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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 10,000 plus 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 and that is the AirSense 10 range. Our masks and accessories business also had another strong quarter, delivering double-digit global growth in that category as well. 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 players, 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 to 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, of 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 sleep 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

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

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.

[Operator Instructions] 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. Got it. Got it. Yes. We've -- if we look at it, you think about it, we sort of take our -- if you like revenue kind of straight away in the quarter, but there is typically about a quarter's lag where we see some benefit from a weaker, say, Singapore dollar and Aussie dollar, for example. So that sort of helps us going to Q3 but we still have some of that Euro weakness coming through. So my expectation on gross margin will be relatively neutral on our gross margin and we'll get in a slight benefit, if you like, on a headline basis through 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 is 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 a great growth. I don't think there is a huge material impact from specifically the new

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?

Yes. So thanks for the question, Lyanne. The short answer is no. We haven't had any of that sort of one-time stocking. We did talk last quarter in Q1 about Japan where we launched the AirSense 11. And so Q1, there was some stocking in Japan because that is a sort of fleet management business of our main distributors there. But no, in Q2, none of that. We do not believe the ResMed will have any impact to us on any tariffs when you hear -- and I sit on the Board of AdvaMed, so I'm carefully involved with Washington, D.C. and Brussels, and Beijing from that group. But we have a Trump-ready group and we were looking at the tariffs. And as we see them, even if there are blanket tariffs on China, there'll be no impact on ResMed, we manufacture in Sydney, Singapore, Atlanta, and beyond. And so none of those will be included. It may impact one of our competitors from China as they import to the U.S. through Florida. So if there was a blanket impact on China, it could have a negative impact on them. And if there was a blanket sort of USCA -- USMCA, so Mexico-Canada change from the Trump administration, which could happen and has been threatened. That could impact a competitor from New

Great. Thanks, Mick.

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, it's actually -- it's a great question. And as you noted in your question, there is a limit to sort of the physical space that you can have in the infrastructure required for in lab -- sleep labs. And many of them are at capacity. As you've seen, just the awareness of sleep health and breathing health, people are thinking a bit about it and asking questions and going to see the primary care physicians getting referrals. We want to make sure that sleep lab capacity remains at full usage but is focused on the more sick and more severe patients. So, patients who might have central sleep apnea, they need to be in a sleep lab because then they can diagnose their inability to breathe, which is with an open airway, which is central sleep apnea, and get them a prescription for something like adaptive servo-ventilation, one of our high-end therapies that can help ventilate the patient with an open airway. Also with Overlap Syndrome, if patients have COPD, they need to be in one of those labs because they're probably going to put them on a bilevel or non-invasive ventilation therapy to ventilate the patient and account for the obstruction if they have Overlap Syndrome. And if they have concomitant insomnia, as I talked about in the prep remarks that is now called COMISA, the physician may use CPAP or APAP or bilevel for their obstructive sleep apnea. And right now, most of the options are only pharmaceutical options for the insomnia part but watch this space for the future there. To your point, in your question, you said scaling the home sleep testing part, that's the part that can flex and that's the part that can flex quickly with this new demand. And even large teaching hospitals like right here in California down the street, there is a large teaching hospital that has very large in-lab setup, but they also have an infrastructure of home sleep apnea testing equipment and that they've got the ability to scale the number of tests that can happen. For those who are at high risk for general garden variety obstructive sleep apnea, those patients should be primarily a funnel to home sleep apnea testing. And so as we get this new flow of patients, ResMed's challenge is to do this demand capture, curation, and conversion and to partner with the sleep labs and the home sleep apnea testing companies. And many of them are one and the same so that they can flex to keep this new demand and to make sure a patient doesn't wait months for a test, but waits days and no longer than weeks. And so we saw during COVID a great flex around home sleep apnea testing when labs were just closed and hospitals weren't allowing patients for outpatient. And so we know that it can work. We've created the infrastructure with ApneaLink Air. We've launched our product called the NightOwl, which is a very small sort of fingertip-sized home sleep apnea testing product and we have partners out there using that. We're open to all of the other diagnostics from Knox Medical. We partner with them in Europe. And so our goal will be to make sure that every time patients come into primary care physicians and get that prescription and that desire for a home sleep apnea test that a sleep physician is available to serve, whether it's in-lab for the more complicated patients and for home sleep apnea testing for the triage of the vast majority of patients that have obstructive sleep apnea alone. So we're ready. We're partnering with the channel. And as I said, over the coming one, three, five quarters, we'll roll out the infrastructure, the one, three, five years, we'll start to see the benefit of the scaling of the patients through there. It's a great question about the infrastructure. Thank you, Laura.

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. Thanks for the question, Craig. And yes, our residential care software business includes, MEDIFOX, Brightree, and MatrixCare brands, and beyond, you know, Sidus Medical and others. We don't break out annually or even on a quarterly basis our -- the breakdown of what flow there. I can give you some trends though. Look, as Brett said in his prepared remarks, our MEDIFOX team are doing very well. Our German home nursing and nursing home software business is growing very strongly. So it's ahead of that group growth of 8%. And Brightree is doing very well sort of in line in that high-single-digits. And some of the sort of skilled nursing facilities and senior living facilities post-COVID have never really picked up the rate of growth that they'd had before. And so we're looking -- as we look at those businesses, we look at that as a portfolio management approach and we're investing more and more in the growth parts of the business. Obviously, huge synergies back to our core business in Brightree ReSupply, Snap technology. And so we're investing a lot in Brightree and Snap. And as I said in my prep remarks, scaling Snap for all, which will increase our software as a service residential care software -- core growth, but also will help us maintain momentum in our mask growth in the core market as well. And so we're seeing good growth there. And in some of the lower-growth areas, we'll probably invest less in those areas. And so that sort of portfolio management, I think we guided to high-single-digit growth for our residential care software business. I have guided to double-digit growth in net operating profit and we are achieving that within our residential care software business. And so that's where we're really looking at. Meeting or beating that market growth of high-single-digits and then making sure that we get leverage through SG&A and R&D to strong net operating profit growth in the double-digits there. But it's a good question and it's something we look at very carefully in portfolio management across residential care software. I'm working very closely with the residential care software teams, the leaders of the Brightree, leaders of MEDIFOX, and leaders of our MatrixCare brands to make sure that we're investing in the right areas. And where there is the most potential to lower costs, improved outcomes, and the most synergies with our core ResMed business. Thanks for the question, Craig.

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

Yes. Thanks for taking my questions. I guess, want to ask one on the device growth. I mean, it was double-digits. Do you think that's representative of the growth in patients? Or are you getting some kind of pricing benefit up there on top of that? And then -- or is there something maybe happening with rePAP where that's starting to pick up?

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.

Thank you. Thank you.

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

Yes. Thanks for the question, Anthony. And look, you and the other great sell-side analysts here know the pharmaceutical side better than I do. I'm a global expert on medtech and particularly respiratory medtech. You're better on your own research and your team to know what's going to happen with -- if Lilly got

Thank you.

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.

Look, no, it's a great question. And if you look at the nearly 21 billion nights of respiratory medical data that ResMed has in the cloud, the more than 30 million patients that are part of the AirView ecosystem. The 9.3 million patients that have downloaded the myAir app, we've got a treasure trove of information and we have absolutely -- it's all de-identified, it's private, it's cyber secure and we really focus on really looking, as you said, on that research. We have peer-reviewed published data showing a 39% reduction in mortality for patients who are CPAP adherent versus not in our ALASKA study. We have a lot of data that we've shown in improvements in cardiovascular outcomes, reductions in blood pressure, improvements in HbA1c for metabolic control, and beyond. But to your point, I think, given the awareness that's going to be driven by the pharmaceutical companies coming in here, we have to drive more and more of that. So I've challenged our Chief Medical Officer, Carlos Nunez, and his team to increase the velocity and the qualities, velocity is speed plus direction. So not just the speed of clinical research to market from our real-world data, but the direction that it is more focused on outcomes, really showing and we peer-reviewed published this, that is a dose-response relationship between the use of CPAP every night and the lowering of healthcare, all-cause healthcare cost outcomes. So for every hour of sleep using your CPAP, you have a 7% reduction in total healthcare costs for that patient, all the way up to seven hours of sleep, so up to 50% reduction in all-cause costs. And so the more and more ResMed can not only get those data but get those data and put them into the Intermountain Healthcare system, put them into the Kaiser Healthcare system, these great payer providers, Kaiser and beyond. And actually, the mortality data was done with the French government on a social security database, the ALASKA study. The more we can do that in Western, Northern Europe where you've got government-run insurance programs that really do focus on long-term outcomes because the government is the payer for the life of these citizens. And so we're going to have more and more data, watch this space. We are the market leader in digital health and I would say, publication of real-world data and real-world evidence in the field of MedTech and you're going to see more and more from us. And it will only be increased in the momentum with big pharma starting to invest with things like SURMOUNT-OSA showing combination therapy is better than single therapy as well. So more grist for the mill. Thanks 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. Thanks, David. And as you know, you followed us for a long time too, that there is lots of aspects that go into just the quarterly snapshot. Like clearly, we have a very strong position, we have very strong competition, we have very strong position in the U.S., in Europe, and in Asia. But we do have competition and so we are able to take share. And we are able to disproportionately partner with our physicians, home care providers, and distributors, and beyond where they are able to do better at growing share. So we partner and provide technologies like Brightree and AirView that helps identify patients for ReSupply. And that helped us get -- haven't really talked about it much, but our U.S. mask growth was 12% in the quarter, which was really strong too. And so those Brightree ReSupply and Snap technologies are really strong. But on the device side, look, yes, a couple of 100 basis points ahead of market, how much of that was -- some of that demand gen work, how much of that was high deductible health plans and what we can do with patients there in the December quarter, how much was rePAP. We have the splits around those. We know the levers that we can turn and we're going to -- what our job is to really, I think in these megatrends is to work out how do we sustainably, incredibly. To an earlier question about infrastructure, make sure that the new patients coming in aren't held in a do-loop, in terms of the time from referral to a sleep specialist to getting that diagnostic and then getting to therapy. And that sort of process optimization, I think is a way that we can maintain that type of momentum. But there are many other aspects, and we -- yes, I mean, I said this earlier, but I think we're in the very, very early stages of seeing any flow from these other big megatrends, but we have to be ready to capture those patients as well. So it's kind of a complex sort of portfolio management approach to demand gen capture and conversion, whether it's existing installed base with ReSupply and rePAP and new patients. And that balance for both devices and masks, I think we're getting down to a pretty good science on it. We did very well this quarter and we'll keep on focusing for 2025 on the long-term investments we're going to need to make in infrastructure and capabilities to capture, convert, and ensure a really good experience for the person as they go from sleep-concerned consumer to a happy patient on therapy for life.

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.

Yes. Thanks, Brett. Yes, the -- that we sort of guide about 59% to 60%, we're at sort of the low-end there. We certainly got initiatives in place, we want to continue to improve the gross margin. So certainly that's our aim as we work through the second half of FY25. But we think it will be in that range of 59% to 60%. There is a lot of optimization initiatives we're working on. Three key areas is manufacturing, there's procurement initiatives, just scale benefits as well. The progressive transition to the AS11 platform is well played out. Some of the swing factors on there will be things like product mix as well and kind of how favorable or unfavorable that is. Freight, which has stabilized, you know, do we see some benefits in the second half that's probably still a watch and wait. And as we roll out new products as well, that tends to help. So there is a bunch of factors that play out on, that can impact the timing of when these benefits come through. But our priority is to have a good healthy pipeline and then we can deliver that pretty consistently and that should support our gross margin on kind of like a medium-term view, if you like, rather than quarter-by-quarter.

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

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.