Agnes Lee - Michael J. Farrell - Chief Executive Officer and Director Brett A. Sandercock - Chief Financial Officer and Principal Accounting Officer Robert Douglas - President and Chief Operating Officer James Hollingshead - President of Americas David Pendarvis - Chief Administrative Officer, Global General Counsel and Secretary Donald Darkin - President of SDB Strategic Business Unit

Andrew Goodsall - UBS Investment Bank, Research Division Ben Andrew - William Blair & Company L.L.C., Research Division David Low - Deutsche Bank AG, Research Division Saul Hadassin - Crédit Suisse AG, Research Division Eric Fong - BofA Merrill Lynch, Research Division Steven David Wheen - JP Morgan Chase & Co, Research Division Alexander Evans Smith - Citigroup Inc, Research Division Joanne K. Wuensch - BMO Capital Markets U.S. David C. Clair - Piper Jaffray Companies, Research Division Bruce Du - Commonwealth Bank of Australia, Research Division Ian Abbott - Goldman Sachs Group Inc., Research Division Anthony Petrone - Jefferies LLC, Research Division

Welcome to the Fourth Quarter 2014 ResMed Earnings Conference Call. My name is Larissa, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. Now I'd like to turn the call over to Agnes Lee, Senior Director of Investor Relations at ResMed. Agnes, you may begin.

Thank you, Larissa, and thank you for attending ResMed's live earnings webcast. Joining me on the call today is Mick Farrell, our Chief Executive Officer; and Brett Sandercock, our CFO. Other members of the management team will also be available during the Q&A portion of the call. If you have not had a chance to review the earnings release, it can be found on our website at investor.resmed.com. We have also posted an updated investor deck, which may be found on the Events and Presentation section of the company's Investor Relations website. I want to remind our listeners that our discussion today may include forward-looking statements, including, but not limited to, statements about future expectations, plans and prospects for the company, corporate strategy, and performance. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could also cause actual results to differ materially from those in the forward-looking statements are detailed in filings made by ResMed with the SEC. I will now hand the call over to Mick Farrell.

Thanks, Agnes, and thank you to everyone who is joining us today as we provide an overview of our fourth quarter and full fiscal year 2014 results. I'll review the market dynamics, provide an update on product launches and review progress against our Three Horizons growth strategy. Then I'll turn the call over to our CFO, Brett, to walk you through our financial results in greater detail. To briefly review the highlights, Q4 revenue was flat on a year-on-year basis and declined 1% excluding currency impacts. Non-GAAP earnings per share grew 3% for the quarter to $0.64. Non-GAAP EPS, excluding amortization of intangibles, was $0.66. Our revenue was lower than anticipated during Q4, primarily due to headwinds in our U.S. sales. This was offset by very strong growth in Europe, particularly, as well as in Asia. Before I discuss our Americas results in more detail, I'd like to emphasize that we believe that our performance in the U.S. will improve over the coming fiscal year, and there are 3 reasons for this. One, the U.S. market structure is stabilizing as we anniversary the second round of competitive bidding with patient referral volume starting to grow. Two, the pricing adjustments that we put in place during Q3 will begin and continue to wash through the comparisons. And three, the change in buying behavior that we saw from some U.S. customers in Q4 to move away from end-of-quarter bulk deals to a more consistent ordering pattern should continue. This latter point is good for us in the medium to long term as it steadies the supply chain for our customers, our suppliers and for our global operations team. However, it clearly had a negative short-term impact that we saw in Q4 in the U.S. numbers. In terms of the factors that we…

Great. Thanks, Mick. As Mick has noted, revenue for the June quarter was $415.2 million, consistent with the prior year quarter. In constant-currency terms, revenue decreased by 1%. At a more detailed level, overall sales in the Americas were $214.9 million, a decrease of 7% over the prior year quarter. Sales outside the Americas totaled $200.3 million, an increase of 9% over the prior year quarter. In constant-currency terms, sales outside the Americas increased by 5% over the prior year quarter. Breaking out revenue between product segments. Americas flow generator sales were $99.3 million, a decrease of 5% over the prior year quarter, reflecting continued pricing pressures in a tough prior year comparable. Masks and other sales were $115.6 million, a decrease of 8% over the prior year quarter, reflecting very competitive environment. We expect an improvement in our mask trajectory in fiscal year 2015, as our recently launched masks continue to gain traction in the market. For revenue outside the Americas, flow generator sales were $136 million, an increase of 9% over the prior year quarter or in constant-currency terms, an increase of 6%. Masks and other sales were $64.3 million, an increase of 8% over the prior year quarter, and in constant-currency terms, an increase of 4%. Globally, in constant-currency terms, flow generator sales increased by 1%, while masks and other decreased by 4%. Before I move to the P&L commentary, I would like to take a moment to walk you through the charges that were excluded in our non-GAAP earnings per share. We have excluded the impacts of the restructuring charge this quarter and the onetime Sydney University charge in the prior year quarter. As a result, non-GAAP income from operations for the quarter was $104.8 million, a decrease of 6% over the prior year quarter. And…

Thanks, Brett. We will now turn to Q&A portion of the call. [Operator Instructions] Larissa, we are now ready for the Q&A portion of the call.

[Operator Instructions] The first question is from Andrew Goodsall from UBS.

I'm going to assume that you won't [indiscernible] grab the new product. So perhaps, I can just ask the extent to which you think the deferrals impact -- impacted in the quarter in anticipation of that product. And if I can just throw a tricky one in just quickly ask just also the impact of FX on gross margin or masks on -- just what influenced the gross margin increase as well.

Thanks for the question, Andrew. I'll take the first part of the question and, Brett, you'll take the second. Very hard to understand exactly the extent to which the circulating rumors impacted our flow generator sales in the Americas. It was really just in the U.S. and just from a couple of competitors. But it was reasonably broad spread. It wasn't just 1 territory or 2 territories. I know some executives were traveling in the field during the quarter who told me they heard it from every customer, and so it was pretty broad. Understanding the depth of that impact and how it specifically hits our numbers in terms of flow generator growth in Q4 is very hard to say. The good news is that our news from the field is that patient volumes as the channel has stabilized now with the annualization of CB2, that the patient volumes are there. And so, therefore, a missed sale in Q4 should lead to, throughout fiscal '15, as the inventories were quiet and patients continue to come through the channel that we start to get those back. It won't be immediate, but Andrew, I'm sorry, it's just very hard to quantify exactly what the impact of it would be, but it was there. It was probably, slightly material in some aspects in terms of the U.S. sales. Brett, you want to take the second half of the question?

Yes, sure. Andrew, yes, on FX on gross margin, year-on-year, it was in the order of 150 basis points favorable for us. If you looked at it more on a sequential basis, it was a benefit of around 30 basis points for us. And then currencies where they are just on a -- if you look at Q1 like going forward, it would probably have a -- we'll have a headwind of around, probably, 30 to 40 basis points going into Q1. Yes.

And to what extent do you think your AirFit 10 mask sales picked that margin up as well?

It's just -- it'd be pretty small, really, Andrew. I mean, they only just came through in the quarter. So really, at the early stages of traction in those new masks. So I think that'll manifest more through FY '15.

The next question is from Ben Andrew from William Blair. Ben Andrew - William Blair & Company L.L.C., Research Division: So let's talk about masks in the U.S. And you guys have high market share, obviously, you're a juicy target even with the great new products coming through. This is not a great mask number. What happened there? I mean, because obviously, you're still selling the older mask through the bulk of the quarter, and then the new one is starting to roll out, but what are you seeing competitively there? You mentioned bulk versus kind of regular way, but maybe just give us a little bit more flavor on U.S. masks.

Yes, Ben. So, I mean, there are 3 factors that affected U.S. masks. One, is the variations in customer-buying behavior, right? Moving from a bulk order to a throughout the year type of steady behavior, which is tough short-term better in the long term. Two, there's the impact of the Q3 pricing reductions that we put in place, so they'll need to roll through the comparisons over a 12-month period of time in terms of the pricing impact. And three, there's the impact of the transition to our new masks. We've just launched the N10 in the nasal space and the F10 in the full-face space, literally during the quarter, so you only got a half-quarter of sales or so from those 2 products in the category. So they're the 3 major effects. You mentioned the fourth effect, which is there in terms of the competitive dynamic. And there are some reasonable masks from our competitors. They're not as good as ours, but we do compete out there, and it's a tough market at times, but we think that with the product portfolio that we've just launched, this AirFit series that over FY '15, we have very strong possibilities for not only maintaining but growing share and rising with the market there. Ben Andrew - William Blair & Company L.L.C., Research Division: I guess I'll stick to one follow-up and just ask directly, did pricing get worse in the fourth quarter versus third quarter? Or was it the same? And do you think you gained or lost share in masks in the fourth quarter in the U.S.?

Well, that was technically 2 follow-up questions, Ben. But I think that the price changes that we put into place in Q3 were reasonably effective and, probably, just went broader to more customers during Q4 so relatively stable on the price side from Q3 to Q4. Obviously, on a year-on-year basis, there was a significant price relief for our customers that, of course, we don't quantify now on these calls. To your question about market share, it's very hard by each category to get the details of market share in categories. What I can say is that it's early in the ramp curve of the N10 and F10, so my conjecture would be that the N10 and F10 have a lot more runway to get market share over FY '15. And that if there's any market share gain in Q4, it would have been in the pillows category. If there were any stresses, it would have been in the nasal and full-face category. But that's sort of just based on the timing of those product launches and where they are. And thanks for the 3 questions, Ben.

Our next question is from David Low from Deutsche Bank.

Mick, could I just start with the [indiscernible], just get you to perhaps talk to us about change. Then, I guess, the question that comes out of that is if you've seen a hit in Q4, presumably, we start to see a benefit, particularly in the first quarter when things are typically a little weaker.

David, you were a little light at the start of that question. Could you repeat the whole question? I couldn't quite hear you.

Let me try again. So the change in buying patterns that you talked about with major customers, I just want to understand what changed, and then, therefore, what the impact's going to be in the future. Most notably, it seems to me that Q4 is the strong quarter when there is a lot of deals done towards the end of the period. So presumably, we see some benefit from this changed pattern, particularly in Q1. Is that reasonable?

So good question, David, so more granularity on the changing buyer behavior. So what we're referring to is that, sometimes, during the quarters, whether it's Q1, Q2 or Q3, but particularly in Q4, there are larger bulk purchases by, usually, larger customers towards the end of the quarter. And we saw those throughout fiscal year '14, Q1, 2 and 3 but not in Q4. And I mean, the difference between missing or hitting on the U.S. sales could be 3 or 4 deals to sort of make up that difference. And if you think about 4 deals of in that sort of $3 million to $5 million range, you can start to see those types of numbers adding up. The question of why those deals didn't happen in Q4 and why the customers are choosing probably to have a lower inventory stake or a more-efficient operation, I think the answer is that they've all faced the reality now of 12 months of -- in particularly in the U.S. market, 12 months of competitive bidding round 2 impact. And everybody in the space is looking for efficiency, for supply chain efficiency, for ordering efficiency and for making sure that their -- that operations are delivered to patients, but they don't have excess inventory. So I think it was part of that, and it came to a head in Q4. I don't think the wash-through is a 90-day wash-through. I think the wash-through on an inventory supply chain, when you start to look at it as more a 365-day timeframe. It's total conjecture because I don't know the details of the operations of the 5,000 customers in the U.S. or even the top 50 to that great level of detail. But my conversations with top customers in the U.S. are that they're looking for operational efficiency. They're looking to take costs out. For instance, that's why U-Sleep has been so popular not only in Q4 but throughout the whole year because people say if I can increase adherence by 10 percentage points and take labor costs out by 60%, that's the technology I need. So I'll start using then: EDI technologies, just-in-time delivery, dropships to patients. All these types of things are being used by our customers. So there -- that's sort of the summary of that 50,000 feet of changes in buying behavior. And I just don't have the granularity on a 10-, 45-, 90-day scale, but my best guess is that it's a 365-day sort of adjustment that you'd have if you're running a large business on that front.

Just one follow-up then. Brett, the legal cost looks to me like sort of close to $4 million based on the comments you made about growth in SG&A. What should we expect going forward? Are we going to see further legal costs of that magnitude in Q1, Q2? Or is it going to come down?

I mean, to some extent, it depends on timing of court cases, trials and so on. I mean, there'll be -- you can expect there'll be some continuation of litigation costs through FY '15. I mean, the main thing is we're committed to protecting our patents in the marketplace and our innovation. So we'll continue to do that. And if that means we spend some money on litigation from time to time, then we'll certainly do that. There'll be some come through. It was -- this quarter, we did have a court case, which was kind of happening in that quarter, so it probably popped it a little bit. You could expect some base litigation, I think, will continue for next few quarters.

Our next question is from Saul Hadassin from Crédit Suisse. Saul Hadassin - Crédit Suisse AG, Research Division: Just a quick question on U-Sleep if I could. There's been some discussion more recently about the compatibility of some of the other manufactured devices across that platform. Can you just clarify, Mick, whether all manufactured products are still compatible with the U-Sleep product?

Yes. So I think the question is whether U-Sleep is compatible with all manufacturers' products, and the answer is yes. The technology is perfectly capable of taking data from all manufacturers who are able to get data to the cloud that can interface with an API that can be accepted by our product, which is all the major manufacturers' capabilities. So U-Sleep is perfectly technically capable. Saul Hadassin - Crédit Suisse AG, Research Division: Great. Just a follow-up. So you published that study quite recently, the abstract about the labor cost base. Can you talk to how effective that's been in terms of driving some higher U-Sleep subscriptions?

Yes. Look, without going -- because we don't go into detail of individual customers, but what I can tell you is that, that presentation at the American Thoracic Society from the main stage and then some posters and some follow-up with customers created some great buzz amongst key opinion leader physicians because they see that the world of telemedicine is coming. Digitized data is here to stay, and that efficiency is needed for our global healthcare system. So the key opinion leaders are on board. Specifically, as we talk to customers, particularly in the U.S. with all the price pressures they've had, particularly from CMS, they're really looking, as I said earlier, for efficiency tools. And the data in that study were 59% reduction in total labor costs. And if you're running your P&L and you look at what that reduction on that line is, even if you halve it, say, that was a clinical study, in practice, I'm only going to get half of that. It's a huge potential cost savings for customers. So what we've seen is a lot of customers asking about it. Our territory managers and our corporate account managers are talking to customers about it every day, and we're seeing good uptake from those customers who are doing pilots and trials. Obviously, it's sort of an S curve of penetration for anything, whether it's a mask, a software product or a new platform. But a software platform, when it goes, it can go pretty fast because it's very scalable and it's digital, and that's how it's designed. We're very excited. It's early days, but we're very excited about U-Sleep and the value it can bring to our channel, particularly the providers but also the patients. Patients just love being coached and engaged on their therapy. And moving adherence from 73% to 83%, as was shown in that study, may not sound like much, 10 percentage points, but for 7 out of 10 to 8 out of 10, that's a big needle move when you look at what pharmaceutical compliance rates are in the 50s and 60s at best with all the coaching materials they had. The difference is that we have electromechanical device that we can send data to the cloud, and we can coach that patient on what actually happened not whether we think they took the pill or opened the cap. So we're pretty excited about U-Sleep and its penetration, and we can give updates as we go through FY '15.

The next question is from Eric Fong from Bank of America.

Mick, can I ask for an update on the Japanese market? And as my follow-up, can I confirm whether you are assuming the same level of market discounting in FY '14 as was in FY -- sorry, FY '15 as was in FY '14 in respect of your gross margin guidance?

Sure. Rob, do you want to take the question on Japan, maybe both the questions. Rob?

Sure. The -- in Japan, as we've constantly said, Japan does stay a lumpy market given the business structure of our few customers there. This quarter, we had a pretty good run at it, and the business goes there. And Japan remains a very, very good market for us with good patient reimbursement and a good opportunity because we think we can still get a lot more patients in that market. In particular, our cardiology products continue to do very well there. Sorry, Eric, your second question on pricing, could you repeat what you said?

It was on gross margin guidance. So are you assuming the same level of market discounting in FY '15 as was in FY '14, the guidance of 61% to 63%?

Yes. Maybe I can take that, Eric. On the gross margin, yes, I mean, we're guiding 61% to 63%. If you look at the price and if you look at it year-on-year, certainly, with the pricing or some of the adjustments we've made in Q3 that'll wash through Q4, and you're seeing that year-on-year impact, that year-on-year impact that will still be with us through, if you like, the first half Q1, Q2. So we'll still see those year-on-year price declines if you like. And then -- but when you look at the second half and a lot of that would sort of anniversary in terms of some of those adjustments. So now we're not going to make any predictions on where pricing might head that far into the future. But think of it at that first half, we got a wash-through. Second half might be kind of more normal with the caveat that, that's going to be unpredictable, really.

Our next question is from Steve Wheen from JPMorgan. Steven David Wheen - JP Morgan Chase & Co, Research Division: I just wanted to get you to clarify that restructuring charge of $6.3 million, where that fits and whether or not there's any likelihood of ongoing restructuring charges going into fiscal '15.

Brett?

Yes. Steven, by where that fits, what do you mean [indiscernible] ? Steven David Wheen - JP Morgan Chase & Co, Research Division: So what sort of -- just where -- what line item would we be looking up if we were trying to normalize that.

Yes, so it would be -- it's a combination around SG&A and R&D, probably a little more skewed on the SG&A side for that if you're thinking about that. And at the moment, I mean, it's important for us to keep looking at making sure we're doing things as efficiently as we can. It's important for us to make sure our resource allocation is really focused on achieving strategic objectives. So we'll do that. But at this -- right at the moment, we've not -- there's no plans on the table for further restructuring. But we need -- yes, we need to continue to make sure we're operating the business as efficiently as we can. Steven David Wheen - JP Morgan Chase & Co, Research Division: Yes, okay. And just back to that comment on Japan, Rob, if -- there was some issue with one particular distributor that had sort of slowed down quite significantly. Have you got any update on the way they're seeing that market and whether or not they're sort of back to sort of full run rate?

Yes. Look, Steve, we don't really want to break out customer by customer data, and Japan's interesting because there's only a few of them as we said. But pretty well, I'd stick with what I was saying, that the underlying business remains pretty strong. We had talked to some issues around -- similar with other markets around inventory policies and stuff like that, but we think that the business will go forward on a pretty steady basis. And the patient flow's really solid there, so that creates the underlying demand for the products.

Our next question is from Alex Smith from Citigroup.

You mentioned in the U.S., the patient volumes are there. Can you give us an estimate of what you think's going on at the market level in terms of market growth rates in terms of volume?

Thanks, Alex. I'll hand that question to Jim.

Yes. Alex, we think that patient growth rates are about in line with where they've been. We haven't seen a big dropoff in patient diagnostics in any way. We don't actually name the percentage growth rate on this call anymore. We stopped doing that a couple of quarters ago, but we haven't seen any measurable decline in patient volumes in the U.S.

Okay. And I guess as a follow-up, so really, the dynamics you're seeing are around price and share. You're not really seeing a huge change to underlying demand.

Yes, it's the flow-through of the Q3 price changes. It's the changing in the buying behaviors of customers from more bulk to more steady and some of the channel changes that have happened throughout competitive bidding round 2 that have impacted, all together, those 3 factors have impacted the U.S. growth results there in Q4.

Our next question is from Joanne Wuensch from BMO Capital Markets.

Two questions really. One is you talk about revenue next year being greater than this year. Could you ballpark what greater means? And then my second question is CMS has introduced a pilot program for bundling products. Could you please comment on that?

Sure. Thanks, Joanne. I'll take the first part, and then Dave Pendarvis can take the second part regarding CMS. Yes, Joanne, we don't give guidance with regard to revenue. We are going to improve. Globally, we're going to improve in the Americas for FY '15 because the macro conditions are going to get better. CB2 is done, which is the largest round of competitive bidding. We're going to wash through the pricing changes from Q3. We're going to work with customers to take waste out, including moving from more bulk to more day-to-day sales as best we can, and we're going to manage that volatility. So with all of that, we know the needle is going to normalize, and we're going to move the needle in the right direction. Dave, you want to take the second part of the question, which is with regard to the CMS pilots that they're looking at?

Sure, Mick. Yes, thanks, Joanne. The -- it's a little hard to tell at the moment. What we've got is a proposed rule from CMS, which hasn't become a final rule. And the proposed rule itself is proposing pilots in about, I think, it's 16 markets as part of competitive bidding 3. Of course, the timing of the third round of competitive bidding is itself part of a proposed rule. It's not final yet, but assuming all these things go through, it would be sometime in 2016 that they would start piloting in some of the CB3 regions of some form of bundling. We don't know what form that'll take. And depending upon how it goes, we'll, obviously, react to it and help our customers operate with that kind of a model. So it's long ways off, remains to be seen how the final rules come out and then how the pilots come out. But we're familiar with bundling as it operates in different markets throughout the world. So we're confident that we'll be able to work with our customers and work through it as it gets rolled out and look forward to the pilots.

The next question is from David Clair from Piper Jaffray.

So the first one I just want to see, is there any way to quantify the change in buying behavior on the U.S. flow gen and mask results? And then if I'm hearing you right, you think that this will take a year to normalize?

Yes. So David, difficult to quantify the exact one, and you're going to need a handful of customers to talk about changing a $3 million to $5 million end of quarter buying to others to have an impact. So we don't -- my answer to the question of how long it will take to wash through that changing in buying behavior, I don't know if it will be a rapid deployment of their sort of efficiency approaches and they can get it done in a 90-, 180-day period, or if it'll be a little bit beyond that. The 365 is the absolute outlier, right, because then it's annualized. It has to be less than that. The answer is we just don't know. It's -- how long is a piece of string on that? So you're asking me to quantify something that I -- it's dependent upon the psychology of the customer, and it's very hard to go. What we're doing with our U.S. customers is partnering with them across the board. Solutions like U-Sleep that we talked about to bring efficiency, products like Astral. When we launched this life support ventilator, which is the first life support ventilator we've ever launched in the U.S. market, during this calendar year, we're going to be bringing to them choice. The first time they've had choice in life support ventilation, and they're screaming for it. And we can't wait to bring that for them. And so we think that will bring some faster orders and maybe some upfront stocking orders as they need to stock, to train their staff and get them up to speed on a great life support ventilator. So there's so many factors, including the new masks and how quickly they roll up and what inventory's needed on those, but understanding the exact inventory policies of even the top 10, 50, 100 customers, let alone, the 5,000 in the U.S., is very difficult. So that's why, David, getting a specific quantification of the days of inventory rolled through on average across the customer base is just very difficult. I was sort of giving you the guardrails between 90 and 360. The answer is I don't know exactly where it'll be within that.

Okay. And then just as a follow-up here, the reorganization, so what exactly did this entail? Why are you doing it now? And will there be any kind of disruption?

Yes. Jim, you want to take that?

Yes. Well, I can speak to the Americas reorganization. Really, the way to think about what we did in the Americas was to align with the strategy. And so without getting into great detail, we made some changes and some additions to the sales force in preparation for the launch of Astral. And then we made some changes to align across some business aisles [ph]. So we've done some things to better align the marketing organization and also to create better alignment between sales and marketing. So it was, obviously, a lot of, if you will, effectiveness moves and alignment with strategy there. In doing that, we also took the opportunity to look for efficiencies.

Don Darkin, do you -- Don, do you want to talk a little bit to some of R&D restructuring that we did and how that positions us for the future?

Yes, so we basically just shifted a few people around to really try and reshape the organization for some of the approaches we're moving into going forward. So apart from some minor reductions in some areas, we've -- we're reshaping and creating some new areas for targeting going forward.

So I mean, look, David, in net, we're talking less than 1% to 2% or around 1% to 2% of our global workforce here, not a huge amount. But it was important for us to refocus our team towards the strategy and to where we need to be in 2015 and towards our Three Horizons growth strategy. And so it was really around aligning our SG&A and aligning our R&D around those long-term strategies and making sure the long-term bets are all accounted for, and some short-term efficiencies can be gained where we no longer need to expand assets and resources.

Our next question is from Bruce Du from CBA.

I just had a question around pricing. I guess it's more specifically to masks. You mentioned that you haven't really seen sort of a change from Q3 to Q4, but you're offering the sort of broader -- discounts more broadly. What are you seeing with regard to the pricing behavior of your competitors in 4Q? Have they changed much at all from Q3 to Q4? And do you anticipate yourselves potentially having to move again? Or has it been relatively stable?

Yes. Look, I think some of the competitive moves were more in Q1 and Q2 from our major competitors in the U.S. market associated around competitive bidding round 2. And our moves in Q3 were a response to maintain our appropriate premium over our competitors in that space, and so it was steady. Predicting what's going to happen in FY '15, I will predict there will be some price competition, but what I predict is when we launch our Astral product, which is the second of its kind, right, it'll be 1 of only 2 players in that market that price will not be the issue. It'll be about efficiency, long-term cost of ownership, the value and efficiency for the customer and the value to the patient of that life support ventilator. In our new masks, where you're able to get first-time fit and easier to fit and easy to use, those values become very important when you're looking at the full P&L of managing your HME business. So price is there, will always be there. Our job and job of our R&D teams, the job of our marketing teams is to produce and then position and then provide through the sales team that value to customers so that they can get the efficiency. And we're going to do that throughout FY '15.

Our next question comes from Ian Abbott from Goldman Sachs.

I had a question around your -- on the balance sheet. The days sales outstanding seems to have gone up again, and I was perhaps a little bit surprised to see that go up given you've talked about some -- in absence of sort of end-of-quarter sales. So I just wonder if you can reconcile that for me.

Brett?

Yes. Ian, that's, I mean, in particular in the U.S., there's some longer payment terms, I think, that are out in the market nowadays, really, on competitive response from us. And you'll see -- and obviously, that sort of doesn't manifest straight away but will build up over time. So you're seeing a little bit of that coming through in the days sales outstanding but not really -- it's kind of not really a factor or relation to some of the ordering cycles. It's really something that was put in place a while ago that then starts to manifest in days sales outstanding.

Okay. And as a follow-up, could I ask around some of the higher-end products? I'm not sure if you mentioned on the call whether the shift just from CPAP to APAP is still ongoing and also some of the high-end products in the bilevel segment, just how they've performed during the quarter and what the outlook for those is.

Yes. So we alluded to it a little in the prepared remarks. Ian, you're the first question on it. But the home sleep testing is now at 40% when you look at a trailing 12-month period of all U.S. diagnoses, 60% being polysomnography. It's being driven by the insurers and specialty benefits managers and others associated with insurance companies driving that switch, and the channel is responding. When home sleep testing increases, it does almost directly impact the shift that is continuing between CPAP to APAP. And so we're continuing to see the APAP category increasing, and that did continue during the quarter. We didn't see any big major changes in Q4 for bilevel, pretty steady as a sort of -- as a percentage of total sales through there. The impact on all of them was the changing in buying behavior, the pricing and all the macro effects impact across all those segments. But within the individual CPAP versus APAP categories, we are seeing a positive mix shift from CPAP to APAP continuing, bilevels being steady. And as we launch the Astral life support ventilator, we will open up a brand-new category for us at the really highest end of the spectrum in terms of value and margin and value all the way through to the COPD patient, the neuromuscular disease patient that it might treat.

Our next question is from Anthony Petrone from Jefferies.

Just a little bit, Mick, on the DME ordering patterns. Is there any, maybe, clarity you can give around all those long-term supply agreements where they've committed to purchase commitments? Or are they just in a position now where they're ordering based on their needs? And then one quick follow-up.

All right. I'll hand that to Jim regarding U.S. DME purchasing patterns.

Yes. I'd -- thanks, Anthony, for the question. This is going to sound like a bit of a cliché, but every customer is different. And so what we're seeing is a wide range of behaviors. We've got customers who are getting more aggressive about managing their own inventory balances. We have a wide range of different types of agreements. And so it's actually very difficult to characterize in the context and the way you framed it. But I think we can say that we did see, at the end of the quarter, a change in behavior with some of our customers in -- being more reluctant to do larger deals. And I do think that, that is hand-in-hand with some of the anticipation that's out in the market based on the rumor that was spread by one of our competitors that we were launching a product platform imminently. So those 2 things were connected. But it's very, very difficult to say because of the variety of behavior across the customer base.

That's helpful. And then maybe just a follow-up for Mick. Is -- previously you spoke on consolidation within the U.S. of DMEs, and that number was sort of in -- close to 8,000 and coming down a bit. You characterized that number lower. So I'm just wondering are we mostly kind of complete with consolidation in your view. Or is there still a little bit more to go?

Yes. Anthony, it's a good question, and it's hard to know the exact answer to it. I mean, we sold to more than 5,000 customers during Q4 just in the U.S. As Rob was talking to earlier, I can count on my right hand, less -- half of it the number of Japanese customers. And so yes, it's north of 5,000. Will there be more consolidation? I will expect some further mergers and acquisitions activity within the DME channel. I think quite a lot of it was pre-CB2 and during CB2. I think now it's almost the survival of the fittest. Those who have got through this year and have still got their cash flow and still got operating businesses and good relationships with referring doctors and good relationships with the patients who are members of their sort of portfolio, that they have the opportunity continue to do that. We're going to partner with all our customers: the small, the mom and pop, the medium regionals, the large regionals and the nationals. And we are helping all of them with efficiency. A lot of the tools we provide, such as U-Sleep, can apply to a customer across that spectrum. So we don't have to be a large customer to use it. Some of the others have sort of electronic data interchange and interfacing with their billing capability. We can do with -- through partnerships with some of the small guys and directly with some of the larger ones. So whatever the opportunity to bring value to all those segments of customers, we're looking at doing it. But to answer your question directly, do we expect further consolidation? Yes. Do we think it'll be dramatic? Probably not. Probably an ongoing quarter-by-quarter consolidation of them without a major step-change.

We are now at the 1-hour mark. I'll turn the call back over to Mick Farrell.

Well, great. In closing, I'd like to thank the more than 4,000 ResMed employees, who sometimes listen to this call, around the world, for their contribution to the world-leading respiratory medical inventions that position us for the future. And we're going to continue to execute against our Three Horizons growth, and we're very excited about the product pipeline that you guys have developed and we get to launch during fiscal year '15. Our global team continues to be more than ever focused on changing the lives of millions of patients with every breath. Agnes?

Yes. This concludes our Fourth Quarter and Full Year 2014 Earnings Live Webcast. If there's any additional questions, please feel free to contact me. The webcast replay will be available on our website at investor.resmed.com. Thank you, again, for joining us today. You may disconnect.