Welcome to the Q2 Fiscal Year 2025 ResMed Earnings Conference Call. My name is Matt, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. Please note that this conference call is being recorded. I would now like to turn the call over to Mike Ott, Senior Manager, Investor Relations. Thank you. You may begin.

Great. Thank you, Matt. Hello, everyone, and welcome to ResMed's second quarter fiscal year 2025 earnings call. We are live webcasting this call and the replay will be available on the Investor Relations section of our website later today. Our earnings press release and presentation are both available online now. During today's call, we'll discuss several non-GAAP measures that we believe provide helpful information for investors. This information is not intended to be considered in isolation or as a substitute for the 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 discussions 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 ResMed's Chairman and CEO, Mick Farrell.

Great. Thank you, Mike, and good morning and good afternoon as we welcome our shareholders and review ResMed's second-quarter fiscal year 2025 results. I'm pleased to share that ResMed delivered another strong quarter of global top-line and bottom-line growth. We achieved excellent year-over-year performance in Q2 with solid revenue growth, improved gross margins, combined with disciplined investments in both R&D and SG&A, resulting in very strong operating profit and net profit performance. These results reflect the hard work of over 10,000 ResMedians and our dedication to improving the lives of patients, improving the workflow of home care providers, physicians, payers, and the communities that we serve in over 140 countries worldwide. The foundation of our continued positive performance lies in our clear market-leading value proposition, including the sustainable competitive advantage that we have established with our best-in-class hardware and software products as well as our digital health ecosystem. Through cloud-connectable medical devices, masks, and accessories as well as digital platforms and ongoing investments in technology, including specifically ML, AI, and generative AI. We are committed to helping hundreds of millions of people so that they can sleep better, breathe better, and live longer and higher-quality lives. Let me start with a high-level review of our financials. I'm proud to report that we delivered global revenue growth of 10%, reflecting positive and consistent contributions across our combined sleep health, breathing health, and residential care software portfolio. Global device sales were driven by strong market performance across our U.S., as well as Europe, Asia, and rest of world markets, reflecting the continuing demand for our AirSense 10 and AirSense 11 platforms. Device sales remained strong, growing double-digits year-over-year. We increased the global availability of our AirSense 11 platform this quarter, launching in India during Q2. We will have additional country launches of AirSense 11 planned throughout calendar year 2025. We make the market-leading sleep health platform with the AirSense 11. I want to make it clear that there is still strong global demand for the second-best device platform in the market, the AirSense 10 range. Our masks and accessories business also had another strong quarter, delivering double-digit global growth in that category as well. The ongoing rollout of Brightree ReSupply and Snap technology have helped in our U.S. market. And we expect to maintain that momentum as we launch Snap technology that can work on all HME management platforms throughout calendar year 2025. We achieved 230 basis points of margin expansion in non-GAAP gross margin year-over-year to 59.2%, reflecting our ongoing focus on improving operating efficiencies. With disciplined investments in R&D and SG&A, we achieved a 29% increase in non-GAAP earnings per share. Our new Head of supply chain, Shane Azzi, and his team are committed to driving increased supply and increased manufacturing efficiencies by investing in technology and infrastructure to power long-term cost improvements. By balancing this cost discipline with strategic investments in new product introductions, we will continue to drive sustainable and profitable growth for ResMed. We have published peer-reviewed studies showing categorically that ReSupply programs drive patient adherence. They improve patient outcomes and they also lower long-term costs for the healthcare system. In the U.S., our digital health ecosystem, including both AirView for payers, Brightree for home medical equipment players, as well as for patients, the myAir app, they continue together to power these ReSupply programs. We are actively investing in appropriate modified versions of the successful U.S. ReSupply programs into our global markets. Each of the 140 countries that we operate in have different regulatory, reimbursement, economic as well as cultural norms. It's our opportunity to leverage ResMed's knowledge of each of those markets and optimize the best way for a person to regularly receive fresh supply for their life-changing and life-saving care. ResMed is an innovation machine. Our ongoing investments of 6% to 7% of revenues into R&D is a key growth driver and a key part of our long-term success. With trailing 12 months revenue around $5 billion, that's $300 million to $350 million that we invest annually into R&D, creating the smallest, the quietest, the most comfortable, the most connected, and the most intelligent devices, masks, and software solutions. During the quarter, we launched the AirTouch N30i to select markets. The AirTouch N30i is a world first from ResMed with its unique fabric-based patient interface. My philosophy is this. We sleep on cotton sheets. We have fabric covers for the pillows that we sleep on. Why can't we have sleep apnea therapy that is just as comfortable as that? Early feedback from respiratory therapists, from physicians, and from patients directly is that the comfort and fit of the AirTouch N30i is outstanding. This new technology could permanently change the basis of competition in mask innovation. It's one thing to create a prototype of the mask. It's another thing to have manufacturability at scale with top quality, top comfort, excellent sale, and great long-term patient outcomes. Watch this space for our new-to-world fabric-based AirTouch technology launched first year on the AirTouch N30i platform. During the quarter, we announced another collaboration with the Apple Vision Pro team, with the launch of what we call the Kontor Head Strap. This is a premium accessory for the Apple Vision Pro. ResMed, as all of you as shareholders know, is the world leader in providing facial interfaces in the field of sleep health and breathing health, and healthcare technology at home. This is great to see that now a top consumer tech company like Apple has chosen to partner with ResMed on an interface that we make that delivers a superb balance of softness and support for the extended wear time that users of the Apple Vision Pro need. The Apple Vision Pro accessory is crafted with a blend of ResMed's exclusive ultra-premium materials and designed to be gentle on the skin. This project shows that ResMed's expertise is applicable outside a pure-play in medical technology and it's part of this convergence of medtech and consumer tech. And the learning that will provide for both the medical and consumer fields is an important part of this opportunity. Watch this space. ResMed had a very strong presence at the Consumer Electronics Show or CES in Las Vegas at the start of 2025 just a couple of weeks ago. We provided a digital sleep lounge that offered people a place to go to relax and to learn about the importance of sleep health, breathing health, and care delivered at home. Across CES display booths, there were many consumer tech companies showing their latest and greatest sleep wellness and monitoring solutions from Apple to Samsung to Google's Fitbit, Oura Ring, Garmin, Whoop, and beyond. We are very excited to have sleep health become mainstream. Interestingly, ResMed products were on display in the massive Samsung booth. Samsung was touting their new Galaxy Watch's sleep apnea detection capability and illustrating the link between their Galaxy Watch ecosystem and ResMed's market-leading products for the treatment of sleep apnea. I'll talk more about sleep apnea detectors and this convergence of MedTech and consumer tech a little later. But now let me provide a brief update on GLP-1s, the new class of pharmaceuticals that are focused on weight loss, diabetes and metabolic control, cardiovascular outcomes, and now also sleep apnea. I'll then come back to consumer wearables that can detect sleep apnea. So late during our Q2 on December 20th, Eli Lilly gained FDA approval for the use of Zepbound a GLP-1, in patients with obesity and moderate to severe sleep apnea with a reduced calorie diet and physical exercise. It's interesting to note that the SURMOUNT-OSA trial excluded patients with diabetes. In the lead-up to its launch to consumers, Eli Lilly's early educational documents that are available to the medical community on the Eli Lilly website includes a patient guide for the treatment of obstructive sleep apnea or OSA. It was encouraging to see that Lilly followed the American Academy of Sleep Medicine or AASM guidelines that explicitly state that positive airway pressure devices are the frontline and gold standard for treating sleep apnea. And that these PAP devices, CPAP, APAP, bilevel have the highest efficacy when used as directed. Beyond just the guidelines, their own FAQs on the Lilly website informed physicians and patients that CPAP devices are now smaller and quieter and that CPAP masks have been refined to increase comfort. We agree. We welcome the opportunity to educate potential patients on the benefit of all therapy options for the treatment of obstructive sleep apnea, starting with the gold standard frontline CPAP, APAP, bilevel, then considering the next most efficacious dental devices. And finally, looking at pharmaceutical or even surgical options. On January 14, 2025, the AASM issued a quick reference guide to providers, considering the use of new drugs for the treatment of OSA. The AASM continues to emphasize the use of positive airway pressure as the frontline treatment and suggests that weight-loss drugs may be useful as an adjunctive or combination therapy. Our experience with bariatric surgery patients these last two-plus decades. And now with these latest generation GLP-1s, these last five-plus years is that when someone loses weight, that doesn't change their age, that doesn't change their gender, that doesn't change most importantly in this context, their craniofacial anatomy. These are key risk factors for sleep apnea. We are looking forward to addressing the educational gap on the prevalence and treatment of obstructive sleep apnea with continuing medical education or CME programs that we are aiming specifically at primary-care physicians. And we're especially targeting those who are high-volume, currently high-volume GLP-1 prescribers. They will be the frontline for the patients that pharmaceutical companies will attract as they ramp up their own consumer advertising throughout calendar year 2025 and beyond. We are now tracking 1.2 million patients who have had a prescription for the latest generation GLP-1 medicines and who also have a prescription for positive airway pressure therapy. The data are clear in this real-world analysis and that is that these people are very motivated. In fact, they are more than 10% more likely to start PAP therapy. That motivation versus a garden variety PAP patient remains. One year later, we continue to see north of 3% higher not just adherence but actually buying masks and accessories. Then the curves separate with a greater than 5% increased propensity for ReSupply at two years. These data have now been steady with the same trend, plus or minus a couple of tens of basis points as we have grown our analysis from a year ago with 300,000 plus patients to now tracking over 1.2 million patients. One thing is clear, the real-world evidence shows that the combination of a GLP-1 prescription and a PAP prescription is powerful for patients with obstructive sleep apnea. They start our therapy more and adhere more to PAP therapy over the long term. And we know that adhering to PAP therapy over the long term saves healthcare costs, improves patient quality-of-life outcomes, and lowers patient mortality. We believe the GLP-1s are helping activate a whole new population of patients into the healthcare system that weren't coming in before and ResMed is well-positioned to support them. Okay. Next, let's briefly return to the consumer wearables megatrend. The pace of change in consumer and health technology is remarkable, and ResMed is at the center of it. We are actively incorporating basic machine learning and AI into our software offerings across the board. Additionally, we are pioneering generative AI with our commercially available product Dawn, which I believe is just the beginning of what I refer to as the sleep health concierge platform. More details will follow later. The key takeaway is that consumers are increasingly focused on monitoring their personal health, wellness, and well-being. The Samsung Galaxy Watch achieved the first new FDA clearance for early detection of obstructive sleep apnea in early 2024, while Apple introduced sleep apnea detection during the launch of its latest generation Apple Watch in September 2024. The data collected by these leading wearables will enable their millions, actually hundreds of millions, of users to potentially identify sleep apnea. This represents not merely a short-term shift but a gradual and sustained long-term demand generation for sleep apnea patients that will benefit ResMed. Importantly, the information flows in both directions. Patients can access their myAir scores from the ResMed myAir app or from their Apple Watch and Samsung Galaxy Watch. We know that this gamification of healthcare can enhance adherence. We anticipate that an increasing number of people will seek real-time access to sleep data as the interest in improving sleep continues to grow. As previously mentioned, it’s not just Apple and Samsung at the forefront; companies like Google’s Fitbit, Oura’s Ring, Whoop, Garmin, and others are also expanding their sleep architecture and assessment capabilities. I believe that several of these other wearable brands will introduce sleep apnea detection in 2025. We view the investment by consumer wearables and pharmaceutical companies in sleep health as a once-in-a-generation opportunity for raising sleep apnea awareness. We believe these technologies will encourage more potential patients to seek information about their sleep health and breathing health. It is ResMed’s responsibility to assist consumers concerned about sleep health in finding their way to proper diagnosis and treatment for sleep apnea, where ResMed offers the most clinically effective, least invasive, proven, and cost-effective solutions available. We do not think these two major trends will produce a simple one-time increase in patient flow. Instead, we believe that this will result in a gradual rise from baseline patient flow over one, three, or five quarters as these technologies are rolled out, with lasting impact over one, three, five years, and beyond. We are building the infrastructure for demand generation, capture, and conversion to help these individuals access the care they need. Keep an eye on this space. So turning now to our long-term vision that we outlined at our Investor Day at the New York Stock Exchange last September. Our ResMed 2030 strategy is crystal clear. It's focused on three key pillars. Number one, growing and differentiating our core sleep health and breathing health business. Two, expanding into adjacent areas, including respiratory insufficiencies such as COPD, including insomnia, including COMISA, and beyond. And three, leveraging our leadership in digital health to drive better outcomes for patients, for providers, and for payers. So a key component of pillar number-one is driving the value of the ResMed brand. That decision, that moment of truth when a physician writes a script for ResMed when a respiratory therapist recommends a ResMed mask solution when a healthcare provider chooses a ResMed digital health solution, or where a consumer anywhere in the 140 countries where we sell our products and services establishes a personal relationship with the ResMed brand. All of these moments added together, that is the equity that is built into the ResMed brand. We will continue to build our ResMed brand awareness and evolve our brand to be more future-focused and closer to the customer. I want to make it clear that our marketing tech team will ensure that there is ROI return on investment for every single demand generation, every single demand capture, and every single demand conversion project as we move more and more people into the diagnosis and treatment funnel. With over 1 billion people suffocating with sleep apnea worldwide, we have a lot of runway ahead in our core market. It's great that we have a couple of megatrends on our side to help. The global demand for sleep health and breathing health solutions is growing in our mission to help people sleep better, breathe better, and live high-quality lives to their fullest potential continues to drive everything that we do. But when you combine those opportunities from our core sleep apnea market with pillar number two, that is expanding into new adjacencies. The future couldn't be brighter. We will continue to invest in our cloud-connected non-invasive ventilators for respiratory insufficiency, including COPD and neuromuscular disease. We will continue expanding our digital health and medtech solutions for insomnia patients. I believe we're just at the start of that journey of that awful disease that we need to treat the inability to get to sleep, stay asleep, and wake up with refreshing sleep and beyond. And for the generation of people who want to age in place, to receive healthcare at the best place, lowest cost, lowest acuity, and highest quality of life, which is their home. We have our market-leading software solutions like Brightree and MEDIFOX, and we are best positioned to lower costs, improve efficiencies and improve long-term outcomes. We create life-changing healthcare technologies that people love. In the last 12 months, we provided over 147 million people with a product such as a CPAP, an APAP, a bilevel, a non-invasive ventilator, a mask, a cushion, a humidifier, other accessories, or a digital health solution such as myAir, AirView, Somnoware, Brightree, MEDIFOX, and beyond. Our ambitious goal is to empower that impact and to empower 500 million people to reach their full potential in 2030 with sleep health, breathing health, and healthcare technology provided to them right where they live. With our strong financial foundation, our innovative product pipeline, and our expanded digital health ecosystem, we are well-positioned to meet and beat our goals. Thank you to all the 10,000 ResMedians for your hard work and dedication to make our mission possible, and thank you to our shareholders for your continued trust and support of our global ResMed team. With that, I'll hand the call over to Brett in Sydney for a deeper dive into our financials, and then we'll open up the floor to questions.

Great. Thanks, Mick. In my remarks today, I'll provide an overview of our results for the second quarter of fiscal year 2025. Unless noted, all comparisons under the prior year quarter and in constant currency terms were applicable. We had strong financial performance in Q2. Group revenue for the December quarter was $1.28 billion, an increase of 10% on both a headline and constant currency basis. Revenue growth reflects positive and consistent contributions across our product and ReSupply portfolio. Year-over-year movements in foreign currencies negatively impacted revenue by approximately $2 million during the December quarter. Additionally, we expect that year-over-year movements in foreign currencies will also negatively impact our Q3 revenue somewhere in the range of $15 million to $20 million. Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in U.S., Canada, and Latin America countries increased by 12%. Sales in Europe, Asia, and other regions increased by 8%. Globally, on a constant currency basis, device sales increased by 11%, while mask and other sales also increased by 11%. Breaking it down by regional areas, device sales in U.S., Canada, and Latin America increased by 12%, supported by solid ongoing new patient diagnoses. Masks and other sales also increased by 12%, reflecting growth in both ReSupply and new patient setups. In Europe, Asia, and other regions, device sales increased by 9% on a constant currency basis. Masks and other sales increased by 7% on a constant currency basis. Residential care software revenue increased by 8% in the December quarter, underpinned by strong performance from our MEDIFOX DAN software 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 increased by 230 basis points to 59.2% in the December quarter. Year-over-year, our increase was mainly driven by manufacturing and logistics efficiencies and component cost improvements. Sequential gross margin was consistent with last quarter despite the impact from an unfavorable currency headwind of approximately 30 basis points during the quarter. We continue to make good progress on our gross margin expansion initiatives and we are focused on driving further improvement in our gross margin. Looking forward, we expect gross margin will be in the range of 59% to 60% in the second half of fiscal year 2025. Moving on to operating expenses. SG&A expenses for the second quarter increased by 9% on both a headline and constant currency basis. The increase was predominantly attributable to increases in employee-related costs and to a lesser extent increases in marketing and travel expenses. SG&A expenses as a percentage of revenue improved to 18.8% compared to 19.1% in the prior year period. Looking forward and subject to currency movements, we expect SG&A expenses as a percentage of revenue to be in the range of 18% to 20% for the second half of fiscal year 2025. R&D expenses for the quarter increased by 10% on both a headline and constant currency basis. The increase was predominantly attributable to increases in employee-related expenses. R&D expenses as a percentage of revenue were 6.3% compared to the 6.4% in the prior year period. Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for the second half of fiscal year 2025. Operating profit for the quarter increased by 19%, underpinned by revenue growth and gross margin expansion. Our interest expense for the quarter was $1 million. Given our lower debt levels, we expect to generate net interest income in the second half of fiscal year 2025. Our effective tax rate for the December quarter was 18% compared to 20.7% in the prior-year quarter. The decrease in our effective tax rate was primarily due to higher tax benefits associated with employee equity compensation this quarter. We estimate our effective tax rate for fiscal year 2025 will be in the range of 19% to 21%. Our net income for the December quarter increased by 29% and non-GAAP diluted earnings per share also increased by 29%. Cash flow from operations for the quarter was $309 million, reflecting strong operating results, partially offset by higher working capital. Capital expenditure for the quarter was $21 million. Depreciation and amortization for the quarter totaled $46 million. We ended the second quarter with a cash balance of $522 million. On December 31, we had $673 million in gross debt and $151 million in net debt and we have approximately $1.5 billion available for drawdown under our revolver facility. We continue to maintain a solid liquidity position. Today, our Board of Directors declared a quarterly dividend of $0.53 per share. During the quarter, we purchased approximately 307,000 shares under our previously authorized share buyback program for consideration of $75 million. We plan to continue to purchase shares to the value of approximately $75 million per quarter in fiscal year 2025. This will more than offset any dilution from the vesting of equity to employees during the year. Going forward, we plan to continue to reinvest in growth through R&D, deploy further capital for tuck-in acquisitions, and continue our share buyback program.

Thanks, Brett. Matt, I'll now turn the call over to you to provide instructions and run the Q&A portion of the call. Thank you.

The first question is from Dan Hurren from MST. Please go ahead.

Good morning. Can you hear me?

Yes, loud and clear, Dan.

Hello?

Yes, loud and clear, Dan.

Sorry, Dan, we can hear your line if you can hear us.

I'm sorry, yes. Sorry. My apologies. Just a question for Brett in regards to currency. At one of the recent speaking events, there were comments made about the negative impact of FX on margins. Now, I think you've just spoken to some negative top line. Can you just talk us through any other FX impacts down the P&L as we've seen the strength of the U.S. dollar?

Yes. Hi, Dan. Yes. I mean, you called out particularly sequentially that 30 basis points impact for us. If you look down the P&L, the net impact was negative $0.02 on our EPS for this quarter.

I guess, sorry, my question was more looking forward on the spot rates that we have in the moment, in…

Yes, I understand. If we consider the situation, our revenue typically reflects immediately in the quarter, but there is usually about a quarter's delay where we experience some advantages from a weaker Singapore dollar and Australian dollar, for instance. This will help us as we move into Q3, although we are still seeing some effects from the weakness of the Euro. Therefore, I expect our gross margin to remain relatively stable, with a slight benefit on a headline basis from R&D and SG&A.

That's great. Thank you very much, Brett. Thank you, all.

Great. Thanks, Dan.

Our next question is from Davin Thillainathan from Goldman Sachs. Please go ahead.

Oh, hi, Mick and team. Thank you for the presentation. Just a question on the devices part of your business. Clearly really strong U.S. devices growth, a double-digit profile. Could you give us some sense there on your thinking about the GLP-1 impact there? I know there were some comments on your opening remarks about the patient flow potentially stepping up from GLP-1s. Do you feel that's starting to sort of flow through in the numbers now or do you feel like it's perhaps a bit back-end weighted considering the Lilly level expansion there as well? Thank you.

Yes. Thanks. It's a good question. And there are multiple impacts of those two megatrends I talked about, the GLP-1s and the consumer tech companies, and their awareness they're driving in sleep apnea. Both of them drive together to drive patients to think about sleep health and breathing health, and specifically about sleep suffocation or sleep apnea. And so, yes, look, incredibly strong performance as you noted, plus 12% devices year-on-year for the quarter in the U.S., plus 9% in Europe, Asia, rest of world, and just great growth. I don't think there is a huge material impact from specifically the new Zepbound indication in Eli Lilly, they just got their indication in December. And typically pharmaceutical companies wait six-plus months before they really start their direct-to-consumer advertising. And so what we're seeing now is a lot of clinical education, continuing medical education, CME programs from ResMed and from Lilly and others to primary care physicians and that's what I expect. But that education alone, I think will start to drive some demand generation into the funnel. It's going to be up to ResMed to really partner with those primary-care physicians to ensure demand capture, conversion, and curation into the sleep apnea diagnosis treatment and management funnel. And so that sort of pathway, if you like, is in its early phases. I think we're in the very early stages of that. As I said in the prep remarks, I think the impact will start to happen over the coming one, three, five quarters where we'll start to get those models working, but it will have a durable impact over the coming sort of one, three, five years and beyond. So this isn't sort of, as I said earlier, it's not a one-and-done, it's not a single-step change, it's a gradual improvement in that patient flow. So I think we're in the very early innings of the flow of extra patients from GLP-1s and from consumer tech. Thanks for the questions.

Our next question is from Lyanne Harrison from Bank of America. Please go ahead.

Yes. Good morning all, and congratulations on very strong devices growth, both in the United States and the rest of the world. Can you point out if there is any, I guess, bulk purchases or one-offs that might have occurred this quarter or also if there was any DME stocking ahead of potential tariffs?

Thanks for the question, Lyanne. The short answer is no. We haven't experienced any one-time stocking. In Q1, we mentioned Japan where we launched the AirSense 11, and there was some stocking related to our main distributors there. However, in Q2, there has been none of that. We don't expect that ResMed will be affected by any tariffs. I am involved with Washington, D.C., Brussels, and Beijing through the Board of AdvaMed. We have a team closely monitoring the tariffs, and even with potential blanket tariffs on China, ResMed should not be impacted since we manufacture in Sydney, Singapore, Atlanta, and elsewhere. While it may affect one of our Chinese competitors importing to the U.S., we are not relying on that. Additionally, a USMCA change could potentially impact a competitor from New Zealand who relies heavily on manufacturing in Mexico. Those situations might negatively affect our competitors, but we're not banking on it. At AdvaMed, I will advocate for exemptions for the medtech and food industries as it may be beneficial for the community. Moving forward, we aim to maintain our momentum and continue capturing patients identified through wearables or those entering the healthcare system due to the awareness of new pharmaceutical treatments that can complement CPAP. We're committed to implementing programs to uphold the growth we've achieved. Thanks for the question.

Next question is from Laura Sutcliffe from UBS. Please go ahead.

Hello. Thank you for taking my question. Could you talk to your ability to scale things like home sleep testing and remote setup and anything else you think can help with getting all these potential new patients who might be coming your way onto therapy as soon as possible? Because one thing we hear is that sleep physicians in the U.S. are struggling maybe to see all of the patients that they possibly could be. So just wondering how you can help create some space to get that done. Thanks.

Yes, Laura, that's an excellent question. As you pointed out, there is a limitation to the physical space available in sleep labs, and many of these labs are currently at full capacity. With the growing awareness of sleep and breathing health, people are showing more interest by consulting their primary care physicians for referrals. It's essential that sleep lab capacity is utilized fully but prioritized for more severe cases, such as patients with central sleep apnea who require in-lab assessment for their breathing issues. These patients can benefit from prescriptions for advanced therapies like adaptive servo-ventilation. Similarly, those with Overlap Syndrome, often experiencing COPD, also need to be evaluated in these labs for appropriate non-invasive ventilation therapies. If patients are also dealing with insomnia, now referred to as COMISA, physicians may prescribe CPAP or APAP for their obstructive sleep apnea, although most options for insomnia management are currently pharmaceutical. Regarding the scaling of home sleep testing, this is an area that can adapt quickly to meet new demands. For example, large teaching hospitals typically have extensive in-lab setups but also the capacity for home sleep apnea testing. Those at risk for basic obstructive sleep apnea should primarily be channeled into home sleep testing. Our challenge at ResMed is to capture this demand and ensure patients can get tested in days rather than months. During COVID, we witnessed a successful shift to home testing when labs were closed, proving its viability. We have developed the infrastructure, including the ApneaLink Air, and introduced our small home sleep apnea testing product, NightOwl. We are collaborating with partners in Europe, like Knox Medical, to ensure that when patients see their primary care physicians and request a home sleep apnea test, a sleep physician is accessible to assist, whether through in-lab evaluations for complex cases or home testing for more routine obstructive sleep apnea. We are prepared to scale and partner within the industry, and as we enhance our infrastructure over the next several quarters and years, we expect to see the benefits from this increased patient flow. Thank you, Laura, for your insightful question.

The next question is from Craig Wong-Pan from RBC. Please go ahead.

Great. Thank you. SaaS revenue growth slowed a bit from the first quarter. Could you share what the growth rates were for the different businesses within SaaS? And are you still expecting double-digit growth for that business?

Yes, thank you for the question, Craig. Our residential care software business includes MEDIFOX, Brightree, MatrixCare, and others like Sidus Medical. We don't provide a detailed annual or quarterly breakdown of these figures. However, I can share some trends. As Brett mentioned earlier, our MEDIFOX team is performing very well, with our German home nursing and nursing home software business growing significantly, outpacing the group growth of 8%. Brightree is also doing well, aligning with high-single-digit growth. Some skilled nursing and senior living facilities haven't returned to pre-COVID growth rates, which influences our portfolio management approach. We are focusing more on the growth segments of our business, strategically investing in Brightree and Snap technologies, which has substantial synergies with our core operations. Scaling Snap for all will enhance our software as a service in residential care, contributing to core growth and sustaining momentum in our mask growth in the market. We are witnessing solid growth in these areas, while we plan to allocate less investment to lower-growth sectors. We expect high-single-digit growth for our residential care software business and have guided to double-digit growth in net operating profit, which we are achieving. Our goal is to meet or exceed that market growth and leverage SG&A and R&D for substantial net operating profit growth. This is a key focus in our portfolio management of residential care software. I am collaborating closely with the leaders of our Brightree, MEDIFOX, and MatrixCare brands to ensure we are investing in areas with the most potential for cost reduction, improved outcomes, and strong synergies with our core ResMed operations. Thank you for your question, Craig.

Next question is from Mike Matson from Needham & Company. Please go ahead.

Thank you for taking my questions. I would like to inquire about the device growth, which was in double digits. Do you think that reflects the growth in patients, or are you seeing some pricing benefits as well? Additionally, is there a possibility that rePAP is starting to gain traction?

Yes, Mike, thanks for the question and it's a good one. Look, what we say is that the market growth rate is mid-single-digit for devices globally and mid-single-digit devices growth in the U.S., just standard market growth and high single-digit growth for the masks. And our job, you follow us for a long time, Mike, is to not just accept market growth, but to meet or beat it through demand-generation through, as you said, ReSupply on the mask side, rePAP on the device side. I can tell you our customers and our partners in the channel as well as globally our distributors and some of our consumer businesses in Europe and Asia are really focused on those new patients, but also on patients who have devices that are five or more years old. The warranties are usually only around three years. And so any time after three years, some people want once it's out of warranty to buy. But most insurance companies, including Medicare here in the U.S. will provide a new device after five years, most of the private payers as well. And so I think that rePAP opportunity is still out there and it's something that we've got an opportunity to drive. But look, it's an ongoing battle. It's an ongoing game to make sure that we can get the demand generation, demand curation, the demand capture. And really that demand conversion to make sure a person gets from that referral to the sleep specialist if they have a positive diagnosis for a rapid path to setup. And we've been working a long time on that digital health platform. COVID helped us, it proved that we could do some of these more digitally, more remotely and we've partnered with our physicians to do that. And we've had some success as you saw with really good growth in this quarter. But look, as we look at it, you know the default is mid-single-digit growth in devices, high-single-digit growth in masks, and high single-digit growth in software. Our goal is to meet or beat that every quarter. And we did meet or beat that in every part. We had a beat in the devices, but it's not a given and we don't take it for granted and we know that we have to work hard on all of the above. Demand gen capture curation, rePAP conversion, and ReSupply on the mask side to keep that momentum. Thanks for the question, Mike.

Our next question is from Anthony Petrone from Mizuho Group. Please go ahead.

Thanks, Mick. And I'll just revisit back to GLP-1, but actually pivot to a reimbursement coverage. So Lilly secured Medicare coverage for Zepbound, we haven't seen commercial payers come in. So maybe just your views, Mick, how reimbursement in the United States will settle out now that we'll have GLP-1 covered side-by-side with CPAP. Do you think eventually as commercial payers come in, that you'll have to actually step through CPAP to get to a GLP-1? Thanks again.

Yes. Thank you for the question, Anthony. You and the other analysts here have a deeper understanding of the pharmaceutical side than I do. My expertise lies in medtech, particularly in respiratory technology. You have a better grasp of the research regarding Lilly's Zepbound and its chances with United, Humana, Cigna, and others. Generally speaking, private players in our industry do monitor Medicare to some extent; however, this new class of medicines isn't solely concentrated on sleep apnea. It's more about a broader approach to obesity, cardiovascular health, diabetes, metabolic syndrome, with sleep apnea being a secondary concern. It's clear that Lilly has multiple focus areas and this specific indication may not be their top priority. They have invested significantly in the SURMOUNT-OSA trial, and their positive data indicating an average 50% reduction in AHI provides a strong incentive for them to market the drug. We will closely observe the reimbursement process for Zepbound across various indications, whether it be for obesity, sleep apnea, or diabetes. Once they navigate this, I'm confident they will engage in direct-to-consumer advertising. They are already investing in continuing medical education, posting considerable information on their website. Importantly for us, they are adhering to the guidelines set by the American Academy of Sleep Medicine, emphasizing the use of the most effective, least invasive, and well-documented therapies first, which includes CPAP, APAP, and bilevel. Lilly's trials have shown that patients using CPAP had better results, reinforcing not just the medical consensus but also Lilly’s own findings that combination therapy yields superior outcomes. We anticipate that once they receive approval for their indication, they will begin advertising; however, the timeline for that could vary greatly among pharmaceutical companies. I'm eager for them to secure broad coverage and start promoting a comprehensive treatment approach that addresses both sleep apnea and weight. This combination therapy represents the future of obstructive sleep apnea treatment. Our data, from following 1.2 million patients, shows that combining a GLP-1 prescription with a PAT prescription leads to positive outcomes, high initiation rates, and increased adherence to therapy. We observe this trend in mask and accessory purchases, which ultimately contribute to lower costs, better health outcomes, and reduced mortality for patients. So, while it's early days, we are very enthusiastic about this. I haven't received questions on this yet, but I’m particularly excited about the consumer tech trend, as there are already tens of millions of users with wearables that can detect sleep apnea. Our task will be to guide these individuals through a digital pathway into the healthcare system. Thank you for the question, Anthony.

Next question is from Mathieu Chevrier from Citi. Please go ahead.

Yes. Thanks for taking my question. Good afternoon. Good morning. Just to jump back on that previous question, do you think there is more research to do on the benefits of CPAP and perhaps more education? Because clearly, the pharma company has been quite aggressive at just broadening the potential indications for GLP-1s. Thank you.

It's a great question. ResMed has nearly 21 billion nights of respiratory medical data in the cloud, with over 30 million patients in the AirView ecosystem and 9.3 million who have downloaded the myAir app. We have a wealth of information that is all de-identified, private, and secure, and we are focused on research. Our peer-reviewed data shows a 39% reduction in mortality for CPAP adherent patients compared to those who are not, as seen in our ALASKA study. There are significant improvements in cardiovascular outcomes, blood pressure reduction, and metabolic control. With the increased awareness driven by pharmaceutical companies, we need to elevate our research efforts. I have tasked our Chief Medical Officer, Carlos Nunez, and his team to improve both the speed and focus of our clinical research, ensuring it targets meaningful outcomes. Our published research indicates a dose-response relationship between nightly CPAP use and lower healthcare costs, with a 7% reduction for each hour of sleep using CPAP, up to a 50% reduction with seven hours of sleep. The more we can integrate this data into healthcare systems like Intermountain and Kaiser, the better. The mortality data was collected through the French government's social security database in the ALASKA study. We aim to generate more data in Western and Northern Europe, where government-funded insurance focuses on long-term outcomes. We are the leader in digital health and publication of real-world data in MedTech, and we will continue to share more insights as big pharma invests in areas like combination therapy. Thank you for the question.

Our next question is from David Low from JPMorgan. Please go ahead.

Thanks very much. Mick, I was wondering if we could come back to the question that was asked earlier about the market growth versus ResMed's growth. I mean, clearly with ResMed's dominance in devices, your ResMed largely is the market. So can you even talk a little bit as to what you think the drivers might have been this quarter that we drove the growth rate above 10% versus your estimates of market? I mean, clearly, some of the variables would like to understand the price and mix and whether that really was a contributor. And do you have a sense as to whether rePAP is starting to become a meaningful contributor at this stage, please?

Yes, thank you, David. As you know, there are many factors that contribute to our quarterly performance. We maintain a strong position in the U.S., Europe, and Asia, despite facing significant competition. We're successfully gaining market share and forming valuable partnerships with physicians, home care providers, and distributors, which enhances our growth. Technologies like Brightree and AirView play a crucial role in identifying patients for reSupply, and we've seen notable success, particularly with a 12% growth in U.S. mask sales for the quarter. Our Brightree reSupply and Snap technologies are beneficial. On the device side, we are slightly ahead of the market, and there are various factors influencing that, such as our demand generation efforts and the impact of high deductible health plans. We are aware of the factors affecting our growth and are focused on optimizing the process to ensure new patients move efficiently from referral to diagnosis and treatment. This process optimization will help us sustain our momentum. Although we are still in the early stages of capturing opportunities from major trends, we need to be prepared to attract those patients too. Our approach involves careful portfolio management of demand generation and conversion, whether from our existing customer base through reSupply and rePAP or new patients. We are refining our strategies for both devices and masks, and we've performed well this quarter. Moving forward into 2025, we will continue to invest in infrastructure and capabilities to effectively capture and convert patients, ensuring they transition smoothly from being concerned consumers to satisfied long-term patients in therapy.

Next question is from Brett Fishbin from KeyBanc Capital Markets. Please go ahead.

Hi, guys. Thank you for squeezing me in. Just a question for Brett, on the gross margin guidance for 2H. Are you still expecting a sequential increase given relatively flat performance in 2Q versus 1Q? Or should we be thinking about 1H as more of a reasonable level for 2H? And just as a follow-up there, what would be the biggest swing factors that you think could drive progress closer to the high-end of the commentary, which would be closer to 60%? Thank you very much.

Thank you, Brett. Regarding our guidance of 59% to 60%, we are currently at the lower end of that range. We have initiatives in place aimed at improving gross margin as we progress through the second half of FY25, and we believe it will remain within that 59% to 60% range. We are focusing on optimizing three main areas: manufacturing, procurement initiatives, and realizing scale benefits. The transition to the AS11 platform has been successful, and various factors such as product mix and freight costs, which have stabilized, will influence our results. While we anticipate potential benefits in the second half, it's still too early to confirm. Additionally, the introduction of new products can be advantageous. Several elements can affect the timing of these improvements, but our priority is to maintain a healthy pipeline that enables consistent delivery, supporting our gross margin over the medium term rather than on a quarterly basis.

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back to management for closing comments.

Great. Well, thanks, Matt, and thank you to our shareholders for joining us on this call, and thank you especially to the 10,000 ResMedians operating in 140 countries. Many of you are also shareholders. Thanks for what you do today and every day. You're working with patients, physicians, payers, providers, and healthcare communities to change the world and you build value for stakeholders, especially the shareholders who are listening to us today. So thank you for what you did these last 90 days. We'll talk to you all again in about 90 days. And that concludes the call. I'll hand over to Mike Ott to close us out.

Great. Thank you, Mick, and thank you everyone for listening. We appreciate your time and interest. If you have any additional questions, please don't hesitate to reach out directly. This concludes ResMed's second quarter 2025 conference call. Matt, you may now close the call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.