Welcome to the Q4 Fiscal Year 2018 ResMed Incorporated Earnings Conference Call. My name is Tim, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.
I'll now turn the call over to Amy Wakeham, Vice President, Investor Relations and Corporate Communications. Amy, you may begin.
Great. Thank you, Tim. Good afternoon. Good morning, everyone. Thanks for joining us and welcome to ResMed's earnings call for the Q4 of fiscal year 2018 18 ending June 30, 2018.
This call is being webcast live and the replay along with a copy of the earnings press release and our investor presentation will be available on the Investor Relations section of our corporate website. Joining me on the call today to discuss our quarterly results are Mick Farrell, our CEO and Brett Sandercock, our CFO. Other members of management will be available on the Q and A portion of the call following our prepared remarks. During our call, we will discuss some non GAAP measures. For a reconciliation of the non GAAP measures, please see the notes to the financial statements in today's earnings press release.
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, actual results may differ. Please refer to our SEC filings for a discussion of the risk factors that could cause actual results to differ materially from any forward looking statements. I'd like to now turn the call over to Mick.
Thanks, Amy, and thank you to all of our shareholders that are joining us today as we review results for the Q4 of fiscal year 2018. On today's call, I will review top level financial results, some business highlights and a few key announcements from the quarter. Then I will hand the call over to Brett who will walk you through our financial results in further detail. So first, our top level financial results. We achieved another quarter of broad based strong performance and I'd like to recognize the continued hard work that our 6,000 strong team has put in to achieve these results.
Revenue once again grew by double digits, 12% on a headline basis and 10% on a constant currency basis, led by our sleep and respiratory care therapy businesses, performing well across global markets in both devices and masks. We also achieved good continued growth in our cloud based software as a service business. In addition to strong top line growth, our focus on operating leverage has resulted in continued bottom line success with non GAAP operating profit improving 19% year over year. Our efforts across the board from top line to bottom line performance resulted in non GAAP diluted earnings per share of $0.95 So now some business highlights across our sleep and care business. Turning to a discussion of our business and its operations, let's start with this part.
We continue to pioneer and lead the industry in connected health and digital health. We now have over 8,000,000 patients supported by our cloud based patient management system called AirView and well over 5,000,000 patients with 100 percent cloud connected devices that are available for remote daily monitoring. In addition, over 1,000,000 patients have signed up to access and review their own data with our personal patient engagement app called MyAir. Our big data efforts to gather actionable information continue to increase exponentially and we now have over 2,500,000,000 nights of medical sleep and COPD data in the cloud. These data support our efforts to analyze information and unlock value for our customers, enabling us to take action to better support home care providers, physicians, payers and ultimately the most important customer, the patient.
We continue our efforts to improve market access by working with payers across many geographies to improve reimbursement. Last quarter, we highlighted the revised reimbursement that went into effect in Japan during April. This resulted in our Japanese customers increasing their adoption of our cloud connected devices. This increased activity continued in the Q4 and we saw another period of very strong sales in Japan. During the quarter, France continued to benefit from telemonitoring reimbursement incentives that went into effect last year.
We expect year over year growth to return to normal patterns in France throughout fiscal 2019. Further on the topic of reimbursement changes, our largest sleep apnea therapy geographies, the U. S, France and Japan getting beyond these and starting to look a little deeper, South Korea began reimbursing diagnosis and therapeutic treatment for sleep apnea during July. While the market size in South Korea is not nearly as big as the U. S, France, Japan or Germany, this is a really positive sign that our market access efforts are raising awareness and public health and the importance of diagnosing and treating sleep apnea.
Also in July, in the United States, the Centers For Medicare and Medicaid Services or CMS issued a proposed rule to make changes to the bidding and pricing methodologies under the competitive bidding program. Here are my 2 key takeaways. 1, overall these changes will be a net positive for patients, for home care providers and for ResMed. And 2, it's great that CMS is listening to industry advocates and responding to our concerns that have been impacting patients for many years. On the masks and accessories side of our business, in Q4, we had another very strong quarter with global constant currency growth of 13% in the category.
This was led by continued strong demand in our Europe and Asia markets, which grew a very strong 16% on a constant currency basis in masks and accessories. We are seeing continued good traction with our AirFit F20 full face mask and our AirFit N20 nasal mask products across all geographies. We're also encouraged by the success of our N20 N20 Classic, which is positioned specifically for countries in Europe and is performing really well in those countries that we targeted. This is the validation of our approach to create unique solutions for specific geographies. The U.
S, Canada and Latin America teams achieved very solid revenue growth of 12% in masks, driven by continued success of the AirFit F20 and the AirFit N20 masks with patients, physicians and our home care providers. I'm proud of our team taking market share, growing ahead of the market in the U. S, Europe and Asia and globally. On the devices side of our business, we saw solid year over year constant currency growth of 8% globally, driven by strong growth in the U. S.
Of 9% on a year over year basis in devices. We continue to grow our device market share as healthcare providers and physicians are choosing and scripting ResMed respectively because of our quality, sustainable value proposition of air solutions and the connected health and digital health outputs that come from air solutions, AirView, MyAir and the whole portfolio of cloud based solutions that we have. Let's now turn to a discussion of our out of hospital Software as a Service businesses. This part of our business continues its trajectory of steady growth with revenue up 12% year over year. Brightree which makes up the vast majority of this category remains the top choice for home medical equipment companies who use third party software providers.
Brightree's growth and leadership position in the health IT industry was recently recognized by Healthcare Informatics Magazine as a top 100 healthcare information technology company for the 5th year in a row. I'm really proud of that part of our global ResMed team. We continue to invest in options for the future and to drive further growth in our software as a service offerings. On July 9, we closed the acquisition of Healthcare First, a company offering electronic health record software, billing and coding services as well as advanced analytics to both home health and hospice agencies. Healthcare First enables these providers to optimize their clinical, financial and administrative processes And we are proud to welcome the talented team from Healthcare First to ResMed.
Brightree also has home health and hospice and offerings that we think will combine very well with Healthcare First. The Healthcare First acquisition complements these existing solutions from Brightree and expands our footprint even further into the large and growing home health and hospice segments. These markets will continue to grow swiftly as an aging population shifts the lower cost out of hospital healthcare settings. The combination of Brightree and Healthcare First capabilities will allow us to drive further enhancements and innovation for home health and hospice customers, ultimately increasing the business efficiency of our provider customers and improving outcomes for our patients. Now let's discuss the progress we have made in executing on our operating excellence initiatives across the organization.
We have delivered on our 4th quarter in a row of double digit net operating profit improvement and we're very pleased to once again deliver operating leverage to improve our bottom line. Non GAAP income from operations improved 19% in the quarter, combining solid revenue growth and stable margin with very disciplined growth in SG and A, which grew by just 3% constant currency and research and development, which grew at 6% constant currency. I want to reemphasize that our operating excellence initiatives are about the long term. It's about working more efficiently, being focused and working smarter. We're taking a disciplined and thoughtful approach and we will continue to invest in market leading innovation across our businesses to continue to deliver strong organic growth.
On that front, our product development teams continue to deliver meaningful product innovation. As I mentioned last quarter, we have just launched our brand new Quiet Air technology that is part of our AirFit F20 full face mask. And we're really pleased to see good customer response to this mask during the quarter which continues to lead in the full face mask category over all our competitors. Last quarter, we also discussed the controlled launch of Mobi, the first ResMed branded portable oxygen concentrator for people with chronic obstructive pulmonary disease and for others who require oxygen therapy. We continue to gain insights and gather data on our go to market model for POCs.
We are getting ready to scale this business. Tens of millions of COPD patients need our help and we are preparing to do just that. Now for some business highlights in clinical research. A fundamental element of our mission here at ResMed is not only to deliver life changing products and connected health solutions to patients worldwide with sleep apnea, COPD and other severe respiratory and chronic disease conditions, but to also spread awareness about these conditions and the availability of good diagnostic and treatment alternatives. As part of our efforts to raise awareness of sleep apnea and COPD, our medical affairs team focused its priorities to harness and analyze the over 2,500,000,000 nights of medical sleep and COPD data available in our AirView cloud based system.
These big data driven studies are producing important results that are worthy of publication in the peer reviewed press and throughout medical conferences. ResMed is pioneering digital health research in order to drive better patient outcomes. During May, at the annual meeting of the American Thoracic Society, ResMed presented and supported over 18 studies in sleep apnea and COPD. We are not just leading the market in sleep apnea and COPD in terms of market share, but we're also leading with the best and top quality world class medical research. I won't go into details on this call of all these 18 studies.
However, I'd like to mention a few that I believe highlight the importance of our products and services for all of our customers from physicians to providers to payers and especially our most important customer the patient. The first study relates to the global prevalence of sleep apnea. We convened a global team of leading researchers and key opinion leaders who looked at the prevalence studies from the many different countries around the world where they've been conducted. The team propensity matched the population characteristics from these studies to calculate the new global prevalence estimate of 936,000,000 people worldwide who have mild, moderate or severe sleep apnea. That is higher than the prevalence of type 2 diabetes, cardiovascular disease many other chronic disease conditions that are widely regarded as a global epidemic and a public health crisis.
If you remove the mild sleep apnea sufferers from the analysis, the experts estimated there are over 424,000,000 people with moderate or severe sleep apnea. Considering this, we and others in our space have barely scratched the surface of this disease and its prevalence around the world. Sleep apnea remains a huge opportunity and a strategic imperative for ResMed. We have to raise awareness and get help for these people, 100 of millions of people who are suffocating each night. We need to get them aware so they can get diagnosed and get treated.
On that front, we have 2 joint venture investments that are driving sleep and sleep apnea awareness. In our joint venture that is called SleepScore Labs and our brand new joint venture with Alphabet and the Verily arm of Alphabet that is a joint venture that was announced during the quarter. Through these types of partnerships, we plan to continue to invest to help identify, engage and enable the 936,000,000 people with sleep apnea to find a path to diagnosis and world leading connected health therapy from ResMed. The second study to highlight is an economic analysis that demonstrates the successful in home combination of non invasive ventilation and oxygen therapy versus oxygen therapy alone. Nick Hart and his colleagues analyzed the economic impact of combining non invasive ventilation and portable oxygen concentration and found that adding these 2 together saves money to the tune of $50,000 per quality of life adjusted year.
That's an amazing result and we believe it will help drive adoption of the use of non invasive ventilation. The 3rd study I want to quickly mention relates to the patient benefits of a mask resupply program, which is a program to automate the process of resupplying masks by validating insurance, contacting the patient to determine if they need a new mask, fulfilling and then shipping that mask and then billing for it. Most insurance systems will let a patient receive a new mask 2, 3 or even 4 times per year. In a study of approximately 100,000 patients, half were on a resupply program and half were not. We demonstrated that for a patient on a resupply program, the likelihood of therapy termination after 1 year was reduced by more than 50% and there was a significant increase in the daily usage of PAP therapy among patients on resupply.
These are meaningful outcomes and this demonstrates that resupply programs are an effective way to help patients achieve long term adherence to therapy and thereby improve overall health care outcomes and lower health care costs. These three studies also demonstrate ResMed's commitment to support research from our over 2,500,000,000 nights of medical data to change the trajectory of 2 of the world's toughest and harshest chronic diseases, sleep apnea and COPD. Before I turn the call over to Brett, let me close with this. We had a great fiscal year 2018 ending June 30 and we finished the year with solid revenue growth and even stronger operating profit growth. ResMed is positioned well as we head into fiscal 2019.
Our connected health strategy is advancing across multiple markets. We've seen continued success with our new mask and device products and we have a robust pipeline of new products and new connected health and digital health solutions. We are positioning ResMed for the long term, driving top line and bottom line growth into 2020 and well beyond. We're going to execute on our strategy to lead the medtech field to create value with digital health solutions to slow chronic disease progression to also reduce overall health care system costs and most importantly to improve outcomes and quality of life for our ultimate customer, the patients. With that, I'll turn the call over to Brett for his remarks on the finance in further detail and then we'll go over to Q and A.
Brett from Munich to Sydney, are you there?
Yes. Thanks, Mig. In my remarks today, I will provide an overview of our results for the Q4 of fiscal year 2019. As Mick noted, we had a strong quarter. Group revenue for the June quarter was $623,600,000 an increase 12% over the prior year quarter.
In constant currency terms, revenue increased by 10%. Taking a closer look at our geographic distribution, including revenue from our Brightree Software as a Service business, our sales in U. S, Canada and Latin American countries were $346,700,000 an increase of 10% over the prior year quarter. Sales in Europe, Asia and other markets totaled $236,500,000 an increase of 15% over the prior year quarter. Sales in constant currency terms in combined Europe, Asia and other markets increased by 9% over the prior year quarter.
Breaking out revenue between product segments. US, Canada and Latin America device sales were $189,900,000 an increase of 9% over the prior year quarter. Masks and other sales were $156,800,000 an increase of 12% over the prior year quarter. The revenue in Europe, Asia and other markets device sales were $162,200,000 an increase of 12% over the prior year quarter or in constant currency terms a 6% increase. Fast and other sales were $74,300,000 an increase of 22% over the prior year quarter or in constant currency terms a 16% increase.
Globally, in constant currency terms, device sales increased by 8%, while masks and other sales increased by 13% over the prior year quarter. Brightree revenue for the 4th quarter was 40 $400,000 an increase of 12% over the prior year quarter. During the rest of my commentary today, I'll be referring to non GAAP numbers. The non GAAP measures adjust for the impact of amortization of acquired intangibles, restructuring expenses and tax related expenses associated with U. S.
Tax reform and an adjustment of foreign tax credits. The prior year comparable excludes amortization of acquired intangibles. We've provided a full reconciliation of the non GAAP to GAAP numbers in our 4th quarter earnings press release. Our gross margin for the June quarter was 58.1% compared with 58.2% during the same quarter in the prior year. Our margin was essentially consistent with the prior year and reflects typical declines in average selling prices largely offset by manufacturing and procurement efficiencies.
Summicron exchange rates and likely trends in product and geographic mix, we expect gross margin for fiscal year 2019 to be broadly consistent with our Q4 FY 2018 gross margin. Moving to operating expenses. Our SG and A expenses for the quarter were $156,800,000 an increase of 6% over the prior year quarter. In constant currency terms, SG and A expenses increased by 3%. SG and A expenses as a percentage of revenue improved to 25.1 percent compared to the 26.6% that we reported in the prior year quarter.
Looking forward and subject to currency movements, we expect SG and A as a percentage of revenue to be in the range of 24% to 25% for fiscal year 2019. Consistent with historical trends, Q1 FY 2019 will likely exceed this range, while the second half of the fiscal year is expected to track at the lower end of the range. R and D expenses for the quarter were $39,700,000 an increase of 8% over the prior year quarter or on a constant currency basis an increase of 6%. This increase reflects incremental investments across our R and D portfolio. R and D expenses as a percentage of revenue was 6.4% compared with 6.6% in the prior year.
Looking forward and subject to currency movements, we expect R and D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year 20 19. Amortization of acquired intangibles was $11,600,000 for the quarter, a decrease of 1% over the prior year quarter. Stock based compensation expense for the quarter was $12,500,000 Non GAAP operating profit for the quarter was 166 $1,000,000 an increase of 19% over the prior year quarter, while non GAAP net income for the quarter was $136,300,000 an increase of 24% over the prior year quarter. Non GAAP diluted earnings per share for the quarter were $0.95 an increase of 23% over the prior year quarter, while GAAP diluted earnings per share for the quarter were $0.76 Foreign exchange movements positively impacted 4th quarter earnings by $0.02 per share, reflecting the favorable impacts from the stronger euro relative to the U. S.
Dollar, which were partially offset by the stronger Australian dollar. As discussed in the previous call, we implemented a strategic global workforce review that was completed this quarter and resulted in a restructure expense of $7,500,000 being recorded in our 4th quarter results. On a GAAP basis, our effective tax rate for the June quarter is 22.1%. As discussed during the previous quarter, we have recorded additional income tax expense of 100 and $6,600,000 relating to newly enacted U. S.
Tax laws. This calculation is permitted to be provisional for 12 months after the enactment of the law and as part of the current quarter activity, we further refined our calculations, which resulted in additional income tax expense of 5 $800,000 being recorded in our 4th quarter results. Additionally, we recorded a one time charge of $7,200,000 reflecting the cumulative adjustment of our foreign tax credit position. On a non GAAP basis, which excludes the one time charges I've just discussed, our effective tax rate for the quarter was 14.9%. I'm now turning to guidance on our expected fiscal year 2019 effective tax rate.
You will recall from last quarter, we have to take into account 2 offsetting impacts, unfavorable Australian tax reforms and favorable U. S. Tax legislation, along with estimates of the geographic attribution of our income. Taking into account these factors, we estimate that our fiscal year 2019 effective tax rate will be in the range of 22% to 24%. Cash flow from operations during the Q4 was $129,400,000 reflecting strong underlying earnings and improved working capital management.
Capital expenditure for the quarter was $17,600,000 Depreciation and amortization for the June quarter totaled 31 point $7,000,000 And during the quarter, we paid dividends of $50,000,000 Our Board of Directors today declared a quarterly dividend of $0.37 per share, representing a 6% increase on our previously declared dividend. We also continued with our share buyback during the 4th quarter and repurchased 250,000 shares for consideration of 25,900,000 dollars As Mick noted, subsequent to quarter end, we closed on our acquisition of Healthcare First. Healthcare First revenue in calendar year 20 17 was $29,000,000 At June 30, we have $281,500,000 in gross debt and $92,800,000 in net debt. Our balance sheet remains strong with modest debt levels. At June 30, total assets were $3,100,000,000 and net equity was $2,100,000,000 And with that, I'll hand the call back to Amy.
Thanks, Brett. We will now turn to the Q and A. I'd like to remind everyone to limit yourself to one question and one follow-up. If you have additional questions, please feel free to get back into the queue. Tim, we are now ready for the Q and A portion of the call.
Thank you. We'll now begin the question and answer session. Sal Hadassen with UBS is online with a question.
Excuse me. Good morning. Mick, can you hear me?
Can you hear you loud and clear? It's actually good evening here, Saul, in Munich.
Good evening. Good evening in Munich, Mick. Can I just ask about masks, particularly in the U? S? So a strong growth rate there.
You mentioned market share, taking market share. Can you maybe comment a bit more on the contribution from growth in the resupply business and cognizant that Brightree had some acquisitions during the quarter as well. Just in terms of the performance of ResMed resupply and Brightree, just how they are contributing the resupply growth as evident in the mask growth rate this quarter?
Yes, absolutely, Saul. And we talk about sort of the devices growing in the mid single digits and the masks growing at the high single digits. And so clearly at 13% currency growth of our masks and accessories business in the U. S, Canada, Latin America being 12% on a constant currency basis, we clearly took some share. And you saw in our sort of organic growth within the Brightree business that was also in parallel actually at 12 percent on our software as a service business.
And clearly that does through Brightree resupply and Brightree Connect and ResMed resupply there are coming but also through those resupply programs. So there's a combination of both of them coming into play into that really solid 12% growth number in the U. S. And really good global growth of 13% constant currency as well.
Thanks. And just one follow-up on that. Just the launch of Quiet Air, how significant or how mature was that? When did it come actually when was it rolled out during the quarter?
Yes. So it was rolled out during the quarter. And as you know, Sol, our market is not uniform and so it's multiple contact points, 3,000 contact points within just one geography of the U. S. And multiple in many of the markets that we go to through home care providers.
So it's account by account and doctor by doctor as they get to see it and start to write prescriptions for it and home care providers start to adopt it in our patient markets like Australia and the U. K. You've got to get the word out and they've got to be the social media drives and all that to get that technology there. But look I personally use one of these devices in Quiet Air. The ability to have that level of noise reduction to well below the air conditioning the most quiet air conditioning system in anyone's bedroom is incredible and a great advance.
And I think this technology has lots more legs than just 1 quarter and we've got a lot of runway to go in quiet air. But it was really just launched during this last quarter and so we've got a lot of runway ahead on that.
All right. Thanks very much, Mick.
Thanks, Tom.
Margaret Kaczor with William Blair is online with a question.
Hey, good evening guys and thanks for taking the questions. First of all, I wanted to touch a little bit on the device growth that we saw internationally. Can you give any more color in terms of how big of an impact Japan had? Are you seeing more patients getting diagnosed? Are you seeing more fleet upgrades?
And how should we
think about that grades? And how should we think about that benefit over the next kind of 12 to 18 months, let's call it?
Yes, Margaret. Thanks for the question. Look, we had some really good growth in devices, Europe, Asia and our global markets, 6% on a constant currency basis and actually even better growth within U. S, Canada and Latin America of 9%. We had the benefits of the changes in reimbursement in both Japan and France which are the sort of S curves of growth that we've been talking about over the last number of quarters and those S's will start to taper off as we talked about.
But those devices that are now set up are 100% cloud connected. And if you go back to the study I referred to in the prepared remarks, if you have a resupply program and if the patient has cloud connectivity, you start to get adherence rates in the 80% range, just being cloud connected and using MyAir. And then you add on the resupply program, which leads to even greater adherence. That combination we think will be powerful to be able to drive long term mask and accessory growth across that patient group. So if you like getting a connected device in there is the gift that keeps on giving.
Got it. And then just to follow-up with a similar question in the U. S. Obviously, the U. S.
Device number ended up being quite strong again. And so I think generally when you talk to investors, they'll be surprised that you continue to take share you're continuing to see strong underlying market growth. So is this are you seeing existing DMEs that maybe are already ResMed purchasers buying more of them? Are you seeing more of the fleets moving towards ResMed? Are you seeing that incremental buyer come in and say, I'm going to standardize on ResMed?
Thank you.
Yes. Thanks for the follow-up, Margaret. Look, I think it's a combination a little bit of all of the above. If our devices are able to save you 50% labor cost on setting up the devices, it's really Adam Smith's invisible hand helping you choose ResMed at the home care provider level. And if you're a physician and writing prescriptions and you can do this AirView based management by exception and automated connectivity and follow-up with your patients through the Air Solutions platform and particularly through AirView, then you're going to write more prescriptions for our products.
So it's both of the above. And look, I do think to your third point, we are betting on the winners. The people that are adopting ResMed's cloud connected devices are the ones that are taking share in their geographies, whether it's the Southeast of the United States or whether it's Western France, and now in Japan. And so I don't think that this is the end of it. I think this is the start of it.
And as we said in the prepared remarks as well, Margaret, we're not satisfied with the current market growth, particularly with these new prevalence numbers showing over 900,000,000 people with sleep apnea. We think that our partnership with Alphabet and Verily and our partnership with Pegasus Capital and Doctor. Oz to just drive awareness of sleep and then specifically sleep apnea, so that we get more patients into the diagnostic and therapeutic funnel is a strategic imperative for ResMed and we're not going to accept not being able to drive that market growth rate up as well as continue to take share.
Anthony Petrone from Jefferies is on the line with a question.
Thanks again for the question. Just a few contribution questions in the quarter. Just wondering what acquisition contributed there? And maybe just an update on Mobi as that's under controlled launch and what your expectations are perhaps into the Q4 for Mobi? But maybe once it's under a full launch in 2019, how big of a market opportunity you see Mobi?
And what does the margin profile for that product look like? Thanks.
Yes, Anthony. Thanks for the two questions. I'll take them in reverse order. I'll take the Mobi question and hand the contribution question over to Brett in Sydney. But yes, look, I'm over here in our Germany health care ResMed Health Care office here in Germany and there's really a great market in this biggest economy in Europe for portable oxygen concentrators.
And so we think long term there is a really exciting opportunity globally for ResMed with portable When you talk about market potential, look, there are a number When you talk about market potential, look, there are a number of players in this space. We're not alone in having a portable oxygen concentrator. What I think we bring to the table is the ResMed brand, ResMed quality, reliability, the awareness amongst pulmonary doctors of our brand And I do think that will contribute a lot to the prescriptions that we've started to get and will continue to get with Mobi. But as I said in the prep remarks and you alluded to there Anthony, we're doing a controlled launch and then we will go to a stronger larger launch as we refine that go to market model. So throughout FY 2019 2020 and beyond you're going to see ResMed be a major player in the global portable oxygen concentrator market.
And it won't just be having a device that filters nitrogen. It's going to be a device that's smart, that moves with the patient and is mobile, is small, quiet, comfortable, high quality oxygen output and also ultimately a system that will have connectivity and will link up to air solutions and all the value that we provided in digital health across the rest of our business. Brett, you want to take the first part of Anthony's question about contributions from organic versus inorganic?
Yes. Sure, Mick. Thanks. Yes. Anthony, we've got I mean, we've made a couple of tiny acquisitions over FY adding.
So, in terms of group results, it was really pretty much de minimis in terms of that contribution. It's pretty much organic growth that you're seeing.
Thanks again.
Thanks, Anthony.
Joanne Wuensch is on the line with BMO Capital Markets with a question.
This is Steve on for Joanne.
Can you guys hear me okay?
Can hear you loud and clear, Steve.
Awesome. Hey, I appreciate some of the early commentary on the Healthcare First integration and just piggybacking on the last question. But can you talk about some of the strategy behind combining it with the Bright Tree offering and maybe some of the revenue and cost synergies we should be focused on in the long term?
So, clearly healthcare first. I mean, as Brett said, it was de minimis. I mean, we only really just closed it recently. And so there was no sort of revenue impact in the numbers that we talked about in FY 2018. But as we look forward and as Brett indicated in the prep remarks, it's about $30,000,000 run rate trailing revenue in this business and we expect that to grow pretty fast.
The home health and hospice sectors of out of hospital care are very fast growing. We've got an aging population. People want to age in place. They don't want to be in hospital. They don't want to be in an acute care setting.
And so we're really seeing great growth just secular growth within those two segments. And Healthcare First has an excellent offering. And Brightree Home Health and Hospice has an excellent iPad app and capability and really user friendly for the home nurses and the folks that are walking around hospice agencies and traveling around it to people's homes for the home nursing and home health. So we are really excited about the strategic combination of those two parts of our business and we have some really strong leadership that have experienced at much larger companies within this space. And we're very excited about those sectors.
So you're going to see ResMed invest for organic and new organic growth across the out of hospital software part of our business.
Okay, great. And just as a quick follow-up, just a competitive question. Now that we have sort of one more quarter under your belt, have you guys seen any further impact from the mass from Phillips?
Yes. Look, I mean, we don't go into details around other than the fact that we're taking share versus our competitors. But I might hand to Jim Hollingshead to give a little more detail. He's President of our Global Sleep business can maybe talk a little bit about the innovation of N20 and F20 and how they're beating the competition and how that works. Jim?
Yes. Thanks, Mick. Steve, as Mick says, we don't go into details about specific really in general about competitor shares, specific competitor products. I'll just say that we feel very comfortable with our mask portfolio. The whole portfolio continues to perform very well both in the U.
S. And in global markets. The F 2020 full face mask is performing extremely well and continues to be in a very strong leadership position in the market with the quieter event adding to that offering. And we're very confident in our portfolio.
Okay, great. Thanks for taking the questions.
David Bailey from Marquis is on the line with a question.
Yes, good morning. It's David from Macquarie here. Just my first question was in relation to the TiMobi and portable oxygen concentration. I've seen some of your competitors look at employing a direct to consumer strategy. You previously said you're looking at partnering with the HME channel in terms of your own strategy.
Can you just talk through how you plan to
go about things on a
go forward basis in the POC space?
Yes. Thanks for the question, David. And yes, as you mentioned, there are a couple of competitors doing a variety of different go to market models. Our goal is we really like our U. S.
Home care provider customers. The HMEs are a great customer base. We partnered with for decades to help grow this market. And they're the best people to start working on reimbursement models and to understand Medicare reimbursement and private care reimbursement for POCs. And so we're really partnering with them on that.
And we're also partnering with them on the best way to get the product to patients who want to pay cash. And so you'll see us work with the channel and help support them with many different models in this space. But rather than because I'm sure our competitors will be reading this transcript or listening live to go into the details of that go to market model, I'll just say that our model is going to be more partnership with the channel than what we're seeing I think from some others is competition with the channel. I just don't think that's a smart move. I think you want to partner and understand how you can grow as you have for a number of decades other parts of business like our sleep apnea franchise that we've grown incredibly well with our U.
S. HME partners and our French home care providers and Japanese home care providers and growing those spaces. And so obviously every market in the world is different. We have different go to market models in Germany or Australia, New Zealand. But I sense your question was about the U.
S. Market where our focus is partnership with the HME channel and helping both of us win. And additionally, really most importantly helping that patient win and get access to ResMed's POC if they want it.
That's great. Thanks. That's very clear. And just a follow-up from me. Just on in terms of resupply and some of the new markets that you've entered France and Japan, the U.
S. Obviously eligible for after 4 masks for and how does the resupply criteria or eligibility criteria and the rest of world compare to what you see in the United States?
Yes, David. It's a good question. Let's just talk about the resupply side of our business. In the U. S.
Every payer operates differently. There's some private payers that it's 2 full month systems per year, 10 or more cushions per year. There's some that are 3 full month mask systems and even some that are 4 full mask systems. I think what's really about is checking in with the patient, because you want to make sure that that patient wants a new mask, is ready for a new mask and is engaged in their therapy. And David as you heard me say in the prep remarks, when you engage with the patient around a resupply program and you check-in with them, do you want to be emailed, do you want to be text, do you want to a live call?
And you ask them how, when and where they want to find that out. And to what level do we partner to with the channel to check on reimbursement and to help them provide shipping and follow-up care to that patient. We're seeing really good growth of that resupply business. So look it's a long term play. I think you saw in the quarter really good mass growth from us not just in the U.
S. But also in Europe. Every market is different. You actually find sometimes in patient pay markets like Australia, New Zealand, Singapore, U. K.
That patients are even more active in working with their adherence models because it's their own mask and they get to choose when they want it. But the really important thing is ask the patient, get in touch with them and we're seeing really good success as you saw in the quarter there.
That's great. Thanks for the detail.
Thanks, David.
David Loe with JPMorgan is online with a question.
Thanks very much. If I could just start with the restructuring. So we saw another round of restructuring going through. Just if I could get you to comment on whether that's now complete. And then sort of to the operating leverage, which has been such a strong driver of earnings in recent times, Is a lot of what you're seeing going forward in the guidance reflecting the benefit from that restructuring?
Restructuring? Or is there broader opportunity on the operating leverage front?
Yes. I'll hand the first part of the question over to Brett who will talk about the restructuring and then maybe Brett you can have a go at the operating leverage and hand back to me or anyone else on the team that you think appropriate.
Sure. Thanks, Mick. Yes, Dave, we I mean, we've got that's kind of like the global restructure within Q3 and we did flag up that we'd have this final charge coming through into Q4. So that's essentially that one that's completed. And then then probably you see sort of some of that benefit from the Q3 restructuring I guess coming through.
But that was really around strategically looking at kind of where we wanted to balance resources and so on, what we felt we needed to invest in. So it's a much broader piece in terms of what we're trying to do. If you look at the kind of operating leverage, we're pretty committed on that and we're really looking to see how we can do things smarter, how we can do them differently. And then really looking at, okay, how can we achieve scale? And then as we grow revenues, grow SG and A at a lower click than that.
So there's a lot we're doing there and what we're doing around business excellence program and things like that. We're really trying to make sure that we're operating as efficiently as we can. But I don't want you to feel we're really cognizant that we'll be continuing to invest for the long term sustainable growth in the business. So we won't back off that whatsoever. But we do think we can manage in terms of efficiencies and scale and then kind of how we deliver particularly around kind of back office if you like.
So we're continuing that program, but the aim is to support the long term sustainable growth.
Okay, great. I mean, I might just switch topics. The sales line was pretty much where we expected and clearly very strong across masks and the U. S. The one part that was a little softer to my mind was the device sales outside the U.
S, Europe and Asia, particularly in light of the commentary that we heard about France and Japan being strong, Korea perhaps a bit earlier stage. But is there anything else across the region that would explain if France and Japan was strong, why perhaps 6% growth was certainly down a bit on what we saw in Q3? Just wondering if there's anything else happening in other markets perhaps?
Yes. Thanks for the question, David. And we did flag this last quarter when we saw pretty strong outside U. S. Device growth in that high single, low double digits last quarter.
And what we said was that some of the step up like in Japan where it's a fleet sale to Japanese home care providers based upon that Tillam monitoring change that it would be sort of a 1 to 1.5 quarter effect. And so I think you're seeing that Japan in and Japan out element from Q3 to Q4. But look 6% growth in devices in Europe, Asia and around the world is a really solid number. I mean you're talking mid to single digits growth globally in that space normally and ResMed grew at 8%, so well above global market growth. And as you said, we had a little bit of benefit additionally in France, but most of that is starting to go away and we're starting to get back towards those organic growth rates in Europe, Asia and other.
So I think it's a natural return to market growth and then some additional market share taking for those who still are switching over to the cloud connected devices in France and to a much lesser extent in Japan. But look the real benefit as I was alluding to in one of the earlier questions is not just selling that one device and then resupplying that every 3 or 5 years based on patient upgrade or warranty models. It's really around the fact that a patient now on a cloud connected device in a region where cloud connectivity is used a lot like France, Japan and obviously the U. S. Is something that starts to drive really strong sustainable mask and accessory resupply.
And so that's really the benefit that we're sort of highlighting with these great telemonitoring tools. Yes, there's some great 1 to 2 quarter benefits in device sales, but most importantly, it's a patient whose life has changed. And therefore, when you ask them, text them, call them, do you want a new mask 3 months or 4 months or 6 months later, they say yes because you contact them the way they want it and how they want it and they're getting part of that resupply program. So it's good for everyone then. The payer because the patient is not in hospital, the patient because they're getting great care and the provider because they're able to provide that extra mask and obviously for ResMed.
Great. Thanks for the color.
Thomas Yoh is on the
line with Goldman Sachs Sydney with a question.
Hi, thanks for taking my question. The first question is in regards to the recent CMS proposed rules, could you help us understand a few of the potential changes that is happening? Like how is a lead product being defined? And also what do you expect the change in proposed rules to have on the different mouse categories?
So I'll hand that to Dave Van Davis, who's with me here in Munich regarding reimbursement to CMS.
Yes. Thanks for the question. We're pleased with the CMS proposal. As Mick mentioned earlier, we think it's going to be overall good for the industry. And the first thing I would point to there is that they've moved to the clearing price, establishing the reimbursed amount and that in and of itself is something the industry has been asking for quite a while and so that should be strong.
There is some discussion in there about lead product and categories and so it remains to be seen how much of that will come out in the final rule and how much of it will be handled by sub regulatory guidance down the road. But we do think that if sleep is a separate category from oxygen, that's a good thing for our sleep business. It remains to be seen whether non invasive ventilation would be a different category or able to And as an overall measure, what we really like about this is that the industry has been talking for some time about the need for change in the way this competitive bidding structure was operating. And CMS has responded. You have to give them credit for listening to the industry, working with the industry and not just us, but others throughout the whole industry have been participating in this process.
So we have to give credit where credit is due. Now there's still some things we'd like to see on top of that. I mean the fact that in some of the non competitive bid areas, a town like Nyland, California, which is near the Salton Sea, we're a small county that's outside of Chicago is viewed as no uplift, not really considered a rural area. We think that's an area where CMS ought to step in and provide some additional reimbursement. So there's always room to improve.
The industry still looking for improvement here. But overall, we think it's a good positive development.
Thanks. And just a follow-up and kind of to switch topic as well. What's the progress being made in COPD? We have seen some supportive studies lately. Could you outline which of those are underway today and what you expect to be the most impactful?
And when do you expect them to read out?
Yes. I'll hand that question to Rob Douglas, our Chief Operating Officer, who is in San Diego.
Yes. Thanks, Thomas. Yes, there's been quite a few studies on and some of them were actually previewed in posters at ATS, but there were studies really looking at various factors. The main one we've been talking about is the HOT HNV study, which showed the benefit in terms of keeping people out of hospital by adding NIV onto oxygen. And then as Mick mentioned earlier, that really had an economic study done to it that showed a very significant cost reduction per quality of life year that you almost never see in treatment.
So that should be really powerful. Other studies are ongoing. There are studies looking at really getting at identifying which patients are going to benefit more and understanding how to get at and predict the patients that have high CO2 levels, which is really the patients that benefit the most from the addition of the NRV treatment. It's a very fertile ground. Around the world, standards of care are still quite varied and there's a lot of opportunity for those to be normalized as these studies bear fruit both from the benefit of oxygen integrated or not with NIV therapy and then models of using them.
There's a lot
coming. Thank you.
Sean Laman with Morgan Stanley is on the line with a question.
Thank you and good morning or good evening. I have a question on AllCall Connect. I'm just wondering, Mick, if you could give us a bit of granularity around that, like how broadly is it adopted? How much of a driver in a broad positive the good resupply number as a start?
Yes. So Sean, look, there's a portfolio of offerings in resupply. Within the Brightree core, we had Brightree Connect and then we had our ResMed resupply model and then we had added on to that which are both sort of automated, if you like cloud based AI type algorithms ML type algorithms to contact patients. In addition we added AllCore Connect which is live humans as well as automated levels. And so now we've got a portfolio of live and automated calling for people.
And I'll go back to my comments a little earlier that it's really about finding the best solution for a patient as they need it. And All Call is really just part of that portfolio. We don't break out how much is from the Brightree, how much is from the ResMed, which is for users of ResMed beyond just Brightree users and how much is part of the All Call. But what I can tell you is they're really well coordinated on the back end and there's a skin, so it's pretty much invisible to the front end users and patients won't actually know what back end system they're using. They'll just say, wow ResMed is reaching out to me or we may even do it on behalf of DME AOB and reach out to the patients.
So really we're seeing a good growth across the portfolio of those.
Okay. Thanks Mick. And just one quick follow-up just to check a number on Healthcare First there was no contribution in the current fiscal year and there was about trailing 12 month revenue of $30,000,000 if I heard correctly?
Yes, the trailing 12 months is around $29,000,000 $30,000,000 Brett, no real material contribution, correct?
No. We closed that subsequent quarter end, Sean. So I think it was 9th July. So I've just had it for 3 weeks. So certainly no impact in Q4.
But obviously that's a we think that's a really good growth area. So we've got good expectations of both the Brightree and the Healthcare First offerings in that space.
Perfect. Thank you, gentlemen.
Thanks, Sean.
John Deacon Bell from Citigroup is online with a question.
Good morning. I was just wanting to turn to Brightree for a moment. Could you just give us a sense, obviously strong growth numbers, a sense of the growth between new customers and existing customers spending more money with you? What's the rough split?
Yes. Look John, we don't go into that much detail on it. Jim who runs our Global Sleep business probably has a little more color that he can provide qualitatively. We're not sort of going to break out the per user per month type growth that we have as customers grow and or take share and or acquire other customers. But Jim, do you want to provide any further color on Brightree and how we achieved those strong 12% growth numbers in the quarter?
Sure, Mick. And thanks John for your question. Without getting into granular detail, we're getting growth in both sides of that equation. And not just out of Brightree, of course, but out of other offerings in the SaaS portfolio. So it's pretty balanced growth.
Okay. Thank you. Maybe just changing tax, you called out that early in the call the prevalence of sleep apnea. What was the actual severe number? Do you have that separately because obviously it's quite important?
Yes. Look, I just want to do some I actually don't know if that study does break it out. And if so, we're really happy to share that with you, John. But what doctors call mild is an AHI or suffocation index of 5 to 14. So at 14, that's approximately just over every 4 minutes of sleep that you suffocate for 10 plus minimum of 10 seconds.
Every 4 minutes of sleep, 10 minutes 10 seconds suffocation, that's called mild. And if you talk about moderate, what doctors call moderate sleep apnea, which is an AHI of 15 to 30 and you're pushing 30, that's every 2 minutes now, you're suffocating for 10 seconds or more, that's called moderate. So I think there's a difference between what doctors call moderate sleep apnea. And if you talk to a patient and say, hey, you're suffocating every 2 minutes, but don't worry, your doctor says that's moderate or you're suffocating every 4 minutes, but don't worry, your doctor says that's mild. This is what it is.
To be cold severe, you have to suffocate every less than every 120 seconds of sleep for more than 10 seconds. You're starting to get close to 10% of your time in suffocation mode. So I don't know. Look, I'm a mild sleep apnea sufferer and I use this device and obviously I'm passionate about it, CEO of the company. But many people with mild sleep apnea are seeking treatment and don't want to suffocate.
You don't wait till you're really overweight before you start exercising. Why would you wait until your suffocation index is every 110 seconds? But anyway, I'll hand over to Rob if he wants to handle any further information about the severe element of that study.
Just one other bit of information, John. The reimbursement programs around the world may distinguish between mild and severe. And so many U. S. Models you'll need a comorbidity and mild to get reimbursed and which is most people do have comorbidity, so it's very common.
Or just having it moderate or more get you into it. So that's really why we focus more on the difference between mild and moderate versus severe. Understand. That's very helpful. Thank you.
Thanks for your questions, John.
We have Andrew Goodsall with from MST Marquee on the line with a question.
Thanks very much. I think just quickly on ASP. I know you've still talked about the mask business a bit, but you did talk about ASP declines. Was that regionally based? Was it a European or U.
S. Feature?
Yes. Look, we don't go into details on ASP, but it was pretty steady changes globally, Andrew. So nothing really different from last 8 to 12 quarters we've been talking about this. Pretty steady.
Okay. So no particular region where you're feeling competitive or other sort of changing pressure?
No. Look, we've been going through a lot of details about U. S. Reimbursement and how actually there was some really good news on the competitive bidding front in terms of where they came to in this quarter. So I think we're seeing pretty steady levels of ASPs in terms of those decline rates being steady for the last 8, 12 quarters is really not nothing dramatic happening there.
And a quick one on Novell in France. We're hearing that's doing quite well. Just I guess any color on how that's going?
Yes. Look, I'm here over with the European team and I got to tell you there's a lot of passion for our 3 d printed medical device there with the NarVal. I mean it's just a fantastic mandibular repositioning device and the reimbursement actually increased by over 30% in France with some recent changes for naval. And it's a really well run operation. We have the 3 d printers in Lyon.
We have incredibly strong sales team and really aware sleep and dental sleep specialists and good relationships between the pulmonary and dental sleep medicine specialists. So yes, we are seeing strong growth. We don't break that out obviously by the numbers there Andrew. But if you're doing a channel check, so I think you'll find that ResMed is not only the number one supplier of CPAP, APAP and bilevel for sleep apnea, they're also the number one supplier of MRDs for treatment of sleep apnea within France.
We are now at the 1 hour mark. So I'll turn the call back over to Mr. Mick Farrell.
Great. Thanks, Tim. And look, as we close the call here, I want to once again thank the 6,000 strong ResMed team in 100 and 20 countries for their continued dedication, focus and commitment to our growth strategy and our operating excellence initiatives. Throughout the entire fiscal year 2018, you've helped us deliver strong revenue growth and increased our operating leverage. And as we exit fiscal 2018 and we're now here in a positive trajectory as we start fiscal 2019, we remain focused as a team on our future pipeline of pretty amazing products and software solutions that change patients' lives to improve patients' lives and benefit all of our customers, the physicians, the payers, the providers and of course the patients.
Thanks for your time today, this afternoon, this evening and we look forward to talking to you again at the end of our Q1 in about 90 days. Amy?
Great. Thank you again for joining us today. If you have any additional questions, please feel free to contact me directly. And at the beginning of the call, the webcast replay along with our earnings release and updated investor presentation will be available on our website at investor. Resmed.com.
Tim, you may go ahead and close the call.
This concludes ResMed's 4th quarter fiscal year 2018 earnings live webcast. You may now disconnect.