ResMed Inc. (RMD) Earnings Call Transcript & Summary

Good morning, everyone. My name is David Bailey, I'm part of the health care team at Macquarie. Today's format will be a short introduction, followed by a Q&A session. If you do wish to submit a question, you can do so via the app. Moving on. It's my pleasure to introduce you to Brett Sandercock, CFO of ResMed. Brett, perhaps we can start with some introductory comments in relation to your most recent results, and then we'll jump into Q&A from there.

Sure. Thanks, David. It's a real pleasure to join you this morning and hello, everyone. So what I thought I might do is just briefly recap on our Q3 results and just run through that with a few of the highlights there. So Q3 -- had a pretty solid performance in Q3. We had revenue growth of 14%. And of course, we were impacted by ongoing supply constraints and that definitely limited our ability to really supply and meet pretty unprecedented demand in the marketplace at the moment due to the Philips recall. So we continue to really be impacted by those supply constraints and in fact, more acutely than what we would have expected a little while ago. If you look at it in terms of categories, devices revenue was still strong at up 21% constant currency and our masks and other was up 9%. So still we're still seeing pretty good resupply numbers and it's proven to be quite resilient through the whole of COVID-19 and then and beyond. So that was pretty resilient. We are, to some extent, being impacted by limited patient setups, which is coming through on devices. So that's sort of perhaps moderating that growth a little. SaaS business delivered growth of 8% for the quarter. So we're tracking at that high single digits for the SaaS business. Walking down the P&L. Gross margin for the quarter was 58.1%. So we were down 150 basis points sequentially, but we were -- sorry, 150 basis points year-on-year, but we were up 50 basis points sequentially. If you look at the year-on-year impact, it's pretty consistent with where we were last quarter. We've had significant increases in freight year-on-year and in manufacturing and component costs coming through as well. They have been the biggest impacts on the gross margin year-on-year. We've had some offset with favorable product mix coming through, particularly with the higher acuity devices that we've been able to supply into the market. So that certainly helped us on the margin front. If you look at -- most recently, that sequential increase really reflects some improvements in ASPs over the quarter following the introduction of the device surcharge that we introduced in January 1, so the beginning of the quarter. So that certainly helped improve on the gross margin front. If you look down operating expenses, if you look at them as a whole, they're up around 19%. So quite high growth there. It's a more normalized run rate, I guess, on our expenses coming through this quarter. And also we're cycling some really low comps from last year where we experienced negative growth. So that exaggerated the growth rates this quarter. I would say that I do expect going for those growth rates in operating expenses to moderate somewhat. So that, I think, was running pretty high really due to the comparable this quarter. On operating profit, we grew 5%. Really, that reflects pretty good revenue growth, offset by the margin contraction and those operating expenses I talked about. And then dropping through to the bottom line, EPS grew by 2% for the quarter. That was a quick rundown, David, happy now to take any questions.

Yes. Great. Thanks, Brett. We'll start with the supply chain and the external environment. Just interested in getting your sense as to -- or the characterization of the issue over the March quarter and how that changed relative to the December quarter. What did you see that changed that supply chain or component impacts to you guys?

Yes. I mean, look, it is definitely still really fluid and dynamic on the supply chains and sourcing components and so on. What we saw through the quarter was some key supply decommits that came through and they came through with pretty short notice on us. So we would have had, for example, purchase orders in for these components, which they then decommitted on us in the quarter. So that really did hurt us in terms of being able to ramp up our supply and get to kind of those -- the expectation that we had initially around for the full year, around that $300 million to $350 million. We've had to bring that down to $200 million to $250 million, really reflecting the decommits that we saw from suppliers and certainly some of the key suppliers. And so that's what we were seeing, and that's why we just had to recalibrate what we thought we could do going into Q4.

So were there multiple decommits that you saw over the March quarter? Or was there one in particular that stood out relative to others?

There's a few key ones that probably I would characterize as being more acute than the others, but you're still getting some coming through as well from others, but they're probably what I'd say, more manageable. But a few of these key ones particularly around electronic components and chips and so on, is the real bottleneck and that's where we're getting hurt in terms of -- we're supplying -- we're still supplying through, but in terms of trying to ramp up that incremental supply, that's where it's been more challenging.

And just to be clear, these are 3G and 4G cellular chips. Is that where you're seeing the bottleneck?

Yes, that's probably the big -- that would be the #1 bottleneck, but overall electronic components are in pretty short supply. So there's others that would -- if you solve for that one, you can get others that will come through that you need to solve for as well. So that -- you're right in the sense of that -- the biggest one will be around those kind of comms chips, but there's others as well, but that's certainly the one that's the biggest bottleneck for us.

Yes. And there was a large contract or large supply called out on the call being down double digits. Is that the only supplier of that particular component? Or do you have multiple suppliers of the component that Mick was referencing on the call?

Yes. We've been -- so we have been working through to source additional suppliers and supplies. You know we've got kind of those 5 work streams that we talked about in terms of improving supply of basically existing parts, establishing flows with new suppliers, for example, are validating new parts from existing suppliers and then validating essentially new parts from new suppliers. So we're doing all those streams and there -- they're all progressing, and they'll come through at various stages. But that -- yes, that one -- it's probably the -- it's the biggest one. There's kind of -- there's other suppliers and alternatives, but not -- you just can't make up that kind of volume. If they decommit to that, we cannot make up that kind of volume elsewhere. So we continue -- I mean, we continue to work with the suppliers and work with those on decommits and see what they can do. So it's not -- it's an ongoing dialogue with suppliers. With our existing, with our new suppliers.

Yes. So that existing decommit, is there -- I mean, you sort of indicated they're trickling back a little bit. But are they starting to ramp up more aggressively? Or how are you thinking about that phasing over this quarter into FY '23?

Yes. So for Q4, we did on the call last week. So look, we think it would be kind of similar to where we were at Q3. So that -- those sort of numbers. Then we believe going through into FY '23, we should be able to get improvements through the quarter there on that. And then that is obviously predicated on what we think about supply, which we think will improve over that period as well. And it will be through the number of actions that we're taking to really try to shore up that supply and grab that kind of, if you like, incremental components we need to increase our device output. So a number of things we're doing. It's not a silver bullet in terms of we do one thing and we're there. But there's a number of things we're doing, which we think will add resilience to our supply chain and give us more confidence that we can supply through FY '23. So it's somewhat of a paradox. At the moment, I do feel we're improving our supply chain resilience, which -- you're just not seeing it reflected in the volumes at this stage because we've had some pretty significant decommits. So we just need to keep working on that through FY '23. And there's other things we're doing on for example, Mick mentioned on the card, it's the AS-10 card to cloud, for example, where you don't need the comms module, for example. So that will help us -- it would be part of the portfolio that I think will help us get some additional devices into the market over time. But that's certainly 1 -- a good example of what we're doing in terms of thinking, I guess, a little bit kind of outside the box of what we can do to improve supply and really get devices on to patients is really the kind of the -- that's the mission. So we -- there's a number of things that we think we can do within that portfolio that will help. And I think the AS-10 card to cloud is a good example of that.

I will come back to that in a second. Just want to just think about the $350 million to $300 million, now to $200 million to $250 million -- is decommit the basis for that revised guidance down? Is that, that 1 single contract, is that the bulk of that revised guidance?

It's not -- it's a big part of it. So it's not necessarily only one, we've had others come through as well, but that will certainly be the most material one. And that's the impact of what we thought we would get coming through that didn't eventuate. So that would be the biggest one for sure, impacting that.

And then you think this last quarter just gone relative to December. I mean, how is your visibility on the supply chain changed? Do you think it's more volatile, less certain now compared to where we were late last year? How are you sort of thinking about the next 3, 6 months?

Yes. Well, I mean I think it'd probably be pretty naive go in thinking everything is shored up and all supplies guaranteed, right? We have commitments. We've seen decommitments. We don't -- it's not like you have guarantees or a big contractual arrangement where you can -- there's big [ panels ] to be paid out because frankly, our suppliers are allocating to their customers, which we're one. So there's a big allocation going on through the suppliers as well. So it's a matter of how much of that allocation you can get -- and that's why we're looking at new suppliers. It could be validation of new components, for example. We're looking at all those things where that should be able to grab some more components for us over time. So they're sort of allocating -- they're allocating back to us as well. So it's tough to be -- we do feel -- there's a pathway, and we can't -- we know what we're doing through the work streams, and we can see that pathway to improve our device output through FY '23. So we can certainly see that, but it's not -- you don't -- with experience over the last several quarters, you can see that you can get decommits coming through that can impact you. So it's a matter of how can you mitigate that going forward is kind of what we're working on. That comes back to the resilience within the supply chain and what you're doing. So we'll keep working on that. You can't -- I mean you can't -- I can't guarantee you. But what we can commit to is we're absolutely doing everything we can to improve that device or improve the component that's coming in and then obviously device output as well. And -- that's all in the environment where we know there's unprecedented demand. We know there's a big growing backlog of patients out there that need devices. So that's not lost on us either. So we're working as hard as we can. That's certainly -- I can guarantee you that, that commitment remains for us to really improve our device output.

Just a question coming through the line. It's just asking, do the issues of Philips improve or create more problems with the supply components? One might think it might free up some supply.

Yes, there's just -- it's the -- if you think about it, it's an industry, it's not -- it's the electronic component of the industry, whatever, and they're applying into consumer devices like call it phones, whatever -- vehicle industry. So they're -- supply across the board. So that I think it wouldn't -- it's probably a pretty minute impact that Philips would have on that. Plus also they're making the devices to go into replacement of the recall units as well. So they're still making devices, but they're obviously going into the recall. So I think overall, I'd say maybe there's -- it could be very much around the edges because it's such a huge industry of electronic components supply to all -- virtually all industries now. So that's the tough part of it. And they're consuming -- some of the bigger companies are consuming massive amounts of electronic components. So we're really looking at this is where -- we're health care, we're about improving people's lives, and that's kind of where we're going in terms of getting our allocation. What we're doing in terms of that, well, we're looking at making longer-term commitments, for example, to shore up supply. We're looking -- done a little bit around prepaid inventory. So we're starting to really leverage the strength of our balance sheet we think and also leverage the strength of kind of really good, solid long-term demand to make sure that we can get these longer-term commitments from our suppliers and demonstrate that we're a really good customer -- and it's worthwhile supplying us, we'll continue to grow. And we're in health care rather than other industries that might be more cyclical than we are. So we're using all those levers, David, to try and shore up our supplies.

And that prepayments for future components. That was part of the inventory build potentially in the third quarter? The bit of a working capital hit that led to the lower cash flow?

Yes. It was -- the prepayments will end up in prepaids in the balance sheet, but there was a component of that, which would obviously add to our working capital. And then the other component was another build increase as well. And really, what we're trying -- if you look at the inventory from June, we're kind of up a couple of hundred million, but if you -- we've basically doubled raw materials. So we are looking to bring in a lot of those supplies a lot of -- so the best way to put it is you might but you need 100 -- I'm making these numbers up -- you need 100 components. We've got 98 of them and we're waiting on 2, right, which will be the electronic components, right? So we want to make sure that we've got the inventory we need that we're ready to go. And also I would say we were running -- you go back to pre COVID, you're running kind of more just-in-time type inventories across the board. I think that strategy and how companies are thinking about, that has changed completely. It's supply chain resilience now, and we're no different. So we've been more deliberate, more strategic or carry structurally carry more inventory to deal with some of the volatility around that. So that's how we're thinking about it. We'll probably still see some increases in inventories, we build up safety stock and so on. But don't get me wrong, it will then moderate and flatten out, but I think it would be -- this would sort of flatten out at a higher level than what you might have seen a few years ago in terms of the inventory. So we're seeing some working capital build. It can probably continue to grow a little bit in the short term, but I think in the medium term, that will certainly flatten out.

Just on the -- you mentioned the card to cloud as an initiative you've taken to kind of increase the supply of devices. Just from my understanding, it's more manual in terms of uploading information to physicians and [ BMEs ] as in rather than the [ 3G, 4G ] seeing that information up into the cloud. It's the [ e-card ]. Now you have to take the rest of your card to someone to basically extract that data. I'm just trying to understand what [ if there will be any use ] of this particular device and where are you sort of targeting -- which markets might you target? And is it likely to be material or just kind of a nearer-term solution?

Yes. Look, I mean, we're trying -- we're basically trying to maximize devices we can put out there, and we've got -- it's - good solutions using AirSense 10. You're right in the sense that you've got the SD card that would then -- they'd then need to go to the HME, for example. But then it all goes into AirView and so on. So they've got that -- all the data will be there. So that -- nothing has changed there, and they can use that through their workflows and so on. But it would be more -- I mean, we're looking at this, it will be select markets, select customers within those markets. Some markets aren't big comms users anyway. So the product will be quite fine for those customers or those markets, for example. And then select customers in the U.S. as well. So really, that's kind of how we're looking at it. And it's really, think about it as forming part of our portfolio of devices to try and meet pretty unprecedented demand, at least through FY '23 on that. So that -- yes, it's just trying to address those shortages and get devices to patients.

Let's move on to the Philips recall. It would have presented an opportunity for you to engage with some new customers and maybe some large national DMEs a bit more respirator focused. I mean, how have these supply chain constraints limited your ability to get traction with new customers. That would be my first question.

Yes. Dave, yes. I mean it has been more difficult. We're really constrained. We're following our principles in terms of we're looking -- but the -- obviously, to supply the higher acuity devices to the patients that need them most. So that's kind of one of the principles through there. And I mean, the other one is doing it more kind of like a historical kind of usage with our customers. So obviously, customers that were loyal we supplied before the recall -- obviously we've got to look out to those customers. And given we're so constrained, it's hard to get -- it would be harder -- it's not -- it's difficult to really supply to customers that might not use -- haven't used ResMed at all before. But yes, it's interesting. We've got -- I mean, obviously, it helps us with customers that might have -- that have been using both, maybe they're using some more ResMed now because we're still supplying incrementally. There's still some incremental devices going in the market, clearly. So that -- so we're able to do that. We've got the physicians that might have, for example, might have always just scripted Philips. Well now, the Philips' not in the market, then they've got -- that's going to be ResMed, predominantly ResMed products coming through there that they need a script for that, for example, so it gives an opportunity, I guess, to expose them to our product and what ResMed can offer. So I think that's helpful from a longer-term perspective on the market. They're certainly getting exposure to ResMed products and what -- and we're really confident in what our offering is. So we think it will be well received. So that's there. But as we improve the device output through there, that gives us more opportunity, I think, to go into the market more broadly as well. And Philips I think on the recent call, they're out of market until the end of the calendar, they'll be like 90% there. So that it's going to -- that will drift into next calendar year as well. And then even when they're back, the backlog is pretty significant. So my view is that it will be quite a long tail or kind of prolonged impact where we've got to work through that backlog of patients and get them on devices. So I think it will be multi-quarter scenario.

Yes. I'll come back to new patients in a second. Just back to your earlier comment about potentially physicians becoming exposed to ResMed. I mean have you had feedback around the product offering and the technology platforms so far for some of those physicians who may have been more Respironics, CareOx data focused before or it's too early to tell.

Yes, probably a bit early. I think the -- I think we're just going to see how that goes over the course of the year. And what happens there and then what happens when Philips come back into the market. I think that will be the proof in the pudding. I just think we're really -- I think our product offerings, particularly with AS-11, which is new product, new platform into the market as well, that will certainly help from a longer-term perspective. And we're in there -- DMEs are using it. We've got obviously sleep positions that were introduced to it. And we've got really positive feedback on AS-11. But with the caveat of, obviously, there's not too many other choices in the market. So you've probably got to wait for the competition to come back. But we feel really confident that, that's a great, great product. And we've been able to get it out into the marketplace. I mean, I guess you could say like unimpeded, right? Because it's into the market and customers are using it, patients are using it. Patients are using myAir -- take up much higher, probably double the take up than what we had on AS-10. So I think the patient interfaces and what we've done there, I think, have definitely resonated. So that -- think about that kind of whole ecosystem with patients, with the HME, with the sleep physicians, it's kind of built into the AS-11 offering. And what we're trying to do on a real really digital solution that's going to improve -- will improve patient engagement and improve adherence for DMEs, for example, which leads to them, obviously, longer term better economics. And the patients are adherent -- and we know through studies that adherent patients are going to be much better off from a health perspective. So -- that's kind of -- that's at a high level what we're really trying to do is building that eco -- really strong ecosystem around the device now and around the solution, frankly.

So, AS-11 we should really be thinking about as driving increased patient engagement, improving adherence, but then there's obviously that opportunity for resupply as well. At a high level, that's how you're thinking about it?

Yes, because if you get, longer term, you get more patients coming in, the patients are adhering for much -- let's call it even more hour per night but then for long term on CPAP as well, right? So that therefore, they'll be utilizing more masks over that period as well. So from a resupply perspective, it drives that as well, for sure.

Just going back to the Philips recall. There's obviously the Dream Station issues, but there's also been some issues with some of their ventilators as well. Are you seeing opportunities for the Astral? That sounds like that's [ unimpeded ] in terms of capacity and output. Do you see opportunities outside of CPAP and bilevels?

Yes. I mean we have been in the Astral and Stellar for example, David, which are sort of higher acuity devices in that area, we've certainly grown them really strongly, both European markets and U.S. market. I'm thinking kind of over the last 12 months or so. We -- they had some -- you might be referring to kind of that recent one, I think with the recall with the V60 and maybe a few others. That was predominantly hospital-based products. So it's probably -- I don't think that would be material for us in terms of devices and so on. But what I would say is we've -- I think we've captured some market share along the way over the last 12 or 18 months in these products. They continue to do well. They particularly grabbed, I think, some market share in the U.S. market, which is good because then we've got Astral, for example, which is clinical setups and clinician involvement is much higher, obviously. So they need to get used to the product and so on. So it's given us an opportunity to have more into the marketplace. And then obviously, for clinicians to get more familiar with Astral, for example. So I think that's certainly been an opportunity for us and should -- we should sustain that longer term as well. But the shorter term on those hospital ones probably not so much other than just another complication distraction for Philips basically, I think.

And then just on consumables, masks and accessories, obviously, your [ 200, 350s ] device. [indiscernible] seeing opportunities on the masks and accessories side. And historically, do you have a view as to -- of all the ResMed devices to go out -- do you have a view as to what proportion would match ResMed masks and accessories?

Yes. I mean, not that -- will go into a lot of detail level but we do -- you know we have the biggest market share for masks, right? So that helps. It means that we have -- more ResMed masks would go on Philips products and vice versa. But they are interchangeable and that does work there. And there probably is a bit of a propensity if you had a ResMed device, you probably will have a ResMed mask. And then a Philips device, probably get a Philips mask. But obviously, we've got -- plenty of our masks go on Philips devices, for example. So that's been happening for a long time. So there's that -- I guess that's a little bit of a tailwind in that probably propensity mode to favor a bit. But offsetting that to some extent, obviously, there's not as many setups coming into the market as they ordinarily would be. So that ends up being -- I think in the short term, a little bit of -- that is definitely a headwind for us. that we're seeing. Clearly, if we work through the backlog of the patients, then that will end up being a tailwind for us on kind of mask setup as we work through that. But in the short term, there will be a bit of a headwind that we're not getting patient setups that you would expect in the market because we just -- we can't supply all that Philips gap.

Do you think on the back of the recall that maybe there's a higher proportion of matching masks and devices relative to history?

Yes. I mean, not -- probably hard to say on that. I mean, I'd put it -- our overall view on this is we are taking some share of what's probably a limited market with limited setups. So that would be our view. So if you think about it like that, David, you probably think, yes, we'll probably -- we're taking a little bit of share, maybe there is some of that happening. But we're more around looking kind of at market shares and how we're tracking against that.

So I had a follow-up question come through just on the decommits. Apologies for switching topics. Just a question around the nature of the actual decommitment. Is it an actual cancellation or just a delay?

Well -- so it's not -- it's funny when it's kind of you're getting probably into semantics there to some extent. I mean, we had orders in there that they've said, look, we're not going to be able to supply those orders at this point in time. So it depends how long the delays, but I think it's not -- it's a long enough delay that obviously has caused us a bit of an impact on our expectation. Let me put it that way. And we've had to obviously said, well, Q4, we think, will be similar to Q3. We do expect it to improve through the course of FY '23. So we're still working, I guess, with all our key suppliers on improving the position and improving that. But at this stage, they've come back and said that. Now don't get -- this is fluid. So you can't that -- suppliers will work on their supply, and they've got to go back through their chain as well. So things can improve. But at this stage, they're pretty reluctant to give you strong indications of well, you're going to get this next month type thing. So they're just decommiting on what they can't supply. And then clearly, they're there. They know what we want. So if they can deliver it or things change, they can get access to some of their raw materials, then that can change. But at the moment -- so you wouldn't say it's canceled in that sense, but it's not going to turn up next month type thing. So we just need to deal with that and work on our other strategy we've got to improve on the supply side. And again, this is getting us -- is really pushing to get us this incremental device output that we're talking about.

Just had a question coming through. So we're jumping and changing topics a little bit. [indiscernible] the Philips recall again. So demand is pretty strong, obviously, and Philips is in a position of weakness -- can those card to cloud chips fill the gap and allow you -- basically allow you to hold that prior guidance? Or is it as you sort of mentioned before, is it going to be too targeted and too specific in terms of end users to be able to make up that actual [ pool ] in terms of revenue guidance?

Yes. I mean, look, it's very early days where I've got the product that will go in the market, but it's really early days to see what we're getting in terms of uptake and how much of that might fill some of that gap. We've gone back to $200 million to $250 million. That's sort of what we're looking at, at least through to the end of FY '22. We wouldn't kind of get drawn into further guidance beyond that at this stage. I think we need to look at that. If the question is like, could that be a meaningful part of the portfolio? And obviously, yes, I mean, I think that potentially it could, David, but we just need to see how that goes in the market. It's pretty early days at the moment.

Yes. Okay. Just back on Philips. They had an issue with validation of some of their masks to be [indiscernible] compliant recently. So they might be out for certain product lines over the June quarter. Is that something you've seen? Is that an issue you're facing?

No, it's not an issue we're facing. It's an issue they're facing. So we're fine from that perspective. Our understanding is it's pretty short term. They're saying they're only going to be out for the June quarter. So that if that's the case, and I think that's probably not going to have too much of an impact or a material impact or up -- I mean it's -- it can only be upside, but I don't think it will be a material impact for us because it's such a short period of time that they're saying they're going to be out of the market.

Do you know which mask kind of relates to it?

No -- I can't think of it off the top of my head, David, on that.

No worries. So back on the call, Mick was sort of saying an expectation that you'll be able to retain market share from the Philips recall over the longer term. What do you think is the basis for that retention to market share? Is it reputational damage to Philips? Is it people becoming exposed to the ResMed technology and that becoming embedded in their workflows? What's the basis for that market share retention you think over long term -- or potential market share retention?

Yes, potential market share there. We think -- and we think we can grab sustainable market share from Philips, right? So and that's certainly [ behind ]. I think -- look, I think it will be a combination of those factors that you mentioned, David, we've got -- they have got some reputational damage. It will probably take a while to rebuild but you can't rely on that, right? We've got to make sure that we're relevant to customers, and we're supplying absolutely solutions that they want and they need. So we're absolutely focused on that, and we'll continue to do that. We're investing in innovation in R&D with new products coming out. We've got really strong digital credentials that are coming -- and products coming through there. So the other thing will help. We've got the AS-11 platform that's out there in the U.S. market, and we plan to kind of roll that out into international markets as well. So I think that's in good stead. And that's -- and we're at the forefront of the digital innovation. Think about AirView. Think about myAir. Think about making it easier, more efficient for DMEs, better adherence rates and so on. We've got resupply automated -- be it Brightree resupply, Brightree systems, for example, even. All those things are making it easier for DMEs to do business and more efficient. So we think we've got a pretty compelling offering, and we just -- we need to showcase that. We need to demonstrate that. I think that's going to be the foundation of grabbing more share. Having, yes, some reputational, some additional exposure to our products and what they can do, all that will help.

Just on the new patient backlog. Just do you have an estimate of the number of patients you think are waiting for a device or an estimate of what the backlog is? I know you mentioned you think it might take 12 to 18 months to work through. Do you think [Audio Gap] Orders worth of new patients. Any estimate would be helpful.

Yes. Probably -- I won't try to give you an estimate on the kind of exact numbers or something that you probably have to go back into customers and see what they've got. But certainly, anecdotally, they've got pretty big backlogs coming through that we're seeing. We know a lot of the patient flows sort of come back from where we were in COVID. So that's all helping. Probably the best way to frame it, probably -- think about it at the time of the recall, and Philip said, "Hey, we think it's about, let's say, circa 800 million on devices there," right? And think about us where we think we can supply 200 million to 250 million of that. So that's a substantial amount of patients there that haven't been treated on therapy at this stage. So -- and that continues to grow. And that's why we think, yes, 12 to 18 months before you get supply matching demand -- so it's a pretty significant backlog when you kind of contemplate the wear. And we're 200, 250 -- look, some of the other manufacturers of sleep apnea and so on will cover some of that, but they're very small. So you can see there the kind of the enormous gap, if you like, and that's the backlog.

Yes, okay. And then just maybe my final question. There's kind of a view that supply chain issues may have resulted in ResMed missing out on the opportunity of sales with the Philips recall. Assuming they come back in the year and you're still facing supply chain issues -- I mean, how do you respond to that? Are you seeing an opportunity to do some growth in '23 and '24, even if Philips does [ return to ] the market?

Yes. Look, David, it's certainly frustrating. We would much rather be able to supply more devices. There's no question about it. And we've captured some of that but not anywhere near the gap that we're just talking about. We think we can do -- we think we can improve that through FY '23 and supply more of that. And I don't -- the patients haven't gone anywhere. So the backlog is there, and those patients need to be treated. So that's a good thing, right? And then I think what will happen is just -- it's just going to be prolonged in terms of that, if you like, recovery or capturing that. So that's 12 to 18 months to clear the backlog. And even with Philips back, I think there's still -- device growth should be still pretty solid as we work through the backlog of patients. So it's -- yes, I just think it would be more of a prolonged impact over multi-quarters. And don't forget, even HMEs, DMEs will be, to some extent, they can't turn on a dime in terms of getting the setups, making the patient set up. So that's why it's -- as the devices improve, they'll set up more and more patients and then they work their way through the backlog. But I think it will take them some time.

Okay. Well, Brett, we're pretty much approaching time. So I'll conclude there and say thanks very much for your discussion today. There's been some [indiscernible] there. Plenty to talk through and think about, and I'll -- we'll finish off.

Great. Thanks very much, David. Thanks for hosting me. Thanks, everyone.