hospital based electronic health record providers. Brightree continues to innovate to drive resupply growth. Of particular note the integration and scaling of the Snap Technologies is going very well. This has allowed our home medical equipment customers to expand their resupply programs and support more patients with better engagement at a time during the COVID pandemic when they desperately need new innovation both the providers and the patients. MatrixCare has also introduced new technology; we introduced new voice to text technology at the point of care, which helps address caregiver shortages that are right during COVID by enabling better and more efficient workflows for the customer, while also delivering a better experience for the ultimate customer who's the patient. Our expanded relationship with Cerner is progressing very well. We are now Cerner's preferred solution across home health and hospice, as well as home medical equipment and their pharmacy and infusion businesses. Our increasingly important relationship with Cerner is leading to better interoperability for providers and mutual customers and an improved experience for patients. We anticipate opportunities to deepen and expand this collaboration to sleep apnea and COPD disease management. Clearly, 2020 was an unprecedented year for companies across every industry, and there was much suffering around the world. However, we see some blessings during all that suffering. Importantly, we were able to be there during the emergency. We were able to pivot our whole team and our home business to provide over 150,000 ventilators during the peak needs of the pandemic and get them to where they needed based upon a humanitarian epidemiology model. Additionally, COVID has highlighted the importance of respiratory health. COVID generally kills people through acute respiratory distress syndrome and that has raised the awareness of respiratory hygiene, respiratory health and the field of respiratory medicine. The crisis also showed us the importance of digital health, and has accelerated the awareness and adoption of technologies that can be used for remote patient screening, remote patient diagnosis, remote patient setup, as well as remote patient monitoring and management. We have seen this crisis drive the importance of healthcare delivered outside the hospital. And that's where ResMed competes — more than 90% of our business. And it's where we add value to customers and where we win. We have seen an ability to bring digital technology that we've been inventing and developing for over a decade: digital screening, digital diagnostics, digital therapeutics, and digital health management of patients. With over 1.5 billion people worldwide suffering from sleep apnea, COPD, and asthma combined, we see incredible opportunities for greater and greater adoption of these scalable technologies. We are poised to continue relentless innovation and development, as well as to provide the global scale that's needed to drive this technology to the 140 countries that we operate in and beyond. Before I hand the call over to Brett for his remarks, and then we get to the Q&A, I want to once again express my sincere genuine gratitude to the more than 7,500 ResMedians whose perseverance, hard work and dedication during the incredibly challenging circumstances for 2020 allowed our partners in healthcare to save the lives of many hundreds of thousands of people around the world with emergency needs for ventilation, literally giving the gift of breath and the gift of life to many during COVID. I also thank you for the rapid pivot back to our core markets and our core purpose of helping people with sleep apnea, COPD, asthma, and all those who need world class care delivered well away from the hospital, and preferably in their own homes. Thank you. With that I will hand the call over to Brett in Sydney and then we'll move to Q&A. Brett?

Right. Thanks Mick. Norman. In my remarks today, I will provide an overview of our results for the second quarter fiscal year 2021. And some remarks on our FY21 second half outlook. Unless noted, all comparisons are to the prior quarter. As Mick noted we had a strong quarter. Total revenue for the December quarter was $800 million, an increase of 9% than the prior quarter, and in constant currency terms revenue increased by 7%. Consistent with our predictions in Q1 earnings call, we derived minimal incremental revenue from COVID-19 related demand in the December quarter. Taking a closer look at our geographic distribution and excluding revenue from our software as a service business, our sales in US, Canada and Latin America countries were $427 million, an increase of 5%. Sales in Europe, Asia and other markets totaled $291 million; increases of 17% in constant currency terms and increase of 10% on a reported basis. By product segment, US, Canada and Latin America device sales were $205 million, an increase of 1%. Masks and others sales were $222 million, an increase of 8%. In Europe, Asia and other markets, device sales totaled $188 million, an increase of 16% and in constant currency terms a 10% increase. Masks and other sales in Europe, Asia and other markets were $93 million, an increase of 18% in constant currency terms and increase of 12% on a reported basis. Globally in constant currency terms, device sales increased by 5%, while mask and other sales increased by 9%. Software as a service revenue for the second quarter was $92 million, an increase of 6%. On a non-GAAP basis, SaaS revenue increased by 5%. During my commentary today, I will be referring to non-GAAP numbers. The non-GAAP measures adjust for the impact of amortization of acquired intangibles, restructuring expenses, the purchase accounting fair value adjustment that marks deferred revenue, litigation settlement expenses and the fair value adjustment of equity investments. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our second quarter earnings press release. Our non-GAAP gross margin improved by 20 basis points to 59.9% in the December quarter compared to 59.7% in the same quarter last year. The increase is predominantly attributable to manufacturing efficiencies, favorable product mix and foreign exchange rates, partially offset by declines in average selling prices. Moving on to operating expenses. Our SG&A expenses for the second quarter were $169 million, a decrease of 1%. On a constant currency basis, SG&A expenses decreased by 3%. SG&A expenses as a percentage of revenue decreased to 21.2% compared to the 23.3% recorded in the prior quarter, benefiting from cost management and reduced travel as a result of COVID-19 restrictions. Looking forward we expect SG&A expenses in the second half of FY21 to increase in the low single digits relative to the prior year period. R&D expenses for the quarter were $55 million, an increase of 10% or on a constant currency basis, an increase of 7%. R&D expenses as a percentage of revenue was 6.9% compared to 6.8% in the prior year. We continue to provide for further investments in innovation because we believe our long-term commitment to technology, product and solution development will deliver sustained and competitive advantage. Looking forward we expect R&D expenses to continue to grow year-over-year in a high single digit reflecting this commitment to innovation. Total amortization of acquired intangibles was $19 million for the quarter, and stock-based compensation expense for the quarter was $15 million. Non-GAAP operating profit for the quarter was $254 million, an increase of 16% reflecting strong top-line growth, expansion of gross margin, and well contained operating expenses. On a GAAP basis, our effective tax rate for the December quarter was 14.8%, while on a non-GAAP basis our effective tax rate for the quarter was 15.3%. We continue to expect our effective tax rate for the full fiscal year 2021 will be in the range of 17% to 19%. Non-GAAP net income for the quarter was $206 million, an increase of 17%. Non-GAAP diluted earnings per share for the quarter were $1.41, also a 17% increase. Our GAAP diluted earnings per share for the quarter were $1.23. During the December quarter, we closed our portable oxygen concentrator business. We recognized restructuring expenses of $13.9 million associated with the closure. Going forward the cessation of the POC business will have an immaterial impact on both group revenue and earnings per share. We do not expect to incur additional expenses in connection with this activity in the future. And we have adjusted for this one-time expense within our non-GAAP results for the quarter. Cash flow from operations for the quarter was $170 million reflecting robust underlying earnings, partially offset by increases in working capital. Capital expenditure for the quarter was $35 million. Depreciation and amortization for the December quarter totaled $41 million. During the quarter, we paid dividends of $57 million. We recorded equity losses of $3.6 million in our income statement in the December quarter associated with Verily joint venture. We expect to record equity losses of approximately $5 million per quarter in the second half of FY21 associated with the joint venture operation. We ended the second quarter with a cash balance of $256 million. At December 31, we had $826 million in gross debt and $570 million in net debt. Our debt levels remained modest. At December 31, we had a further $1.4 billion available for drawdown under our existing revolver facility. Our Board of Directors today declared a quarterly dividend of $0.39 per share, reflecting the board's confidence in our strong liquidity position and operating performance. Our total cash flow and liquidity provides flexibility in how we allocate capital. We've focused on paying down debt as well as ensuring we have cash reserves to support the company through the uncertainty caused by the ongoing pandemic. Going forward, we plan to continue to reinvest to grow through R&D. We will also likely deploy capital for tuck-in acquisitions such as Snap which we completed during the third quarter of fiscal year 2020. We intend to continue returning cash to shareholders through our dividend program and we might also resume our share buyback program some time during the calendar year. This program has been on pause since our acquisition of MatrixCare and Propeller Health in fiscal 2019. Turning now to our FY21 outlook. At a high level, we are now seeing a negligible COVID-19-generated demand for our ventilators and do not expect any incremental benefit in the second half of FY21. Note as a reminder we recorded $35 million in COVID generated ventilator revenue in our March quarter last year, and $125 million COVID generated ventilator revenue in our June quarter last year. Mask and accessories have continued to demonstrate resilience and growth over the past 12 months, reflecting the insulating value of the large patient installed base and the success of our resupply service offering. We expect to see continued year-on-year growth of our mask sales in the second half of FY21. Notwithstanding continued COVID-19 challenges, we continue to expect the sequential increase in new sleep patients that should support our devices as we move through the second half of FY21. However, we typically experience a small seasonal sequential decline in revenue from Q2 to Q3, largely attributable to reset of deductibles and health insurance plans in our US market. We expect this trend will also be apparent in FY21. Of course, like many other companies, we continue to experience significant uncertainty in the current environment, including the potential disruptive impacts of ongoing restrictions imposed in many of the countries we operate in. As a result, our forecast and possible future revenue outcomes remain dynamic. And with that, I'll hand the call back to Amy.

Great, thank you, Brett. And thank you, Mick. Shentel, let's now go ahead and turn to the Q&A portion of the call.

Your first question comes from Margaret Kaczor with William Blair.

Hey, good afternoon, and good morning to you, Mick. Thanks for taking the questions. And maybe the first one for me as to hit it off. You guys mentioned that there were negligible vent sales this quarter. So does that imply that this is a good revenue base for our model to grow off of for that core business? And the reason I ask is, if it does, and then sales went from $40 million last quarter, none this quarter actually does imply that the business is doing quite well. So any details would be great. Thanks Mick.

Thanks for the question, Margaret. And yes, clearly in the December quarter, we had as we predicted sort of the minimal ventilator sales, a little bit in Northern Europe perhaps, but not material across the group. And as Brett said in the remarks just now from him, and I said as well, we expect no COVID-related ventilator sales throughout the rest of the fiscal year and beyond. People have enough in the hospitals, which is great. And so yes, look, it does start to form a good base, when you look at the core business of sleep apnea, COPD and asthma patient flow. I mean, as we said, the seasonality, usually from Q2, December quarter to Q3 March quarter relating to the US market and deductibles, and so on. But for the other 139 countries we're in and across the portfolio, it's a good base to start to get that slow and steady improvement in the patient flow in this new digital health driven world, Margaret. Our patients going to primary care on Zoom and telemedicine and getting referrals to their specialists and coming through the pipeline. And so we think it's better for the long term, but it is slowly and steadily coming back for devices. And yes, as we said, during those numbers of the percentage flow patients as best we can see it, we saw improvement from September to December. And so those intakes up and ventilator sales over that 90-day period as well.

Your next question comes from David Bailey of Macquarie.

Yes, thanks. Good morning, Mick and Brett. I'm just interested in actually what you've seen adherence levels over COVID-19, whether you've seen it pick up over the last sort of calendar year? And an extension of that any sort of relationship that you've been able to gather between resupply and adherence level? Any comments there would be interesting.

Yes, it's interesting. And we certainly think modest, sort of single digit improvements in overall adherence, as we look at the big data, and we're actually doing a whole bunch of research on this to understand the kinetics and dynamics of COVID-19 on the market. I think really early stage, in March and April people had a lot of fear and uncertainty and doubt in that early period about using CPAP and possible aerosolization. So some fear and uncertainty in that early period. But I think that was all covered over by doctors saying listen, if you get treated for sleep apnea, it's actually preventative and improves your lungs and lowers the impact and severity of COVID-19. And again, there's so much clinical literature out there and in the scientific data, we are able to see people who are adhering are using the devices more. And David, to your point, they're participating more in those resupply programs; they are seeing the importance of respiratory hygiene and respiratory health. And when they get a text response, or an app click and a chance to say yes, I want that new mask, I want that new tubing, I want that new humidifier, they're doing it at much higher rates and getting closer to, frankly, what they should have always done, which is keeping respiratory hygiene at top of mind. So I would say modest improvements in overall adherence and more significant improvements in the probability that a person who is adherent says, I want to get that mask with that copay. I want to get that mask now to get resupply, and in cash markets, same thing as well. So it's a really good question, David. It's a complex equation. We're working through all the variables, but yes, modest improvement in adherence and really good improvement in mask resupply as you saw in the numbers, as well as you saw in the health of the patients.

Your next question comes from Lyanne Harrison of Bank of America.

Good morning and congrats. Just a question. I'm trying to understand the change in these charts, I guess the recovery rate in a few key markets do not appear to have yet improved much compared to the rates you quoted at the last result call. Can you give us some color on what you're hearing in relation to the pipeline in particular physicians' access in sleep testing, whether it being in the lab or at home in key markets particularly as COVID cases staged in November and December?

Lyanne, it's a good question. And like David's, it's complex, because there's 140 countries all adopting digital health at different rates, and all having different national rules around retail and restaurants as well as how you get back to life and back to healthcare. Healthcare has proved pretty resilient, I think, because people know it's an essential industry. And the data that I shared earlier around truly life and death decision of using your CPAP or not for treating sleep apnea is powerful. It's one thing to be doing a digital telemedicine call with a patient over Zoom or a secure network, it's another one to say, listen, using this device will save your life, as well as improve your quality of life. And so the numbers of plus or minus 10% anyway, and that's why the ranges are so broad. But look, here the US key market is somewhere between 70 to 90% of pre-COVID patient flow as best we can measure it by air usage, activations of new devices and reactivations of resupply devices. And it's not perfect data. And it's different in all the 50 states just in the country that I'm living in here, between California, Massachusetts, and Florida, very different areas of opening up of their whole economies on local and state regulation. But that range is pretty broad, but it's pretty accurate in terms of the patient flow through. And that's why I think you've seen people really participating in masks and accessory resupply programs, but a slowdown, obviously in new patient starts. And as you pointed out the kinetics of it, yes, from the September quarter, I think we moved up somewhere between 5% and 10% in each of the key markets I talked about: US, China and Germany as examples for Americas, Europe and Asia. So that's 5% to 10% — 500 basis points plus improvement in the quarter. It's not a V-shape back to 100% of December 2019. Again, but it's a slow, steady sort of U-shaped improvement in the flow of patients, which we think does then over time flow through with all the systems and all the restrictions and portfolio of 140 countries through to patients getting set up and started on a lifetime of therapy on sleep apnea or COPD therapy.

Your next question comes from Saul Hadassin of UBS.

Good afternoon, Mick. Good morning, Brett. Just a quick question on rest of the world sales, Mick, ex-US sales. So strong growth rates, both the devices and masks, just wondering if you can give a bit more color, if sleep therapies are still sort of recovering back to you said 85% - 90% in some regions, just what else drove that very strong growth rate across those two product categories? And was there any tender timing for example, in Asia Pac that may have contributed to that strong growth rate?

Thank you, thanks for the question. So I'll have a little bit of a go at it. And then hand to Rob Douglas, our COO beside me here to provide more detail. Look, as I said, there was some modest sales of ventilators in western and northern Europe during the quarter that flow into the devices number at plus 10% constant currency, and then the masks at plus 12% constant currency. Again, this is Europe, Asia, and the whole entire rest of world, and so we're talking 135 plus countries. Rob, do you want to have a go at summarizing that for sales specifically?

Yes, let's just cross off the last point, Saul, I saw that there weren't any kind of changes or issues in any of those markets, particularly. But across the board it was really interesting. We had strong performance in many, many countries. Usually the countries are varied — some are strong and some aren't so strong at a given time — but it looked like there was pretty good strong performance. And we think the same underlying fundamentals that we've talked about, particularly in the US market, are applying at different scales in these markets. In many small markets, we saw the uptake of digital solutions being really strong, and that underpinned our own technology base. In fact, a really good performance for that. Our technology team is meeting those digital requirements in each of the different countries as well. And then it was just really sort of patient demand for making sure their treatment is up to scratch. We saw that dynamic across the board. The whole issue of the resurgence didn't seem to have quite affected things as much as you might have thought because I think the health systems have learned that they actually didn't need to shut down everything in the health system and they knew what they can keep open. So the diagnosis processes kept going. As Mick said before, things aren't yet back to fully open and normal. But the whole system is striving to get there. And additional things like taking home sleep testing in some markets have been supportive as well. So it's really our whole suite of solutions supporting a market that needs to treat these patients as it is going.

Your next question comes from Matthew Mishan of KeyBanc.

Hey, great, and thank you for taking the questions. Hey, Mick, just a quick one for me, just what is the pushback from the payer community on closing the gap in reimbursement between at-home sleep testing and lab-based tests?

Thanks for the question, Matt. I think the payer community varies by country. Take the example of the United States where it's a mix of government reimbursement and private payer reimbursement. In the US market pre-COVID it was probably about 45% home sleep apnea testing versus 55% in-lab. I think that's moved up very significantly during COVID. Obviously during the peak of the lockdowns it went very high and it will probably level out somewhere in that 50% to 60% range of the diagnoses being home sleep apnea testing. Often there are deltas from roughly $250 for a home sleep apnea test versus $750 to $800 for an in-lab test, relative to cost. For the payer, if it's clinically equivalent for the patient with good sensitivity and specificity of the data and good patient outcomes and patient satisfaction, payers will gravitate toward home sleep apnea testing where they can. But look I'll hand over to David Pendarvis to add any further color on that dynamic.

Yes, Matt, at least in the US there actually are some pretty straightforward dollar investment and time requirements that go into reimbursement for a lot of payers. The fact of the matter is, PSG equipment is a lot more expensive to purchase, more expensive to operate, and it takes more time from both the physician and the facility. So that's what they're looking at more so than necessarily the incentives that are driven by the lower cost of home sleep testing. The higher reimbursement rate of PSG reflects those investments. We certainly support good PSG when it's appropriate for the patient, and there's a lot of sleep labs that have invested a lot of capital and time for their staff in that. It's important they be reimbursed adequately. So both have their place in the market, but generally those are the factors that go into reimbursement decisions, not necessarily only outcomes.

Your next question comes from Andrew Goodsall of MST Macquarie.

Thanks very much for taking my question. Just looking at your margins, obviously, mask growth outpaced device growth. Could you sort of talk to that mix effect, but also expand on your comments on average selling price decline?

Yes, thank you. If you look through the year-on-year, we had a 20 basis point expansion, so it was a moderate expansion. The moving parts I talked about are pretty much small overall. The strong mask performance underpinned the product mix benefits. Year-on-year there was a little bit of benefit from those effects but pretty minor. On ASPs, it's a benign environment from a pricing perspective and that's reflected in the small movements in gross margin year-on-year. So I'd characterize a pretty benign environment for us relative to historical trends.

Your next question comes from Sean Laaman of Morgan Stanley.

Thank you and good morning, Mick. I have a question on the exit of the POC business. If I get this right, and I think I've got it simplistically right, but please correct me: you think you've got those mid-stage COPD patients covered already through non-invasive ventilation and there's better reimbursement and maybe better clinical outcomes. But can you elaborate on any sort of change in the thinking about how the funnel might operate to get to those patients and service with non-invasive ventilation and Propeller? Thanks Mick.

Yes, Sean, it's a great question. And yes, you're right. Propeller, which we acquired about 24 months ago, allowed us to get to patients much earlier in the COPD development cycle. It's really stage one COPD where you have shortness of breath, and you go to see primary care and find out you have lung dysfunction. Those inhalers often are not used as prescribed when they're just given as a prescription. With Propeller Health we are able to drive those adherence rates up double digits on a relative basis and drive adherence improvements that the pharma industry hasn't seen in respiratory medicine. Propeller technology is exciting and we're partnering with major global pharmaceutical companies in major markets. Early days but it allows us to get to stage one and stage two patients in a scalable way on an end-to-end digital health journey in COPD. As they progress to stage two and stage three, they sometimes get prescriptions for high-flow therapy, oxygen and ventilation. High-flow therapy is newer and more scalable and is more related to our core business and devices. It allows us to treat patients and take care of them. So POC became an additional element that wasn't as important in that end-to-end journey and certainly didn't have the margin profile or growth profile given reimbursement changes to allow us the same growth opportunity we have in non-invasive ventilation and life support ventilation. So that's it in a nutshell.

Your next question comes from Gretel Janu of Credit Suisse.

Thanks very much. Can you talk a bit more about the future pricing environment in the US? I know you said it's benign currently. But of course, we did have the announcement of two key DMEs merging; could you expect great ASP price declines going forward in this benign environment that you're currently in?

Sorry, can you hear me now? It's a terrible way to enter the call. Thank you for the question. I think that what we've seen this year is stable pricing; the market was anticipating the competitive bid rates and then the competitive bid got delayed. The Adapt Health acquisition of Aria creates an even larger customer for us; they're a very important customer and we enjoy a very good relationship with them. I think with that move and ongoing trends into the year, we should see something that looks like a more normal pricing environment in the second half of the fiscal year and going forward. It'll be a little bit different by market as it always is, but I would expect it to return to a more normal trend.

Your next question comes from David Low of J.P. Morgan.

Thanks very much. My question is on the software business, Mick. I think you commented that Brightree delivered most of the growth, MatrixCare has been more challenged from the pandemic. Can you elaborate a bit on how much growth you saw through Brightree, what's driving that, and most importantly, can we maintain that growth in that part of the software business?

Thanks for the question, David. Brightree had strong growth driven by the strength of our home medical equipment customers and their ability to pivot their businesses to mask and resupply, and the great adoption of Brightree resupply solutions. The Snap Technologies acquisition, which we closed about a year ago, has also been well integrated and adopted. Brightree has invested a significant portion of its revenues back into R&D and delivered a bunch of innovation, some COVID-related management tools for HME customers, and other ways to grow their business. That allowed Brightree to support HMEs and help them survive and thrive. On the MatrixCare side, it's tougher because the verticals they operate in, like skilled nursing facilities, had census down high double digits at the peak of the crisis and are still down year-on-year, which impacts MatrixCare's growth. Hospice is similarly affected. On the other hand home health has been a growth area within MatrixCare and the combined portfolio has been performing well in home health and hospice. Across the portfolio, the weighted average market growth rate is low to mid single digits for fiscal 2021. We grew ahead of that rate in the quarter, and as hospital discharges and ambulatory surgery center discharges return, we expect those verticals to recover and for our software business growth to accelerate back to mid and high single digits over time. It's tied to the whole recovery in elective surgeries and hospital activity.

Your next question comes from Michael Matson of Needham and Co.

Thanks for taking my question. I wanted to ask about the decision to exit the POC market. You made some comments in the prepared remarks, but could you elaborate a little bit. Was this really a market issue, margins too low relative to your other products, was the product not competitive enough, or were there other reasons? In short, was this a product issue or market issue or both?

Thanks for the question, Mike. I'll hand that to Jim Hollings for further detail, but in short it's a mix of both market dynamics and portfolio prioritization. Jim?

Thanks, Mick. Mike, to balance market versus portfolio considerations: the market for POCs never developed the way we'd hoped in terms of reimbursement, especially in the US. We believed POCs should be reimbursed more favorably because they create value for patients and allow mobility, but reimbursements remained unfavorable versus stationary concentrators. We had a good product and had been developing a next generation, but reimbursement hasn't improved and relative category attractiveness has declined versus five years ago when we entered. When comparing this line of business to our broader sleep and respiratory care portfolio, it's not nearly as strong. We have more attractive opportunities to invest in Propeller, high-flow therapy, and digital offerings where we can drive greater value for patients and shareholders. So it's a combination of market and portfolio priorities, and a decision to allocate R&D and capital where we see higher returns and better patient impact.

Your next question comes from Chris Cooper of Goldman Sachs.

Hi, morning and afternoon. Thanks. Given lots of references to high-flow therapy today, could you provide a more comprehensive update on where you're positioned and what your strategy is there? Do you have what you need in terms of current portfolio or are there areas that might make sense from a tuck-in perspective? And generally your views on market growth and how you fit within that over the quarters and years ahead?

Thanks for your question, Chris. It's an exciting area for us, and it complements Propeller and our ventilation portfolio. During COVID there were uses of high-flow therapy for patients with low oxygen and it's always been considered. We're interested in home care — 90% of our revenue is in the home — and the idea of high-flow therapy in the home has a lot of future potential. There's virtually no reimbursement yet anywhere around the world, so it's an emerging development area. Given some of the clinical data coming out and research we're doing with providers globally, there is an opportunity to get patients out of the hospital and into the home with high-flow therapy as a stepping stone on the pathway to our non-invasive ventilators and life support ventilators and in combination with our drug delivery systems. It is very early days, not material to our business today, but it provides a bridge from Propeller through to ventilation. We think it will be a good part of our homecare portfolio toward 2025.

And just a very brief follow up, Mick. For the homecare opportunity to really manifest in the way you expect do you need reimbursement to become more supportive? Or do you think current arrangements would allow that to happen?

No, Chris, I think we'd want to see reimbursement models developed because that's how change happens. We've seen that in digital health where amazing solutions existed for years, but adoption accelerated when reimbursement models developed in markets like the US, France, Japan, and now Germany. Reimbursement is an important part of developing the home care market for high-flow therapy. Our research and partnerships with payers, providers and IDNs will work toward that.

Your next question comes from Suraj Kalia of Oppenheimer.

Good afternoon. Can you hear me all right? Perfect. Mick, a couple of sub-questions related to COVID. Are you seeing any COVID related shifts in the mask replacement cycle — are these trends relatively stickier in nature — and if I could, has COVID identified any manufacturing or location re-optimization that would help you realize incremental margin gains over the next few years? Thank you for taking my questions.

On mask replacement, we've seen a couple of dynamics. First, patients have become more attentive to whether their equipment might be older; there's greater sensitivity and awareness to have clean and disinfected equipment. That has driven a bit of incremental demand. It's an open question how persistent that will be, but I think it will be somewhat persistent — patients being more attentive to cleaning masks and tubes and resupply on a regular cadence. The other trend is that in markets where resupply is a benefit — largely the US — HME customers have been more focused on driving resupply as part of the business as new patient starts have been slower. Combined with increasing adoption of automated resupply platforms, including our offerings, these trends have led to higher resupply overall. I think it'll persist but it's difficult to predict how it evolves as COVID dynamics change.

On the manufacturing and supply chain side, COVID has been very challenging for supply chains and freight globally. Like many companies, we are carefully looking at the resilience of our supply chain. There are broader issues around politics and trade relationships we need to manage. Some of these adjustments can be beneficial for margins; as we continue to scale our business, we should be able to run faster than those headwinds over time.

We are now at the end of the scheduled time for the call. I'll turn the call back over to Mick Farrell.

Thanks, Shentel. And thanks again to all our shareholders for joining us on today's call. I'd like to once again take the opportunity to thank the 7,500 ResMedians, almost all of them our shareholders, for their dedication and hard work helping people sleep better, breathe better, and live better lives outside the hospital in over 140 countries. Thanks for all that you do today and every day. Thanks especially to our ResMed heroes on the front lines — production, distribution, tech service, customer service, talking to customers and delivering product every day. I look forward to talking with all of our stakeholders here again in 90 days. Thank you, Amy, over to you.

Great. Thanks, Mick. And thank you all again for joining us today. I know we weren't able to get to all the questions in the queue. So please don't hesitate to reach out to me directly if you've got anything further. And as previously mentioned, all the documents along with the transcript and a replay of today's call will be available on our website later today. Shentel, you may now go ahead and close out the call.

This concludes ResMed's second quarter of fiscal year 2021 earnings live webcast. You may now disconnect.