Welcome to the Q4 fiscal year 2018 ResMed Inc. 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'll 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 fourth quarter of fiscal year 2018, ending June 30th, 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 in the Q&A portion of the call following our prepared remarks. During our call, we will discuss some non-GAAP measures. For reconciliation of the non-GAAP measures, please see the notes to the financial statements in today's press release.
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 fourth quarter 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. 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. Now some business highlights across our sleep and respiratory 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 million patients supported by our cloud-based patient management system called AirView, and well over 5 million patients with 100% cloud-connected devices that are available for remote daily monitoring. In addition, over 1 million 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. We now have over 2.5 billion 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 fourth quarter, 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 in public health and the importance of diagnosing and treating sleep apnea. Also in July, in the United States, the Centers for Medicare & 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 two key takeaways.
One, overall, these changes will be a net positive for home care providers and for ResMed. Two, 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 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.
It's because of our quality, the 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 fifth 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 9th, we closed the acquisition of HEALTHCAREfirst, a company offering electronic health records software, billing and coding services, as well as advanced analytics to both home health and hospice agencies. HEALTHCAREfirst enables these providers to optimize their clinical, financial, and administrative processes, and we are proud to welcome the talented team from HEALTHCAREfirst to ResMed. Brightree also has home health and hospice, and offerings that we think will combine very well with HEALTHCAREfirst. The HEALTHCAREfirst 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 to lower cost out-of-hospital healthcare settings.
The combination of Brightree and HEALTHCAREfirst 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 fourth 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&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, 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 QuietAir 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, 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 2.5 billion 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 million people worldwide who have mild, moderate, or severe sleep apnea. That is higher than the prevalence of type 2 diabetes, cardiovascular disease, and 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 million 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, hundreds 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 two 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 million 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 concentrator and found that adding these two 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 third 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 two, three, or even four 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 one 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 healthcare outcomes and lower healthcare costs. These three studies also demonstrate ResMed's commitment to support research from our over 2.5 billion nights of medical data to change the trajectory of two 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 med tech field to create value with digital health solutions, to slow chronic disease progression, to also reduce overall healthcare 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&A. Brett, from Munich to Sydney, are you there?
Yeah. Thanks, Mick. In my remarks today, I will provide an overview of our results for the fourth quarter of fiscal year 2018. As Mick noted, we had a strong quarter. Group revenue for the June quarter was $623.6 million, an increase of 12% over the prior year quarter. In constant currency terms, revenue increased by 10%. Taking a closer look at our geographic distribution, and excluding revenue from our Brightree software-as-a-service business, our sales in U.S., Canada, and Latin American countries were $346.7 million, an increase of 10% over the prior year quarter. Sales in Europe, Asia, and other markets totaled $236.5 million, 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, U.S., Canada, and Latin America device sales were $189.9 million, an increase of 9% over the prior year quarter. Masks and other sales were $156.8 million, an increase of 12% over the prior year quarter. The revenue in Europe, Asia, and other markets, device sales were $162.2 million, an increase of 12% over the prior year quarter, or in constant currency terms, a 6% increase. Masks and other sales were $74.3 million, 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 fourth quarter was $40.4 million, an increase of 12% over the prior year quarter. During the rest of my commentary today, I will 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 fourth quarter earnings press release. Our gross margin for the June quarter was 68.1%, compared with 68.2% 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. Assuming current 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&A expenses for the quarter were $156.8 million, an increase of 6% over the prior year quarter. In constant currency terms, SG&A expenses increased by 3%. SG&A expenses as a percentage of revenue improved to 25.1%, compared to the 26.6% that we reported in the prior year quarter. Looking forward, and subject to currency movements, we expect SG&A as a percentage of revenue to be in the range of 24%-25% for fiscal year 2018. 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&D expenses for the quarter were $39.7 million, 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&D portfolio.
R&D expenses as a percentage of revenue were 6.4%, compared with 6.6% in the prior year. Looking forward, and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6%-7% for fiscal year 2018. Amortization of acquired intangibles was $11.6 million for the quarter, a decrease of 1% over the prior year quarter. Stock-based compensation expense for the quarter was $12.5 million. Non-GAAP operating profit for the quarter was $166 million, an increase of 19% over the prior year quarter. While non-GAAP net income for the quarter was $136.3 million, 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 fourth quarter earnings by $0.02 per share, reflecting the favorable impacts from the stronger euro relative to the US 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 $7.5 million being recorded in our fourth 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 $126.6 million relating to newly enacted U.S. tax laws.
This calculation is permitted to be provisional for 12 months after the enactment of the law. As part of the current quarter activity, we further refined our calculations, which resulted in additional income tax expense of $5.8 million being recorded in our fourth quarter results. Additionally, we recorded a one-time charge of $7.2 million, 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 2018 effective tax rate. You will recall from last quarter, we have to take into account two 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 2018 effective tax rate will be in the range of 22%-24%. Cash flow from operations during the fourth quarter was $129.4 million, reflecting strong underlying earnings and improved working capital management. Capital expenditure for the quarter was $17.6 million. Depreciation and amortization for the June quarter totaled $31.7 million. During the quarter, we paid dividends of $50 million. 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 fourth quarter and repurchased 250,000 shares for consideration of $25.9 million. As Mick noted, subsequent to quarter end, we closed on our acquisition of HEALTHCAREfirst. HEALTHCAREfirst revenue in calendar year 2017 was $29 million.
At June 30, we have $281.5 million in gross debt and $92.8 million in net debt. Our balance sheet remains strong with modest debt levels. At June 30, total assets were $3.1 billion and net equity was $2.1 billion. With that, I will hand the call back to Amy.
Thanks, Brett. We will now turn to the Q&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&A portion of the call.
Thank you. We'll now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Saul Hadassin with UBS is online with a question.
Thanks very much. Excuse me. Good morning. Mick, can you hear me?
Can 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 taking market share. Can you maybe comment a bit more on the contribution from growth in the resupply business? 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 to the resupply growth as evident in the mask growth rate this quarter.
Yeah, absolutely, Saul. We talk about sort of the devices growing in the mid-single digits and the masks growing at the high single digits. So, clearly at 13% constant currency, growth of our masks and accessories business in the U.S., kind of Latin America being 12% on a constant currency basis. We clearly took some share. You saw in our sort of organic growth within the Brightree business that was also in parallel actually at 12% on our software as a service business. Clearly that does through Brightree resupply and Brightree Connect and ResMed ReSupply, there are some combinations that are driving our share growth through not only first time set up of these great new masks, the N20 and the F20, but also through those resupply programs.
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. Just one follow-up on that. Just the launch of QuietAir, how significant or how material was that? When was it rolled out during the quarter?
Yeah. It was rolled out during the quarter, as you know, Saul, our market is not uniform. It's multiple contact points. Over 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. 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. There's got to be the social media drives and all that to get that technology there.
Look, I personally use one of these devices and QuietAir, 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. I think this technology has lots more legs than just one quarter. We've got a lot of runway to go on QuietAir. It was really just launched during this last quarter. We've got a lot of runway ahead on that.
Thanks very much, Mick.
Thanks, Saul.
Margaret Kaczor with William Blair is online with a question.
Hey, good evening, guys, 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? How should we think about that benefit over the next kind of 12 to 18 months, let's call it?
Yeah, Margaret, thanks for the question. Look, we had some really good growth in devices, in Europe, Asia, and our global markets, 6% on a constant currency basis. Actually, even better growth within the U.S., Canada, Latin America of 9%. We had the benefits of the changes in reimbursement in both Japan and France, which are these sort of S-curves of growth that we've been talking about over the last number of quarters. Those S's will start to taper off as we talked about. Those devices that are now set up are 100% cloud connected. 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.
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. If you like, getting a connected device in there is the gift that keeps on giving.
Got it. Just to follow up with a similar question. In the U.S., obviously, the U.S. device number ended up being quite strong again. I think, generally when you talk to investors, they'll be surprised that you continue to take share, you continue to see strong underlying market growth. 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, or are you seeing that incremental buyer come in and say, "I'm going to standardize on ResMed." Thank you.
Yeah, 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, you have Adam Smith's invisible hand helping you choose ResMed at the home care provider level. 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. It's both of the above. 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 U.S. or whether it's Western France.
Now in Japan. I don't think that this is the end of it. I think this is the start of it. As we said in the prep remarks as well, Margaret, we're not satisfied with the current market growth, particularly with these new prevalence numbers showing over 900 million people with sleep apnea. We think that our partnership with Alphabet and Verily and our partnership with Pegasus Capital and Dr. 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. 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 fourth quarter for Mobi. 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.
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. I'm over here in our Germany ResMed healthcare office here in Germany, and there's really a great market in this biggest economy in Europe for portable oxygen concentrators. We think long term, there is a really exciting opportunity globally for ResMed with portable oxygen concentrators. Our controlled launch is really focused in the U.S. primarily, and it's about our go-to-market model. When you talk about market potential, 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 name, I do think that will contribute a lot to the prescriptions that we've started to get and will continue to get with Mobi. As I said in the prep remarks, and you alluded to there, Anthony, we're doing a controlled launch, then we will go to a stronger and larger launch as we refine that go-to-market model. Throughout FY 2019 and beyond, you're going to see ResMed be a major player in the global portable oxygen concentrator market. 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'll have connectivity and will link up to Air Solutions and all the value that we've 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?
Yeah. Sure, Mick. Thanks. Yeah. Anthony, we've made a couple of tiny acquisitions over FY 2018, in terms of group results, it was really pretty much de minimis in terms of that contribution. It's pretty much all 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 HEALTHCAREfirst integration and just piggybacking on the last question, can you talk about some of the strategy behind combining it with the Brightree offering and maybe some of the revenue and cost synergies we should be focused on in the long term?
Absolutely. HEALTHCAREfirst, as Brett said, it was de minimis. We only really just closed it recently, there was no sort of revenue impact in the numbers that we talked about in FY 2018. As we look forward, and as Brett indicated in the prep remarks, it's about $30 million 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. We're really seeing great growth, just secular growth within those two segments. HEALTHCAREfirst has an excellent offering.
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 to people's homes for the home nursing and home health. We are really excited about the strategic combination of those two parts of our business, and we have some really strong leadership that have experience at much larger companies within this space. We're very excited about those sectors. You're going to see ResMed invest for organic and inorganic growth across the out-of-hospital software part of our business.
Okay, great. 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 masks from Philips?
Yeah, look, we don't go into details around other than the fact that we're taking share versus our competitors. I might hand to Jim Hollingshead to give a little more detail. He's President of our global sleep business. He 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?
Yeah. Thanks, Mick. Steve, as Mick says, we don't go into details about specific, really in general about competitor share or 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 F20 full face mask is performing extremely well and continues to be in a very strong leadership position in the market with the quieter vent adding to that offering, and we're very confident in our portfolio.
Okay, great. Thanks for taking the question.
David Bailey from Macquarie is on the line with a question.
Yes, good morning. It's David from Macquarie. Just my first question was in relation to the Mobi and portable oxygen concentrator. Seeing 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?
Yeah. Thanks for the question, David. Yeah, 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've partnered with for decades to help grow this market. They're the best people to start working on reimbursement models and to understand Medicare reimbursement and private care reimbursement for POCs, we're really partnering with them on that. We're also partnering with them on the best way to get the product to patients who want to pay cash. You'll see us work with the channel and help support them with many different models in this space.
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 the 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 our Japanese home care providers and growing those spaces. 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. 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. Just a follow-up from me, just in terms of resupply, and some of the new markets that you've entered, France and Japan. The U.S. obviously eligible up to four masks per year. How does the resupply criteria or eligibility criteria in the rest of world compare to what you see in the United States?
Yeah, David, it's a good question. Let us talk about the resupply side of our business. In the U.S., every payer operates differently. There's some private payers that it's two full mask systems per year, 10 or more cushions per year. There's some that are three full mask systems, and even some that are four full mask systems. I think what it'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. David, as you heard me say in the prep remarks, when you engage with a patient around a resupply program and you check in with them, do you want to be emailed? Do you want to be texted? Do you want to be a live call?
You ask them how, when, and where they want to find that out, and to what level do we partner 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. Look, it's a long-term play. I think you saw in the quarter really good mask 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. The really important thing is ask the patient. Get in touch with them. We're seeing really good success, as you saw in the quarter there.
That's great. Thanks for the detail.
Thanks, David.
David Low with JP Morgan is online with a question.
Thanks very much. If I could just start with the restructuring. We saw another round of restructuring going through. Just if I could get you to comment on whether that's now complete. 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, or is there broader opportunity on the operating leverage front?
Yeah, I'll hand the first part of the question over to Brett, who'll 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. Dave, we've got, sort of like the global restructure was in Q3, we did flag up that we'd have this final charge coming through into Q4. Essentially that one, that's completed. You see sort of some of that benefit from the Q3 restructuring, I guess, coming through. 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. It's a much broader picture in terms of what we're trying to do. If you look at the kind of operating leverage, we're pretty committed on that, we're really looking to see how we can do things smarter, how we can do them differently. Really looking at, okay, how can we achieve scale?
As we grow revenues, grow SG&A at a lower clip than that. There's a lot we're doing there, a lot we're doing around, business excellence program and things like that, where we're really trying to make sure that we're operating as efficiently as we can. We're really cognizant that we'll be continuing to invest for the long-term sustainable growth in the business. We won't back off that whatsoever. 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. We're continuing that program, but the aim is to support the long-term sustainable growth.
Okay, great. 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. Is there anything else across the region that would explain if France and Japan were strong, why perhaps 6% growth was certainly down a bit on what we saw in Q3? I'm just wondering if there's anything else happening in other markets, perhaps.
Thanks for the question, David. 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. 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 telemonitoring change, that it would be sort of a one to one and a half quarter effect. I think you're seeing that Japan in and Japan out element from Q3 to Q4. Look, 6% growth in devices, in Europe, Asia, and around the world is a really solid number. You're talking mid to single digits growth globally in that space normally, ResMed grew at 8%, so well above global market growth.
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. 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. 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 three or five 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, a sustainable mask and accessory resupply. That's really the benefit that we're highlighting with these great telemonitoring tools. Yes, there's some great one to two-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 three months or four months or six 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. It's good for everyone then.
The payer, because the patient's 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 Yeo 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 mask categories?
I'll hand that to David Pendarvis, who's here with me here in Munich, regarding reimbursement CMS.
Yeah, 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. That in and of itself is something the industry's been asking for for quite a while, that should be strong. There is some discussion in there about lead product and categories, 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. We do think that if sleep is a separate category from oxygen, that's a good thing for our sleep business. Remains to be seen whether non-invasive ventilation would be a different category or combined with others.
That'll have to come out in the final rules and guidance thereafter. We do think that a focus on sleep overall is a good thing. 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. 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. We have to give credit where credit's due. 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 Niland, California, which is near the Salton Sea, or 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. There's always room to improve. The industry is still looking for improvement here, overall, we think it's a good, positive development.
Yeah. Thanks. Just a follow-up. 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?
Yeah, I'll hand that question to Rob Douglas, our Chief Operating Officer, who is in San Diego.
Thanks, Thomas. There's been quite a few studies on, and some of them were actually previewed in posters at ATS. There were studies really looking at various factors. The main one we've been talking about is the HOT-HMV study, which showed the benefit in terms of keeping people out of hospital by adding NIV onto oxygen. 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. 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 NIV 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 Laaman with Morgan Stanley is on the line with a question.
Thank you. 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 was it at the good resupply number as a start?
Yeah. Sean, look, there's a portfolio of offerings in resupply. Within the Brightree core, we had Brightree Connect. Then we had our ResMed resupply model. 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 AllCall Connect, which is live humans as well as automated levels. Now we've got a portfolio of live and automated calling for people. 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. AllCall 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 AllCall. 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's reaching out to me." Or we may even do it on behalf of DME A or B and reach out to the patient. Really, we're seeing a good growth across the portfolio of those.
Okay. Thanks, Mick. Just one quick follow-up, just to check a number. On HEALTHCAREfirst, there was no contribution in the current fiscal year, there was about trailing 12-month revenue of $30 million, if I heard correctly?
Yeah, the trailing 12 months is around $29 million-$30 million. Brett, no real material contribution, correct?
We closed that subsequent quarter in July. I think it was the 9th of July, so it's just had it for three weeks. Certainly no impact in Q4. Obviously, we think that's a really good growth area. We've got good expectations of both the Brightree and the HEALTHCAREfirst offerings in that space.
Perfect. Thank you, gentlemen.
Thanks, Sean.
Joanne Wuensch 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?
Yeah. 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 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. 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. Thanks, John, for your question. Without getting into granular detail, we're getting growth on both sides of that equation. Not just out of Brightree, of course, but out of other offerings in the SaaS portfolio. It's pretty balanced growth.
Okay. Thank you. Maybe just changing tact. You called out, early in the call, the prevalence of sleep apnea. What was the actual severe number? Do you have that separately? Obviously it's quite important.
Yeah, look, I actually don't know if that study does break it down. If so, we're really happy to share that with you, John. What doctors call mild is an AHI, or suffocation index, of 5 to 14. At 14, that's approximately just over every four minutes of sleep that you suffocate for 10 plus, minimum of 10 seconds. Every four minutes of sleep, 10 seconds suffocation. That's called mild. 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 two minutes now, you're suffocating for 10 seconds or more. That's called moderate. 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 two minutes.
Don't worry, your doctor says that's moderate." "You're suffocating every four minutes, but don't worry, your doctor says that's mild." This is what it is. To be called severe, you have to suffocate 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. 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. 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? 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. In many U.S. models, you'll need a comorbidity and mild to get reimbursed, which most people do have comorbidity, so it's very common. Just having it moderate or more will get you into it. 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 from MST Marquee on the line with a question.
Oh, thanks very much. Lucky last, I think. Just quickly on ASP, I know you've sort of 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?
Yeah, look, we don't go into details on ASP, but it was pretty steady changes globally, Andrew. Nothing really different from the last 8 to 12 quarters we've been talking about this.
Okay.
Pretty steady.
Okay, 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, how actually there was some really good news on the competitive bidding front.
Yes
In terms of where they came to in this quarter. I think, we're seeing pretty steady levels of ASPs in terms of those decline rates being steady as, for the last 8-12 quarters. There's really nothing dramatic happening there.
Quick on Narval in France. We're hearing that's doing quite well. Just, I guess any color on how that's going.
Yeah. Look, I'm here over with the European team, I've got to tell you, there's a lot of passion for our 3D-printed medical device there with the Narval. It's just a fantastic mandibular repositioning device. The reimbursement actually increased by over 30% in France, with some recent changes for Narval.
It's a really well-run operation. We have the 3D 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. Yeah, we are seeing strong growth. We don't break that out, obviously, by the numbers there, Andrew. If you're doing your channel checks, I think you'll find that ResMed's not only the number one supplier of CPAP, APAP, and bilevel for sleep apnea, but also the number one supplier of MRDs for treatment of sleep apnea within France.
Terrific. Thank you very much.
Thanks, Andrew.
We're now at the one-hour mark. I'll turn the call back over to Mr. Mick Farrell.
Great. Thanks, Tim. Look, as we close the call here, I want to once again thank the 6,000-strong ResMed team in 120 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. 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 first quarter in about 90 days. Amy?
Great. Thank you again for joining us today. If you have additional questions, please feel free to contact me directly. As mentioned 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 fourth quarter of fiscal year 2018 earnings live webcast. You may now disconnect.