瑞思邁 (RMD) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen.

Welcome to the first-quarter 2012 ResMed Incorporated earnings conference call.

My name is Regina, and I will be your operator for today.

At this time, all participants are in listen-only mode.

Later, we will be conducting a question-and-answer session.

(Operator Instructions).

Today's conference is being recorded for replay purposes.

The Company has asked me to address certain matters.

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

Second, during the conference call, ResMed may make forward-looking statements such as projections for 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 now like to turn the call over to Dr.

Peter Farrell, ResMed's Chairman and Chief Executive Officer.

Dr.

Farrell, please go ahead sir.

Thanks Regina.

Thanks everybody for joining us.

I'll begin with some summary comments and then turn the call over to Brett Sandercock, and then we'll take questions.

I might bring some of the other guys in as needed.

First, the finance, we finished with what we think is a very solid quarter.

Global revenue grew 12% to $315 million, or 8% on a constant currency basis.

Revenue in the Americas grew by 9% year-over-year to $169.3 million and ROW revenue increased by 15% to $145.5 million, which was 7% on constant currency basis.

US GAAP EPS decreased to $0.33 for the quarter, but let me quickly mention this was primarily impacted by Forex and Brett will go into that in a little more detail, but it was a significant impact.

If we exclude amortization of acquired intangibles, the hybrid EPS was $0.35, which matched First Call's expectations.

In looking at product category performance, let me start first with masks and accessories.

The results in this category continue to perform well across the globe and we continue to take share.

The three new mask offerings, the FX Trilogy, the Quattro, the Mirage and the Swiss FX continue to do very well.

We also just recently launched versions of all of the FX series masks for winter in our "Choices for Her" program.

This popular family of masks, which are lightweight, unobtrusive and comfortable, offers female friendly versions of all three categories with putting and comfort auctions especially with women in mind.

I believe we are the first company to design a mask simply for female patients.

We also launched the first pediatric mask in the industry developed specifically for the treatment of sleep disordered breathing in children, in this case age two and older.

This is not just a scaled down adult mask.

Every feature of the new Pixi was designed to address and improve comfort acceptance with both child and caregiver in mind.

With the new Pixi nasal mask, we now have three options to meet the needs of children with sleep disordered breathing.

By combining the new Stellar 100 ventilator with the Pixi nasal mask, we now offer an ideal pediatric therapy solution, particularly in either a hospital or institutional care setting.

One reason we continue to see strong growth in masks and accessories, other than our new products, is that, even in this very challenging economy, there is excellent business in the resupply or replenishment of masks to existing patients.

We're working with our customers, the HMEs, to leverage this significant business opportunity.

Now, moving to devices, global growth in sleep therapy devices was mainly driven by sales of the S9 AutoSet, as well as our adaptive Servo ventilation offerings, the VPAP Adapt and the AutoSet CS.

Growth in the rest of the Flow Generator segment was problematic, especially in the low-end products, as was reported for the previous couple of quarters.

This continues to be a challenging environment, especially in the Americas as everybody knows in the med-tech space, but on top of that, we had tough comps and in addition the Q1 for us, the September quarter is always a challenge because of France and Germany vacation issues.

So it's a difficult macroeconomic environment, but one of the key reasons for some impact on the topline was that we chose to walk away from business because it was uneconomic.

So in other words, we intentionally left significant potential revenue on the topline, we left money on the table, but we think it was the right call.

However, while Flow Generator sales were softer than expected in the Americas, Europe still posted fairly good results.

A few weeks ago, ResMed introduced the S9 AutoSet for Her within the -- as I've already mentioned -- the "Choices for Her" program.

Offering a quiet comfort of the S9, the Easy-Breathe motor and the enhanced AutoSet algorithm, the S9 AutoSet for Her ensures the sleep environment for the woman will remain quiet and peaceful.

In addition, there is the H5i, the humidifier, the heated humidifier with climate control, which also has been designed for her in mind.

It's also interesting to note that we think the timing on this makes a lot of sense because the latest statistics show that 40% of the newly diagnosed sleep patients are actually women.

This quarter, we've also taken the initiative to engage existing patients through personalization of CPAP devices.

In this case, we have an exclusive agreement with a company called Skinit that makes, literally makes skins for various devices, iPods, cell phones and so on.

Skins represent a unique way to personalize the device, to get SDB patients more intimately connected with their machine, which we hope or anticipate may even help to drive compliance.

Skins may also create a way to help patients reconnect with therapy and potentially bring them back to treatment if they're being noncompliant.

Therapy adherence not only drives patient health, which is the primary goal, it is also a good business as it provides an accessories revenue stream for the HME and may also provide consumer pull for ResMed products.

Thus far, even though we're only a couple of weeks into the skins program, or the Skinit initiative, thus far physicians and HMEs both are incredibly enthusiastic for the product.

In short, with S9 products for her, Skinit and Pixi, we continue to address the needs of a wide range of patients suffering from sleep disordered breathing.

Now let me switch to ventilation.

Sales of the Stellar 100 and the 150 continue to grow progressively in Europe and parts of Asia.

But as people would understand, it takes time to launch a new product, but Stella is meeting our expectations.

We recently highlighted the Stellar 150 with live apps at the European Respiratory Society meeting in September and we'll launch it globally around the end of this calendar year.

Both these products will also be launched in Asia.

Our first sales will be in December for the 150 and then later I should say in early in the calendar 2012, we will be releasing the Stellar 100.

Of note, the Stellar 150 includes -- I mentioned iVAPS, which is our new automatic bi-level mode.

The success of the Stellar is another positive indication of our continued progress in product development and we're very satisfied with the way it's been received.

As people would be aware, we have signed an agreement with CareFusion.

Their team went through training in late September, and we've had feedback that they're fairly enthusiastic about the Stellar products.

As announced in August, we also acquired Grundler Medical GmbH, a German developer and distributor of humidification products.

We are delighted with the acquisition.

The integration is going well and we just launched the latest product, the HumiCare D900, also at the ERS in September.

This product has additional innovations in terms of its ability to produce high levels of ventilation in a quick time frame.

There is considerable excitement around this product, and we are fairly optimistic.

It also nicely positions us in the hospital environment, and we are now looking at distribution channels and how we might integrate them to make this product available worldwide.

A controlled-product release is planned for this product HumiCare D900 later this quarter.

Another small acquisition was BiancaMed.

The integration there is going well.

We met with a large consumer products company in Japan last week.

The technology from the BiancaMed product called a sleep monitor will be launched as part of a wellness program.

In fact, it's not just a Japanese consumer products company which is well known, but also an extremely well known US consumer product brand.

That will happen towards the end of this calendar year and early in 2012.

On the home sleep testing front, in the Americas commercial payors continue to steer HST with the requirement of power prior authorization for tendered PSG or polysom-nography.

In short, HST is being encouraged and the momentum continues with major payors steering providers to this diagnostic procedure.

We are now beginning to see trends where payors are moving towards utilization management of positive airway pressure devices as a result of removing diagnostic barriers.

We see a continuing uptick in the adoption of HST.

So let me also add some final flavor.

I mentioned being in Japan last week.

I was actually at the World Sleep Congress, and was delighted to see that Japanese cardiologists and endocrinologists are embracing sleep disordered breathing to the extent that they are actually integrating sleep diagnostics into their practices.

Given the prevalence of SDB and cardiac disease and type II diabetes [illness], this seems to make a lot of practical sense and it will be interesting to see if this is adopted by other countries, particularly the US, Germany and France.

At this point, I'll turn the call over to Brett who can provide additional detail on the financials and then we'll take your questions.

Brett?

Thanks Peter.

As Peter mentioned, revenue for the September quarter was $314.8 million, an increase of 12% over the prior-year quarter.

Currency movements added approximately $10.6 million to our Q1 revenues, so on constant currency terms, revenue increased by 8%.

Income from operations for the quarter was $60.9 million, a decrease of 8% over the prior-year quarter.

Net income for the quarter was $50.5 million, a decrease of 11% over the prior-year quarter.

Diluted earnings per share for the quarter were $0.33, a decrease of 8% over the prior-year quarter.

Compared to the prior year, unfavorable currency movements reduced the September quarter EPS by approximately $0.08.

If currency rates remain consistent with the prior year, earnings per share would have increased by approximately 14%.

Gross margin for the September quarter was 58.8%, up sequentially from Q4 FY '11.

On a sequential basis, our gross margin benefited from improvements in manufacturing and logistics costs and favorable geographic mix, partially offset by unfavorable currency impacts.

Looking forward, for the balance of FY '12, we expect gross margin to be in the range of 58% to 60%, subject of course to currency movements.

We continue to execute on initiatives targeted at reducing product costs through supply-chain efficiencies, product design, and manufacturing improvements.

SG&A expenses for the quarter were $94.2 million, an increase of 11% over the prior-year quarter.

In constant currency terms, SG&A expenses increased by 5%.

SG&A expenses as a percentage of revenue was 29.9% compared to the year-ago figure of 30.1%.

Looking forward and subject to currency movements, we expect SG&A as a percentage of revenue to be in the range of 30% for fiscal year 2012.

R&D expenses for the quarter were $26.2 million, an increase of 33% over the prior-year quarter.

In constant currency terms, R&D expenses increased by 18%.

R&D expenses as a percentage of revenue were 8.3% compared to the year-ago figure of 7%.

Again, looking forward, we expect R&D expenses as a percentage of revenue to be in the range of 8% for fiscal year 2012.

This reflects both the strong Australian dollar and continued investment in our product pipeline.

As a result of several acquisitions this quarter, amortization of acquired intangibles increased to $3.8 million for the quarter, while stock-based compensation expense for the quarter was $7.2 million.

Our effective tax rate for the quarter was 24% compared to the prior-year quarter effective tax rate of 25.9%.

The lower tax rate reflects the benefit of lower effective tax rates in our Singapore and Australian operations.

Looking forward, we estimate our effective tax rate for fiscal year 2012 will also be in the vicinity of 24%.

Turning now to revenue in more detail, overall sales in the Americas were $169.3 million, an increase of 9% over the prior-year quarter.

Sales outside the Americas totaled $145.5 million, an increase of 15% over the prior-year quarter, with currency movements having a positive impact on revenues.

In constant currency terms, sales outside the Americas increased by 7% over the prior-year quarter.

Breaking out revenue between product [sigmas], in the Americas, flow generator sales were $72.3 million, a decrease of 2% over the prior-year quarter.

Our growth this quarter was adversely impacted by negative growth experienced in our lowering CPAP segment.

Masks and other sales were $97 million, an increase of 19% over the prior-year quarter, underpinned by strong contributions across our portfolio of masks and continued growth in accessories.

For revenue outside the Americas, flow generator sales were $98.7 million, an increase of 12% over the prior-year quarter, or in constant currency terms an increase of 5%.

Masks and other sales were $46.8 million, an increase of 21% over the prior-year quarter, or in constant currency terms an increase of 12%.

Globally, in constant currency terms, flow generator sales increased by 1% while masks and other increased by 17%.

Cash flow from operations was a record $89.5 million for the quarter, reflecting strong underlying earnings and working capital management.

Capital expenditure for the quarter was $12.9 million while depreciation and amortization for the September quarter totaled $20.4 million.

During the quarter, we completed two previously announced acquisitions, BiancaMed Ltd., a leading Irish medical technology company, and Grundler, a specialist medical humidifier company located in Germany.

The integration of these acquisitions is progressing well and to plan.

We continue to buy back shares as part of our capital management program.

During the quarter, we repurchased 4.35 million shares for consideration of $124.7 million.

Just to put that into perspective, that represents almost 90% of the volume of shares we repurchased in our previous full fiscal year.

At the end of September, we had approximately 18.1 million shares remaining under our authorized buyback program.

Our balance sheet remains strong.

Net cash balances at the end of the quarter were $476 million, while at September 30 total assets stood at $1.9 billion, and net equity was $1.5 billion.

I'll now hand the call back to the operator for your questions.

(Operator Instructions).

Matthew Prior, Merrill Lynch.

Good morning guys.

Good morning Peter.

Good morning Brett.

Just a quick question in regards to the growth rates.

It's going to be I think the focus of today's results, given the slowdown you've seen at the low end.

Can you talk to I guess, Peter, whether that growth rate of 7% that you spoke to last quarter has changed, and if so try and split that out between the US and Europe in terms of industry growth rates before we move on I guess to the individual product segments?

The 7% figure, 6% to 8% we think is still the right number.

We're kind of optimistic that maybe we'll see an increase as we go forward.

There is no guarantee there, but we think that was about what it was for the quarter just finished.

Europe may be a tad higher than that, 9% to 10%, so 6% to 8% and 9% to 10%, all let's say ROW.

I think those numbers are the right ones.

The low end again, just to reiterate, we walked away from some business.

We could have increased the number of flow gens.

We looked at it and said that's not business that we really think would satisfy our shareholders.

So we did leave revenues on the table, but not much money if you like.

So our numbers don't really reflect the growth rates in that sense at the fixed CPAP level in the US.

As you saw in ROW, the growth rate was pretty reasonable with the flow gens.

We see, as I say, possible that number will increase in the lap of the gods, but we are reasonably optimistic.

Thanks Peter.

I guess breaking it down into kind of the basic CPAP and APAP and [buy] level, you know putting APAP to one side, it seems to be trucking along nicely.

Can you talk to what is the factor that is driving that kind of low-end CPAP business?

You talk about walking away from some of the potential revenue you could have generated there.

Your gross margin is stronger than I think most of us expected.

So what was it that drove you to walk away from that business?

Was it that it represented an unsustainable margin, so you didn't want to get into that game of maybe a lower ASP?

Was it that the actual underlying patient with a co-pay issue wasn't willing to step up, and that was affecting ASP?

Can you give us more color around (multiple speakers)?

I think the equation is a complicated one, and we're not sure loss of COBRA and co-pays and all that sort of thing has an impact.

But we're seeing very much growth in the APAP space.

So there are still people out there going onto treatment, and there is certainly, with the push by the payors and the HMEs feeling more comfortable driving HST, there's no question that there is a fill-up there, there is a significant jump.

If you go back last year versus the year before, it's gone from about 4% to 10%.

We think our latest figures -- and again, they're a little rubbery -- is that 20% of the patients going onto treatment are actually from home sleep testing, HST.

So there's no question that's increasing.

Therefore, that will impact obviously fixed CPAP.

There is business in the fixed CPAP area because let's face it -- if you're a DME or an HME, you're not going on treatment and you're getting a fixed amount of money.

If you're not looking appropriately at the business in terms of replenishment and looking at issues such as compliance, there's no point in putting a patient onto a device and then having them become noncompliant, because that way their health is impacted.

The insurance company loses.

We lose, and so does the HME, DME, because they don't get the benefit of the replenishment, the annuity which goes with patients who remain compliant.

So our pitch is, look, don't buy cheap, because in fact it doesn't make economic sense, let alone sense in terms of patients' health.

But there's no question that there is an economic malaise in this place.

Everybody is aware of that.

I don't want to get into a political discussion here; I'll try to avoid that.

But things could be better, put it that way.

I think they will improve in time, but we're happy with that 7% figure.

The reason we walked away from that business is it was just uneconomic.

We just -- you're always tempted to make deals, but once you start on that slippery slope, there's no getting off it.

I guess the second part of that question which was the bi-levels, can you talk to whether your bi-level share is still recovering, so we (technical difficulty) expect to see (multiple speakers)?

We're really chuffed, as it were, by the growth in adaptive server ventilation, because we went from the S7, which was really like a car battery to some people I guess, but put that technology into the S9 was obviously a burn.

The same is true of the bi-levels.

We are into significantly in the double digits in the bi-levels.

In fact, we are where we expected to be, or hope to be with bi-level sales.

However, at the low end, as I mentioned last quarter, we're seeing some loss of bi-level S business.

That is the noncompliant LSA, because, frankly, the S9 AutoSet is so good that -- I was with a guy on the weekend, we had a ResMed Foundation Board meeting and one of the physicians who is on that board was telling me again that he has gone from something like 25%, 20% to 25% noncompliant CPAP on the bi-levels down to close to 5%.

So I don't know how representative (inaudible) equals one.

He also told me that because of the performance of the S9 AutoSet, and he reckons everybody should be on an S9 AutoSet, and mind you we're on the same page there, so do we.

But he was saying that his use of awake drugs like Provigil, Nuvigil and so forth has also dropped significantly.

In other words, he's not seeing as many sleepy patients, and he's not seeing as many noncompliant patients.

I suspect that's true across the board; we don't know that for sure.

But I think that's also impacting that.

But again, overall the bi-level market, we're into double-digit growth and we're quite happy with where we're positioned.

Thanks very much.

Ben Andrew, William Blair.

Good afternoon.

Following up on that question, if you talk about walking away from business, what's the effect of that?

Somebody obviously is coming in and taking that business.

So how do you turn that around, or do you end up conceding that low-end segment of the market increasingly over time?

It's the sort of thing that you face at the end of a quarter, and how much do you want to bend over?

If I'm a DME or an HME -- and we've done a little bit of market segmentation and we've looked at our customers.

The ones that tend to come in by saying, hey, listen, we'll buy a certain amount from you, but here's the price.

They tend to be less driven by the patient concerns, if you like.

I'm not saying they're completely irrelevant to them, but it's more on the basis of, hey, I'm getting paid X for a machine, I'm prepared to pay you Y.

What do you think?

You look at that, and you say do we do deals?

Yes, we do.

Everybody in the business does deals but there are some deals that you just simply say no, that doesn't work for us.

Now, this thing does vary quarter-to-quarter.

But there's no way to predict -- I think we can get some of that business back or still continue to sell to those people, but it's not something that -- we're not -- put it this way, we're not that concerned about it.

We prefer to sell on quality and performance, and we're happy with that space that we're in.

Is this at all similar to the situation, what now, four years ago where Respironics sort of cut price in a material way so they undercut the typical delta of maybe 10% between your product and theirs, and that delta became 15% or whatever and you eventually had to sort of take a step function change?

You know, it's not at a level as it was four years ago; it's not quite at that level.

It's not across the board.

That was more of a global thing.

This is more of selected customers in selected areas, if you know what I mean.

Then finally and I'll jump off.

If you try to build up kind of underlying patient volume growth, Peter, and then maybe mix in price for us to get to that market growth, how would you think about those three pieces?

Thanks.

That's a bit complicated.

Don't jump off the call.

So we're saying the revenue growth is around 7% is the way we [both] in the US market and it's a little higher than that, maybe 9% ROW.

Now, we believe that, within the US market, there is going to be a continuing trend.

I mentioned a figure of 20%.

That's where we think it is now.

20% of all patients going on the treatment now in the HST space, so we see continuing -- we are optimistic about growth in APAP, in the AutoSet.

We still think it's going to be soft in the fixed CPAP.

It will still be around because a lot of the guys out there, there's a certain segment who just buy on price.

There are plenty of others who buy on how well is the patient going to do, and how we're satisfied they're going to remain compliant.

But it's very hard.

Can you just let me -- give me a bit more understanding of your question?

I'm trying to understand to get to that revenue growth number of 7%, are you talking about patient growth of 7%, mix at 10% and price minus 10%?

Oh, I think -- well, it's hard to know.

Look.

I'll go with the 7% revenue and I think you're probably a little bit ahead of that with patient growth, but we have factored in and always have for the last X years that we expect a 5% across-the-board hit in price.

It's not far off that, frankly.

Okay, but that's including (multiple speakers)

Yes, it's just a little more complicated with HST and with APAP and so on, that trend we're seeing there, it's probably been with us for a few years.

You go back a long time and volume would generally be higher than revenue.

So it's more complex now with these sort of trend with inflow gens it seems to be heading towards higher end as well, at least how we see it.

But Peter is right.

In terms of ISP declines, it's traditionally been around that mid-single digits.

Thank you.

David Clair, Piper Jaffray.

Good afternoon everybody.

I guess the first question guys, maybe we can just talk about kind of trends in the quarter.

Is it something that it just really kind of continued to decline throughout the quarter, or get slower throughout the quarter, or was it just kind of a steady lower growth throughout the quarter?

No, it's -- we're not selling direct to consumer, so we don't have total visibility, if you like, David.

Let me say again about ROW that since our second and third-biggest markets are Germany and France, there is always a softness, a predictable softness in the first quarter because August is your vacation month, and basically labs shut down, physicians take off.

Let's face it.

This is not a heart attack; it's an elective procedure and you're not likely to be putting the patient at risk of losing their life, at least not in a high-risk sort of way.

So there is that softness there, so that can explain the ROW numbers because of the size of the German and French revenues in our mix.

As far as the US goes, as we said, we're seeing this continual trend with adoption of HST across the board, and we expect that to continue.

With respect to growth, look, we have generally in the quarter -- the last month is always bigger than the first month.

And so it's very hard to tease out growth rates.

It starts low and finishes pretty quickly, and we've seen that for years.

We try to get away from that and have sort of a balance -- it'd be nice to have a third, a third, a third, but that's just not the way the system works.

Often at the end of the quarter, there's not exactly a hockey stick, but there is substantially more product sold in the last month compared to the first month.

That -- we see that trend.

We don't particularly -- we'd prefer it to be different, but that's just the way the system is.

That seems to be the way the HMEs and the DMEs buy.

They stock up at the end of the quarter, start slow and then run out of inventory and start buying again.

It's like that's the cycle.

Okay.

Just to go back to that comment about that you walked away from a little bit of business in the quarter, can you just give us a sense of is this something that's fairly common or is it -- has it kind of picked up in this quarter or last quarter?

Any commentary you can give there?

If I go back -- and maybe Brett, I'll throw you under the bus on this one -- but let me just make a comment.

There are a couple of deals this quarter just finished that were unusual to me.

This -- there's always deals at the end of a quarter, if you like, but if it becomes too crazy, we just say fine, good luck and have a nice rest of your life.

But Brett, do want to comment any further?

Yes, it's just in that commercial environment then you get -- there's potential deals or opportunistic things that come up.

What you've just got to do is you've got at those and you've got to balance that against what you're looking at doing in the longer-term as well rather than trying to get yourself into sort of a 90-day sort of mentality is to really look at that and look at the sustainability of the business and where the trends are and just look at it and look at it on its merits.

Then I think it's a judgment call on what you're prepared to do and what pricing you're prepared to take.

Okay.

That 7% market growth figure that you guys gave, can you split that into flow gens and masks, what you think the overall markets are growing there?

We haven't actually tried to get granularity there; it would be difficult to do.

But if I had to take a guess, the flow gens are under 7%, a shade under, and the masks would be a shade over.

Put it this way.

It's an easy call to make because trailing revenues, the machine, give or take, is the five-year project, whereas a mask is a three to six month project.

So you're always going to see -- since you've got a fairly big base of patients out there that are being resupplied, you're always going to see much faster growth or a higher growth with the accessories and masks.

That's just the way it is.

You might replace your machine every five years.

Okay.

Then Brett, what's the manufacturing in Singapore now?

What percent?

We're ticking -- we're basically pretty consistently ticking up and it will be around a third of our production on a blended basis would be in Singapore now.

Again, we expect that to increase over the course of the year as well.

Okay, thanks guys.

Michael Matson, Mizuho Securities.

I guess, first of all, just wondering if you could quantify the impact of currency on your earnings per share in the quarter?

I'll throw that to you, Brett.

I thought Brett had handled that Michael but --

That's okay.

It was $0.08 (multiple speakers)

Is that positive or negative?

Negative.

Negative.

What was it last quarter?

$0.02 negative?

Yes, I think from memory it was $0.02 $0.03.

All right.

I guess I was just wondering if you -- what your views are on the Respironics Auto IQ product?

It seems sort of an interesting strategy.

It's unclear how well it will do, but I guess I'm a little worried that it could kind of derail the full AutoSet market, or auto setting market by offering a lower-end product that has some of the benefits of auto setting, at least in the home testing arena.

I hesitate to say smoke and mirrors, but look.

I might say that if (inaudible) I'll throw it to Don, would you like to comment on that, Don?

Yes.

We're watching this awfully closely.

It's an interesting play, but again when you think about how the HST space is going to unfold, we think it will be an interesting commercial move at the lower end, but I just don't see at this point the big impact that they're hoping for.

I think we're going to -- we'll follow it through and measure it as it goes, but at this point I'm not seeing it as a big deal.

Then can you disclose what you paid for BiancaMed and the other acquisition?

Sorry, the name is escaping me here -- that you did in the quarter.

We normally don't -- I think it's there's --

We give [aggregate] number in the 10-K.

There's an aggregate number.

Our 10-Q will be out a little while which will show that as an aggregate amount for [that] acquisition.

That's fine.

We didn't bet the farm, if you like.

They were fairly small.

They're fairly small.

Together they're well under $50 million, put it that way.

Can you walk through the timing on the BiancaMed product launch again?

Well, we bought BiancaMed because we were working with them.

As you know that, well, you may not know, but we initially invested in them.

We had 12% of them back in 2003, and we've kept that at that 12% level until we finally pulled the trigger and bought them.

There was a VC who was interested and they basically wanted us out of the front row.

Obviously, if you're a VC, you want as best you can get at an auction.

They didn't want us getting any sort of special treatment.

We have been working with BiancaMed with the Chinese wall, if you like, and we're interested.

As you know, two of the areas we're interested in are COPD and cardiovascular disease, and in this case specifically congestive heart failure.

So we were using -- we [were] developing algorithms in COPD for acute exacerbations and in CHS space for acute decompensation.

Now these -- given the cost of putting a CHF patient or a COPD patient into hospital, it's tens of thousands of dollars.

The algorithm we're working on and we're getting there is to give us forewarning, if you like, of respiratory disturbances, decompensation in the case of heart failure and exacerbations in the case of COPD.

We really wanted to make sure we own that technology.

So that was the real reason for buying when we did, because the VC was about to pull the trigger.

Now, having said that, when we did more of a deep dive, we found that they were getting into the consumer space, and they're dealing -- in fact there were considerable discussions with four major players in the consumer space.

They're extremely well known names which I'm not at liberty to mention now.

We've already sold some devices to one of these, and that's a Japanese company.

There was another Japanese company that's expressing an interest and there are two fairly big US companies that are expressing interest.

We thought that this was really kind of an interesting potential, and the more we heard about it, the more we liked it.

It positions us in a quite different space, and I guess where we'd like to be is that if you get on the Net and put in sleep apnea or sleep disorder breathing, ResMed pops up and starts flashing at you.

We're not at that point yet but it would be nice to think of that as a possibility.

Okay.

Just one follow-up on BiancaMed and then I'll be done.

So the revenue opportunity with this acquisition, is it in this consumer element of the business, or is it more back-end loaded in some of the longer-term more medically-oriented products that they're developing?

It's very hard to predict the consumer items.

They can take off.

You've been on an iPod or when you look at iPads, iPods, and everybody wants one and bingo, you have this massive -- the stores are all jammed with people.

The play in all of these spaces is wellness.

It's wellness connected with whatever else the company is pitching.

Wellness now is becoming -- it's not just nutrition and it's not just physical fitness.

It's sleep.

People are waking up to sleep, and these big consumer companies are saying if people are waking up to sleep then we want a piece of that action.

I could see either way, Michael.

This could take off in the consumer space and we'd be delighted if that were to happen.

Our main interest, however, is in COPD and CHF, and it's as an enabling tool.

In other words, the COPD patients will be put on our devices and the heart failure patients will be put on our devices.

The means to that is using BiancaMed technology.

So that's the main reason, but gee, if this other stuff happens, we'll be delighted.

Okay, thank you.

Dan Hurren, UBS.

Good morning.

I just wanted to ask (multiple speakers) masks.

You've got a couple of masks at -- the high-performing masks that are now coming up to sort of anniversary date.

They've been a year old and the gel mask has now been out there for two years.

Can you talk about the growth profile of those masks can and should we expect an annualization and a drop-off from this?

Good question.

That's one for Don.

Right now, we're not seeing anything (inaudible).

In fact, most of our mask lines are increasing.

We have a lot of mix shift in certain areas, but there's nothing changed on those products at this point.

They're actually probably tracking a little higher than we would have budgeted.

I guess to give it a bit more flavor with the Trilogy, the FX products, we were getting hammered a bit in the nasal mask category.

Whilst we've always had the drop on everybody in the full face mask and on the pillows, we did see a drop-off in the nasal category, and the Mirage FX has really turned that around.

But that's -- but apart from that, Don is right.

This is -- it's always been encouraging, our mask products, the sales, and we're happy as we've ever been with the offerings.

Thanks.

Just another question (inaudible) the low end CPAP point, but can you talk about this sort of -- the business you walked away from, are you talking about a gaggle of smaller customers or medium-size customers or larger customers?

Where does this sort of price pressure come from?

What type of customer?

I prefer not to go there but you can probably guess that it's less the smaller guys and more the bigger guys who can afford to leverage you a bit more or feel they can.

Just to clarify a point, I think I heard before you're talking about this kind of pricing dynamic continuing for the rest of financial year '12?

No, not necessarily, no.

(multiple speakers)

So you think this pricing pressure will be alleviated?

Look.

We're not seeing any ogres out there in the marketplace.

Look.

This always comes up.

All the time people focus in on pricing, whether it's competitive bidding -- let's talk about competitive bidding.

That's was on the last four or five calls.

In the markets where competitive bidding has been used, we have not seen any material difference in our business.

so price pressures will always be there.

Hell, if I am a guy buying your products, I'm always going to try something on you.

Why not?

But we generally have been pretty good about saying, look, Here's where we'll go and that's kind of it.

That happened in this quarter a little bit more than what we're used to, but we don't see this as -- a sign of this being something that's going to continue for the future.

Hey, it might, but there's no real indication that it's going to continue.

Yes, I guess I'm just trying to understand what's changed.

You're right.

You've always been very upfront about the cost and price decline (inaudible) and price decline you've seen and as always been there.

I'm just wondering what's changed this time around?

(multiple speakers)

It's just a couple of deals at the end of the quarter, and you just say you know what?

Forget about it.

That was it.

58.8%, we are really delighted with the 58.8% gross margin.

Absolutely.

-- given what we thought it could be.

Now we can take that down quite easily and really drive the top line, but that's not the game we are in.

I understand.

Thank you very much guys.

David Low, Deutsche Bank.

Thanks very much.

Maybe if we just switch topics, the buyback, Brett, perhaps, could you talk about what your plans are there?

Because certainly as you said in the lead-in comments, that you're well ahead of the rates of historic rate.

Sure.

On the buyback we did refresh the buyback back in August with a $20 million share buyback program.

So we're working through that, and we've only just -- (inaudible) $18.1 million left there.

So it's -- I mean it's not -- I wouldn't give specific guidance on it but I think you can say that we're likely to be more aggressive than we were the previous year in terms of the buyback.

The intention is we'll work through that authorized buyback.

But the timing at this stage -- I don't think we can be too specific on it other than to say that we intend to work through that authorization.

So this recent quarter is the best guide to the rest of the year?

Yes, (inaudible) quite a bit, and I think it's safe to say we'll definitely continue to buy back, and we'll certainly buy back at the absolute minimum, whatever gets diluted out of employee comp issues, for example, and equity issues, so we'll do that at a minimum.

I think you can see that whilst it might not be 4 million shares a quarter, I certainly think we'll be buying back more aggressively.

And we probably averaged around $1 million per quarter last year, and I think you can say, look, I think we'll be more aggressive than that.

Great.

Just switching to mask sales, I think there was a comment there along why mask sales are actually ahead of your expectations.

When I look at device sales growth slowing down, is there any risk that we see as the install base or as the install base of ResMed products, the growth rate slows, that has a read across to the masks and the replenishment programs?

I don't see that as a real -- look.

If you look at the bigger picture and you look at the prevalence of sleep disordered breathing in the various comorbidities, I would see any slowing in the growth as a reflection of the general economic malaise rather than anything to do with sleep disordered breathing.

The prevalence in these areas, whether it's type II diabetes at 80%, the real question is -- and congestive heart failure 80% -- the real question is when do you -- at what level of AHI, apnea-hypopnea index, do you treat these patients?

As we look at the clinical data that are being developed, it's very clear that the earlier you treat, the better off you are.

So we're in the prevention space.

It's a great space to be.

You save money.

We're putting a lot of emphasis now on health economics in order for us to work with the payors and say, look, if you invest in this upfront, you're going to save this as you go forward.

The returns -- the numbers we're looking at, you get a return within one calendar year.

So we're in such a good space.

So it's easy to look at what's happening currently in the marketplace, but I -- it's a blip I think.

This is a very healthy business.

We're glad we're in it, and it will be interesting to see how the next couple of quarters unfold.

I'm not a soothsayer, but we feel reasonably confident with where we are.

We do.

I guess (inaudible) asking a related question.

We're seeing mask growth in the US average more than 20% over the last couple of years.

My presumption is that's on the back of replenishment programs, which has been a fantastic trend and certainly well ahead of what we had anticipated.

My caution is can that be maintained?

Is the replenishment opportunity, is the mask the patient opportunity not being closer to being saturated now that it was, and therefore that growth rate at risk of coming back?

I'd love (multiple speakers)

I'll just say a word about that and Don Darkin can come in if he feels like it.

But when we've look at the numbers of the -- the number of masks that have been sold per patient per year, we are staggered at the potential to do more business.

In other words, when we have looked at it, it's been about 25% of the potential.

So in other words, there's a fourfold possibility there just in the current space.

Putting it more specifically, patients generally will be reimbursed for a mask every three months or every four months, depending upon who is paying.

The number of masks per patient per year is closer to one than four.

So, there's a lot of potential there.

I don't think -- do you have a more recent figure, Don?

No, we've still got a ways to go even to come close to one [cut off].

I think we're seeing these increase slowly as we put effort into this.

We have our own teams now working on this in an education way, both in the business and in patient usage, and we're seeing it move up slowly, and plenty to go.

So in short or in summary --

[Isn't] that hard to reconcile with the $0.07 growth that you're talking about, given that we've seeing 20% growth in mask (multiple speakers)

No, we're talking new patients there pretty much.

Yes.

Okay great.

Thanks very much.

Joshua Zable, WJB Capital.

Hey guys, congrats on a nice quarter.

I know it's not your typical quarter, but that's what you guys get for spoiling us for so long I guess.

We're not unhappy with it.

Good.

Just a couple of housekeepings and then I sort of want to go back and hash out one quick thing.

So just a couple of housekeepings.

First of all, Brett, on your assumptions of the Aussie dollar, I know it's had a crazy move around.

It was at $1.10 when you gave guidance just as far as sort of you gave us your expectations for the year, kind of what you're assuming because it's been all over the place, so that's the first housekeeping question.

Are you asking me for prediction on the currency?

No, I'm just asking, based on the sort of guidance you gave, what you're assuming for the Aussie dollar.

Yes, (inaudible) it was around the $1.02 to $1.03 mark for the Aussie against the US.

Great.

Then just point of clarification, Peter, I know you talked about the ventilation business in the US.

Just to be clear, so you have not sold anything in the US yet?

That will start sort of the end of this year and then into calendar 2012, just for clarity?

Now, we haven't done material sales; we've made sales to CareFusion.

The first few units have gone out, but Geoff Neilson is sitting beside me so maybe he can give you a little bit of a flavor of what he expects or hopes for.

So we've just done some initial stocking orders to CareFusion.

Their stock, it's selling as of earlier this month to institutions.

And Stellar 100 is also available to home care providers, but that's not material.

That's just on a real niche to do with pediatrics or patients that need such a high [part] product in that segment.

Great.

And then just Peter, not to beat a dead horse here, I know obviously everybody is asking about the generator growth.

Now that you obviously have the benefit of hindsight of a couple of quarters, generator growth obviously hasn't been spectacular for the past few quarters.

I know we talked about sort of the bi-level kind of being a hole in the product line.

Now you're kind of talking about the low end sort of pricing and walking away from deals which I think we all appreciate and understand.

I guess I'm trying to -- and you're also sort of talking about you don't expect it to continue going forward.

Obviously, your competitors have acted irrationally in the past.

I guess I'm trying to reconcile.

If I look past, has sort of this been going on and now you kind of started to comp up against it, and so that gives you more confidence that you don't have it?

Or I know this sort of happens at the end of the quarter, so it's difficult to predict, so while you might not be seeing it today, is there something that gives you confidence that there was something going on there that made them aggressive at the end of this particular quarter that might not happen next quarter?

I'm just trying to reckon -- I think everyone is trying to reconcile exactly sort of what happened sort of this quarter versus the past and maybe why it will be different going forward, or if we should account for that (inaudible) the next couple of quarters until you sort of comp up against the sort of lower end, you're going to struggle there?

I think the trends we can have some confidence in.

We see the HST to AutoSet just continuing.

It looks like it's 100% year-over-year.

Does that mean it's going to be 40% next year?

It's the sort of thing that could really, really take off.

The mechanics are if you're doing HST, you're not -- you're unlikely to be going to fix (inaudible) simply because you're not bringing the patient in to do a titration.

So we're reasonably confident that the HST is going to go forward at a reasonably quick rate.

We can't guarantee that, but that's what we're seeing.

The reason is if you put a patient through a sleep lab, it's inconvenient, it's ineffective and it's expensive.

If you want to put a number to it, say $6000, wait a couple of months versus $2000, get it done immediately.

We also know that there's 30% attrition, so patients that are given a script to go to a sleep lab, because of the time frame and the difficulty in certain parts of the country in getting onto the list, they say the hell with it, and I've got to get a kit bag and I've got to go to the lab, etc., etc.

So the HST to AutoSet, because of its convenience, cost, and so forth, we see that continuing.

Now, as for the sort of [inverted] (inaudible) crazy deals and so forth, we have seen this stuff before.

It was just that towards the end of a quarter, a couple of these deals came through and we just talked about it and said, you know what?

We ain't going to go there.

So that was it.

I don't see this as a big deal.

I think it's just something that -- try on, something that happened that's just the way the world is.

I don't see it as a trend.

Then just you mentioned HST, and this is my last one.

I saw today that the president of the AASM sort of proposed new guidelines for how to center testing.

I wasn't sure if you got a chance to look at that and if you (multiple speakers)

No, I haven't seen it.

Okay, so I was just wondering if there's anything sort of changing there, but all right.

I'll go back and bug you about it later.

By all means, e-mail, etc.

But that I haven't seen the AASM.

But it's not a surprise.

They've understood that this is happening, and they want to be able to be in the [cat bird seat], I guess.

They see themselves as the protector of the realm, and they would like to see that they are setting the standards.

I assume that's it.

It's going to be a big ask for them because they're -- unless everybody who diagnoses patients have to have -- have to be a board sleep member, I think they're going to have trouble doing what they want to do.

But I don't blame them.

Certainly, it's not unexpected.

I knew it was in the hopper, that they were developing standards for -- they don't call it home sleep testing.

They call it --

Out of lab.

-- out of lab testing, which is (multiple speakers).

Anyway, I won't comment further on that.

They're trying to rile you up, you know?

Thank you.

Yes, they're having some success.

Thank you for taking the questions.

Congrats again, guys.

Thanks.

I'd like to thank our analysts today for participating in the question-and-answer portion of today's call.

We are now at the one-hour mark, so I'd like to turn the call back over to Dr.

Farrell for his final remarks.

I think we've had plenty of remarks.

I'd like to thank everybody for being on the call and thank all the ResMed people for working so hard.

With that, I'll close the proceedings.

Thanks all.

Ladies and gentlemen, this does conclude the presentation.

You may now disconnect.

Have an excellent day.