Welcome to the second quarter 2015 ResMed Inc. earnings conference call. My name is Ellen, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Agnes Lee, Senior Director of Investor Relations. Agnes, you may begin.

Thank you, Ellen, and thank you everyone for attending ResMed's live webcast. Joining me on the call today are Mick Farrell, our CEO; and Brett Sandercock, our CFO. Other members of the management team will also be available during the Q&A portion of the call. If you have not had a chance to review the earnings release, it can be found on our website at investor.resmed.com. I want to remind our listeners that our discussion today may include forward-looking statements, including, but not limited to, statements about future expectations, plans and prospects 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 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 our shareholders, who are joining us on today's investor call, as we provide an overview of our Q2 fiscal 2015 results. I'm pleased to report that we achieved very strong sales growth this quarter with excellent progress from new product launches in our core market of sleep disordered breathing, as well as our cardio and respiratory care markets. In the introductory remarks, I'll discuss our sales achievements; I'll also provide an update on our product launches; and finally, I'll cover progress against our longer-term three horizons growth strategy. Then, I'll turn the call over to Brett, our CFO, to walk you through our financial results in greater detail. As you saw in our press release, our global business achieved double-digit revenue growth in Q2 or 14% on a constant currency basis. Including currency headwinds, our global growth was 10% year-on-year. We saw strength across all geographic regions, with robust double-digit growth in the Americas as well as double-digit growth in our combined European and Asia-Pac regions on a constant currency basis. These results were fueled by the success of new product launches in our sleep apnea and respiratory care markets, including both COPD and neuromuscular disease. We delivered gross margin of 62.2%, which was just above the middle of our guidance range for the quarter. At the same time, we continue to invest SG&A to promote our global product launches. As a percentage of sales, SG&A remained roughly in line on a year-over-year basis at 29% of sales. We also continued to invest in research and development, as we continue to innovate to build long-term, sustainable, competitive advantage in the marketplace. R&D represented about 7% of revenues, which is slightly down from prior quarters, primarily as a result of currency movements, particularly in the…

Great. Thanks, Mick. As Mick has noted, revenue for the December quarter was $423 million, an increase of 10% over the prior-year quarter, and in constant currency terms, revenue increased by 14%. Movements in exchange rates, predominantly a weaker euro relative to the U.S. dollar, negatively impacted revenue by approximately $13.8 million in the second quarter. At a geographic level, overall sales in the Americas were $231 million, an increase of 12% over the prior-year quarter. Sales in combined Europe and Asia-Pacific totaled $192 million, an increase of 8% over the prior-year quarter. In constant currency terms, sales in combined Europe and Asia-Pacific increased by 16% over the prior-year quarter. Breaking out revenue between product segments. Americas flow generator sales were $111 million, an increase of 25% over the prior-year quarter. Masks and other sales were $120 million, an increase of 2% over the prior-year quarter. For revenue in combined Europe and Asia-Pacific, flow generator sales were $129 million, an increase of 9% over the prior-year quarter or in constant currency terms an increase of 17%. Masks and other sales were $63 million, an increase of 6% over the prior-year quarter or in constant currency terms an increase of 14%. Globally, in constant currency terms, flow generator sales increased by 20%, while masks and other increased by 6% over the prior-year quarter. Gross margins for the December quarter were 62.2%. On a year-over-year basis, our gross margin contracted by 250 basis points, reflecting declines in average selling prices and unfavorable product mix, partially offset by manufacturing and supply chain improvements. With respect to currency impacts on gross margin going forward, on a sequential basis and assuming current exchange rates, we now expect to see only a very minor positive impact on gross margin, as the impact from a weaker Australian…

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

[Operator Instructions] Our first question is from Margaret Kaczor with William Blair.

Mick, can you maybe give us some more color in terms of components of that strong U.S. slower growth. You had mentioned that backlog was immaterial going forward, but how much of an impact did that have this quarter versus next towards auto and bilevels and vents?

So the backlog was pretty modest, Margaret, last quarter. We brought it up, because we thought it was important to just be fully transparent about that. That was in a couple of different stock keeping units, the particular one was the AutoSet for Her stocking keeping unit, which was a brand new algorithm, the first ever introduced to the global market of an algorithm for female breathing patterns. And it was taken up much faster by physicians and homecare providers in the U.S. channel than we had thought. And there were a couple of other varieties, where the ClimateLine air tube goes in or not in the device and some bundling SKUs that were also in backorder. And so what we did in the 90 days is ensure that we got the supply chain up to speed and we're able to deliver that. So as you looked at the 25% year-on-year growth in Americas flow generators, a very small portion of that was to sort of catch up on the backlog. And as we look forward, as I said in the prepared remarks, there is immaterial backlog left. There's still a couple of ones that we are working through, but it's not going to affect the ongoing business, Margaret.

And then in terms of international, I mean again very strong growth out there. What were the country-by-country breakdown, was it Japan, Germany? And then maybe give us more clarity as to why?

I'll hand to Rob, our COO, present to answer that question.

Yes, Margaret. We are pretty strong on most of the countries. You would call out France and Japan, but a lot of the other European countries are very strong. We don't give detailed breakdown of all of that, and so we won't be doing that. But really underlying it, patient flows remain strong in all those markets. They haven't all got AirSense 10 yet, but in the markets where they do have it, which is most of them, it's had a very good reception. And as Mick was saying earlier, the Air Solutions is very positive part of the value proposition. And then, of course, Astral was also in the market in Europe. And also, as we said earlier, we've been selling successfully our life support ventilation and it has a strong market position there, and the Astral is building on that and already generating good momentum.

The next question is from Andrew Goodsall with UBS.

I just want to talk about gross margin, just to understand where you are in the cycle. Previously, when you've launched a new product, you've been able to extract some costs, I guess, from manufacturers. So just trying to understand a little bit more where you are in that, and I guess, in particular, with the manufacturing mainly in Australia or Singapore at this stage?

So I'll answer the first part and then maybe handover to Brett to address the second part. I mean with regard to gross margin, in general, when we are successful in growing very well in our flow generators, it's very good in driving the topline, but it has some negative implications on gross margin, so you get the positives of the revenue and the implications on the gross margin. And as we are more successful in growing in the Americas, again, it's very good in driving the topline, but can have an impact on the gross margin. So this quarter you saw very strong growth in flow generators globally and you saw very strong growth in the Americas, and so there was some impact on the gross margin. But, Brett, do you want to provide a little bit more color and detail for Andrew into gross margin, and maybe the guidance of 60% to 62% going forward.

Yes. Sure, Mick. And so we just brought it down a little bit really on those factors that I spoke about. With the AirSense and Air Solutions as a whole platform, if you recall, we did elect to put the built-in comms and reinvest some sort of typical savings that we make on platforms back into the platform. I think that's really created quite -- along with whole ecosystem, I think very compelling value prop in the marketplace. So we've done that and we do obviously run cost-out programs and so on, but just in the short-term we've really been focused on ratcheting up supplies to really make demand. So this probably puts a little bit further back in terms of some of these cost-out programs, which will certainly run. But that might be quite short-term, until we catch up with demand properly, and then we can start running those, and start optimizing the factory on efficiencies and so on, rather than just supply. So I think in the longer-term, I'm talking a lot, but after a few quarters, I think we've got some good opportunities to drive some of the cost out the platform, as we did for S9.

The next question is from Sean Laaman with Morgan Stanley.

Just a question on mask in U.S., could you give us a bit of sense, please, Mick, on volume against price?

Yes, Sean, so actually I'm going to hand that question to Jim Hollingshead, who runs our Americas business. Volumes and price for masks.

Thanks, Mick. Sean, we're seeing good volume growth in masks. And as Mick said in prepared comments, the AirFit line is doing very well. It's being very well received across all three categories, and sequentially we continue to take share in all three categories. I know we've talked about a change in pricing strategy that we had several months ago, and what we're going to see I think is we're against the tougher pricing comp right now, probably through our March quarter than we have been. So I think what we'll see is, with the volume growth we'll also see some improved results, as the pricing sort of cascade through. I think its worth noting that there wasn't a cliff event in that. So what we did, when we changed our pricing strategy in the category, was we empowered our sales representatives to negotiate pricing on a customer-by-customer basis. And so I think we'll see that comparable in terms of ASP feather-in over the course of the second half of the year.

The next question is from David Low with Deutsche Bank.

Just sticking with that mask issue, I have worried for a while now that the mask re-supply business might slow down, as the number of masks to patients doesn't match needs. I'm just wondering whether you get any sense, as to what market growth has been like in the last quarter and even the last year across the mask end of all categories?

The line was quite soft. So for those who didn't hear the question, it was about mask re-supply and questions of volume really going over versus the sort of price, year-on-year price elements that Jim was talking about. Well, yes, as I said in the introductory remarks and as Jim just commented right now, actually our volume growth both on a year-on-year basis and on a sequential basis is pretty solid in masks. And we actually have pretty good market share data, which we won't share here publicly, David, with regard to each of those categories nasal, pillows, full face, right. So with the N10, the P10 and the F10, we believe we talk incremental sequential volume share from Q1 to Q2, and the products are doing very well out in the market. And to your broader question that the market segment of mask replenishment, it's actually growing quite well, not just within the U.S. market, which I think your question was related to, but also globally. And you saw that in our numbers. One thing that we are working very carefully on is ensuring patients get access to great care. When they get great care, so the informatics systems are there to allow the doctors to interface with them through the Air Solutions platform, when they're engaging with their own therapy through myAir, which is a personalized app for patients, we find that adherence goes up. The U-Sleep program we have running there drives adherence up by up to 10 percentage points, and that drives ongoing adherence and use. So we feel quite confident going forward that volume mask growth will be there. And as we get into more stable pricing environments that you'll start to see that come in through the revenue numbers. That's our long-term goal and that's what we're executing to.

And just one quick follow-up. Market growth rates, I mean clearly we've went through competitive bidding. I presume things have stabilized. Do you have any sense as to whether or do you have a view as to where the market growth has picked up in the last quarter or two?

I think when you look at a global level, we've got pretty good set of mid-single digit market growth. Our goal is not to accept market growth, but to drive market growth. As you saw our numbers this quarter, we are ahead of that global market growth and that comes from our investments. Brett talked about some of the investments in putting a CDMA chip in every device. That's an investment in driving a value proposition that is now allowing us to achieve very strong flow generator growth in our CPAP and APAP category. That's then going to happen in our bilevel category. We make investments, as we talked about in China and India, by partnering with local governments and partnering to developed infrastructure and education of physicians to facilitate the growth of both sleep apnea and respiratory care opportunity. So we think that those market growth rates are not only sustainable, but we are expanding beyond them with our cardiorespiratory care, our SERVE-HF investment and others.

The next question is from Steve Wheen with JPMorgan.

Just a question for Brett, just on the gross margin guidance, there is obviously a few moving parts there. I wonder if you could just separate out what the currency-related effect on that gross margin shift down that you are expecting for the remainder of this calendar year?

Going forward, Steve, if you look at currency impacts and it's so volatile at a moment, I'm kind of bit reticent than say anything. But if you looked at it right here now, whilst we're expecting a reasonable benefit maybe a quarter or two ago, that's really down, I think probably a positive benefit as little as 10 basis points going into Q3. And it will be a little better in Q4 and get a bit more of the Aussie coming through, because of that lag impact. But the fairly small now, given how weak the euro has been. I mean we're still in pretty reasonable position, because the Aussie is essentially offsetting that weakness in the euro. But we are not getting as a pronounced benefit as we might have seen, if we were talking about this 36 months ago.

So the major driver of you downgrading, I guess, your expectations around gross margin, what would be the major driver there?

Look, the trends around geographic around product mix, I think if you looked at likely trends there, I think that's just enough that we feel that the margin might trend down a little, and we wanted to just bring that guidance down a little to account for that.

The next question is from David Clair with Piper Jaffray.

My first question is on the flow generator number in the U.S. I'm just wondering if you can give us some more detail behind what drove the strength there. I mean are we seeing, is that Astral getting traction or it's just the new product launches in general? And then, you face another pretty easy comp next quarter, so should we think that I guess a result in this ballpark is achievable again next quarter?

Well, thanks, David. I'll take the first half of the question, and hand the second half to Rob. With the first half of where the growth came from in the quarter for the flow generators in the Americas, we launched both the AirSense 10 and the Astral to our U.S. sales force at the same time. It was at the Americas Sales Meeting in August, here in San Diego, and then the teams had to get out there and talk to their customers around the traps and get them up to speed. For the AirSense 10, the value proposition was built-in. And as I talked about, it's not about the AirSense 10, it's about the Air Solutions Healthcare Informatics ecosystem. And it sounds like a whole bunch of buzz was, but when you drill it down, what it does is it save costs and it saves time, and it saves money for our homecare provider customers. And so patients gets more engaged in their therapy and physicians allows them to do management by exception and manage a whole portfolio of patients. And so when you nail value propositions for three of your key constituents and they get it, you get a really quick ramp up. And now our U.S. sleep and respiratory distribution system is very good, second to none in the U.S. market. And so I think that's what drove the vast majority of the very successful sort of 25% year-on-year growth for the Americas in flow gens for the quarter. Your question was, is it Astral? Astral, we are just developing the U.S. respiratory channel for life support ventilation. It's the first FDA 510(k) clearance we've had of a life support ventilator. And we've got a very strong Respiratory Account Manager or RAM team out there around the United States driving the message. But it will take some time for the homecare providers to test the product and get to like it and for the doctors to get used to, how it works, doing the settings at the RT, the respiratory therapist level and driving it. So it's a much longer and deeper S-curve, but its impact in that first quarter was much less than the AirSense 10 and the Air Solutions platform. So that's the first half about the products. It's mostly AirSense 10 and much less Astral. Rob, do you want to take the thoughts for next quarter?

Yes, obviously, when I get specific about what's coming up on the quarters, but what we play is it the value proposition behind the AirSense 10 and the Air Solutions platform is quite solid. We're not resting on our laurels around that and our team is doing everything to promote it and convert our customers to it. Also, our in-house teams are still continually developing it, and we've got a lot of improvements, but again it come through in that system in the near-term future. So our view is that this value proposition should keep being seen by the customer, and the results will then speak for themselves. Similarly, with Astral, it's still early days in that product, and we believe that it's performing very well and getting a great response and we think that should continue. So over the long-term those products are really going to keep contributing for us.

And then any updates, where we are in terms of home sleep testing?

David, home sleep testing, are you talking globally or U.S. geography?

U.S.?

U.S. So within the U.S. market, we have sort of two models. We have our own ResMed model and then we have a retrospective data analysis, where we look at both public data and some private data. The proprietary data that we get access to and those models provide a range, and so we based on those two models believe that anywhere 35% to 45%. When you take a trialing 12 months anywhere between 35% to 45% of the sleep diagnostic tests in the U.S. were done using home sleep testing. But it's growing everyday, it's growing every quarter. And as broken out by geography and healthcare system type, if you take, I don't know, the northeast maybe Massachusetts and look at an area where you have a specialty benefits manager driving with a payer, a model, you can get areas where it's up to 75% or 80%-plus home sleep testing within that type of a system. And then you can get states in this out like Alabama, where there is a very strong push from the local physicians groups and it's only 5% of the tests within that geography. And so you've got a big range and it's very hard to put a precise number on it. So the range is 35% to 45%. But we expect it to go up every quarter, because the payers are driving it in and pushing that forward. Our challenge in making it all happen is ensuring that we provide the right systems to both ways of getting diagnosis done. So we have the ApneaLink Air platform, which is a cloud-connected home sleep testing system. That after the device is finished, the data go to the cloud, and you can see the doctor that day, and they have access to the information you got from that previous night. And we think that sort of efficiency in taking care of patients and helping doctors and helping the system work is very important for us. We also have partner with sleep labs, and we have the VPAP TX titration system, which is basically a box that has all of our algorithms in one box. And the respiratory PSG technicians, the RPSGTs and the sleep physicians can operate and prescribe Adaptive-Servo Ventilation or bilevel ST or APAP out of that. What we're seeing with that trend, as the home sleep testing of 35% to 45% increases to 40% to 50% and 45% to 55% overtime is that you get a mix shift in the devices that come out on the backend, so that you get more of a mix shifts from CPAP to APAP. So in our case, from our basic CPAPs up to our AutoSet type product.

The next question is from Saul Hadassin with Credit Suisse.

Mick, just following up on that commentary around that mix shift. I'm just wondering, if you're able to give us a sense of how far you guys are progressed in moving to APAP versus fixed pressure and how much runway you see in terms of uplift to that number?

So, Saul, as you know we don't provide the details of the sort of split by product category code, but we do talk about trends. And so as you see that 35% to 45% go to 40% to 50% and 45% to 55%, you can think that the sort of a baseline of a minimum of one-to-one of what you get out of APAPs from that for new patient setups. And then there is a halo effect, as physicians see the benefits of AutoSet that AutoSet has not only intra-night variability that it monitors breath-by-breath what's going on, it has inter-night variability that people might have more alcohol on a Friday or Saturday night or during flu season might have a high pressure needed to overcome apnea with inflamed upper airway or whatever. And so we are seeing a trend that's ahead of those numbers that you see in the home sleep testing one. But we are not going to break it exactly down for competitive reasons. But it's a positive trend, it has been and it will continue to be for quite a while in the future.

And just to follow-up on the COPD space in U.S., can you give us some color around any easing of restrictions for patients accessing the VPAP for COPD? And just what you're seeing with demand and patient accessibility to that specific device?

I'll hand that question to Dave Pendarvis.

Yes, Saul, there has been a lot of talk about trying to ease the restrictions for device like a VPAP COPD, so that you can get it to the patients who really need it and it can be just as easy to prescribe as other devices. At the moment, those efforts haven't yielded fruit yet, but it's still an effort that we see that is underway and we'd be optimistic that that device will be more available in the future. Obviously, it plays a good positioning in the marketplace and we've got our life support ventilation device in the U.S. that can fit other codes as well. So we feel like we're pretty well-positioned with an offering in each reimbursement category. And so that if those category shift one way or the other, we are positioned with the right device for the patients, gives them the right care, but we'll also fit the reimbursement category as the payers drive.

The next question is from Anthony Petrone with Jefferies.

Maybe just to begin on the AirSense 10 and to drive into that a little bit. Can you give us a sense first on pricing and how the series compares to prior generations of flow generators, say, the S9? And then, Mick, you shared quite a bit on just the benefits for DME customers and driving essentially savings and efficiency for their businesses. Can you maybe elaborate a little bit and maybe quantify how an AirSense 10 is benefiting above and beyond, say, an S9?

Yes. I'll hand that question to Jim, who runs our Americas. I might follow-up after.

So in terms of AirSense 10 and pricing, we're seeing that AirSense 10 pricing is actually holding up very well. The bulk of our growth in the quarter was with AirSense 10, and we think the value proposition is strong and the pricing has held up pretty strongly. In terms of efficiencies -- well, if I just say, the AirSense 10 as a flow gen, just as a product is an outstanding product. When you layer on top of that what we called the health informatics ecosystem and then set a solution that ride on that platform, you're adding extra to just the decision on flow generate that's already a winning flow gen. The way it drives efficiencies for our customers is, as Mick was saying, it takes our cost. For example, somebody has an AirSense 10 and they're using our U-Sleep platform, they are able to manage patients by exception, so they are managing patients based upon their compliance. They are automating to some extent, coaching for compliance. So that's both a revenue generator and a cost cutter. And we published a study, it was actually a randomized control trial a few months ago, that showed that for one of our customers who actually ran an RCT in this space, they were able to increase compliance by 10 points off of the very high standard of care compliance rate from 70 to 80, but they were able to cut their labor cost to 59%. And that's just one of the features in the solution and that's just the solution that's out now. There is a roadmap for solutions that are coming. So in addition to continue to provide just an outstanding product that's comfortable, quiet, easy to fit, easy to set up, we're providing solutions on top of that that are going to increase revenue and save cost for our customers.

The only thing I'd add on to that, Anthony, to what Jim said, which is really good comment, is as an addition for the ability to do remote assist, and so our HMEs can remotely, HME customers can remotely access their patients' devices over the web. So they can be on Air Solutions, on AirView specifically and interrogate the capability of a flow generator. So if a patient says, look, I've got a problem and the humidifier is not working, they are able to go online and say, well, actually, look I just did an interrogation on machine and it looks like it is working, but I see the setting is at 70 degrees Fahrenheit. What's your thermostat set on at home? And they can say real-time, well, it's set of 72, and they can say, well, you know what, it's not going to heat if it's set at 70 and the thermostat is 72. Why don't I change that up to 74, and it will heat up tonight. And that conversation, which is two minutes could have been a device driven into an HME. So the patient is upset. The DME sending it back to ResMed's tech service center, our team analyzing and saying no fault found, shipping it back, and then getting it back to the patient. All that inefficiency of the FedEx, the patient time, the RT time, our technician's time, it's all tax, it's all waste. We can eliminate that. It's good for us, as ResMed, allows us to be more efficient. It's good for our customers, our HME providers be more efficient. And most important of all, it's good for the patient, who gets the care, they can stick to the care and they're not without it and they are not upset about it. So those two examples of taking labor cost out and reducing inefficiency in the supply chain are just some of the benefits, the early benefits we're seeing with Air Solutions.

And real quick, just on buyback. Just an update there, where the program is and will you accelerate that, given where the gross margin outlook kind of is at this point and some of the FX headwinds?

Brett, you want to take that?

I mean we've been reasonably consistent I think on the buyback, in some years we've buyback more than others. The baseline we look at is certainly to buyback enough to offset the dilution from any issues to employees in terms of equity. That's sort of probably around between 1 million and 1.5 million shares as a baseline. And then, typically we do a little more than that. So we did 667,000 shares this quarter. We will certainly continue to buyback stock and it will just depend on kind of what's happening, and we'll have a baseline that we'll buyback and then kind of somewhat opportunistically a little bit after that, I guess.

And the next question is from Ian Abbott with Goldman Sachs.

My first question is just around competitive bidding around three. Just wondering if you could perhaps give your view on how big an event it is for the industry relative to see V2?

I will hand that question to Dave Pendarvis.

From our perspective in the sleep space and the respiratory space, so sort of excluding oxygen importantly, it's about 30% or so of the Medicare patients who are remaining. So you size the thing on an overall basis, think of the U.S. being 50% of our business and think of Medicare patients who are in the U.S. being roughly 20% to 25% of that. And then you've got of that Medicare population roughly 30% or so remaining in CV3. I think some of the estimates that are out there have broader product offerings from DMEs, including oxygen and other things would be greater than 30%, but from our patient perspective that's how we would size it up. Obviously, the rules that are out there are showing that it's going to phase-in in January 2016 with sort of a blend of half-and-half of the existing rates and half of the average rates from the other regions, and then that phases into a full average once you get to July 1, 2016. So that's where we see it going. There's not a lot of mystery about that. At this point, obviously we work with our customers and our customers have discussions with CMS all the time about, whether they can improve on that and do more in the rural areas, et cetera, for the few details that are left. But from a sizing perspective, it's relatively small size of our overall global business.

If I could ask Brett a question, just I'm not sure if I might have missed it, but just touching on the contingent consideration write-back, can you perhaps expand on that?

Yes, sure. That was in our SG&A, and that was release that we did 12 months ago and that was just impacting the comparable for this year. Something we did at this time last year.

The next question is from Craig Collie with Macquarie.

A couple of questions from me. The first on the strong flow gen numbers. So any chance of, I guess, splitting that out between what you think are new patients to I guess sleep therapy, and what the remaining portion, in terms of existing patients, upgrading the old flow generators?

Good question, Craig. I'm going to hand that to Jim Hollingshead.

It's a great question, Craig. We're not going to guide on that. If we had the data -- we don't have clear data on that to begin with, but if we did we probably wouldn't guide on it.

Second question on bundling, any updates on whether the pilot started and I guess any detail around that?

We don't have a lot of details yet on what that pilot would include other than it's suppose to be six markets on sort of the control arm, if you will, and six markets on the bundled arm. But CMS hasn't come out with the details on that. They were suppose to be able to start anywhere in 2015, and there has been no start and no announcement of when it will start. Obviously, they can delay it or start it whenever they like, but you'd expect them to give the market a good notice. So we're waiting to get the details on what that might look like, but we're prepared to support our customers anyway we might need to.

And you remain relatively relaxed about that, I guess, given that the fact it's going to be appearing to be no minimum supply requirements?

Actually, Craig, we don't know that. We don't know if there will be no requirements or if required two masks a year or one mask a year or how many filters and how many tubing. We actually know nothing about. They haven't given any details. As you know, Craig, we operate in a 100 countries and we operate in many different environments, including where there bundle payments and whether or not. And we sell in some markets through pharmacies, in some markets we work with otherwise to get direct to patients. And what we've found is that in the markets, where bundling has happened we partner with our homecare providers and we've been able to ensure that not only are the homecare provider is taken care of, but really importantly that the patients are able to get access to masks and accessories. And the person that really wants this new mask is a person that's putting it on every night. And if it's difficult in the reimbursement environment to get it, particularly in the U.S., with increasing high deductible health plans and health savings accounts, we're finding a lot of people who are going online to get those types of devices. And so we think that a lot of HME providers, they are establishing those sort of online networks, and we are partnering with them in many different countries in the world. And the good news about the government is it will take a while. They will have to do the pilots and they'll have to get feedback from their constituents, because these are the Medicare beneficiaries, and it will take some time for them to ramp up. It will give us time and Jim's team time to partner with the U.S. homecare providers. And what we'll do is get global earning from Germany and France and many other countries, where we operate in that environment, and make sure that the homecare providers, the patients and the healthcare system is properly taken care of. And we think that can be done quite efficiently.

The next question is from Joanne Wuensch with BMO Capital Markets.

Well, I have a couple of questions. You sounded more optimistic on M&A on this call than you have at any other stage. Is there something that has changed for you?

No, Joanne. I just think that as you talk about capital management, you have to talk about the three arms of it. One arm is making sure that we continue the share buyback, as Brett talked about, it's opportunistic, but it's steady. The second arm is obviously our dividends, which we've established a number of years ago and have increased most years, and we announced another $0.28 today from the board. And the third arm is M&A. And I just wanted to make it clear that with $400 million of net cash and access to over $700 million through a syndicate loan facility that we declared recently, we have the dry powder to do that. There is nothing eminent on the radar screen that we can talk about or that's there right now that we should talk about.

And one of the things that you said, if I heard you correctly, was that there was some M&A or some acquisition revenue in the quarter. I don't remember seeing a press release regarding that. Could you remind me what it was? And what that revenue might've been in terms of dollars?

Yes. Thanks Joanne. They are pretty small, and I'll hand that to Rob Douglas to talk about any M&A in the last six to 12 months.

Yes, sure. So Joanne, we had previously talked about some small acquisitions of some Australian distributors that we've made over the last few quarters and it also included a small one in New Zealand. But what's happening in those markets is they are unique different markets. And it's quite unusual particularly in Australia, where there is strong reimbursement for getting diagnosed with sleep apnea, but little contribution from government or any public systems even towards any of the treatment. And so it's a unique market, quite differently structured, and we thought that we could help really develop the market there and drive awareness, if we're a little bit closer to some of their customers and patients. So we're just really trying a marketing experiment in those countries and we'll let you know the results, as they become relevant.

The emails that I am getting so far are questions and you can hear it throughout this whole call about your flow generators. And it's going in two directions. One, wow, can they do 20-something percent next quarter? And two, doesn't masks and accessories follow a strong flow placement? So how would you respond to that?

Well, Joanne, as you know, we don't give guidance on a revenue basis and we don't give guidance on the category basis around flow generators. So look, we do think it was an excellent performance clearly from both our Americas team and our Europe and our Asia-Pacific team on the flow generator category, but that's the result of three to five years of amazing product development work from engineering teams in Munich, Singapore, Sydney, San Diego and Halifax. And so that great level of biomedical engineering, software engineering has created a value proposition that the marketplace is finding compelling. And we were surprised at how successful it was in that first quarter, because we thought it would take some time to walk through. Some of these savings take time for the provider and take time for the patient to get, it did come out of the gate strong, and we do think there is a long runway. The value propositions that payback over many, many, not just quarters, but years for our customers and our patients and our homecare providers and suppliers. So we think it goes pretty well along that front. I don't know, if anyone else has got anything to add to that. Jim?

I think it's actually pretty simple, which is, we are taking share in masks sequentially, we're taking share in flow gen faster, even faster.

We are now at the one hour mark. So I will turn the call back over to Mick Farrell. End of Q&A

Great. Thanks, Ellen. In closing, I'd like to thank the more than 4,000 strong ResMed team from around the world for their contribution to our recent product launches and for their continued commitment to our long-term goals. We remain focused on changing the lives of literally millions of patients with every breath, and we remain inspired by our long-term aspiration of changing 20 million lives by 2020. Thanks for you time today. And we'll talk to you again in 90 days.