ResMed Inc. (RMD) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. For the next session, we are fortunate to be joined by Mick Farrell, the CEO of ResMed. Most of you will know they are a leading player in sleep and respiratory health globally. Thanks for joining us, Mick.

Happy to be here. Thanks for having me.

Let's get straight into it. So overnight, you announced a $1 billion acquisition. Unfortunately, many of us here would have missed the call that you hosted this morning. Perhaps you could just run us through the final points and contextualize the German business for us and walk us through the value proposition.

Yes, absolutely. And we didn't intend M&A goes at the speed it goes. We didn't intend to -- for it to be announced in the morning of the Goldman Sachs conference and to interfere with so that the analyst interviewing me that day on a fireside chat wasn't available for it. But no, look, at the highest level, MediFox Dan is an expansion and continuation of ResMed's SaaS strategy. And so we've been since 2016 when we bought Brightree and really pivoted the company from cloud-based software, all the way from started the company through 2016, all of our embedded software and algorithmic software and then cloud software was really a cost center, driving value through device and mask sales, but we pivoted in 2016 with the acquisition of Brightree. And that acquisition got us into software as a profit center and Software as a Service for, in that case, our home medical equipment company customers. And so that acquisition was $800 million in 2016 and our market cap at the time was about $8 billion. So we were really investing significantly. It was 10% of the market cap of the company. We're investing in Software as a Service for out-of-hospital health care for home medical equipment. And so 6 years later, our market cap this morning on open was around $30 billion, 10% of that could we sell Brightree today for $3 billion? Absolutely. Would we? Absolutely not. The value we're getting as a company that's digitally integrated end-to-end, from screening diagnosis treatment management and ongoing care has been incredible. And even just a learning on cloud compute, on cybersecurity, on interoperability that we're getting from Brightree to ResMed and then from ResMed to Brightree. And so it's truly become a pillar for our company. And we'd often get questions from sell-side and buy-side analysts saying, "Well, it's great. with Brightree and then MatrixCare 2 years later in 2018, you're the #1 strategic provider for U.S.-based software as a service for out-of-hospital health care. Why aren't you in the second biggest market in the world or for Healthcare, which is in Europe. And I'm going to tell you, we were looking for opportunities, and we haven't talked about that over time, that it needs to meet 3 huge criteria. And that's why it took so long to find the right company, but the #1 criteria is it has to fit with ResMed's strategy. Our ResMed 2025 strategy is to help 250 million people sleep better, breathe better and live better lives through digital health and software solutions and medical devices by 2025 or in 2025. And so that strategy is point one. The second thing is it has to be a great financial play. We have to be able to be the best owner of the asset versus the current owners. We have to have [indiscernible] our return that is accretive. We like accretive to both revenue, which this is accretive to revenue within the SaaS division, and it's also accretive on the bottom line, it's a fast growing profitably growing company. We expect $0.01 to $0.02 a quarter in accretion on non-GAAP diluted EPS throughout -- from day 1, but throughout the first year. So the second criteria is financial. And then the third one, which is really important. They're probably in reverse order is a cultural fit between the management team and all the way down through the organization and ResMed. We want these people day 1 to be ResMedians. And that means honesty, integrity, doing the right thing when no one's watching as CS Lewis said, but then next is innovation and entrepreneurship. And this company was started in 1994, just 5 years after ResMed. And it's had innovation and entrepreneurship, it's whole life, and it's grown into a #1 provider of SaaS solutions for home health and for nursing homes, and they've got a really fast growing. It's probably 80%, 90% of the business, and they've got a really fast-growing segment in outpatient therapy care. And we think it's just a really strong match on strategy, on finance and on culture. The 2 co-CEOs have been there, respectively, 17 and 11 years, Christian and Torsten are incredible leaders and our team, particularly Bobby Ghoshal, who's the President of the SaaS division, but a whole due diligence team has spent a number of weeks just going through the culture of the strategy, the finances and understanding, is this truly the fit that we think it is with ResMed, and we made that call and at 11:00 Pacific last night, we announced it to the market and really excited to be able to have my first fireside chat, talking about MediFox Dan as part of ResMed. Now we've got to go through the regulatory clearances, and we think that will take up to 6 months given that it's in Europe and it's in software space. But we don't have any overlapping assets really that's going to conflict there, we think, and so it should be approved by the end of this calendar year, by December 2022. And then all that beautiful accretion on the financial side and that beautiful interaction of the MediFox Dan culture and ResMed culture will come together as one, hopefully, January 1, 2023.

So hopefully, we were one of those astute analysts you alluded to sort of recommending over the years that perhaps you take rotary and MatrixCare and apply those to some of the other sort of European opportunities.

Yes, you were. Yes, you were.

But look, is there an opportunity here to perhaps take some of the expertise and the technology within those platforms that have been so successful for you in the U.S. and apply them to this acquisition? And I guess, by extension as well, does this platform give you the opportunity to expand further into the other European markets, which are obviously very important to you, like France and U.K., for example?

Yes. So the short answer is yes, and yes to the 2 questions. But the more detailed answer is the learning that we're going to get or we have received the last 6 years of managing Brightree. And you know, frankly, that Brightree had intrinsically from starting all the way through 2016. There's just learnings around. I mean, there's the simple things around cloud compute management, AWS and Azure around cybersecurity. Our InfoSec team and our CSO were heavily involved in the due diligence here, and we know where those opportunities are. There's interoperability opportunities, privacy opportunities. And so that sort of tech expansion, tech debt covering and tech expansion, our market offering expansion is sort of day 1 capabilities. And then there's a whole bunch of other integrations that will happen day 1 on the back end with e-mail and HR systems and bringing benefits up to where a public company is versus where a PE managed company was to make sure these people are fully part of the ResMed story from technology and from the people side. But then the next level of innovation is sort of what you're alluding to is, why wouldn't we have Navin Gupta, who's President of our HHP division of MatrixCare. So home health and hospice. Why wouldn't there be interactions between Navin and the Head of Home Health at MediFox Dan? And why wouldn't they be sharing best practices, speaking -- being in different geographies, speaking English and German. Okay, you can take off the differences pretty simply. But then what are the similarities in out-of-hospital health care? And how is the German health care system trying to get people from what I call the sick care system, which is being a frequent flyer in the hospital, to the true health care system, which is being treated ultimately in the home, but at least at a lower cost, lower acuity, better outcome setting. So I think those types of best practice learning are certainly there. And there's processes and systems and things that we brought in from ResMed to Brightree, MatrixCare and that they brought to us around that, which are sort of the next phase. And then there's a third phase on, if you go to our core business. We've got 11.5 billion nights of medical data in the cloud in our core AirView system. And we've got AI and ML and data analytics that are turning that big data into actionable information for home care providers, patients every day, lowering costs of setting a patient up on a ResMed system by 50%, improving adherence rates on a ResMed sleep therapy up to 87%, well above the period review published literature in the '50s and '60s. And it's all around that integration. The next area of value is why don't we bring all that AI, ML, data analytics capability into the Brightree, MatrixCare and MediFox Dan capability. And so I think that's there. And the final area of -- which we did not bake into the model is there's some synergies, I think, back to our core business in sleep and respiratory care. The home health and nursing home side of the business has a lot of obstructive sleep apnea and COPD patients. And one of the cell sites last night, even just on the Bloomberg room was like, "Oh, here's handling in the ventilation and CPAP. It's not happening day 1. But that's sort of that fourth phase, if you like, of upside value of ResMed being a better owner of this asset than a purely financial owner, which is where it's been for the last number of years. They're not bad. They've done a good job. They put together a great team, and they're growing really well. And I think that those next levels of integration and capability sharing will go both ways. And there'll be a lot of learning from MediFox Dan that will come back to Brightree, and back to MatrixCare and back to ResMed. I see it as a very mutual benefit from this integration. And actually, we'll wait until we get through all the regulatory before we start putting everybody on stage -- but we'll bring the teams together, and we'll bring it to at our Capital Markets Day at our Investors Day, and you'll see some depth from Bobby Ghoshal and his team across the whole portfolio. But let's get the deal closed, and let's move on. It was announced this morning, very exciting and a good addition turning a sort of a $400 million SaaS division growing at mid- to high single digits to now almost $0.5 billion division and now with a 14% CAGR growth element that's jumping in on the top. So accretive to growth on SaaS and across ResMed accretive to our non-GAAP EPS.

And back on the base business, Mike, I think it's probably fair to say that one of the kind of more heated debates in the market over the last few quarters is the extent of a challenge seen in supply and in particular, component shortages. The channel checks we've been doing more recently suggest a much stronger period of allocations in June and perhaps July, certainly more so than we saw in April when you last spoke to the market at the Q3 update. It sounds like car-to-cloud is now out and doing a lot of the heavy lifting for you. But also AirSense 11 seems to be coming back in greater volume as well. Is this how we should think about going forward from this point, the kind of ordering patterns being fulfilled? Basically, AirSense 11 is going to still be somewhat volatile, but car to cloud can do a lot of the remaining deficit and get people back to close to normal ordering volumes. Is that a reasonable way to think about the coming quarters?

It's a reasonable way to think about it. The nuance I'd add on is it's almost like we've got 3 products in the market like. There's the AirSense 11, which is fully available in the U.S., we've launched now into a number of other countries, including just recently into some parts of Europe, France and some other countries are getting the product now. So we will maximize the flow of parts and pieces to get AirSense 11 maximized out there. That's point one. It's the best device smallest, quietest, most comfortable. It has 2-way coms. It has over-the-air upgrades. It has almost like a concierge for the patient as they walk through the process. And as a patient myself and having experienced the device, it's a true leap form from AirSense 10, 2014 launch to AirSense 11 2022 launch and the innovation it brings and the communication it brings to the patient. The 1 anecdote I'll go before completing that is the uptake of myAir, which is the digital app that patients use to engage with their therapy every day. We give them a score out of 100 as to how they slip to myAir score and engage with them strongly and digitally through the system. The adoption rate on that, on average for the AirSense 10 platform was around 25%, 30%. It is strong, probably 3x what we thought it would be based on apps and digital engagements with consumers we tried in the first 20, 30 years of the company. We're really impressed. AirSense 11 and its launch in the U.S. saw 60% percent uptake of myAir, 60%. So it was double the uptake of engagement with the patients. So I think it's not just the AirSense 11 is smaller, quite and more comfortable and more engaging, it drives engagement, not just in the device, but in the digital ecosystem to levels that 2x last gen. So that's exciting. After maximizing that in every geography as it gets regulatory approval, we will maximize the launch of AirSense 10, base AirSense 10 with the 3G or 4G chip coms capability. And it's a different chip similar manufacturers and supply chain at different chipset to the AirSense 10. So it's not taking share from the Air11 to the Air10. It's taking share hopefully from an automotive player or a consumer phone that really, frankly, do we need 1 more electric car, 1 more cloud-connected refrigerator or 1 more device that gives the gift of breath and that's the argument we're making pretty strongly in semiconductor manufacturers in getting there. So that's point 1 and point 2, AirSense 11, and AirSense 10 base. But then, yes, your channel checks are correct. The AirSense 10 card to cloud is available in the market now. And what that does is it takes away the rate-limiting step often was at 3G or 4G coms chip. If you take that out, obviously, from that bottleneck or pinch point, you go to the next one, but it frees up a lot of volume. And so we've now launched AirSense card to cloud in the U.S. and a number of other geographies, and we pivoted pretty quickly. It's just today, actually, it's the 365-day anniversary of Philips announcing their U.S. recall and global field safety notices and we think about that. If you're in med tech, it's not like consumer tech or automotive where you can prove it pretty quickly, particularly in consumer tech to a new chipset and just get it through our validation and verification, we have to go through not only internal validation verification. We have to do -- resubmit 510(k) to FDA and work with an MDR certification for Europe and CE mark and a whole bunch of other stuff in Japan FDA, China FDA and all the way around the world, TGA for Australia, New Zealand and all that adds up together to a lot of work. But the team had just finished the AirSense 11 and ready to go and stay in the launch, they're able to pivot back pretty quickly. And I'm really excited. We've got all 3 of those in market. I won't quantify what sort of allocations are during the midst of a quarter towards the end of our quarter here. But I will say you're right directionally that there's a free up of volume with those 3, AirSense 11, AirSense 10 base and AirSense 10 coms and AirSense 10 card to cloud. All 3 of them are going to be launched and maximized. We are not rate limited by our manufacturing capacity. We just finished a 450,000 square foot manufacturing facility in [indiscernible], in Singapore and that thing has amazing amount of capacity. So every time we get a new component, we're able to get that product through to Changi Airport [indiscernible] a Valley near L.A. or right near us CA here or to Atlanta, our major distribution for the Southeast Coast and U.S. or to the Netherlands, which is our major distribution hub for the Europe and all around Asia, Latin America as well. I'm going to maximize all of the above.

You talked about car to cloud sort of freeing up the first pinch point and giving you additional volume until the next one. Now clearly, we're in a world where there are component shortages all over the place. Could you give us some indication of the degree of additional volume that this does free up?

Well, I'll give you the indication in that as we ended our Q3, which was our March 31, our fiscal year Q3, March 31 this year, we were at year-on-year for that quarter, a 30% growth for the U.S., Canada and Latin America device sales. So we are at 1.3x, if you like, a 30% increase from year-on-year for that quarter. Now we had a lower comp, and it was based on a COVID comp as well. We've got a tougher comp here as we go into Q4. And so you got factor all that in. But what I can say is that, that Flex was pretty amazing. I mean, you've got people complaining who are in 10% growth industry is even 5%, oh, I can't get my supply of my semiconductors. I'm like, you couldn't flex 5% or 10% through existing channel. We flex just for that quarter, 30%. So I think we've done a really good job of pivoting the getting new suppliers, get reengineering parts to get new suppliers qualified for that, reengineering whole new systems like take out a chip and create a pathway for the data to get to the cloud and get that validated and verified but all that together gave us that capability in the March quarter. I won't quantify what we can do in June, September and December. What I can tell you, though, is we expect to see incremental growth from March to June, June to September, September to December, and it will go up. And I hope to free up more and more. And we'll have more update when we do our earnings in mid-August.

Last one on car to cloud, but I think it's relevant because it does seem to be doing a lot of the heavy lifting for you here right now. It's clearly a very important debate we've been having in the market for some time. Is there any consequence we have to think around the resupply implications of a device, which doesn't have the immediate connectivity that the previous devices had. Is that perhaps some kind of a lower degree of compliance monitoring that's going to eventuate which may just impact mask growth going forward?

Look, it's certainly something we've thought very carefully about. And before we made what I would call that tactical pivot. It's not a strategic move, but it's a tactical pivot on a humanitarian emergency. Patients are being diagnosed with a life-threatening disease. And I say life threatening with data that CPAP adherence lowers the death rate by 39% versus non-CPAP adherent patients. This is on a study of 140,000 patients it's called the Alaska study from France that we did on a big data work with MedxCloud. But when you've got a device that has that level of improvement, 39% reduction in mortality, 20% -- 30% reduction in hospitalizations and to say you're diagnosed with the sleep suffocation and this life-threatening disease. But look, don't worry, wait 8 to 12 weeks or longer. It just seems crazy to us. And so that tactical pivot back to card to cloud meant we're able to take care of the humanitarian emergency. Now does that mean that now that there's an SD card and the patient has to take it, either to the HME for an encrypted end-to-end play or to their doctor, does it slow down the time for the data to get to the cloud? Absolutely. Does it have an impact, a material impact and reduction in adherence? Let's wait and see because the last data point I have on card to cloud is 2012 to 2014, which is before we launched the AirSense 10, where we had the S9 and on the S9 platform that I actually ran the division that launched that I know a lot about it, but we had modules, connectivity modules back in 2G, then pages originally, but 2G comms. And so we've been in digital health for -- since 2002, by the way, ResMed, it's not like we suddenly got there. So we know how that works. We also had a backup of the SD card. And so we know exactly what the rate is. It is a lower level of the data coming back. It doesn't come back daily. Nobody is going to see the doctor or DME daily. And so -- but the DME in the U.S. particularly knows that in those first 90 days, if they don't get adherence, they don't get paid on day 91. And so there's a huge incentive for the home medical equipment company to reach the patient. And through Brightree and through some of our automated management systems, we have ways to help them communicate with the patient. And not just through the app of myAir, but directly to patients, either phone calls, e-mails, text messaging, IVR, lots of integration capabilities that we already have there. So let's watch and see. It will be a pivot, a tactical pivot for a quarter, 2, 3, 4 as long as it takes us to ramp up the 3G, AirSense 10, the 4G comms for AirSense 11 and other chipsets that we're looking at. And as we get those back as soon as we have enough we move back to that. And card to cloud will be sort of a nice humanitarian partnership, if you like, with the providers and the doctors. I actually think they will step up. I think patients will step up because they're going to want their data to their doctor. I think doctors will step up and the real differentiator wasn't just the comps, it was the software. -- was the doctor being able to use AirView, the patient being able to access their data on myAir. Just so you know, some of the capabilities, even on AirSense team, you can get daily data every day, direct to you right there on your own screen and a lot of people use that as well. Let's watch it. I don't think it will be a material impact to us because of all the systems and above, but we'll watch it as we go forward. And obviously, we'll pivot back to 100% connectivity as soon as we have the comms chip bottleneck, if you like, freed up.

Can we talk about pricing? I think it's fair to say that even prior to these issues, the pricing landscape was probably more supportive than we've seen for quite some time. Obviously, we had the sort of the strange scenario around the competitive bidding program. And now obviously, we've had a material issue around one of your competitors as well. You've had some success in passing on freight surcharges to your customers. It's my understanding that you're about to put another sort of element of that through from next month. How are you finding the reaction in the channel to these price increases that are going through the market? Is there a general understanding of the unique situation that you find yourselves in, and therefore, some tolerance of it? Or is there some kind of push back?

Well look to the first part of your question around competitive bidding, the latest round of that actually saw an increase in the bids from the home medical equipment companies in the U.S. to CMS. And that -- that was a great sign of the maturity and capability of this channel to say, "look, we need enough margin to be able to invest in all the patient care that we're delivering here and the they bid at appropriate levels and the government and said, "Okay, we'll cancel that program and so therefore, they weren't going to increase the prices. What was interesting is the government they can do what they do. But what was interesting is that baked into that program, which is a really core part of taking care of the people on Medicare and Medicaid who need this therapy. They baked in a CPI impact. So inflation was tracked at 7% for that calendar year '21, and they bake in an efficiency measure of about 200 basis points. but they increased the price paid to a U.S. DME for Medicare and Medicare by 5%. So the reimbursement rate -- it went up by 5% for our customers on Medicare and Medicaid. And so when at the start of this year, we increased a surcharge of $12 in the U.S. and EUR 12 across Europe on our devices to share some of the increased costs that we were seeing in both the Costa components and freight. And we are very open. We did a video with me and President of Operations that just we publicly put out there on youtube gave it to all of our customers with the Link and throughout our channel to say, look, the cost of sea freight right now is the cost of what airfreight used to be before this crisis. Think about that, all those boats out there in Long Beach as you drove over the bridge to come here, they are now getting paid air freight rates for that. And the cost of air freight is 1x, 3x, 5x, 7x 10x, depending on which city you're going to and which area you're going to. We've even leased 787s from Air Canada and Air Ethiopia to take out all the consumer seats because they weren't flying and put in CPAPs, APAPs by levels and masks. And that's the extent we've gone to. And so we're sharing some of that cost with the customer. I mean you don't -- you just go to the local supermarket. You see the price of milk, the price of bread. The price of gasoline has gone up by so much. People are aware of the inflation. It's so visual. And so strong in front of them. And the elasticity is actually interesting in health care, and we saw this during the global financial crisis. We really didn't see a reduction of the number of people coming to purchase ResMed products in '08, '09, '10 through that. So even if we reach some sort of slowdown or recessionary areas, I think we'll see strong demand continue through that. And our ability to share some of the pain with our customers has been actually well received. One of our competitors has increased price publicly announced it. And if you look at the different other DME that we don't compete with at all, the prices of oxygen, walkers and wheelchairs have gone up to that channel. And so our selective price increases that we've partnered with customers to talk about the issues, not just say, here it is. And we're not passing on 100% of it, we talk about sharing in it. And it's an even share actually, we're probably taking the lion's share of it because we have a long-term relationship with our customers. We've been in this game for 33 years. We finished our 33 -- 33rd birthday this year. We plan to be here for the next 3 decades, too. And so we're not going to profit maximize for a couple of quarters and hurt our customer base so that they -- we lose all the brand we've built up over 3 decades. I think what we've shown in these last 12 months is ResMed has the best quality, the best reliability, the best cybersecurity and certainly the best smallest, quietest most comfortable devices but also the most connected and most digitally innovative ecosystem. And I think that's what turns this share that we've gained into permanent share gains. And I truly believe that no matter which customer you look at, if you look at 2019 share and then you look at 2023, 2024 share, you're going to see that ResMed moved up in each account, no matter where they were before, it will be a significant move up.

And you began to answer it there, but my question was going to be we're creeping up to the fourth quarter, which is when Philips are guiding to a reentry into the market. In the intervening time since they've been out of the market, there's been a material increase in the backlog of patients. My question is as and when they reenter whenever that may be and to what extent they do -- is there enough of a backlog there that you can continue to incrementally grow regardless of how successfully they do come back into the market from the fourth quarter, if that is indeed the date?

Yes. Well, it's interesting, last quarter, they said they'd be back in December 2022. This quarter, they announced they'd be 90% done by December 2022, which for me means they'll be back in the March 2023 quarter at significant rates. It could be later, let's see. We'll wait for the next update. I'm not actually concerned in looking back at the competition, like that I'm looking forward around all our digital innovation, all the digital end-to-end plays we've made. Adam Smith's invisible hand is working for us. We're reducing the cost of setting up devices by 50%. Anyone who's had that, it's going to be hard to go back to the competition that they don't have the same capabilities. That adherence rate driving up to 87%. I haven't seen any data from the competition per via publish. And right now, they're focused on quality remediation. I think as they come back, firstly, the backlog will be there for a number of years and will both grow. But then when they get through that backlog growth, I think they'll turn to competition #3, 4 and 5 some of these smaller players that together, we used to be 5%, are together maybe now 10% or 15%. It's a lot easier share to get. They're lower quality products. They have lower quality digital, if any, assets. And so it's easier, I think, for Philips to go after #3, 4 and 5. And so backlog first, 3, 4 and 5. And I don't know from the date they start, if it's April, next year, is that 12, 18 months of that, who knows. But by the time we're back and we're going head-to-head again, we'll have between -- if they meet their guidance, there'll be 18 months that we've had free run on digital innovation, digital engagement and driving it forward. It's probably likely to be 24 months. Our innovation in that period, I mean, these are sprints that these digital teams do that every month, every 2 months, every 3 months, you see upgrades of Brightree, you see upgrades of myAir, you see upgrades of AirView. And so where we'll have taken the technology and some other digital products and assets that we'll bring to bear, I think, will be very difficult to come after. No one's going to have 100% share, I'll give 100% share to any supplier. But I think with every single account, it will be higher, and it will be cemented into concrete and will turn into that concrete share. And then our real opportunity is to go and focus on turning that 11.5 billion nights of data into chronic disease management opportunities, that partnership with the French government. Why aren't we partner with every government in Western and Northern Europe. Why are we driving to show that we save lives and improve outcomes across every single 1 of the 50 states and 5 to 7 payers in each of them and Blue Cross Blue Shield of Florida and Wisconsin and California and driving it through state by state. So I think that opportunity is the blue ocean where we're focused on. This isn't Coke, Pepsi with a low single-digit growth. This industry was mid- to high single digits growth before this crisis. It will be there or a little higher due to the digital health adoption respiratory care, respiratory hygiene adoption of COVID everyone now knows how important it is to worry about respiratory hygiene. We've seen secular improvement in mask replenishment that has not stopped the last 24 months. So I think all of that means to secular growth and ResMed positioned as a clear #1 leader. And I look forward to a decent #2 China cases and game on. We were winning by the way, we were winning this baseball game before this all started. It's like we're in the seventh innings, we were up 5-0, 7-0, they walked off the field for the 8th innings. So we're hitting freely now. But we're winning before this. So when they come back on for the 9th innings, we'll close out the game with the win as well.

Can I ask specifically on the backlog, which is growing by the day because we have still a shortage of flow gens being placed around the market. It's been a theme of the last couple of days here at this event, depending on which subsector you're speaking to, how sticky and how convertible that backlog is going to be -- what's your sense? I mean, could you quantify the backlog, first of all, for us to the best ability that you have? And secondly, how much of those -- how many of those patients are going to ultimately come forward and be serviced and how many perhaps are either going to be lost to neurostimulation or another solution entirely? And how many maybe just don't bother and don't come back at all?

Yes, it's interesting. And so we were involved in the substitute therapies. We have a dental sleep apnea business, we're the #1 provider of 3D printed dental sleep apnea Western Europe, Northern Europe. And we are investors in Nexala, one of the players in [indiscernible] stimulation and investors in Appimeda pivotal that's in the pipeline for some levels of obstructive avenue. So we see the flow of patients to those trials or patients to those actual therapies. And it's increased a little bit not materially through that group. So the substitute therapy is there when a doctor chooses it and they tried all the other lower cost lower acuity, more less invasive alternatives first. So I don't think that's a huge impact. Look, I do. I worry and we've got really detailed analysis, and we're not sharing them publicly, but it's probably at least 12-plus months of a backlog that's sort of building up there. And it could go as high as 18 months, depending on whether our #2 competitor comes back when they say or a little later. But our focus is on engaging with the channel, the physicians, the providers and the patients, too, to make sure that they see a path. And that even if -- it's not like an individual patient is waiting 18 months. But if an individual patient is waiting X weeks, whether that's 2 weeks or 4 weeks or 8 weeks, we've got to find ways to engage them in the path to better therapy. And we're doing a reasonable job of it, and I'll give you updates over time as to how well we're dealing with that backlog. The beauty is that gives us sort of demand sitting out there for multiple fiscal years just standing in front of us. The challenge is how to turn that into not too long a mean lead time for any individual patient so that we get the goal will be 0 loss through the waterfall to just checked out. It will never be 0, but if we can keep it under 5%, I think we'll have done our job very well. And if we can have digital engagement tools. So at the end of this, when we're trying to drive demand gen, remember 2019, when we were driving demand gen that we can go back to driving demand gen, our investments in Primasun, the Verily joint venture and some of the other digital assets we've got to drive identification, engagement, enrollment, so we can make sure our growth is not only going through this crisis, but sustainable for the long term there as well.

There's one more I want to squeeze in. But before I do, any questions from the audience at all? Just on the balance sheet mix. Now the acquisition you announced last night this morning, it's being funded with cash effectively on the balance sheet already. By end -- sorry?

Cash and debt.

Cash and debt. By the end of this year, you'll be back to kind of roughly where you are at the moment in terms of leverage. You've spoken previously about future M&A being concentrated in the SaaS end of things, and you've demonstrated that this morning. You now have the biggest platform that's helpful to you in the U.S. You have the biggest if this closes successfully by December in Germany as well. Is there many more of these opportunities left? Do we have equivalent technologies available in some of your other key markets like Japan or France or U.K.? Or do you have to start considering other types of opportunities regarding M&A going forward?

Well, it's a really good question. I know we're a little over time that we'll maybe just spend 2 minutes on it. Look, really strong balance sheet, as you said, $30 billion market CapEx to multiple billions through both our cash on hand and our flexible debt facility. Yes, $1 billion acquisition this morning announced really excited about MediFox Dan for all the reasons we started out, I think it fits our strategy, fits our culture. And we're the best owner of this financial asset. Look, the access to that capital and the money on hand is not burning a hole in our pocket. If there's an asset that meets those 3 criteria that it meets our ResMed 2025, ResMed 2030 strategy. If it is financially an asset that we know we can not only get return but get better returns than competing owners. And if there's a strong cultural fit back to ResMed, then we'll make that investment. We've been watching MediFox Dan for a number of years. It wasn't like we found out about them when this process started a few months ago. We've been watching them or 3, 5-plus years. And we're watching many other assets and have been for multiple years. And so I won't preannounce anything, but I will say that MediFox Dan was a great incredible work by Bobby Ghoshal, who's the President of that division, Hemanth Reddy, who is our Chief Strategy Officer, but also the partnership with Christian and Thorsten, the 2 co-CEOs there. It's really bringing together a strong management team, and that team will be ResMedians, and I can't wait to see the value they perform.

Okay. We have gone over time mix. We'll have to close it there, but thanks very much for your time. Really appreciate your participation.

Thanks a lot. I mean, it's great to be here live rather than on the screen on Zoom, which is fun.

Thanks.

Thanks.