Agnes Lee - Senior Director, IR Mick Farrell - CEO Brett Sandercock - CFO Jim Hollingshead - President, Americas Rob Douglas - President and COO.

Matthew O’Brien - Piper Jaffray David Low - Deutsche Bank Chris Kallos - Morningstar Anthony Petrone - Jefferies Saul Hadassin - Credit Suisse Margaret Kaczor - William Blair Joanne Wuensch - BMO Securities Andrew Goodsall - UBS Steve Wheen - JP Morgan Sean Laaman - Morgan Stanley Matt Taylor - Barclays.

Welcome to the Q2 Fiscal Year 2016 ResMed, Inc. Earnings Conference Call. My name is Susan, and I will be your operator for today’s call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Agnes Lee, Senior Director of Investor Relations. Agnes, you may begin..

Thank you, Susan, and thank you for attending ResMed’s live webcast. Joining me on the call today are Mick Farrell, our CEO; and Brett Sandercock, our CFO. Other members of the management team will also be available during the Q&A portion of the call.

If you have not had a chance to review the earnings release, it can be found on our website at investors.resmed.com. I want to remind our listeners that our discussion today may include forward-looking statements, including but not limited to statements about future expectations, plans and prospects of the Company, corporate strategy and performance.

We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause actual results to differ materially from those in the forward-looking statements are detailed in filings made by ResMed with the SEC. I will now hand the call over to Mick Farrell..

One, the business is aligned with our long-term ResMed 2020 drug strategy; two, we can leverage the asset to increase ResMed shareholder value; and three, really importantly, that there is a cultural fit between the business team and ResMed.

We clearly hit and nailed all of these three criteria with our acquisition of Inova and our acquisition of Maribo. And we will continue to refresh our acquisition radar screen with further growth opportunities as we move forward.

We are the global leaders in sleep apnea and respiratory medicine, not just in market share but more importantly in products and solutions innovation in connected care. We remain excited as we build the road ahead for our industry, our partners, and most importantly for patients all around the world.

With that, I’ll turn the call over to Brett for a more detailed review of our Q2 financials.

Brett?.

Thanks, Mick. Revenue for December quarter was $454.5 million, an increase of 7% over prior-year quarter. In constant currency terms, revenue increased by 13%. Movements in exchange rates, predominantly a weaker euro relative to the U.S. dollar, negatively impacted revenue by approximately $21.7 million in the second quarter.

At a geographic level, overall sales in the Americas were $269.5 million, an increase of 17% over the prior-year quarter. Sales in combined EMEA and APAC totaled $185 million, a decrease of 4% over the prior year quarter. However in constant currency terms, sales in combined EMEA and APAC increased by 7% over the prior year quarter.

Breaking our revenue between product segments, Americas flow generator sales were $136.5 million, an increase of 23% over the prior year quarter. Masks and other sales were $133 million, an increase of 11% over the prior year quarter.

The revenue in combined EMEA and APAC, flow generator sales were $123.5 million, a decrease of 4% over the prior year quarter, but in constant currency terms an increase of 6%. Masks and other sales were $61.4 million, a decrease of 2% over the prior year quarter, or in constant currency terms, an increase of 8%.

Globally in constant currency terms, flow generator sales increased by 14% while masks and other increased by 10% over the prior year quarter. During the quarter, we incurred restructure expenses of $6.9 million associated with rationalizing our European R&D and manufacturing facility.

These operations have been integrated in their existing largest care locations. Restructure charge consists primarily of severance payments and an asset write down of a legacy manufacturing facility.

Additionally, during the quarter, we released $2.4 million of an accrual associated with our SERVE-HF field safety notice activity, as we substantially conclude the obligation arising from the field safety notification. During the rest of my commentary today, I’ll refer to non-GAAP numbers.

The non-GAAP measures exclude the impact of restructure expenses and the SERVE-HF accrual released in the current quarter, as well as the amortization of acquired intangibles, both in the current year and last year. We’ve reconciled the non-GAAP to GAAP numbers in our second quarter earnings press release.

Non-GAAP gross margin for the December quarter was 58.1%. On a year-over-year basis, our gross margin contracted by 410 basis points, reflecting an unfavorable product mix, declines in average selling prices, and an unfavorable geographic mix partially offset by favorable net currency movements.

However, on a sequential basis, non-GAAP gross margin improved slightly increasing from 58% in the September quarter.

Given current exchange rates and taking into account the current trending products and geographic mix combined with the impact from our cost out programs and our recent acquisitions, we continue to expect gross margins to be in the range of 57% to 60% for the remainder of fiscal year 2016. Moving onto operating expenses.

Our SG&A expenses for the quarter were $118.2 million, a decrease of 4% over the prior year quarter. In constant currency terms, SG&A expenses increased by 4%. SG&A expenses as a percentage of revenue improved to 26% compared to the year ago figure of 29%.

Looking forward and subject to currency movements, we expect SG&A as a percentage of revenue to be in the range of 26% to 27% for the remainder of fiscal year 2016. R&D expenses for the quarter were $29 million a decrease of 1% over the prior year quarter, but in constant currency terms an increase of 14%.

This increase largely reflects incremental investments across our R&D portfolio. R&D expenses as a percentage of revenue were 6.4% compared to the year ago figure of 6.9%. 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 remainder of fiscal year 2016.

This reflects our ongoing commitments to investing in our diverse product pipeline including informatics solutions, but also a benefit of the weaker Australian dollar in which the majority of our R&D is denominated. Amortization of acquired intangibles was $4.4 million for the quarter.

The increase over the prior amortization expense of $2.2 million reflects the additional amortization associated with our recent acquisition. Stock-based compensation expense for the quarter was $11.5 million. Our non-GAAP effective tax rate for the quarter was 20.5% compared to 21.1% in the prior year quarter.

Looking forward, we estimate our effective tax rate for the full fiscal year will be in the range of 20% to 21%. Non-GAAP operating profit for the quarter was $116.9 million, an increase of 5% over the prior year quarter. Non-GAAP net income for the quarter was $97.5 million, also an increase of 5% over the prior year quarter.

Net income for the quarter was $9.5 million. Non-GAAP diluted earnings per share for the quarter was $0.69, an increase of 6% over the prior year quarter while diluted earnings per share for the quarter was $0.64.

Overall, foreign exchange movements positively impacted second earnings by $0.04 per share, reflecting the favorable impact from the weaker Australian dollar, partially offset by the weaker euro.

Cash flow from operations was a record $147.4 million for the quarter, this reflects strong underlying earnings and an improvement in the net working capital balances. Capital expenditure for the quarter was $12.9 million while depreciation and amortization for the December quarter totaled $21.5 million.

We continue to be active on the capital management front. Our Board of Directors today declared a quarterly dividend of $0.30 per share, additionally during the quarter we repurchased 700,000 shares for consideration of $40.1 million.

At the end of December, we had approximately 13.6 million shares remaining under our authorized share repurchase program. During the quarter we completed three international acquisitions, Curative Medical based in China; Maribo Medico, our distributor in Denmark; and then a precision tooling company located in Sydney.

These acquisitions were funded by utilizing our existing cash balances. Additionally, this month, we announced the definitive agreement to acquire Inova Labs. Inova Labs is a U.S. domiciled entity and this acquisition will be funded by utilizing our existing credit facility.

We expect to include Inova Labs in our consolidated results in the third quarter of fiscal year 2016. For the rolling 12 months ended December 31, we returned 84% of free cash flow to shareholders through dividends and repurchases. Over the last five years, we’ve returned 98% of free cash flow to our shareholders via dividends and repurchases.

Our balance sheet remains very strong. Net cash balance at the end of the quarter was $257 million while December 31 total assets stood at $2.2 billion and net equity was $1.5 billion. And with that I’ll hand the call back to Agnes..

Thank you, Brett. We will now turn to Q&A. And we ask everyone to limit themselves to one question and one follow-up question please. If you have additional questions after that please get back into the queue. Susan, we are now ready for the Q&A portion of the call..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Matthew O’Brien of Piper Jaffray. Your line is open..

Good afternoon. Thank you so much for taking the questions. I was hoping to start off on the generator side and the performance in this quarter again very, very strong.

Just curious as far as what you’re seeing in the marketplace with this product now out there today, are you guys competing head to head? And if so, it seems like you’re continuing to be very successful. Is that a trend that we should expect going forward..

Thanks for the question, Matt. Yes, that allows us to talk about our Air Solutions portfolio and AirSense 10 and how it fits in the market. I’ll have a first go and then I might hand to Jim Hollingshead to talk a little bit about Americas business and what’s happening there with the AirSense 10 launch.

So, as I said in the remarks earlier, we have had competitors follow us into the space with the cloud-connected devices.

We think our offering is superior because it’s 100% cloud-connected and requires a channel to do nothing other than plug it in and breath, and in the morning the data go to the cloud, and then can be accessed by the patient on myAir or the physician on AirView or the payor provider through an API from Air Solutions.

And we think it’s a really strong value proposition taking up to 60% of the labor costs out of the channel for them. And it’s just a really important improvement to their P&L. And it’s really embedded in their workflow and becomes something that they are doing well.

We believe in competition; we like healthy competition; and we like the fact that our competitors are looking to compete on value offerings, not just in the flow generators segment but in the masks segment and looking to compete with technology. And so, as we look forward, the market growth rate is in the mid to high single digit numbers.

We like to meet or beat market growth rate; we don’t except it, we drive beyond that. That’s sort of where we are at.

But Jim, anymore color on the Americas?.

Thanks Mick. We are very confident in our offering. I mean the AirSense 10 and AirCurve 10 platforms have been very, very well-received. We have taken lot of -- we’ve taken a significant market share and the Air Solutions inclusion in that.

So, as Mick is saying, I think we’ve now clearly proven to our customers that we can drive efficiencies in their business with the platform. So that’s a very compelling offer, remains a very compelling offer, even in right of competitor launches. We obviously have big comps that we are going to work through.

And so your question was about sustainability, we intend to continue to grow our program, position above market growth rate. But given the share we’ve taken, I don’t think that’s sustainable indefinitely, [ph] the growth rate you’ve seen this quarter..

Okay, thank you.

And as a follow-up, talking about the Inova acquisition, just curious as far as where they were selling historically and where you can take that device fairly quickly? And then the investments that you’re going to need to make in support of it, is activity pretty sizable and then how does that business affect the financial make up of ResMed? I think that the gross margin profile and operating margin profile likely be somewhat of a headwind going forward..

Thanks Matt. The Inova acquisition is a great opportunity for us; it’s our first foray after 26 years of positive airway pressure, noninvasive ventilation, and dental treatment, so our first foray into portable oxygen concentrators.

And it’s a great technology, has great mobility and gives great freedom back in terms of the battery life and the weight of these portable oxygen concentrators. Yes, when you look at our scale and selling into 100 countries, Inova currently sales into five to maybe 10 countries.

So, you’ve got a 10 to 20x multiple, just on the number of geographic countries that we can move into. And so, we are really excited about it.

I might ask Rob -- Rob Douglas, our COO, President and Chief Operating Officer and I were touring the plant in Austin last week just before JP Morgan and it was great to walk around and see all the team and to get a feel for the innovation.

Rob, any further comments as to the investments and what we need to do going forward?.

Yes. I mean obviously Inova is at a scale not where ResMed is at but they are at a scale that ResMed use to be at. And so, walking around the factory, there’s lot of a very similar approaches to what ResMed have taken in the early days.

And we know that we can actually share a lot of experiences and working and integrating those teams, we can really accelerate the development of way that -- way those products go and how we take them into the market. Huge amount of opportunity there, really good cultural fit; it’s going to be very exciting for us all to work in that area..

And your next question comes from the line of David Low of Deutsche Bank. Go ahead, your line is open..

First, I just had a question around pricing, I mean really there has been the experience of competitive bidding round two and what that led to and how the manufacturer process, just wondering what your experience has been as we head into international roll out of competitive bidding?.

Thanks for the question, Dave. Competitive bidding has been in play for almost seven years now, CB1, CB2 and then the national expansion that is going on, as we speak from January 1 through July 1. So, these obviously have had an impact.

We have talked about that over the last number of quarters on our customers, and we have worked with our customers to make sure that we can help them approve the efficiencies of their P&L and drive to a profitable growth through all of this in the value chain so that we can continue to serve patients and invest in infrastructure.

A lot of our investments around Air Solutions are about taking 50%, 60% of the cost -- the labor cost out of the channel and so therefore improving the P&L. Obviously acquisition price hold [indiscernible] are in their P&L as well but when you’re able to take 60% of the labor cost that frees up a lot of cash for reinvestment in their business.

And it’s really bringing a technology solution into apply. I would characterize the pricing environment as historic normal and what it has been over the last number of many years. We don’t go to quantitative detail of that for competitive purposes, but I’d say it’s at historic normal levels..

I think to follow up on the same topic, I guess what I’m looking for is a little bit of comfort that what we saw with right round two where I think your commentary was quite similar at this after just announced that we’re not -- or that you’re comfortable that we’re not going to see [ph] the dynamic with the competitors I think in -- the competitors push pricing down and raise ResMed in due course followed.

Are you concerned that there is a risk of that playing out gain or....

Yes Dave, I can’t predict the psychology of other players in the market. I can tell you what we’ve done and what we continue to do, which is we bring technology into play that improves the P&L for our value chain. And we really understand how that value chain operates.

And we’ve got embedded into the workflows and really helped partner with industry to take those costs out. And we will continue to do that in the future. Other players in the marketplace have followed and produced similar technologies.

We don’t think they are quite as good but they’re doing similar things which is looking to take labor costs and inefficiencies out of a system.

And frankly, together we aimed our competitors in the space, are fighting the real competitor, which is frequent [ph] in the hospital and getting those patients with sleep apnea and COPD rather than going back to the ER taking care of them by product on bedside table and using data from that to get back to the hospital system, back to the API system, so that they know that they kept out of play..

[Operator Instructions] Chris Kallos of Morningstar is on line with the question. Please go ahead. Your line is open..

Great, thank you. Thanks for taking my question.

I just wanted to ask in light of the acquisitions and Inova in Denmark, how does that affect your CapEx going forward? Can you provide some you guidance on that?.

Brett, do you want to take that question?.

I mean it’s the CapEx that sort of run at around -- let’s go to sort of run rate 13, 14, 15 in the quarter something like that. In terms of Maribo, it’s very much a distributor, so it’s not a lot of [indiscernible] product that one, so I don’t see too much impact there.

To move to things like Inova, probably be a small uptick but pretty negligible, fairly small operation at the moment. I think the big one on that in terms of investment, they’re not big; where we’ll incrementally put some money I think is in R&D, really think we can turbo-charge those products and them very effective.

And obviously with our distribution channel capability, what we can bring to the table, we very much think that we can grow that business very nicely. So, pretty -- some small investments but nothing significant..

And just a follow-up on the R&D in Inova, are you planning on keeping that domiciled in the U.S.

and how does that affect your 6% to 7% forecast on R&D?.

Rob, do you want to take that question maybe or -- we have Rob, why don’t you go first and then maybe Brett can answer..

We’re still working on integration plans and finalizing how that’s going to work. But we don’t see in the short-term major moves. It’s a really good team in Austin, who really know the stuff around that and they have confidence and we’re very keen to maximize the value of that.

In terms of ongoing [indiscernible] made a short-term bit of investment in the R&D, but long-term that shouldn’t change how we think about the right level of investment for R&D for our overall business..

Anthony Petrone with Jefferies is online with the questions. Please go ahead. Your line is open..

Great, thanks a lot. One quick for Brett and then I’ll follow-up with the question on just some CMS news that was coming out late last year. Just Brett on the acquisitions in the quarter, they were three that -- one was we were aware of but the other two in terms of distributor work or integration we were not aware of.

So what was the collective contribution just from those three acquisitions in the quarter in terms of revenue and EPS? And then one follow-up. Thanks..

Yes, I mean these are pretty small acquisitions, so not going down to that granularity. I think we did for those ones, not material from our perspective, so we haven’t disclosed too much detail on that..

And then just from a margin perspective, this vertical integration, will that help offset some of the pressures that you’ve been seeing? And maybe just an update on the transition from I guess area of freight charges which was a tailwind that was potentially coming in the second half of this year.

Was there any benefit from that this quarter or do you expect that to be more of a second half event?.

So, just on the first one, it really -- continuing on the acquisitions, they’re fairly small, so that’s kind of around the ages. But typically with the vertical integration for example in the distribution, that would help, that would sort of be if you like help improve your margins or be accretive to your margin for example.

If you look at benefit [ph] example that’s really vertical integration within our supplies and we think we can pick up obviously, it’s for better tooling cost but also improvements in strategically in markets and things like that. So that was what we call it’s not strategic tuck in for us.

If you look at acquisitions such as Inova, and I think we highlighted that at the time, there will be a little bit of dilution to gross margin there.

So that does present a little bit of a headwind but I think the opportunities are so good for us on that on growing that portable oxygen and concentrator market and our share in the product and so on that I think it was quite compelling for us to do so.

We weren’t going to worry about sort of, some sort of myAir margin dilution if you like impact, from not doing the deal, we think it will be pretty compelling in due course. And on the freight side of things, we’re seeing some of that coming through and obviously we will see more of that coming through in the second half as well of the fiscal..

And Saul Hadassin of Credit Suisse is on line. Please go ahead, your line is open..

Thanks very much. Maybe question for Brett as well, on gross margins, jus looking the sequential movement up about 10 basis points. Looking at your mix, product mix, if anything is probably slightly better this quarter than 1Q ‘16. You should had a benefit from a lower Aussie U.S.

sort of line, just wondering was there anything holding back that gross margin uplift? For example what was the reference before so that moved to -- is that still to come through? In terms of your underlying gross margin ex the dilution that might come from the Inova just wondering should you -- should we think sequential gross margin uplift over the course of this fiscal year assuming currently holds where it is? Thanks..

Yes, I mean it’s a little sequentially; we still are seeing an impact on -- negative impact from product mix and also geographic mix. And of course I mean the big standouts obviously you know Americas growth and then the flow generator growth as well, that remains really strong.

So, there’s still headwinds for us but in the frame there’s a whole bunch of other stuff. We had a small uplift from FX, you’re right, that was probably around 40 basis points or so. There’s a bunch of other -- there’s other stuff that plays out on that that can impact you kind of quarter to quarter.

But overall, I guess you’d characterize that as kind of margins pretty much stabilized. And depending on trends, on product mix and geographic mix I suppose the term is kind of where we land within that kind of guidance band that I gave. So, still working on a way on the cost out programs and so on.

We’ve got opportunities there, will flow through into the second half. But then it does -- it depends a lot on the normal product mix, geographic mix, a little bit on the acquisition around the edges, a little of a headwind for us. You’ve got typical declines or mix.

So, that’s all in and I said a lot -- quite a lot, it’s pretty hard to predict on the gross margin when you’re looking at kind of 90-day window.

But overall I think pretty comfortable with that margin even and clearly we’ll work hard to improve that but we’ve got to be realistic on what we’re seeing with product mix and geographic mix and acquisitions and so on. So rest assured we’re working hard on margin improvement..

And just a follow-up on that regarding the ASV sales that you would have not had this quarter, was there any material change to those lost sales relative to the quarter that’s just passed, so relative to 1Q ‘16?.

The ASV sales, as I said earlier, the impact that we saw in Q2 was the same as the impact we saw pretty much in Q1 for Europe. And the impact that we saw in the U.S. was much less than that that we saw in Europe which is again the identical situation to what we saw in Q1, so that you know it’s still going through the P&L being annualized.

The impact of SERVE-HF results from May 2015 and we’re in mid January now, so we’ve got four more months of annualizing that through the P&L and then we’ll be clear with sort of annual cost of the ASV impact in May 2016 here in five months -- four months time from now..

And Margaret Kaczor of William Blair is online with a question. Please go ahead, your line is open..

So just to go back to Inova Labs and that acquisition, obviously they have a good product, they’ve got some good advantages.

But that said, do you have an interest in bringing a new POC to market, that’s up to the same standards as ResMed, similar to what you guys did with Astral and Sans [ph] and should this be a shorter or longer timeframe or are you happy and willing to continue selling the existing products to your customers today?.

Yes, thanks Margaret, good afternoon to you. That’s a good question. It allows us to talk to the longer term play here around Inova.

So, Inova is a strong player in the POC market and they have excellent mobility and excellent freedom that they give back to patients because the battery life is best in class and lasts a very long time, similar to what we do with the Astral, lots of what where did 24 hours of freedom back to patients with that.

Having said all that and as Rob alluded to earlier, there’s a lot of capabilities that we have from our global business in the 26 years in respiratory medicine here that we can bring some skills to the table for the next generation of products in the portable oxygen concentrator front.

And some of that will be some of the engineering around efficiencies, our supply chain logistics, manufacturing, quality reliability and those types of factors that we’ve learned a lot.

But really importantly bringing the capability or the core confidence of cloud based healthcare informatics solutions to the able to put a cloud-connected POC as part of end-to-end across the chronic obstructive pulmonary disease medical device space, so all the way from noninvasive ventilators, life support ventilators and the portable oxygen concentrators and take that data and be able to give pulmonary and critical care physicians or ACOs data that can really help them understand mobility, freedom, breath right and hospitalization rights of their COPD patients to help them improve outcomes and lower cost.

That’s the game. And we do think that we can bring a lot to the table. So the short answer is obviously we like the product, we will continue to sell existing products.

But we like even more the combination of the Inova portable oxygen concentrator engineering with ResMed’s healthcare informatics engraining, what the two combinations, what that synergy could bring..

Okay, then I don’t know if you had talked at all about the timeframe because obviously it took you guys a little bit a time, sense to bring that kind of a product to market, so should we assume it’s within that 2020 timeframe or longer than that?.

You should assume it within the 2020 timeframe for sure. Yes, the difference between stand, we have got life support ventilators where the life cycle of those is sort of six to seven or even up to eight to 10 years. The life cycle of a portable oxygen concentrator is probably closer to that of the C peptide type device or that sort of time horizon.

So yes, we will have a next generation well before 2020..

And Joanne Wuensch of BMO Securities is on line with the question. Go ahead, your line is open..

Could we touch on SG&A please? Revenue was stronger than we expected but you really also pulled in your SG&A; what’s going on there?.

Rob, do you want to just set maybe -- maybe Rob first, Brett and then you can go..

Joanne, actually we’ve got a number of areas that we are working on.

Brett will probably go into few of them but across the board we are running a really strong operational excellence program that not only talks about our products and our supply chain, which we have talked about a lot but we are also moving a lot of that thinking and approach into our SG&A road as well. And so we have done a lot work around the world.

We do run our different countries with different go to market models and so the different programs around the world. But we can really call out the U.S. and Americas teams of pulling a lot of operational leverage in and we have got very strong plans around our European teams.

So, it’s really easy stuff for us to do, in terms of sharing the way some things work nice and easier. And we are taking a view of that we are freeing up a lot of capacity to continue to invest in innovation and really optimizing these acquisitions as well. So Brett, I don’t know if you want to go into little more on some of the areas..

Yes. We’ve adopted to some extent some of the methodologies that they are using with the supply management team and so and being more disciplined around that. So that’s certainly helping a lot and just making sure kind of mindset is thinking to that extent as well in a smart way. And so that’s sort of enabled us to get some pretty solid leverage there.

Obviously if you go back last year running, we had for example AirSense and selling and doing some marketing and some variable compensation, that’s more normalized this year, which has helped us a bit as well. And to some extent, you’re getting some currency benefit as well.

But even if I normalize for currency, we still -- we see around that 27% mark. So, we’d still be in very good shape, some of those savings or kind of holding expenses tight. And then with revenue growth obviously you get that leverage.

So that’s been -- we’ve been working on this for a while and I think it’s just sort of starting to flow through into the P&L now..

And just as a follow-up if I may, I think there is some pricing on Inova clearly going outside of your core OSA type of area into more sort of traditional DME type of oxygen concentrators, what made this be the right acquisition at this time? Thank you..

With respect to -- I’ll disagree that it’s not in our space. Our space is -- ResMed is respiratory medicine.

And what we have done in the field of sleep apnea certainly for 25 years is lead that market, and most recently lead it by taking cost out through healthcare informatics and really showing we can improve the efficiencies of the delivery of this amazing noninvasive ventilation and positive airway pressure therapy to patients in sleep apnea.

We’d already started within the fields of chronic obstructive pulmonary disease with our noninvasive ventilators to help those patients as well, stay out of hospital and get better with COPD through noninvasive ventilation including publication of studies showing that we can actually reduce the mortality rate, so literally save lives of COPD patients with severe hypercapnic COPD with noninvasive ventilation through the current one study that we published.

So the extension through that vertical, if you like of the disease state of COPD into the other medical device that is often used in that COPD space which is oxygen therapy.

Now, we aren’t really doubling down in stationary oxygen, and it does have a stationary oxygen concentrator but it’s actually the only one in the world that the stationary oxygen concentrator can allow a portable oxygen concentrator to connect directly on to it and charge and be there, so that when the patient wants to leave the home.

Because these folks are still active folks with COPD, they can grab the POC and see the grand children, get out to the park and play ball with the grand kids and have the freedom back, which is what POC is bringing.

The total market for oxygen therapy is $1.2 billion or so, of that around $200 million plus or minus is a portable oxygen concentrator market, but it’s that $200 million portable oxygen concentrator market that has very strong growth, mid to high, even low-double-digit numbers growth in terms of year-over-year.

We are really excited to participate in that POC market and to bring our innovation play. And we think it’s a very larger to extension into the vertical of COPD patient treatment and it will become a good -- a great part of our portfolio, not just in the U.S. where it primarily sales now, but globally..

And your next question comes from the line of Andrew Goodsall, UBS. Your line is open..

Just want to pick up on the mask, obviously it’s second quarter now that you’ve achieved quite good U.S. sales.

Just want to understand sort of what’s been behind that; is conversion or I guess better pairings; is again conversion on the compliance rate that data that you’re showing? And then I guess Brett’s probably covered this a little bit, but just how I guess incrementally that continues remarkably that in the margin?.

Okay. I’ll hand the first part of the question. 11% solid growth in masks and accessories in Americas and hand to Jim Hollingshead and then Brett maybe you take the second part of that..

Yes. There is a lot going on behind that mask number, just to be -- try to think about it. And the first thing is the price reductions that we’ve put into place in January to June [indiscernible] now completely annualized. So we’re through that.

And while the market remains, the mask market in particular remains very competitive, we’re into more of a historic norm kind of pricing situation in masks. Our offering remains very strong in particular the AirFit line of masks are very well received and continues to do very, very well in the market.

Our recent buy offerings have driven a lot of growth and that is directly connected to our health informatics offering because the acquisition of the providers that we’re now integrating into a program we called ResMed Resupply and that’s an automated resupply program, it’s part of our HI offering that’s helping to grow our mask business.

And then we’ve done a number of things. We’ve done a number of -- without getting into the tactics, a number of things in marketing and a number of things with sales compensation and so on, and all of those leverages have contributed to the growth we saw..

And what you’re expecting gross margin…[Multiple Speakers].

Yes. Brett, you want to address the -- actually sort of a third question, why don’t you addresss the gross margin and then Jim or I will address the ongoing masks....

So pretty simply, typically mask margins are higher than flow gen margins. So, to the extent you get stronger growth in mask obviously be supportive to group margin. So that’s kind of the pricing masks..

And in terms of where it goes, I think all the activities we have in place would suggest that that’s stable..

Steve Wheen of JP Morgan is online with the question. Please go ahead. Your line is open..

Well, thanks very much.

The question for Brett, just on the FX typically in the positive given some indication on current exchange rates, what the gross margin impact might be going into third quarter? And then also you’ve often provided the FX impact at the impact [ph] line as well?.

Yes. So on gross margin going forward, assuming currently the way they are and they’re particularly volatile at the moment. But we probably sequentially probably get a small uptick but it will be only around 10 basis-point mark Steve, it’d be pretty small sequentially that is point in time.

I mean all the sort of types it will be the trajectory and stays there and probably Q4 you’d see that impact on a sequential basis being a little bit bigger than Q3, but for Q3 I think it would be around 10 basis points. So kind of overall net impact from currencies, I do typically give it on EPS.

And I think even the commentary was around [indiscernible] this quarter, as we’re starting to see some of that benefit from a lower Aussie dollar kind of kicking through, which is offset to some extent by the way to euro, but we are starting to see the benefit from the Aussie dollar now which is great..

And then just final follow-up. In the past, in the last quarter, you guided towards the effective tax rate going down by 100 basis points. You seem to sort of have changed the stats on that.

Could you just give some reconciliation as to what might have changed there?.

It’s seats around the cost of H1, so probably in the vicinity of 20; it’s around that range Steve, on that. And just it varies around with the basically where the geographically taxable income is. And so we continue to have pretty good numbers out of the U.S. and that’s probably sort of moved it up a little bit.

But in the vicinity of that 20%, I’ve just gone with 20 to 21. So maybe sort increase that a shade above where I was thinking from Q1..

And your next question is Sean Laaman on line from Morgan Stanley. Your line is open..

I have a question on myAir, I’m just wondering if there’s any way you’ve been able to track or quantify the uptake and usage patterns from patients and any observable benefit to the company? Thanks..

Great question, Sean. I mentioned that it’s actually now in our investor deck that we’re adding 750 patients per day to the myAir application.

And myAir for those who don’t know is an app that can run on an iPhone or an Android, Samsung or whatever device, portable device where a patient can access and interact with their own therapeutic data from their device and trends and gaming and interaction with it.

And in the same way that many people around the world are now measuring their steps either with a Fitbit or an embedded app in their Smartphone to try and get the 10,000 steps a day and keep the cardiovascular exercise up.

A lot of patients now with myAir are looking to get their score to 100, because we literally give a score out of 100 everyday on how you slept. This includes duration of sleep, probably mask week and efficacy of the respiratory rate and so on throughout the evening.

So, it’s an algorithm, if you like that score the patient’s wellness with regard to sleep and their treatment sleep apnea. We’ve seen incredible engagement from patients on it. I talked about 60% adherence going up to 87% adherence with some customers in the case studies from the JP Morgan presentation.

I’d tell you a big part of that is engagement with the patients through these cloud-based algorithms that interact, email, text, IVR and psychologically work with patients through these cloud-based capabilities. So we’re really excited about myAir and we think it’s a big contributor. And we’re in mile one of a mask on this one.

There’s a long way to go onto the capability for us to engage with patients..

Your last question in today’s question-and-answer session will be from Matt Taylor of Barclays. Go ahead your line is open..

So, I just wanted to ask you a follow-up on the acquisitions because you’re talking about them very excitedly but also they’re immaterial this quarter. You said Curative was about 1% last quarter, so two things.

One is when do they become material as engines more material and then are you going to call them out separately for reporting purposes because most of us just have masks and flow generator models, so it’s hard to recognize..

So, I’ll let Brett talk to the first part of that materiality and then I’ll talk into a little bit as to why we’re excited about the long term..

So, at this stage I mean it’s still not material from accounting stands and even on that aggregate there Matt, so at this stage we wouldn’t -- won’t disclose that in sort of any too much granularity. Now obviously, as we go forward and so on we’ll keep looking at how we report or disclose from a business perspective.

But at this stage we’re going through pretty much the same channels and so on, we’ll continue to basically aggregate that into our results and not try to split that out..

And Matt, just to give you some sort of ballpark on it, we have mentioned that it’s less than 2% of our global revenues, so you can run the math on $1.7 billion that puts it at less than $34 million in revenues. We’re not going to go into exactly what number it is for competitive reasons.

But take that number and then also think about the $200 million marker of POCs and think about what ResMed’s done, I guess if you look back over the last 20-25 years in the sleep apnea market where we started from a very small base and have grown to a very strong global leadership, number one position.

We would look to do the same in POCs and how we look to do that is the same way we did in sleep apnea, which is innovation and technology. And I talked a lot about the innovation in healthcare informatics and engaging patients.

Applying that to POCs we think is a huge opportunity and we’re very excited about being a major player in the POC market, and really importantly rolling that up to a major play around COPD, which is the number three killer in the United States, and the number two cause of re-hospitalization in ERs and ICUs and CCUs.

So we think it’s a huge opportunity and we look to be a part of that..

We are now at the one hour mark. I’ll turn the call back over to Mick Farrell..

Thanks Susan. So, in closing I want to thank the more than 4,300 strong ResMed team from around the world for their continued commitment to changing the lives of literally millions of patients with every breath.

I’m very proud of what our team has accomplished in creating market leading innovation and connected care, including new product lines, new solutions, new channels that we’ve incorporated into our business portfolio. We remain laser focused on our long-term goal of impacting 20 million lives by 2020.

And that impact is literally giving the gift of breath back to each of those patients. Thanks for your time and we’ll talk to you in 90 days..

All right, thank you again for joining us today for this call. If there are any additional questions, please feel free to contact me. The webcast replay will be available on our website at investors.resmed.com. Susan, you may now close the call..

Thank you. This concludes ResMed’s second quarter of fiscal year 2016 earnings live webcast. You may now disconnect..