瑞思邁 (RMD) 0 Q0 法說會逐字稿

Ladies and gentlemen, the company has asked me to address certain matters.

First, ResMed does not author the recording of any portion of this conference call for any purpose.

Second, during the call ResMed may make forward-looking statements such as projections of the future revenue or earnings, new product development or new markets for the Company's products.

These statements are made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Risks and uncertainties exist that could cause actual results to materially differ from the forward-looking statements.

These factors are discussed in ResMed's SEC filings, such as forms 10-Q and 10-K, which you may access through the Company's website at www.resmed.com.

With that said, I would like it turn the call over to Dr.

Peter Farrell, ResMed's Chairman and CEO.

Dr.

Farrell, please go ahead.

Thank you, Jeremy, very much.

Let me start straight into it.

Revenue for the quarter was $185.7 million, around $186 million, an increase of 14% over the year ago quarter.

Pro forma income from operations was $40.4 million, and pro forma net income was $30.6 million.

Pro forma diluted EPS for the quarter was $0.39, an increase of 5% compared to the '06 September quarter.

GAAP operating income was $31.8 million for the quarter, while net income was $24.1 or $0.31 per diluted share.

GAAP gross margin was $60.2 million for the quarter ended September 30, '07.

Let me note that the closing price on the U.S.

dollar to the Aussie was $0.75 a year ago quarter and this quarter was $0.89, so there was a 19% increase due to the depreciation of the U.S.

dollar, and that's basically unprecedented.

If we run that through EPS, it is about a cent and a quarter.

So that was a pretty big hit.

Pro forma SG&A for the quarter was $59 million, an increase of $8.5 million or 17%.

Pro forma SG&A costs were 32% of revenue for this quarter just ended, compared to 31% in the same quarter a year ago.

GAAP SG&A was $62.9 million, 18% up, and in constant currency terms pro forma SG&A costs increased by 11% compared to the same period a year ago.

Again, we were a hit by the depreciating U.S.

dollar which flowed through to, as I already mentioned to EPS, and we're looking at 11% constant currency versus the actual number of 18%, so that's quite a hit.

Pro forma R&D expenditure was $12.6 million, 7% of revenues.

GAAP virtually the same, $13 million, again 7% of revenues, and this increased 20% over the year ago quarter, and again U.S.

depreciation, U.S.

dollar depreciation was a significant contributor to the 20% R&D expense and in constant currency was actually 9%.

Amortization of acquired intangibles, 1.8 million, 1.2 net of tax, and the amortization of assets was associated with various acquisitions.

Stock-based compensation during the quarter was as expected, $4.5 million, $3.4 million net of tax.

Restructuring, there was a restructuring cost for a Basel office downsizing, $2.3 million, and as noted there is another $200,000 which will hit the quarter we're currently in.

Inventory $167 million, increased by $9.9 million, and DSOs at 79 days were essentially consistent with the June DSOs.

In the first quarter of the '08 -- fiscal year '08, overall American sales were up 9%, but actually 11% when we take into account the motor division sales, or excluding those, and parenthetically let me note that was around $300,000, in the year ago quarter it was $2.1 million.

So there was a loss there of $1.8 million, and going forward the comparables are going to be a little more favorable to us.

Sales outside of the Americas, $88.1 million, an encouraging 19% increase year-over-year, and operating cash flow for the quarter just ended, the September quarter, $28.1 million, and that compares -- that's fairly encouraging, that compares with a net income of $24.1 million.

A couple of comments.

The new full face mask offerings, the Quattro and the Liberty, are going extremely well.

They're excellent products, and in our view more than competitive and allows us to keep a price differential.

We're also excited about the launch of our new S8, an extremely quiet SA-2 flow generator.

It has been launched in Asia Pac and selected European markets, in particular Germany.

We have incorporated in this our easy breathe technology, really improved motor characteristics, and if one combines the Swift II with the S82, the Whisper, it is the quietest CPAP on the market, in fact the SA2 has a noise level of around 23 decibels, which is basically below our ability to hear.

In fact, we had a -- reports back from some customers saying that they had to actually touch the device to make sure it was actually operating, and there is not much vibration there, either.

So we remain very confident about market fundamentals, and we have some new products on the horizon, and we're hopeful of -- as we move forward in fiscal '08, Q3, Q4, we're hopeful of achieving our more usual growth pattern for the people that have been expecting over the past decade or so.

I will also note finally we have an extremely strong balance sheet, cash, cash equivalents, $278 million, and our retained earnings are getting close to $500,000,000, actually a shade over $460,000,000 but very close to $500,000,000 in retained earnings.

We have a very strong balance sheet, which gives us flexibility.

So now let me throw it open to q&a.

(Operator Instructions)

Your first question comes from the line of Paul Choi with Merrill Lynch.

Go ahead.

Good afternoon, Peter.

Paul, how are you?

Fine.

Thank you.

Let me first say congratulations to you and also Kieran on the recent announcement there.

Best of luck to both of you here.

Thank you, Paul.

Maybe for my first question here, just if I could focus on the gross margin here, historically I think in terms of your business mix we've usually seen an uptick in masks as a percentage of revenue here in the first quarter versus the previous quarter, which I think generally tends to help on you the margin side, but could you help us understand a little bit what effects contributed in terms of your margin tick down here, and also what factor sort of price played in here in terms of the sequential gross margin decline?

Well, the first point is, which I have are already allude to do, Paul, is we had an unprecedented 19% increase in our costs just simply due to the depreciation of the U.S.

dollar relative to the Aussie.

The closing currency was $0.75 U.S.

to 1 Aussie dollar a year ago quarter and now it was $0.89, and I think today it has hit $0.93, so this is -- that's unprecedented.

However, having said that, there were certainly price pressures, ASPs, which we talked about on the previous two earnings calls.

There has been pressure due to our major competitor dropping prices significantly by 7, 10 type of activity, so on the lower end products this obviously impacted the gross margin.

We think it looks as though, as best we can assess it looks as though the pricing has stabilized, and, Keith, you might want to make a comment on that in the U.S.

which is where most of the price pressure was.

We still are getting because of the quality of our products, we're still getting a 10 to 15% uptick in our masks.

We expect that to continue.

The Swift II, the Quattro and the Liberty are extremely good products.

We're very happy with them.

But as far as gross margin going forward, as we look into the wild blue yonder, with the U.S.

dollar as I said trading around $0.93 to the Aussie dollar as of this morning, we'll be looking at around a 60 to 61 mark, but probably more likely a 60 as far as we can see.

Do you to make a comment, Keith or Brett?

Actually, this is Kieran.

Let me add one thing to that.

We have not been, as you're suggesting, we have not seen in the United States and some of the other -- actually some of the European countries, we have not seen prices go below where we saw them, sort of the most aggressive deals several months ago.

We are seeing is it is sort of going across the market now, and you're seeing more customers getting those similar prices.

So the positive sign here is it appears that there there has been a floor established here for a number of months, and the market dynamic is that we'll see those prices go to a broader range of customers over time, so pretty much what we expected to see.

It is pretty much what we've been saying here the last three, four months that we expected to see throughout this year, and I don't think there is any change in that dynamic at that point.

Okay.

Then in -- just maybe as my follow-up, the international growth up-ticked a little bit here, it look likes to rates we haven't seen here in a couple of quarters.

Can you help us sort of parse out what the currency benefit was or are we starting to see deeper penetration overseas?

I think, with the exception of Germany, we had extremely strong growth, and Germany, we're through that.

Unfortunately, [Lance Abayer] is traveling, arrives in Australia later today, but Germany is softer than we would like.

We've done what we believe we need to do in Germany.

It is a work in progress, but even given Germany being weaker than we would like, the results were pretty good, and the constant currency figures, Brett, do you have that in front of you?

Yes.

Basically the impact on revenues of the appreciating Euro and Aussie pretty much added around $6 million to the revenue number for this quarter.

Okay.

Great.

Thank you very much.

Your next question is from the line of Tim Lee with Caris & Company.

You may proceed.

Good afternoon, gentlemen.

Hello, Tim

In the U.S., with pricing somewhat stabilizing, are we turning the corner and we can kind of think of this quarter as the low water mark and we can move up here -- from growth here on a going-forward basis?

Well, Tim, I think we flagged last earnings call -- in fact I know we did.

The first two quarters of '08 were going to be a struggle, and that's mainly because of the comparables, and we have the ResMed motor technologies which we talked about on the last couple of calls.

We've still got a couple of million there, and as you know, the sales there have basically gone very far south, so we still got top comparables for Q2 '08, and I think as we look into the future, Q3 and Q4 look pretty comfortable for us.

Okay.

And just in terms -- one quick follow-up on the international side again.

The 18% growth, that's the blended number, so what is the international growth ex-Germany, so give us a sense of what growth could get to once Germany gets back on track.

Love to answer that, Tim, but that's not on the agenda.

Thought I'd try.

But thanks for the question.

All right.

I'll get back in queue.

Thank you.

Okay.

Your next question is from the line of Ben Andrew with William Blair.

Good afternoon, Peter.

How are you, Ben?

Very well, thanks.

Good.

And just maybe being a bit more specific on some of the P&L items, if you back out currency completely from the equation, what is the overall impact on EPS, by your calculations?

I will throw that to Brett.

My rough calculation is $0.01.5.

Brett?

Yeah, if you roll it through and watch all the [currency] impact through and try and model that, Ben, when we had a look at it, I think it is in the order of $0.01 to $0.01.5 cents for EPS, so the previous number there is pretty much spot-on as you roll it through.

That's the sort of impact.

If you look at that against overall net income, you're looking at about a 4%, roughly that sort of number, impact from currency.

You can't be -- levels stay as they are, that's probably what will end up washing through the course of '08, so that's pretty much the impact as we see it at the moment.

The bottom line, Ben, is that it is not fair.

[ Laughter ] Let's call the Feds and tell them to start raising rates.

Yeah, well, somebody has got to help.

My follow-up question is, as you think about the sheer magnitude of new products that you've got flowing through, Peter, why aren't we seeing better traction in sales?

Is price just that flat-out important to people but with -- sales growth, I should say, with the Quattro the Liberty, all the different things coming through, why isn't that having a bigger impact?

Kieran referred to the price spread, and that's just something that's happened.

It is hard to get an actual, definite figure, how many of the customers it flowed through to, but I suspect we're through all of that.

My guess would be 90%.

You have those lower prices.

It is mainly impacting the S8 Escape, the Tango, that lower end, that 25% issue of the market.

We've been able to maintain, as I already indicated, 10 to 15% higher prices for the masked products, and we're doing extremely well with the order-setting products, and of course the VPAP Adapt SV, I mean, [Res Meranks] has come out with their competitive product, and and they're hammering that pretty well.

We're very confident that as people get exposed to our algorithm, with the easy-breathe technology and the much easier ease of use of our products, and they're pre-emptive, that is -- and we've had a couple of cases where patients just have not done well on the competitive product, and have switched to the VPAP Adapt SV, or the [ACS2] as it is outside the U.S.

It is just a very robust unit.

Now, there is a lot of stuff that's got to wash through, but we are very, very happy with the Swift 2, the Quattro and LIberty.

Traditionally you do see an uptick when we come out with new products, and we are doing well with them, but it is a balance between the price pressures and, as Kieran mentioned, flowing through particularly the U.S.

market, which is 53% of our total revenues of the Americas, and it just is what it is.

I mean, you know, it is sort of inexplicable.

We looked at some of those actions, and it is not exactly logical to us.

Maybe it is a game plan there, but since there there were no real price pressures coming from the customers, the DMEs and the HMEs, it was just a grab for market share, and we just didn't jump over the cliff.

Is it fair to say that unit volumes you would normally expect with a new product cycle are coming through but they're being partially offset by price?

Correct.

You should have answered my questions -- you should have answered your question.

I am just trying to get [ multiple speakers ] .

That's it in a nutshell.

You're not disappointed by the unit volume on the new products, though?

No.

Not at all.

The new products are doing very, very well.

The challenge really comes down to some of the existing products where we have premiums that start to -- the delta in pricing between our [closest] competitors start to get above that 10 to 15% range, when they start to get to 20 to 25%, there is volume implications on that, but the new products are doing great.

Your unit volume growth overall for the masks and generators is satisfying, but it is being partially offset by price.

Right.

Now, look, you can always -- if you look at individual products, and you say well, Pete, why isn't that doing better, et cetera, I think we talked about the Tango, and it is a terrific unit, but it is in fact D featured.

In terms of its characteristics, operating characteristics, noise, et cetera, you can tick all the boxes, but it doesn't have EPR on it, and we've seen that our guys are just not as good as selling into that low or essential care model as [Brett] calls it, selling into that space.

So that hasn't gone as well as we would have liked.

I might say that it's improved, but -- and there was the distraction of the recall, that's where -- we're working through that, but we're going to have to live with that through to the end of fiscal year, but it is much less frenetic.

I mean, you know, it's down from spending a quarter's of the guy's times on the average to around 10 to 15%, that did still -- having a small impact, but again as I said, it is fading.

But yeah, at the lower end there which is -- call it 25 to 30% of the market, the price pressures are pretty significant, and the competition has been dropping their prices in their featured units, and that makes it a difficult space to operate in.

Okay.

Thank you.

Keith, I don't know if you want to add anything to that.

No, Peter, I think you did a fine job with that.

Gentlemen, your next question comes from the line of Glenn Navarro with Banc of America Securities.

Go ahead.

Thanks.

Good afternoon, guys.

Peter, on your guidance for the second half, you commented that you expected growth to get back to more market-like growth, and I am assuming you're referring to top line, so a couple of questions.

Do you view market growth as 15% or closer to 20%, and just to piggyback off of Ben's questions, are you referring to unit growth being back to market because I would imagine you're still going to face some pricing pressures a year-over-year basis in the back end of the year, so that's a question one.

And then you didn't mention anything about the SA recall.

Should we assume at this point it is completely behind you?

Thanks.

Let me take your first question, Glenn.

We are talking unit growth.

In fact, we were at a conference yesterday and there was a big discussion.

There was a panel discussion where people from the U.S.

were hooked in and so on and so forth.

I am in Sydney, and the general consensus, and there is a bit of an echo chamber to this sort of thing, like you start believing your own echoes a little bit, but we still believe that outside the U.S.

it is around 15%, and that's ROW in general, and in the U.S.

it is around 20%, and we are indeed talking about volume of -- volumes of devices.

Now, you can picture some scenarios where you can get an uptick going forward, as we penetrate into some of the areas we're focusing on like occupational health and safety, for example.

We are sort of optimistic, but at the moment as we look out there, I think we can -- you can almost put the volume growth of the order of 15 ROW and 20% in the U.S.

Again, you're quite right.

The pricing pressures, the prices, they're not going to go away unless you innovate, and you've got features where people say, my God, I have always wanted one of those, whatever it is.

We know that you can ask for and get higher prices.

We are optimistic on some of that stuff, but we can't talk about that specifically at the moment.

Just from a modeling point of view, in our reported revenue numbers in our models we should be a touch below that 15 to 20%, which would reflect the pricing pressures you'd still face on a year-over-year basis.

I think that's fair.

Now, on your second question, the recall, our estimate is that we're 30 to 40% through it, but the thing now is it's going reasonably smoothly, I mean as well as these things can go.

The stuff that we do ourselves where we're well and truly on top of it and obviously using Stericycle, and when it is once removed from your control, you do tend to have things not run at quite as smoothly, but I think on the average, and I will get Keith to comment on this, on the average I think we're fairly satisfied, we're satisfied with the amount of provisioning we made.

We're satisfied -- if you looked into the wild blue yonder and said we're a shade under 40% of the units back, you'd would say, well, we would like a higher number, but it is what it is.

It is like you take your car in, and you get something in the mail, and your Mercedes, something wrong with the brakes, and I don't know what you do, but I wait until my next service.

There is a bit of that going on but, Keith, do you want to add anything?

Peter, I believe that you've answered that adequately as well.

Thank you.

We have the inventory under control, Stericycle has the process under control, the start-up issues that you'd have any time you go through something this large are for the the most part behind us, and I think we're gathering momentum with this very nicely, but it will be with us for the balance of this calendar year, as we said all along.

Is it by any chance, again a piggybacking off of one of Ben's questions, as to why maybe you're not doing a little bit better with these launches because usually you do very well with a new product launch?

Do you think, is there any more sales force distraction out there or is that behind us?

Glenn, what Peter mentioned earlier on is that we still are getting some level of sales force distraction, hard to quantify it in specific terms.

We estimate it to be in the 10 to 15% kind of a range, which means it has some impact, but not much, certainly not like it was in the first quarter and actually at a declining rate as we move forward, and I would imagine that as we get closer and closer to the end of this that any commitment of the sales force time on this will continue to get smaller.

Okay.

Great.

Thanks for taking my questions.

And, Keith, I just listening to to your answers there, I just wish you were on the compensation committee.

[ Laughter ]

Sir, your next question comes from the line of Mike Madsen with Wachovia.

Thanks for taking my call.

Hi, Mike.

I guess first of all, I know about this time last year you all had implemented your internet policy, and I know it is a very small percentage of your sales, but I guess I believe that you're going to be lapping that starting in the December quarter, so that may give you a slight boost to your revenue growth.

Is that a fair assessment?

I think it is.

Keith is very close to the internet policy, and I think in fact Keith was the person who was most adamant that we really needed to put our foot down concerning internet sales, and just to reiterate what we said before, that is because guys that are selling on the internet have no -- feel no responsibility, at least a lot of them that don't have DME attached to it or an HME, they don't feel any responsibility to call the patient because they don't get paid for it.

We just think it is bad medicine, but, Keith, why don't you give us an update.

I just got a message from one of our Vice Presidents of Sales this morning that told me about two customers in the northeastern part of the United States that had made a decision within the last two days to switch over all of their business to ResMed because we are the only one with an internet policy.

We are getting more stories like that as people do understand what our messaging has been.

They do understand the impact on patient care and the impact on the DME service model, and are now beginning to take action on just how they're directing their business.

So Mike, in answer to your question about whether we measure anything in relationship to the anniversary date of our internet policy, I don't think we're -- we've got it quantified like that in any way, shape or form.

It is more of a gut-level check from what we're hearing from the sales force as our customers understand the messaging that we've been trying to get across and are now taking action on that messaging.

We remain very pleased with our internet policy, and we remain very committed to our internet policy.

All right.

I think what we actually would like is for some of our competitors, one in particular, to follow suit.

We just think it is, you know -- it is just better medicine.

If you don't get compliance, everybody loses.

It is understandable.

Let's see.

Just on competitive bidding, and I apologize if this question has come up, I was on another conference call, but what are you hearing from the HMEs in the initial areas?

I realize it is a very small portion of your revenues at this point, but just to understand maybe what the longer-term impact of that will be?

Do you have any kind of sense of where the bids are ending up or anything along those lines?

I am going to try that.

You're quite right.

It is not right in our sweet spot there in terms of concerns.

I am going to throw that again to Keith.

So we don't know where the bids are coming in yet.

We, know just as you do, Mike, when the kids are coming in, and supposed to be sorted out.

The long-term impact of that, you know, who knows?

It is really interesting to us that it seems that more of the bidders within a given marketplace seem to be not from that given marketplace, that we've got people who haven't done business in a given market are now using this as an opportunity to try to expand their business models into a different geographical area.

In terms of -- it basically is a discussion pointed for people in the industry.

It is a worry point for what the long range implications are, but you still have a lot of people wondering whether they will ever be able to pull it off and go from the first ten MSAs to the second level with this, and once again as you heard us discuss many times before, it is still at the end of the day such a relatively small part of our business that we don't think it is going to have a material effect on our business.

Okay.

Can you provide an update on your sales force structure, just how much are they focusing on the sleep labs versus HMEs, because I guess it seems like in the past I know I guess Respironics had made more of a push into the sleep labs, and you probably had a presence in both, but just wondering if you can give us an update there.

Are you asking me to answer that question for the U.S.

market, Mike?

More U.S.

focused I guess, to be honest.

So we have for the last several years had an increased level of focus on the sleep lab with our sales reps as well as with our clinical team.

That continues.

We view the sleep labs as an incredibly important call point for us, both from a standpoint of the scripting they do as well as from the increasing level of vertical integration with the sleep labs dispensing therapy.

So our call pattern has not changed much over the last two years.

We continue to market our technology to the sleep labs, and our Adapt SV, and the success we've had with that, kind of speaks to the presence that we've had in the sleep labs.

It remains high, will remain high.

Okay.

That's all I've got.

Thanks a lot.

Your next question is from the line of Joanne [Lynch] with BMO Capital Markets.

Go ahead.

Thank you for taking my question.

Hi, Joanne.

Hi.

Can you give us a breakout between masks and flow generators in the quarter?

Yeah, we can certainly attempt to do that.

Give me two seconds here.

Okay.

I will give you a geographic mix which is 53 -- in fact, that's almost identical to the last few quarters.

53% for the Americas, 39% was Europe, and 8% was Asia Pac.

In looking to flow generators, and masks and accessories, the flow generators were a 14% increase.

The masks and accessories were 13% increase, and the overall was 14%.

So they are pretty in line.

You asked for the split, and I think -- Joanne, you wanted the split between the sales.

What percentage was masks and accessories, right?

And what percentage came from what markets?

So the Americas versus ROW, do you want me to give those, Peter?

Yes, why don't you do that, [Chris]?

[Chris] hasn't done this for about 15 years, but that's all right.

The Americas, let me just do the normal breakout, in the Americas flow generators were up 12%, masks and accessories were up 7%, for a total of 9%.

Bear in mind the increase was 11% because that's messed up a little bit by ResMed Motor Technologies, so the overall was bottom was 11% if we're --

And if we back out RMT, the flow generators were 12% and masks and accessories 11%.

12% and 11% is closer to the truth.

The 7% reflects that impact of our loss of external business for RMT.

On the ROW side, flow generators were up 16%, masks and accessories were up 25%, for a total of 19%, and then again that puts down to the 14% total business.

Okay.

And if I did my math right, it looks like you had a lower tax rate this quarter, in the 28% range.

Can you comment on that and tell me what we should be thinking about on a go-forward basis?

Joanne, it is Brett.

That's right.

That tax rate for this quarter is a little lower.

In Germany they actually reduced their corporate tax rate by around 10%, so we did have a one-off benefit around $700,000, and we restated some of our deferred tax balances over there, so if you back that out, we're back to more like a 30.8% effective tax rate, and I think going forward it should be sort of around that sort of level, certainly won't continue at that low tax rate for Q1, but around sort of 30.8% mark.

Okay.

And can you comment on where you think [comdiagnosis] is going to come out?

Yeah.

Again, there was a discussion, a panel yesterday, and I don't want to give any investment bank a free kick, but the consensus was that it will happen, and if you ask me, I am saying it is about 75% sure.

Why do I say that?

First of all, it is the rumor mill, which is never very accurate, but second, when NCDs are looked at and normally when CMS makes a decision, they rarely reconsider it within a five-year period, at least that's what we've been told.

This is about two years, and it would seem that there is some feeling within CMS that portal monitoring is a sensible way to go.

Now, if you look at the prevalence of sleep disorder breathing versus, say, type-2 diabetes or asthma, and if you use that as kind of a model, you cannot even imagine a circumstance where every asthmatic patient for a ventolin dose had to go and see a pulmonologist or a respirologist, the system would just collapse.

And the same is also true if one looks at diabetes.

I mean, management of diabetes is really mostly primary care physicians, internists, and so forth.

The specialists see the acute exacerbations, so when the dam actually breaks and the sleep market starts to mature, people will be begging for portable monitoring.

We see the growth potential beyond the current structure, where you have the structure of DMEs and HMEs, they'll still be very important going forward, but we see that that paradigm could -- has to change really because it is just not set up for scalability, and portal monitoring will become part of it, and I am pretty sure we're on the right tack there.

When are these things going to happen?

Obviously a favorable NCD ruling is going to be right in the sweet spot.

The question is, how prescriptive or restrictive will that be?

And that I think is really where we're very, very unsure.

Now, clearly the AASM, the American Academy of Sleep Medicine who opposed, very adamantly opposed portable monitoring, one might say there is a little conflict there because of lot of the members of the AASM actually own their own sleep labs, but my comment to that would be you're much better off fishing in the Pacific Ocean than Lake Ontario.

In other words, have you these big nets, you pull in all sorts of other sleep disorder problems, and it will be a different mix than what the labs are currently addressing.

There will be much more narcolepsy, catoplexy et cetera, and also complex sleep apnea, which is really the space where that ought to be treated in the sleep lab, so the easy low hanging fruit, if you like, will be taken care of, I think, outside the current structure.

But look, that's just blue sky.

I think, yes, it will be approved.

I could be wrong, obviously.

I don't know, but I would say it is a 75%-er.

What would be the concern is how restrictive is that and is CMS trying to keep everybody happy, in which case, if it is very restrictive then, you know, it is not going to really advance the field.

Thank you very much.

Thank you.

Your next question is from the line of Joshua Zable of Natixis.

Go ahead.

Hey, guys, thanks for taking my question.

Hi, Joshua.

Just wanted to get more color on the S82.

I am surprised no one else asked this earlier.

I know you went into a little detail about the technology.

I am trying to understand -- the name obviously of the S82 would indicate it is in the same footprint as the S8 but the name changed as opposed to one of those fancy names you usually give it, maybe it's more than that, just not technology, I don't know.

Can you give me more color on it?

Yeah.

The naming is always one of these things, you know, why isn't it an S9 and so on, but it is the same footprint, and I guess that's what really determined in most people's minds, the consensus if you like, to call it an S8, but it is a really completely redesigned motor.

It is really -- I mean, mean, I was in Europe and Sweden for the European Respiratory Society meeting towards the end of September, and we had the guys there had done some demonstrations in Switzerland and Austria, and two sleep physicians, our sales guys, and the reports back were just incredibly encouraging.

This is one quiet unit, but in addition to that, with the redesign of the internal, in particular the motor, the breathing characteristics are just absolutely stunning.

You know, breathing in and out, there is virtually no change at all in the pressure.

In other words, some devices, you go back years ago, you get swings of 5 -- 4 to 5 centimeters breathing in and breathing out.

It was just awful impedence.

This thing is almost zero impedence.

It is quiet as a mouse.

We're really -- I mean, you can believe your own dreams to a certain extent, but I talked to the Austrian and Swiss guys who did the demonstration, and this is a great product.

I guess what I am trying to understand is the way to think about it, sort of as the highest end of the S8 family or is this going to be -- even though it is the same footprint, is this going to replace the S8 and sort of the same way the S8 took over for the S7, the S82 in a similar footprint but now you get all the different features of the various S8 models but on a much quieter model.

Joshua, if you want to buy quite a few of the older versions, we can probably help you out.

Yes.

The characteristics will flow through all of the S8 family, and we think it is going to be -- it is going to be really well received as I said, so yes, it is going to flow through all the family.

And frankly we're excited about it.

And this is Kieran, just to add a little to Peter's comments, when you say substantially the same, Josh, this is actually the same.

From the outside of the box, you're not going see a difference other than some of the labeling.

We're using the same box that -- we can get scale opportunities on that, so you can use the same accessories.

It is seamless from a customer perspective, but it has a totally new engine in it.

And the second thing to note is it hasn't been released yesterday in the U.S.

or in the Americas.

It doesn't come until later in the fiscal year, so we'll see that impact later on.

This product is absolutely incredible.

The engine, as Peter was noting, is quiet.

It is capable, and it allows an increase in functionality.

In fact, the the breathing characteristics, just to follow on from Kieran's comments there, are just so much better, even though the S8 is a great product, the breathing characteristics on this just kind of knock your socks off.

It is a bit like taking a Porsche -- getting a Porsche Turbo and putting a chip in it, and going from 450-horsepower to 600-horsepower.

This is really a swish unit.

Great.

And then just on [SAN], can we get an update?

I know I usually ask this once a quarter.

We'll have to wait until [lassie] comes.

The wrinkles are out of the VS Series, the Ultra, the Integre, et cetera, it is coming off the blocks nicely.

We're happy with that.

Still some work to do on the 150, 250 and 350 Elise'e.

Everything is moving in the right direction.

Kieran, you might want to comment because you just were over with the European leadership team, but it was a good -- [the same] was a good buy.

We did get a few more surprises than we anticipated.

We were locked in, as I said in previous conference calls, to not expanding the customer base, and we're getting ready now to go beyond that.

Kieran, you might want to say a few words.

I think what you said is right on target.

We're making very good progress on the quality side.

We're moving a substantial portion, in fact all of it by the end of the year of the VS production down to our plant in Sydney because the technology has stabilized to the point, and the quality levels have risen to the point, where we have the ability to do that.

So it is a very encouraging sign from both quality and from the ability to increase capacity.

And quality levels particularly the Elise'e 150 have increased dramatically.

The team is making very, very good progress on it.

The business itself has grown in double-digits so we're quite pleased with it.

And just to add one more thing there, the 150 is obviously the main line product.

The 250s and 350s are more your hospital-based products, so the 150 as a portable ventilator is where we want to be with a nice big screen, very customer friendly.

If the thing works the way it is supposed to work.

Great.

That's the more important one.

Thanks, guys.

Your next question is from the line of Andrew Goodsall of UBS.

You may proceed.

Good morning, team.

I just wanting to get an indication --

Good meeting yesterday, Andrew.

Yeah, great, glad you came along.

We really appreciated it.

Try to give me a bit of information on what sort of contribution Adapt SV had made to this result.

Yeah.

We're seeing -- we don't break down products into how is X, Y and Z going, but it is double-digit growth.

Okay.

Great.

Thanks very much.

All right, Andrew.

There are no further questions at this time.

Excellent.

Thanks.

All right.

So why don't we wrap up the call.

Peter, do you want to do the wrap-up?

I think we've probably exhausted everything, Kieran, unless you want to say goodbye to everybody.

I am happy to say goodbye.

Sounds like a good idea.

Thank you for all your interest today.

Thanks very much, guys.

Thank you for your participation in today's conference, ladies and gentlemen.

This does conclude the presentation and you may now disconnect.

Have a wonderful day.