Hello, and welcome to the ResMed First Quarter Fiscal 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. We ask that you please ask one question then return to the queue during the Q&A session. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Amy Wakeham, Vice President, Investor Relations and Corporate Communications for ResMed. Please go ahead, Amy.

Great. Thank you, Kevin. Hello, everyone, and welcome to ResMed's first quarter fiscal year 2022 earnings call. We thank you for joining us. This call is being webcast live and the replay will be available on the Investor Relations section of our corporate website later today, along with a copy of the earnings press release and presentation, which are both available now. With me on the call today are ResMed's Chief Executive Officer, Mick Farrell; and Chief Financial Officer, Brett Sandercock. During the Q&A portion of our call, Mick and Brett will be joined by Rob Douglas, our President and Chief Operating Officer; Jim Hollingshead, the President of our Sleep & Respiratory Care business; and David Pendarvis, Chief Administrative Officer and Global General Counsel. During today's call, we will discuss some non-GAAP measures. For a reconciliation of the non-GAAP measures, please review the notes in today's earnings press release or the appendix of the earnings presentation. And as a reminder, our discussion today may include forward-looking statements, including, but not limited to, expectations about ResMed's future performance. We believe these statements are based on reasonable assumptions, however, our actual results may differ. You are encouraged to review our SEC filings for a discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. With that, I'll turn the call over to Mick.

Thanks, Amy, and thank you to all of our stakeholders for joining us today as we review results for the September quarter, our first quarter of fiscal year 2022. Our first quarter results demonstrate strong performance across our business, buoyed by extremely high demand for our sleep and respiratory care devices as well as continuing recovery of many markets from COVID-19. We achieved double-digit growth at both the top and bottom line metrics of our business. I want to be clear that achieving these results has not been easy this quarter. We are dealing with an unprecedented what I would call perfect storm of elements, including the COVID recovery, but also including a competitor recall that's – a recall that's ten-fold higher than any in the industry to date, and supply chain constraints that are impacting not only our industry but multiple industries worldwide. I'm incredibly proud of ResMedians across our global teams, many of whom are working 24x7 to get our products and solutions into the hands of patients who need them most. Despite these extraordinary efforts, we know that we have not been able to meet all of the demand. As the market leader, our competitor, that is in the number two market share position, announced a recall mid-June that has created unprecedented dislocations in the market. In effect, we are facing the challenge of providing the volume for our own number one market share position and also trying to meet as much of their number two market share position as possible around the world. Given the supply chain crisis, our suppliers have been allocating components to us on the inbound side. We have, in turn, been forced to allocate our products on the outbound side to our customers. We have been clear on the guiding principles for…

Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the first quarter of fiscal year 2022. As noted, all comparisons are to the prior year quarter. Group revenue for the September quarter was $904 million, an increase of 20%. In constant currency terms, revenue increased by 19%. Revenue growth reflected increased demand for our sleep and respiratory care devices, driven by both sleep patient flow recovering from the COVID-19 impacted reduced levels experienced in the prior year quarter and by increased demand in response to the recent product recall by one of our competitors. In the September quarter, we estimate the incremental revenue from COVID-19-related demand was approximately $4 million compared to $40 million estimated incremental revenue from COVID-19-related demand in the prior year quarter. Excluding the impact of COVID-19-related revenue in both the September 2021 and September 2020 quarters, our global revenue increased by 25% on a constant currency basis. Looking forward, we expect negligible revenue from COVID-19-related demand. In relation to the impact of our competitors' recall, we estimate that we generated incremental device revenue in the range of $80 million to $90 million in the September quarter. Taking a look at our geographic revenue distribution and excluding revenue from our Software as a Service business, our sales in US, Canada and Latin America countries were $491 million, an increase of 22%. Sales in Europe, Asia and other markets totaled $315 million, an increase of 23% and or an increase of 21% in constant currency terms. By product segment, US, Canada and Latin America device sales were $276 million, an increase of 40%. Masks and other sales were $215 million, an increase of 5%. In Europe, Asia and other markets, device sales totaled $218 million, an increase of 24% or in…

Great. Thanks, Brett, and thanks, Mick. Kevin, I'd like to now turn the call back over to you to provide instructions and then run the Q&A portion of the call.

Thank you. We’ll now be conducting your question-and-answer session [Operator Instructions] Our first question today is coming from Matthew Mishan from KeyBanc. Your line is now live.

Good afternoon and I hope everyone is doing well. Mick, the first question is how do you ensure that your devices are going to new patient fits versus a replacement device for Phillips?

Thanks, Matthew. Well, it's easy in markets where we're fully vertically integrated, like Germany, South Korea, and other markets worldwide Australia, New Zealand and others and we're able to work directly with those patients and the doctors to make that happen. It is more difficult in other markets like France or the US where we've worked through providers. But it's been pretty clear from our competitor there that they want people to go and register the devices, and they're going to focus, they said 12 months on just replacing those devices. And frankly, that's theoretical and legal duty to go do that. And so they are laser-focused on that. And so our work is to make sure -- we see the demand from patients directly in those vertically integrated markets and through distributors. And we're pretty confident that the vast, vast, vast majority of our devices go to new patients. There may be some going to replacement patients who are going online or going through certain aspects to get around and go faster than the Philips process, but certainly, the vast majority are going to new patients. The challenge for us is that the demand of being the number one player and also covering as much of the demand of the number two players as possible. We've reached the capacity of those critical components coming in the front end. And so we're not even able to meet all of that new patient demand with -- due to those supply chain constraints.

Thanks. Our next question today is coming from Chris Cooper from Goldman Sachs. Your line is now live.

Thanks for taking my question. Look, Mick, I know when you set the guidance of $300 million to $350 million for the recall, you were sort of unable to quantify masks and reluctant to do so. I was just hoping for an update today on whether you are seeing, in fact, any associated benefit on your mask sales due to the significant increase in CPAP that you've seen in the quarter?

Yes. Thanks, Chris. It's a great question. And as you know, we don't provide detailed guidance and we sort of went further than we ever did because of the wide variety of sell-side estimates of what the incremental revenue could be. And we gave that last quarter. We gave that $300 million to $350 million device rough guidance, right? It's not perfect because we're predicting 12 months out in a very uncertain environment. And as Brett just reiterated, we're sticking with that, knowing that we actually had $80 million to $90 million during this quarter that comes out of that, right, and then we've got the remainder to go fight for those components and be able to deliver that over the next nine months. In the mask side, it's a very complicated story, and there's a number of moving factors, and we can get into this, and I can handle Jim Hollingshead, who runs our Sleep & Respiratory Care, can give further detail on this question or if there's a follow-up question on it. But what I can say on mask is we're not going to give public guidance around it, but there's a number of moving factors. You saw our mask growth during the quarter, it was globally at 8%, and the US market was around 5%. The headwinds we have is that, while our number two competitor is not serving as many new patients as they should, and we're not able to take all that demand, there are less new patients being set up. And ResMed -- no matter what the device was, ResMed had a very good, well above 50% uptake rate of those new masks on new devices, no matter who was the manufacturer. And so that's a headwind for our business if there's a new…

Thank you. Our next question is coming from David Low from JPMorgan. Your line is now live.

Thanks. Mick, if I could just get you to touch on the guidance, the $300 million to $350 million. I mean, given we've seen $80 million to $90 million come through this quarter. Could we just talk a little bit about how you expect this to be phased through the rest of the year, given the supply side constraints, please?

Yes. Thanks, David. And as I said in the prep remarks, there's a perfect storm hitting the industry. And so there's so many dynamics impacting us that I'm going to call this afternoon working on this. I'm shifting my attention, which usually focuses purely on customers and governments and making sure the demand is there for this is an amazing industry that we serve and sleep apnea and asthma, and I'm spending a lot more time with suppliers. So with that, our best reading of the future flow of components is that, you look at it, and as Brett said in the prepared remarks, that we actually had reasonably good flow, some through inventory and working through that in the quarter of $80 million to $90 million here in the first quarter. It's going to be very difficult here in the December quarter with component shortages and very difficult in the March quarter with component shortages. I do think the components, as we are getting some increased signals and actually doing some great engineering to work around different suppliers and to design in new components. I feel much more confident about the June quarter 2022, so our Q4 fiscal year 2022. And so that's sort of qualitative guidance to it. We're not modeling it out. We've got the $300 million to $350 million. You can subtract off the $80 million to $90 million and model it. But if I was looking at it, it would be tougher in December and tougher in March right now and then freeing up in the June quarter and then September quarter, even more so as some of our new designs and new components get to roll in and we get that flow going. But look, it's changing day by day, week by week. I'm looking forward to my call this afternoon to potentially impact that. But even if I get agreement with someone today, it takes quite a while, as I explained sort of with that example of the five levels deep in the supply chain to get that to flow through from a foundry, to a chip manufacturer, to our factory, to a product, to the warehouse to then be able to sell it to a customer. So I know that's not a specific quantitative guidance, David. It's probably the best I can give you in terms of color for fiscal year 2022. And the hope we have in Q4 and Q1 2023, as we start to see those components really start to free up.

Thank you. Our next question today is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Hi, Mick. I hope everyone is safe and healthy. Hey Mick, specifically, on the Philips recall, if I could, could you walks us through the dynamics in the U.S. versus OUS? How sticky are these share gains? And unless our math is wrong, it almost comes across like there is some sort of mix and match on the masks versus the devices. Just give us some additional color. And really what we are trying to understand is, okay, you get $350 million, $400 million, whatever million incremental, how sticky are these? And how do you all plan for this? Thank you for taking my questions.

Thanks for the question, Suraj. And since I've answered the first three, I'll just correct that our guidance was $300 million to $350 million, not $350 million to $400 million, what you just said, but $300 million to $350 million 0 for the fiscal year. But Jim Hollingshead, you run this business. Do you want to do you give as much as you can on the color to Suraj?

Sure. Thanks, Suraj, for the question. I think it's a very good question. And I'm just going to back up to what we're trying to do in the business, independent of the recall and then talk about the context of the recall. With the launch of AirSense 11, our aim is to put in place a product that once again significantly improves the patient experience and significantly improves workflows and lower costs for providers and also puts us in the position midterm, long-term to improve outcomes. So AirSense 11 is a device that we put on market anticipating long-term share gain. And we have internal goals for that number. And we don't talk about that number publicly, but our plan was to take share with that device. We're launching that device now into a situation where the number two player in the market is out of the market for new patients. And so obviously, we're going to take quite a lot of share, as we can put that product into the market. And we have the two best products on the market in AirSense 10 and AirSense11. So your question is how sticky will that share be? Our goal is to make it quite sticky. But obviously, we have good competitors in this market, and we don't anticipate landing at 100% share, when they recall clears, but we want to have a number that's higher than what it was before we launched AirSense 11, and we're pretty confident we can do that. And just to cap on that, the answer is probably already too long, but to cap on that, I will say that we've managed to take a few points of mass share during the recall as well, and our aim would be to keep some of that share as well. So I think we will emerge from this stronger, than when we entered it. And our offerings are clearly the best offerings on the market.

Thank you. Our next question today is coming from Gretel Janu from Crédit Suisse. Your line is now live.

Thanks. Good morning everyone. Just on U.S. mask, I just wanted to touch a little bit more on that, given that it did disappoint slightly versus expectations. So has there been any change to the ReSupply dynamics in the U.S. market in the quarter?

Thanks, Gretel. I'll have a go and maybe Jim can join in as well. But I get the ReSupply is actually very strong. We have Brightree ReSupply. We also have Snap technology that has been incorporated into our Brightree platform that has driven incredible ReSupply. If you remember, that really was going strong throughout 2020. So we have some incredibly high comps when you look at the percentage growth rate of masks from this quarter a year ago, even despite COVID hitting this time a year ago, our mask ReSupply and maybe because of that somewhat with the HMEs focusing on it, our mask ReSupply was through the roof this time of a year ago. And even with those comps, we're still achieving some very good rates in ReSupply. As I said, there are headwinds in it when we're not taking care of all new patients and ResMed gets well over 50% of all marks, some new patients, no matter whose device it is in the global market. That's a headwind that we're dealing with while this recall continues. But the tailwinds of ReSupply are actually well incorporated into those figures. And I think if you look outside the U.S. market, look at Europe, Asia and the other 140 countries we operate in, you saw pretty strong 18% double-digit growth in masks in those areas and global growth of around 8%, which is very strong given the headwinds of new patient setups. But Jim, any further color on the U.S. or beyond?

Yeah. I would just say, probably end up repeating some of the key points, but we had a very large comp. And there was a tailwind created by COVID, which is patients, we've talked about this before over the last three or four quarters, but patients are more focused on having clean masks. I mean COVID has created a mentality, if I want a new mask; I want a fresh mask for patients. And then our HME customers in the U.S. have been focused on driving resupply into their installed base of patients. And I actually think that within the context of the Philips recall, driving revenue out of the installed base of patients has once again become quite an important emphasis for our HME customers. And then there are the headwinds. The headwinds of the whole market is not being served, so new patient starts are down. And because we had slower new patient starts during the span of COVID overall, because labs weren't open, there's a little bit of headwind on resupply, because the installed base didn't grow during that period the way we might have anticipated it to. So it balances out. The dynamic inside of the installed base is quite good. So the installed base of patients continue to be resupplied at a very healthy rate.

Thank you. Our next question today is coming from Craig Wong-Pan from RBC. Your line is now live.

Thanks. Just the question for me was on the different regions, which are trending below pre-COVID levels and which ones are above. Could you just give any color which different markets are and in which category? Thanks.

Thanks for the question, Craig. I'll hand that to Rob Douglas, our President and Chief Operating Officer.

Yes. Thanks, Craig. The issue really is that all of our markets are performing very strongly. The actual recall impacts it global. So we're seeing that really excess demand. And just with different dynamics, as Mick said before, you saw that very strong in the mask on all of it. I actually couldn't call out any particular region and saying it wasn't doing really well. There are specific countries, and sometimes it's local when there's a lockdown, there might be a shortage of diagnosis capacity, and you'll see that. But our teams really run through that and manage around that. And as I said, just to recap, the strong performance was across all countries.

Yes. And I'll add on maybe just a little bit of color there, Craig. I mean it's hard to say, because you said, what regions, and as Rob said, we can't say what regions. And even if you would ask a more specific question, what countries. It'd be difficult to say there, because in the U.S., there are 50 states with all different regulations, and some of them are 100% plus capacity and some are at 75%, 80% within the state level. And then cities going up and down, and China is not just there. It's different regions there as well. So there are ebbs and flows on a daily, weekly, monthly. But what we can say is on aggregate, it is getting better and better. And it's nice to see some cities, some states, some countries at 100% plus that they're getting through it, they're finding ways to embrace digital health, home sleep apnea testing and remote setup, so that we're able to get the flow of patients going through. Then the challenge we have right now is that we don't have the components of those patients with prescriptions come through to meet all that demand, which is the real critical rate limited right now as well. Thanks for your question, Craig.

Thanks. Our next question today is coming from David Bailey from Macquarie. Your line is now live.

Thanks very much. Good morning, Mick and Brett. Just as part of the recall, ResMed is going to be getting more exposure through the patient referral network. I'm just wondering if you've had any feedback or observations from physician, DMEs, patients in relation to RedMed's product offering. Just wondering if there's any observations from that group that may have used ResMed less frequently before.

Yes, David, it's a good question. I think everyone had exposure to ResMed products. We're the market leader, everyone knew the brand name. Everyone had tried it, and we get a large percentage of the prescriptions and actually the share in the 140 countries we operate in. But as you said, there are some doctors who liked a particular aspect or a technical aspect or an emotional aspect really or a workflow aspect of some of our competitors' devices or software systems. And to your question, they are getting, if you like, forced exposure, because it's the only one available for new patients, to ResMed's amazing innovation on the device, the software, the systems and the flow. And if they had some form of prejudice of device from the '90s that they tried or something and have been stuck with the brand, they're now trying a new brand. And I do think, to Jim's point earlier, that some of that brand-new share of somebody who was in another brand's componentry area says, wow, this actually is great. My prejudice was wrong. And I think we will get a lot of that share that we'll maintain forever. And I think certainly, the exposure of patients to the brands and to understand that has increased. I mean, the Net Promoter Score for ResMed amongst patients is rising, and the knowledge about the brands, for better or for worse, through this awful recall is, they're getting to know what device they have. And that awareness is actually good for the whole industry, because I think physicians and providers and technicians have always been aware of the brands and had prescription biases and others that we absolutely influence through our really strong commercial, clinical sales teams. And now we're getting that brand name to new customers as well. So I mean, the short answer to your question is, yes, we've got exposure to new consumers, new physicians, new providers. And we think a lot of that will be sticky because of the value we provide. The brand is the brand that represents 50% lower labor cost if you're setting up a patient when it represents three less clicks to get a report, when it reflects an API that can link into your Epic or your Cerner or your National Health Trust system, really efficiently, it becomes really part of your day-to-day workflow. And that's the type of share that we think is part of the ResMed brand and will maintain our strong growth for a long period to come through for this period.

Thank you. Our next question today is coming from Margaret Kaczor from William Blair. Your line is now live.

This is Maggie Boeye on for Margaret. I wanted to ask one on gross margins today. I would say that the gross margins for the quarter came in a little bit better than expected, although still contracting. Can you talk about some of the dynamics within that and how you are leveraging the increase in cost given the supply constraints and the freight issues today? And how you are looking at future gross margins specifically in the upcoming quarters? Thanks.

Yes. Brett, I'll hand that question to you.

Yes. Thanks, Mick. Hi, Maggie. Yes, the gross margin is pretty consistent with where we were at Q4. And the big impact we're still seeing is on freight costs, that's been really significant. So we've been -- that's a big headwind for us. So that's in it, some FX impacts. I think we've had a deal with which is heading this quarter as well. We were -- we did have a little bit of benefit on product mix with the higher acuity devices. So I think of the level Astral sellers, ASV devices they helped the total product mix this quarter, which helps on the gross margin side. So that was a little bit of a tailwind for us. But having said all that, there's still challenges, still pressures on freight still pressures that will come through on component costs and so on as well. So we need to keep an eye on that, but product mix has been quite good for us and that's helped. Yes. So overall, pretty pleased with how the gross margin ended up for the quarter.

Thank you. Our next question today is coming from Sean Laaman from Morgan Stanley. Your line is now live.

Thank you. Good morning, Mick. Good morning team. Great set of numbers. Mick, I know you typically don't give sort of much discussion around what you've observed on price in the quarter or on product mix. But that said, you've talked to the supply constraints, yet you've delivered the device numbers that you have. How would you -- or could you help us characterize what you've observed on the price/volume mix somehow in the quarter? Thanks, Mick.

Yes. Thanks for the question, Sean. And you're right, we don't provide details around pricing. But look, clearly, this is -- these are unprecedented times, costs. As you saw, and even just in Brett's last answer there around gross margin and going up. Freight costs, I mean, sea freight, there are over 100 ships just two hours north of me here on the I5 stack outside Long Beach that can't get through. So the sea freight inventory sitting there. It's coming through higher cost than it's ever been. Air freight, we have literally chartered planes to fly from Singapore to L.A. and Singapore to Atlanta to get our products to market with this demand. And so those types of things increase costs dramatically. And we have to do that. They're actually consumer planes, but no consumers in them and literally just ResMed device is taking off the seats and overhead, and so that has impacted our costs. One thing we are doing is with AirSense 11, we are launching that with a price premium. It is excellent innovation. It is not just the best in ResMed for eight years, it's the best in the market, I think, ever, as a platform. And so that deserves a price premium, and so we will be extracting that. And look, we have been working with customers and eliminating some certain discounts and rebates and other things that we had used in the past because those don't apply now. And so we're eliminating some of those costs. And look, this is a customer-by-customer, region-by-region discussion that happens on a daily basis with our commercial team. But clearly, we cannot take all of the costs that have been given to us, and we are working with since launch and with appropriate removal of other elements and pricing conditions with customers on a customer basis to address this over time. But our goal -- our laser-focused goal is to make sure we take care of every patient that comes through the channel. And I think that's what you saw during this last quarter.

Thank you. Our next question today is coming from Anthony Petrone from Jefferies. Your line is now live.

Hey, guys. This is Frank on for Anthony. Two questions from our side. Number one, what's the reception to Philips' recent US clearance of the replacement the abatement among US DMEs? And then a follow-up. We're hearing a lot on US hospital staffing shortages. Is there a potential tailwind for Matrix Care, or what are some of the dynamics there looking ahead for the rest of the year?

Thanks for the questions, Frank. Look, I actually have no idea what customers are thinking of the replacement phone versus the replacement devices for our competitor. That's their job to take care of that. If I was a patient, I'd want to replace a device. I wouldn't want to replaced phone. That's what I'd say. But I have no idea on that. It's a very, very lack of strong communication that I've seen publicly on that. And I can tell you, as N equals one, I have nothing to add to that. But on the US hospital front, I do think, as I said in my prepared remarks, that we are seeing facilities-based SaaS -- the census rates at skilled nursing facilities are starting to pick up the numbers of patients in beds is picking up. And we actually think -- as you said, that there's a pent-up demand for technology to help with that. But Rob, do you have any further color on MatrixCare and the Brightree home health and hospice?

Absolutely. It's actually an underpinning of our SaaS strategy that it's been a long-term issue that getting the right staff and keeping them and dealing with the cost of training them and getting staff who are providing really good patient experience has been a big challenge for all of these care providers, not just hospitals. And so we believe that our technology solutions actually make life better for the staff, make it easier for them to do the job, easier to get trained, and more likely to stay on the job and also more efficient. So, staffing challenges actually are another driver of our strategy, just like as Jim mentioned earlier, the concerns about cleanliness and respiratory health are a driver of our core sleep strategy, these staffing shortages and challenges do drive our SaaS strategy long-term. And long-term, that will be a tailwind for the business. Many, many short-term factors going on there. But we've -- as Mick said earlier, we're seeing good improved performance despite challenging times, particularly for skilled busing facilities across our SaaS businesses.

Thank you. Our next question today is coming from Steve Wheen from Jarden. Your line is now live.

Thanks. Good afternoon Mick. I just wanted to ask, I imagine it's quite difficult to differentiate what sales of devices are relating or going into the Philips opportunity versus the organic growth of your business. But if I do strip out the $90 million out of your device revenues for this quarter and then strip out the $40 million of vent sales in the PCP, you're getting in excess of 20% growth. Is that how you characterize what's going on with the new patient starts?

Steve, thanks for the question. And yes, good morning to you there in Australia. I think you're not wrong that we would have very strong double-digit growth. And that actually makes sense and has traditionally happened when we launch a new product like the AirSense 11 as our first platform launch in eight years. And as I said in my prep remarks, I mean, I'm blown away by things like the personal care system, watching the care check-in personal therapies or watching the sleep technicians and sleep doctors live at that California Sleep Society engage not just with the presentation from the marketing teams, but then sitting down with the clinical teams and walking through this device, I think it's a device that deserves to take double-digit growth and take a lot of share. And so I think your calculations there are spot on in terms of this is a double-digit growth time for ResMed in the device space irrespective of this competitive recall, irrespective of the comps that we had around COVID and vents and the tailwinds of vents and headwinds of sleep apnea patients coming in a year ago that we're seeing really strong growth of the sleep space. And as Jim said earlier, our goal is to entrench people in these amazing workflows that have lower costs and better outcomes and drive therapy to patients in ways never seen before. The part that I'd highlight is this huge take-up of patients signing on to Mya and having a personal relationship with their therapy through the smartphone with Mya is at unprecedented levels. I'm talking double the uptake of AirSense 10. That's one of the highlights that I think has been missed through this. So, Steve, thanks for the question and the opportunity to highlight that.

Thank you. Our next question today is coming from John Deakin-Bell from Citigroup. Your line is now live.

Thank you. I was just hoping to get a little more color on where you think the sleep testing capacity is in the market. Are we back to pre-pandemic levels? So just give us a little more color on new patients and where you think that is kind of trended over the last couple of quarters.

Great question, John. I'll hand that to Jim Hollingshead.

Thanks, John. As we said in Mick's prepared remarks, testing capacity is mostly back to normal. I would say, in the US market, we're mostly back to normal, and there's actually probably some upside into that because a number of sleep labs increasingly during the COVID crisis, home sleep testing was more readily adopted by sleep labs and maybe would not have taken it on before. And so probably -- you still probably got slightly fewer people going to labs but a much broader use of home sleep testing. And I think in general, you can say in the US, testing capacity is back to normal, maybe a little bit up, although the shape of it looks a little bit different. And then other reasons, it's really -- it varies quite a lot by what's happened with the Delta variant, what's happened with health care systems. But in general, I would say new patient starts in, say, Europe, are coming back to pre-COVID normal. Some countries are a little bit different. And in some cases, you've still got health systems that are a little bit backed up, right? So especially in hospital-based systems the diagnosis may be back up, but the actual capacity to set patients up on therapy may be now a bit of the bottleneck. So there's pent-up demand and things like that. But I would say, in general, we're almost back to normal. And I would add to that, one of the reasons we decided to move forward with the acquisition of Ectosense is that we really want to make it much easier for patients to understand whether or not they have a sleeping issue. So in some markets Ectosense will be used as a screener. And in some markets, Ectosense is already used as a diagnostic tool. But the patient experience with that technology is really, really simple, really easy to do. And so we're working with that acquisition to open up the funnel even further.

Our next question today is coming from Lyanne Harrison from Bank of America. Your line is now live.

Good morning, everyone. Thank you for taking my question. I just wanted to talk about inventory levels a little bit, both at ResMed and also at the distributors. So in your balance sheet, I see higher inventory levels compared to last quarter. Can you talk about what that might mean for device sales going into second quarter? But then also, if we look at the different regions you're operating in, from our perspective, we're seeing greater bottlenecks at set up in the United States than in Europe. So do you have a sense of what inventory levels are like with your distributors between the United States and Europe?

So that's a great question, Lyanne, and quite detailed. I'll hand the first part of the question about ResMed's inventory and what's been happening with the build up there to, Brett. And then I'll hand the second part about the inventory at the HMEs, HCPs and distributors, as they call them in Europe, between the US and Europe to Jim Hollingshead. So Brett, over to you first, and then Jim

Yes. Thanks, Mick. Hi, Lyanne. Yes, on the inventory that -- a lot of that field reflects the components of raw materials part of our inventory. And we're really -- it's really in response, I think, to the elongation of supply chains and the bottlenecks and congestions that we're seeing. We are looking to support production for any upside in electronic components. So it says there's a lot of components that are ready to go once we get electronic components. So we've been pretty deliberate on that. We're looking to increase safety stocks as well, really just trying to deal with these supply disruptions. And the other big one we're seeing is that just with the increased sea freight, air freight, lead times, it's sort of blowing out to two, up to four weeks. So that's kind of more inventory that we're carrying, and I think probably a lot of companies will see that as well. So those logistics delays, I think, are causing a lot more, what I call, stock in transit coming through as well. So it's a combination of those factors. We're also running, for example, the dual AS 10, AS 11 platforms, and that's really there to support demand into the market. So we're doing that as well, which might be a little more unusual than what we would typically do. So the combination of those factors is really driving up our inventory levels a little bit low. Inventory days have been reasonable. So that's really trying to support overall production when we get those components in, I think, is the crux and the thesis there.

Our next question today is coming...

Hold on. Sorry, Jim is going to answer the second part of that.

I'll just add to Lyanne's -- no, that's fine. I'll just add to second half of Lyanne's question, which is, I think it's very safe to say that our customers and distributors have very little inventory. They are running right now, I think, with unusually low inventory levels. And so when you take the number two manufacturer out of the market and you under serve the market, it creates a very, very difficult situation. So we're reporting what we think is obviously a strong quarter, but we are working frantically to lift our manufacturing supply and deliver product to market. And as an industry, the manufacturers in this industry are under-serving demand. And so it's put our customers in a very difficult situation, and they're frustrated and we understand that they're frustrated. And we're doing the very best we can to build products as fast as we can and deliver it as fast as we can because we know that the market is undersupplied, and it's putting our customers under a great deal of pressure.

Thank you. Our next question today is coming from Saul Hadassin from Barrenjoey. Your line is now live.

Thanks very much, guys. Apologies, if the line a bit crackly. But Mick, just a quick question on SaaS, you mentioned growth increasing to the upper single digit by the end of fiscal 2020. Can you just talk to what the drivers of that increase are what the key drivers of that uplift are likely to be give you that confidence?

Yeah. Thanks. I'll start and hand to Rob maybe for some further details. Look, we have Bobby Ghoshal, our new President of the SaaS division. And I can tell you, he's hitting the ground running these last five weeks. He's been in there. And certainly, we're seeing some great opportunities for accelerating growth. I think, look, the externalities that I talked about in the prep remarks that we covered earlier, that skilled nursing facility census is coming back, so demand is coming back. And we see the book, the pipeline book starting to build up. And in a SaaS business, that's great because when the pipeline builds up, you get the conversions and then it turns into revenue. So we get pretty good visibility, even three, six, nine months out to seeing sort of an acceleration of growth. So I feel pretty confident that those census rates and others that census rates are going up and that we are going to see with MatrixCare is really good products, growth in the MatrixCare business to start accelerating there. In addition, Brightree and Snap, although they're annualizing some of the acquisitions of Snap, we're seeing really good adoption of those resupply and some really new innovative tools that the Brightree R&D team are bringing to market. And Bobby was previously COO there and has a good knowledge of that. I think that will accelerate throughout the rest of the fiscal year. But Rob, there's so many -- the eight verticals there. What other elements do you have reasons to believe they can accelerate this business?

I think you've covered many of them, Mick, but also there's a real execution focus on the team, and we're really confident that they're driving execution. Mick mentioned the innovation. There's a strong innovation mentality in that team. And we've got great new offerings and great new ideas coming to market as well as really streamlining our focus. And a lot of it's also execution on the sales front and having the sales team being able to build the pipelines and then increasingly doing face-to-face visits in getting these deployments underway as things ease up. So we've got a lot of confidence in that business.

Thank you. Our next question today is coming from Dan Hurren from MST Marquee. Your line is now live.

Good morning. Thanks very much. Just looking at the fourth quarter, you guided to this $300 million to $350 million. And at that time, you were quite explicit that we should not expect the uplift until the second half. And now today, you're suggesting uplift comes in first quarter and fourth quarter, and you delivered almost what, 30% of that total up 54% in the first quarter alone. So – and on top of that, Brett, has just said you've got the small material inventory build. So can you explain what has – what's changed since then? And why – what mechanics of this drop off in second, third quarter would be? Thanks.

Yeah. Thanks, Dan. So look, it's a complex and moving dynamic. But the rate-limiting step here is electronic components and specifically the semiconductor chips from a particular manufacturing and a supply chain that, I know the names and the people and them talking to them to try and get this supply. The trouble is that there are multiple other industries. And demand for semiconductor chips that are through the roof. And obviously, everyone on this call follows many other industries. You've heard this, we're not alone in medical device industry, automotive industry, consumer communications industry, even consumer products are often cloud connected now and have these limitations. So look, things haven't gone better these last 90 days in terms of supply. They've got very difficult. And our visibility, as I look at the June quarter, I feel very confident in the semiconductor chips coming through. But in December and March, it's hand to mouth of these devices and chartering planes and working with redesigns to make sure the semiconductor chips go so much in. And so our best reading of the dynamics, even though we feel in aggregate, that $300 million and $350 million, which is which is a pretty broad range in itself and has some plus or minus on the top and the bottom end of it, that we feel stronger on that June quarter with the supply that we see coming through, whereas it's not as strong. I'm closer to the December one now, and I know it's going to be tough and March as well. But look, things can change on a day-by-day, week-by-week, month-by-month. And what we're doing is we're being as open as we ever have around supply chain as open as we ever had and transparent about sort of the variability, if you like, of the flow of these components that come in. I can tell you though, we get one more chip, it goes into one more device and goes to one patient. And that's the truth. There is no stockpiling of this inventory. It goes all the way straight through to production. And we have an incredibly efficient plan in Singapore and also in Sydney and also manufacturing in Atlanta, Georgia, and we are not constrained on our internal capacity. As soon as that part comes in, that rate-limiting bottleneck part, it goes on to a product, gets to a customer. And that's what we are focused on. And I'm giving as much color as I can qualitatively around that.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Farrell for any further closing comments.

Well, thanks, Kevin, and thanks again to all of our shareholders for staying on an extra five to seven minutes here and joining us on this call. I'd also like to thank once again the 8,000 ResMedians, many of whom are also shareholders who listen to this call for their dedication and hard work, helping people breathe better, sleep better and live better lives outside the hospital in 140 countries. Thanks for what you do today and every day. Thanks especially to our ResMed heroes on the front lines during this crisis, patient care, technical service, sales teams working with customers every day, but I'd like to add a special call out to our amazing teams on the front lines of supply chain, management production, distribution, all of you are heroes. Every chip you get is a patient's life change. So, I look forward to talking with you all again all of our stakeholders here in 90 days. Thank you. I'll turn the call back to Amy to close out.

Great. Thanks, Mick, and thanks, everyone. We appreciate your interest and your time. If you have any additional questions, please don't hesitate to reach out directly. This does conclude our first quarter 2022 call. Kevin, you may now close this out.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.