ResMed Inc. (RMD) Earnings Call Transcript & Summary

Hello, everyone. My name is David Low. I cover health care stocks for JPMorgan in Australia. With us today, we have the CEO of ResMed, Mick Farrell. Mick is going to give us roughly a 20-minute presentation, and that will be followed by Q&A session with Mick and his team. As you'd all know, you can lodge a question with the Ask A Question function in the digital conference book. So with that, I'll hand over to you, Mick. Thanks.

Fantastic. Thanks, David, for the very efficient introduction there. Look forward to our Q&A in a little moment here. Since everybody has their digital power deck, I'll just -- PowerPoint deck, I'll just call out the slides as we go through. First page is just an introduction. I've got old school hard copy here. Second page is all the legal disclaimers, feel free to read through those there or on our website. Third page is our company overview and strategy. So I'm on the fourth page now, ResMed at a glance. So ResMed, in summary, for those of you who don't know us, a $3 billion revenue company, trailing 12 months. And our market cap is actually a little higher than this on the slide here, it's around $31 billion this morning. And we serve patients in over 140 countries worldwide. Our primary markets are sleep apnea or, as I like to call it, sleep suffocation, COPD, or chronic constructive pulmonary disease, lung disease and asthma. They're our primary respiratory medical markets. Our primary software market is software as a service for out-of-hospital health care, and I'll work through that sort of unique definition of what that market is. If you add up the total addressable market across these 936 million people with sleep apnea, sleep suffocation, 380 million people worldwide with COPD and over 340 million people worldwide with asthma. That's over 1.5 billion people who suffer from respiratory medical -- chronic respiratory medical diseases that ResMed can help. It's almost 1 in 5 people on the planet. We think that's a huge total addressable market and one of our biggest opportunities is education and awareness to help people know they have these diseases, and there's great treatments to take care of them. So on to the next page, which I call our strategy on a page, and it's always crazy almost to take thousands of pages of work and spreadsheets and try to put it on one page. But the reverse is a very long PowerPoint deck. As Mark Twain said, "sorry, I wrote you such a long letter. I didn't have time to write you a short one." We tried to write a short letter here. In summary, this shows our 2025 strategy. In the last 12 months, we changed over 115 million lives. That's 15 million lives with physical product, a sleep apnea device, a COPD device, asthma, a drug delivery device or a complete mask system. And over 100 million patients that we took care of these last 12 months in our online digital cloud-based solutions. So together, that's 115 million lives that we took care of. Our goal is growth. That's our primary driver, and we want to grow that volume double digits over the next 5 years. So from 2021 to 2025, double-digit volume growth so that we can impact 250 million lives, more than 250 million lives by the year 2025. And you'll see a recurring theme through this presentation is that we're going to do this through digital health technology. So the medical device, but also the software and the service that goes around it. So on to the next slide that's entitled priorities that guide our daily focus. This really covers what we do and what we want to achieve. What we do is: one, we're going to grow and scale globally our impact on lives across sleep apnea, COPD, asthma and out-of-hospital health care; two, what we do is deliver cloud connected medical devices that help the doctor, that help providers, that help health systems and then ultimately help the ultimate customer who is the patient; and number three, we provide the world's best software ecosystem and software services for out-of-hospital health care. I think of the presentations you'll see today, if you do a litmus test to see what percentage of the revenues of the company you're hearing from are delivered outside the hospital versus inside the hospital, I think during the day, it will probably be most of them, 80%, 90% of the revenues they receive are from the hospital or hospital health care systems. For ResMed, it's the reverse. 90-plus percent of our revenue and profit comes from health care delivered outside the hospital, of medical equipment, skilled nursing facilities, home health and hospice, home treatment for sleep apnea, COPD and asthma. It makes us kind of unique and it kind of overlaps altruism, which is taking care of people where they want to be taken care of and the profit motive, which is obviously part of our drivers as a public company. Then the 3 things of what we want to achieve with those daily focus is that we want a slow chronic disease progression. So we want to slow not only the sleep apnea, COPD and asthma, progression of those chronic diseases, we also want to slow the sequelae, heart failure, hypertension, stroke and increase of hypoxia leading to solid-cell tumor cancer. We want to slow all of those chronic disease progressions. Number two, we want to lower the overall health care system costs. So taking account of the diagnostic, the therapeutic and all the treatment we provide in management, we want to lower health care system costs significantly higher, multiple higher than that to lower overall health care system costs. And the third part of our trip lane is to improve outcomes. So clinical outcomes, but really importantly, quality-of-life outcomes for the patient as well. So they not only are better, they feel better. So turning to the next slide, which is our digital health technology is our foundation slide. Pretty much the heading says it all, we're going to use AI, ML, MI, deep neural networks. We're going to use everything we can to transform 7-plus billion nights of medical data in sleep apnea, COPD and asthma into actionable outcomes that improve the life of a customer, whether that customer is a doctor, whether that customer is a hospital system, whether that customer is a government-run health care system or if that customer is a patient themselves, they can get access to their own data and use those data to sleep better, to breathe better and to live a better life away from the hospital. So moving on to the next slide entitled our digital health solutions improve outcomes and lower costs. We're going to use this ecosystem that includes our Propeller technology, our Brightree technology, our MatrixCare technology and our core sort of Air Solutions ecosystem. We're going to use all these different technologies and capabilities to do 3 things: to improve patient outcomes, as I talked about, quality-of-life improvements and disease progression impacts. But secondly, business outcomes. We're going to increase efficiencies for our customers. For instance, our cloud connected sleep apnea devices lower the labor costs of setting a patient up on sleep apnea by 50%. And thirdly, we're going to improve overall operations of the health care system, which means lower costs, but at the same time, increased quality, as measured by the patient and the hospital system. So moving on to our next slide, Slide 9. We are the global leader in digital health. And I say that because we have over 12 million 100% cloud connectable medical devices on people's bedside tables and on their purse around the world. We have over 7 billion nights of medical data of sleep apnea, COPD and asthma. And we're doing the hard work of turning that big data into actionable information. And for the 3 million patients that have signed up for myAir, every day, they get a score out of 100 myAir score, sleep score, to tell them how they slept, how they were breathing and to give them coaching tips, gamification, if you like, to drive up adherence. The peer-reviewed published data often show adherence for our core therapy of sleep apnea to be 50%, 60%, maybe a little bit higher, 50%, 60% generally in the literature. With our cloud connected technologies and cloud connected systems for the doctor through AirView and myAir for the patient and our engagement systems for the providers such as Brightree, we're able to drive adherence rates up to 87%. So we get almost 9 out of 10 people adhere to our therapy every day. That's a huge improvement over what the world was like before digital health came to respiratory medicine. And we think we can do what we've done in sleep apnea, which is to drive that adherence rate that high to COPD on inhaled pharmaceuticals and on use of high flow therapy and on use of ventilation therapy in COPD and similarly in asthma and beyond. So moving on to the next slide, which is Slide 10. I'm sure you've heard this at every presentation today, the impact of COVID-19. Obviously, huge impact on the world. Many, many hundreds of thousands of people have died. At ResMed, obviously, we took care of our team. We immediately went into a work-from-home for all people who do not need to be in the office, and we created systems and capabilities for communication at scale like many other companies have done, but I was really impressed by our digital health technology team and our IT team to be able to do that literally over a weekend. For our frontline team, the manufacturing teams, the supply chain teams, our tech services team and our respiratory health care providers, we had an individual who was on the front lines in Wuhan, in Hubei province, in early January, mid-January, setting up the first COVID-19 patients that we heard of around the world on ResMed ventilators. It's actually Curative brand locally made ventilators in Wuhan. And we've been following the crisis, and we produced over 150,000 ventilators from January 1 to June 30, and got them to distribute around the world. And really importantly, we used an ethical global epidemiology model. We actually modeled mathematically the flow of SARS-CoV2 based on some of the data we had from 2003 when we were there with SARS-CoV1 in Southeast Asia. And we saw the roll-up of the peak and then the reduction of the needs of ventilators at that time. We scaled our model for it. And I was very proud of the team, our supply chain team and all our suppliers and our manufacturing team, to be able to not only get the parts, make the products but then to distribute them to over 140 countries worldwide. Our principle there was around preservation of life. And we would have demands from large governments and health care systems around the world, and we would tell them, look, here's our global production and here's what we can allocate to you based upon what the numbers are, and here's our pricing, which is steady based upon pre-COVID numbers. And we were very strong in that. I think we did a great job of delivering in the midst of an emergency. One thing I'll say is through all the sufferings of COVID-19 that were pretty intense, there were some blessings that came out of it, from the suffering that was there. The blessing was we were able to be there and provide those ventilators. From the suffering of this being an awful global respiratory pandemic, we saw 3 things happen, which have impacted our industry and really impacted our patients and our customers. Number one was the importance of, what I'll call, respiratory medicine, respiratory health and respiratory hygiene. COVID-19 attacks the lungs and primarily can kill through mucus buildup in the lungs. So the importance of respiratory health and respiratory hygiene has never been high. Secondly, this COVID-19 crisis showed the importance of digital health. What we're doing here on a Zoom call, that can be used. These types of technologies can be used for telemedicine, for telehealth, for remote patient setup, remote patient monitoring. I'll talk a lot about that from screening, diagnosis, treatment and management. And the third thing it drove was the importance of health care delivered outside the hospital, which, again, that's where ResMed competes and that's where ResMed wins. So COVID-19, incredible response from our team to deliver those ventilators, incredible response to drive to work-from-home culture like many companies have done. But I think uniquely for ResMed, we saw an ability to bring technologies that we've been working on for decades in scaling screening, scaling digital diagnostics, scaling digital therapeutics and scaling digital health management of patients at scale around the world to levels that hadn't been done before. So we're there during the crisis and I think after the crisis, things will be changed, and there'll be greater and greater adoption of those areas of digital health that have helped us during the crisis and will help us afterwards with efficiency. So moving on now 2 slides ahead, our business of sleep and then our sleep business strategy. I've got a lot of slides on this. It's our core market. So I'll just say 3 things on this slide. We're going to drive up efficiency for all of our customers, doctors, hospitals, health care systems. Number two, we're going to drive best-in-class patient care. So that's quality-of-life improvement for the patient and clinical outcomes improvement for the patient. And thirdly, we're going to be a partner for integrated care systems whether here in the United States, Kaiser, Intermountain Health and Geisinger, these integrated payer provider systems and many other health care systems that are sort of emulating that ACO-type environment. And for government health systems in Northern Europe, we're going to help them treat sleep apnea, treat COPD and treat asthma and improve out-of-hospital care, but we're going to help them treat a person, which means combining those data from our disease states that we're in with other disease states that, that person might have and other thoughts around their health care to improve the outcomes for that individual. And that's a big effort, and it requires a lot of sort of privacy, cybersecurity and interoperability. And I'll talk a lot about that as we get into our digital health strategy. Next slide, Slide 13, sleep apnea is more than 80% undiagnosed. This slide represents that our biggest opportunity is education and awareness, and we're going to do that through digital awareness and digital education, and I'll talk a lot about that. The other aspect of this slide is talking about what I'll call the sequelae that can happen with untreated sleep apnea. If you look at the prevalence numbers here, among stroke patients, Afib, heart failure, drug-resistant hypertension, type 2 diabetes and within morbid obesity, what you see is that sleep apnea has a lot of bad trend. And untreated sleep apnea does lead to earlier death. We now have peer-reviewed published evidence showing the difference between CPAP-treated and non-CPAP treated patients with obstructive sleep apnea and showing that we improve the survival rate. And this slide shows why because undiagnosed and untreated sleep apnea leads to high blood pressures, which leads to high incidence of heart attack, stroke, and the hypoxia can lead to a higher incidence and production of solid-cell tumors within cancer. So we're linked sadly to all of the top 5 killers in the western world. Slide 14 talks about the global prevalence of sleep apnea. And it depends on which country you're in for the cutoff rate, and we have here an acronym, the AHI, which is the apnea-hypopnea index. In lay terms, AHI can be thought of as a suffocation index and how many times you suffocate per hour of sleep. So if you require suffocation every 12 minutes of sleep, which is an AHI 5, there are over 936 million people worldwide with OSA. If you require suffocation every 4 minutes of sleep, which is an AHI 15 to call it sleep apnea, there are over 424 million people worldwide with obstructive sleep apnea. Either way, the way I look at it is there are hundreds of millions of people worldwide every night suffocating and they don't know about it because if you're asleep, you're, by definition, unconscious, and then that's when the suffocation occurs. So our job is to educate people, educate bed partners that there is not only a hidden killer in the bedroom, but that there is an easy path to diagnostics, therapeutics and management. Slide 15, this talks to what I was talking about earlier, the long-term impacts of untreated sleep apnea and how treating patients with sleep apnea can change their lives. This is a 30-year study that was published in the European Respiratory Journal and was over 4,502 diagnosed OSA patients. So this showed that untreated sleep apnea leads to, as I was talking about earlier, high incidence of MI or high incidence of myocardial infarction, heart attack, high incidence and prevalence therefore of type 2 diabetes mellitus and the high incidence of ischemic heart disease. We know -- we've known it for years and now big data is showing it, it's great to have this extra publication here, a 30-year study showing that this is a hidden killer. It's a public health care epidemic, and it can't be ignored. Page 16 is really an eye chart covering all the therapies that we provide. What I'll say is ResMed has been around for 31 years this year. We have been the leader in this industry from day 1 from when we were a management buyout from Baxter Healthcare with the technology from Colin Sullivan, University of Sydney. And we make the smallest, the quietest and the most comfortable sleep apnea, COPD and asthma devices, but we also think about patients as persons. And if you look at the way we sort of split up our products, we don't split them by type, like nasal, full face and flows mask, which is sort of the categories they're sold. And we split them by how they're used by a person. So the minimalist mask. That's for someone like me. I'm a personal user of our product. I like the minimal amount of device, mask, if you like, touching my face. So I wear a device that's smaller than my little finger. It sits under my nose here. It's called AirFit P10 and that's in the category of minimalist. But we also have for those people who are active sleepers or front sleepers, prone left/right sleepers, we have a technology where the mask can come over the back of the head. We call that the Freedom range for people who sleep in those types of positions. There are people with very sensitive faces. They need a memory foam. So we have an Ultra Soft category of masks. And if you look across this in the mask delivery portfolio we've had, we have the most complete mask portfolio on the planet. And we invest 7% to 8% of our revenues in R&D. So we keep making devices smaller, quieter, more comfortable, and to the right-hand part of this chart, more connected, and I'll talk a little bit about that as we get into digital health technologies. But first, we'll talk a little bit about our respiratory care business, so I'm now on Slide 18, our respiratory care strategy. I can summarize this pretty simply that our goal is to win in the core and to drive adjacencies for new growth. So win in the core means in our core markets of ventilation, noninvasive ventilation, life support ventilation, high flow therapy, we're going to win. We're going to make the smallest, quietest and most comfortable devices that get to the market. But in addition to that, they're all going to be cloud connected like in our core sleep apnea business, and we're going to expand into new areas. So we're just 24 months into an acquisition we made, a really exciting acquisition of Propeller Health that put us into the digital health space for cloud connected COPD and asthma medications. And Propeller is the #1 technology in the world, and we've launched our first sort of public products with a large pharma company with -- we had a product launch with Novartis, a triple action once-daily asthma drug from Novartis that is co-marketed and co-branded with Propeller Health in both the European Union and in Japan. And that product was launched in the June quarter of 2020 in the EU and in the September quarter of 2020 into Japan. Early stages, it's like the gun's got off on a marathon in digital health for pharmaceuticals, but we are there to innovate and expand and transform COPD and asthma delivery and care. So Page 19 now, prevalence of COPD. There are over 380 million people worldwide who suffer from chronic obstructive pulmonary disease. COPD is the #2 cause for hospitalization and rehospitalization. That's why you have over EUR 48 billion and over $50 billion spent every year in Europe and the U.S. alone on taking care of COPD patients. Sadly, they become frequent flyers in and out of an emergency room in a hospital, #2 cause for hospitalization and rehospitalization. And there are over 3 million people worldwide who die from sleep apnea. I'm looking at the clock now, and I'm going to speed up before we get into Q&A here. Slide 20 looks at the full portfolio of COPD solutions that we have, inhaled pharmaceuticals, all the way through to high flow therapy. Oxygen, we have exited that part of the business, but we can cover stage 2, stage 3 patients with our high flow therapy and our invasive and noninvasive ventilation technologies. Slide 21 covers a variety of those products in our business. Moving forward to our Software as a Service business on to Slide 23. ResMed is the leading provider of cloud-based systems for out-of-hospital care. We're in home medical equipment through Brightree. We're in skilled nursing facilities, we're in home health and hospice. We're in private duty home care. We're in senior living, and we're in life plan communities. And we have 2 major brands, Brightree and MatrixCare. These businesses are growing well. They're a material part of our business. Obviously impacted by COVID-19, we're seeing low to mid-single-digit growth in the sort of weighted average market growth in that group, but we are holding our share and growing share. So we're meeting or beating market growth on a quarterly basis, and we plan to do that. And as we start to see patients get to the hospital and get out of the hospital back and the census rates go up in skilled nursing facility, home health and hospice, we'll start to see that business get to greater and greater growth. Slide 24 talks about the ways that we're going to improve outcomes and lower cost in out-of-hospital health care. And I think ResMed has the right to win in this space, and we're the only strategic long-term public player in the space that's investing capital at the rate that we are to improve care there. I will skip through the next couple of slides and go through to our financials, slide 27, and this will be the last slide I present, David, before we go to Q&A, second last slide. Slide 27 shows our track record of delivering strong financial returns to shareholders. Our revenue was growing at double digits at 12% from the last 12 months through first quarter of fiscal '21 at $3 billion and growing at a 12% compound annual growth rate over that 5-year period, and we're delivering leverage here. We have net operating income growing at 17% compound annual growth rate over that same 5-year period, and we have delivered over 15% compound annual growth rate in our earnings per share over that period of time. So triple digits on our 3-year and 5-year total shareholder return. So the last slide I'll present here is slide number 28, and I'm ending where I started, which is our goal is to improve over 0.25 billion lives over the next 5 years. So in the year 2025, we'll improve 250 million lives, and we're going to do that by helping people sleep better, breathe better and live better lives outside the hospital. It's a big mission and it's a big growth and double-digit volume growth, we'll only get there with the scale and the investment that we're doing in R&D and with our good cash flow management to make sure that we can continue to grow and invest in the business. And with that, David, I think we can head over and open up the Q&A.

Thanks, Mick. That was fantastic. Perhaps I'll get you to start by introducing the other members of the management team who are on the line, and then I'll start with a question. And I'll keep an eye on those coming through in the queue. So if you could do introductions, we'll go into Q&A.

Perfect. Yes. Thanks, David. And yes, let me introduce the team. So Rob Douglas is our President and Chief Operating Officer, and he and I have been partners in crime for about 20 years of working together. And Dave Pendarvis is our Chief Administrative Officer and Global General Counsel and Head of Investor Relations as well. And he and I have worked together for over 19 years as well. And they're the 2 members of management. The 3 of us form along with 12 others what we call the CEO operations team, and we help serve and lead 7,500 ResMedians. David, over to you.

Thanks, Mick. Sorry to rush you. Let's start with a question about the sleep business. I mean the pandemic had an impact on everyone in a pretty significant way. Just wondering if you could talk about what's changed, what it means for the future? And I was thinking if you could perhaps touch on diagnosis, on sleep testing and on the resupply side. And what you've learned from it -- what it means for the next few years, please?

Yes. I'll have a first go at it. And since I've been talking for 22 minutes straight, Rob, I'll hand you pretty quickly to go next. Yes, I mean, look, the pandemic has had a huge impact on every business. I mean obviously, we saw -- the tailwinds that we had was some incredible sales of ventilators $35 million in the March quarter, $125 million worth of sales in the June quarter and $40 million worth of sales of ventilators in the September quarter. And we were pretty clear on our call a couple of months ago that we expected the December quarter to be de minimis on ventilator. So it's sort of like that we have this incredible tailwind that has gone away. And then we have the headwinds of the reduction in the patient flow as everybody saw through patients or a primary care, hospital and referrals. At the lowest point, I think in March, April, with the double-digit declines, we got down to sort of a 50%, 60%, 70% maybe of the pre-COVID patient flow. And we've sort of seen through June quarter, September quarter, and we gave indications through December quarter that we expect sort of a U-shaped steady recovery of the flow of patients. And we've seen that. That on the September call, I talked about the fact that we're north of 70% of pre-COVID patient flow in the U.S., sort of 60% to 80% range. That's sort of moving up to 70% to 90% range right now. We're seeing 70% to 90% of the pre-COVID patient flow coming through U.S. even with the second waves coming because people have adopted digital health. They've adopted remote screening, remote diagnosis, remote setup and moving on there. Similarly in Germany, we saw a dip down. One of the best managed countries in terms of patient flow. Maybe it only dipped down to 60%, 70% of pre-COVID patient flow, it's already back to 80%, 85-plus, maybe 90% in some parts, North Rhine-Westphalia and Bavaria of patient flow pre-COVID. And in China, where we saw the sharpest decline right at the start there with a really steep lockdown was 50% in June, probably 70% in September and moving a little bit above that, maybe 70% to 75% of pre-COVID patient flow in China. So we're sort of seeing that steady recovery. But Rob, do you want to talk to the fact of what we saw on resupply and the adoption of home sleep apnea testing and beyond?

Sure, Mick. Just getting off mute there. With that reduction in new patient flow, particularly our provider customers around the world had time on their hands probably and things to focus on. And certainly, the resupply of mask was really a strong thing that we saw a great lot of attention go to and pick up. Fortuitously, we've just recently acquired Snap, which really helped up our solution offering in that area. We already had a couple of good solutions, but we had a complementary one that meant we really had best-in-class in that. And we saw strong uptake in resupply through all of that. So that's been good. With the reduction in patient flow going to sleep labs as sleep labs were converted into COVID wards and that type of thing earlier in the year, we did see home sleep testing continue to sort of progress. And I wouldn't say that it increased rapidly, but it did increase as a percentage of tests that were being done. And we saw some markets around the world that have been quite resistant to home sleep testing, actually start trials and testing it out, so in a sense, that beach-headed into those markets that were pretty good. In terms of other things that we learned, in terms of internal capability, we learned a lot around what companies can do, how we're able to pivot to the remote work, which many companies have done. Our supply chain teams did a phenomenal job tripling and quadrupling ventilator production through all that and also then reacting to challenges like freight and stuff like that. So it's been quite interesting around that. Our teams have shown that they can develop and deploy digital solutions much quicker than what we would have thought, and we were able to deploy really strong programs to help our customers set up and manage patients remotely and get those to market quickly. So that was really good learning. And we're able to continue. We continue to learn that we're able to still continue to bring really good people into the team from around the country and around the world. And it's been great, very interesting learning.

Great. I've got a couple of questions in the queue. So why don't we go to those. The first is, what can you do further on the digital side of CPAP?

Well, I mean, I could spend the rest of the time on that, David, but I will try to be succinct and maybe let Dave Pendarvis jump in, if he wants to a little bit on this. Yes, look, we have 12 million 100% cloud connectable nodes. We have over 7 billion nights of data. What can we do with those? We're producing a lot of clinical research in the field here, showing not just the diagnosing and treating sleep apnea saves money and improves quality of life, but that we can actually impact life and death decisions, that treating sleep apnea truly is a prescription that can increase the quantity as well as the quality of the person's life. And I think getting those data around the world into health care systems so that that's not just the CEO of JPMorgan saying that, that it becomes reality for the health care systems in Norway, in Finland, in France, across the EU and the investments that we're making in partnership with the government insurance groups in those countries that want to take care of their population health, doing the same thing with IDNs and payer providers here in the U.S. and partnering with governments and directly with individuals in countries that have more of a direct health care system around the world. And so it's almost impossible to list out all the opportunities, but the real challenge is actually, David, prioritizing our investments and our annual investments around R&D, to where we put the artificial intelligence, machine learning, MI, deep neural network investments for that and which IDNs we partner with and how do we use the information to show that we can lower the impact of this chronic disease and lower the cost of health care and improve efficiency and improve quality of life. We've already proved it on multiple scales. I think the challenge now is turning our deep data well of sleep apnea data into these data lakes that can be shared across disease states. Our joint venture with Verily is a part of that. Our work with some other tech companies is a part of that. Our work with IDNs and health systems across the U.S. and around the world is a big part of that. Dave, what did I miss?

Well, not much. It's pretty comprehensive, Mick. But if you think about all of the stakeholders that we have, you start with the patient, you certainly can improve the digital experience for the patient. They're using now, hopefully, an app myAir. We can always improve that app and improve the patient engagement and the gamification and the information. We can also improve the therapy for that patient using artificial intelligence, trying to get a more personalized experience for every patient. Think about our home care providers, whether they're DMEs or other home care providers outside the U.S., they need patient management tools that we can constantly improve those tools through digital means. And then Mick's already talked about trying to make the connections for physicians and -- whether it's a government or payers who are trying to find out how they can [ population ] health manage. So all those are opportunities. And the good news is we don't have to have new hardware to do those improvements. We've got a great digital health team that's constantly improving, and we're constantly dropping and trying to connect our digital offerings without the need to come out with a new CPAP. So we're really excited about the possibilities. And really, it's endless.

Great. Thanks to both of you. The next question I've got is just about the oxygen market. Mick, you mentioned exiting the market. Just wondering if you could talk to whether that's about the long-term viability of the market in terms of the portable oxygen concentrators, does it reflect the direct-to-consumer competition? Perhaps if you could talk a little to the decision there, please.

Yes, absolutely. So look, I mean, you're learning business every time you move along. And I think our strategy in this space is to create a digital end-to-end experience for patients in COPD that's as exciting and valuable as the one that we've already created in sleep apnea over the last decade or so in the digital health side of sleep apnea, in 3 decades or so, obviously, with devices and creating this amazing market helping people with suffocation. So you take that big picture of what we want to do with 380 million people worldwide, helping them from stage 1 to stage 2 to stage 3 to stage 4 COPD. And we want to make sure that we have therapies to take care of them along that front. With Propeller acquisition, we can take care of patients in stage 1, stage 2. It's what happens right at the start. You get a prescription for 1, 2, 3, maybe more pharmaceuticals as your COPD progresses. ResMed is there now with Propeller technology, and we're going to be there at scale with a point node that's cloud connected and can engage the patient in better dealing with their COPD, better use of their therapeutic and better interaction with their doctor and health care system through digital health. We're also -- through COVID, we saw an expansion of high flow therapy where ResMed has the product Lumis HFT, which we are providing in Europe right now, that is also a cloud connected system and take care of patients in sort of stage 2 to stage 3, overlapping with the pharmaceutical meds. And then, of course, we have our ventilators, noninvasive ventilators and life support ventilators for stage 3, stage 4. Oxygen was an overlay to that. We thought it was an exciting extra node to add to the system. What we found with 2 years is that it wasn't necessary. Oxygen wasn't being used as much or as early and as often during the therapeutic and often overlapped with either the pharmaceutical, high flow therapy and/or ventilation. So it wasn't needed as a node. Secondly, if you compare the customer acquisition cost through sort of D2C networks with the value you get for a product that has lower margins than our masks or our CPAP or any of our other devices, frankly, it is not as profitable or exciting a business for us. And the D2C side, it's really hard to make the numbers work out. And thirdly, what we thought might come through is some reimbursement changes. And with CB-21, it was fantastic to see a great 3-year delay and that we're going to have great benign pricing for our customers across that market. They reached market equilibrium, as I'd say, between CMS and the customers. But there was no change between what I'd call sort of liquid home-based oxygen and portable oxygen concentrators in terms of the reimbursement that would drive POCs to be a greater share of that market. So those 3 reasons are the reasons we left that market. We don't need it for our COPD strategy. It's lower margin, and reimbursement didn't change. If market conditions change, we could really reenter it and/or we can work with existing players, and there are 5-plus players in the market, to add sensors to their technology to then make it part of our ecosystem, but that's for the future.

Right. Got it. Look, I think we've probably got time for one more, so I'll pick another one from the queue. Just a question on the consolidation of your customer base in the U.S., what it means for the core sleep business, what it means for the Software as a Service business? I'll leave that as an open question.

Yes. I'll start on this, and I'll open up to Rob or Dave to jump in as well. Look, yes, consolidation has always been part of our U.S. business. And certainly, the 20 years that I've been here at ResMed, they were probably 15,000 HMEs when I started in 2000 -- 1999, 2000 here at ResMed, and they're around 5,000. I think now home medical equipment companies are somewhere between 4,000 and 5,000 in the United States. And I think there will be ongoing consolidation. What we're seeing, though, is whether you're a small mom-and-pop or regional or large national, if you're adopting digital health technologies like ResMed, AirView system for the doctors and Air Solutions systems for the HME, and you're encouraging your patients to use myAir and you're using ResMed's cloud connected SaaS system like Brightree to run your home medical equipment business, your efficiency level at the mom-and-pop, large regional, or the national can be very similar. And so we think there is a great variety and great local physician relationships, but we also have fantastic B2B relationships with the large national providers. And so our job is to create an ecosystem where every ultimate customer who's a patient can find the best care that they need from the best home medical equipment company. And look, the consolidation in the U.S. market with 4,000, 5,000 customers, if I look at Japan, there are 5 customers. And it's a market of 80 million people. And so I think there's quite a lot of customers still in the United States, and there probably will be some ongoing consolidation. But it's something we've worked with for decades, and I don't see it being an issue. In fact, some of the large consolidating groups are the ones who are most sophisticated and adopting some great technologies, and they're really good partners and colleagues for us. Dave, any other comments on market?

You've hit it. I mean the consolidation is largely boosting the digital technology adoption and more importantly, it's boosting patient care. So as long as that's the North Star, better patient care, better adoption of digital technologies, we think the market will continue to develop well.

Okay. Look, I think at that point, we're pretty much out of time. So thank you very much, Mick, Rob and Dave, for joining us. It was a great Q&A -- great presentation and a great Q&A session. So thank you, everyone, very much.

Thanks, David. Thank you, everyone.

Thanks, David.