Welcome to the Q4 Fiscal Year 2016 ResMed Inc. Earnings Conference Call. My name is Laurel, and I will 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 Agnes Lee, Senior Director of Investor Relations. Agnes, you may begin.
Thank you, Laurel, and thank you for attending ResMed's live webcast. Joining me on the call today are Mick Farrell, our CEO and Brett Sandercock, our CFO. Other members of the management team will also be available during the Q and A portion of the call. If you have not had a chance to review the earnings release, it can be found on our website at investors. Resmed.com.
I want
to remind our listeners that our discussion today may include forward looking statements, including, but not limited to, statements about future expectations, plans and prospects for the company, corporate strategy, integration of acquisitions and performance. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause actual results to differ materially from those in the forward looking statements are detailed in filings made by ResMed with the Securities and Exchange Commission. I will now hand the call over to Mick Farrell.
Thanks, Agnes, and thank you to all of our shareholders joining us today as we summarize our results for the Q4 of fiscal year 2016. We delivered solid global growth this quarter led by strong double digit growth in the Americas region and high single digit growth in our combined EMEA and APAC regions. We closed the Brightree acquisition April 4th. So this is our Q1 that includes revenue and profit contribution from the Brightree suite of software as a service offerings. For the call today, I'll first review our high level financial results.
I'll then outline some regional highlights from our business. And then finally, I'll discuss progress towards our ResMed 2020 strategic goals. After that, I will hand the call over to Brett to walk you through our financial results in greater detail. Throughout fiscal year 2016, I have talked about ResMed's growing global leadership in digital health and connected care for respiratory medicine. This leadership has been a catalyst for strong overall revenue growth and market beating organic revenue growth these last 12 months.
We produced robust double digit growth in the Americas region. These results were fueled by the ongoing success of organic masks and devices growth augmented by new software as a service revenue from Brightree. We achieved above market growth in our combined EMEA and APAC regions, with the highlight being double digit growth of our flow generators in the combined EMEA and APAC group. At the bottom line, our diluted earnings per share was $0.74 on a non GAAP basis, which represents 9% year on year growth. In terms of non GAAP net operating profit, we grew our bottom line at 20% in Q4 on a year on year basis.
We continue to balance strong revenue growth with ongoing investments in R and D and our global focus on operating excellence. We achieved positive operating leverage in SG and A keeping its growth well below our top line revenue growth. We are investing for the long term future, maintaining R and D spend at around 7% of top line revenue. These R and D investments will enhance our long term pipeline of innovation across the portfolios of sleep apnea, COPD and Connected Care Solutions. Now let me drill into some regional highlights.
First, in the Americas region, we had strong sales performance in Q4 with our commercial team driving 11% growth in masks and accessories and 6% growth in devices in the Americas. This latter number was up against a hefty 53% growth comparable from last year. These robust results from the Americas team have the foundation of stable market growth. However, it really shows the ongoing strength of the AirSense 10 and the AirCurve 10 systems powered and catalyzed by our cloud based air solutions software platform including the uSleep and MyAir applications. These applications are liberating data and unlocking value in terms of actionable information for HME providers and for patients respectively.
The double digit growth for the masks and accessories category was a great result for the Americas in Q4. We expect solid masks and accessories growth as we move forward with resupply initiatives and new product launches during fiscal year 2017. Turning to the combined EMEA and APAC Group, we had strong sales performance in these regions resulting in 8% growth on a constant currency basis in Q4. We produced solid growth in devices in the region, especially from our sleep apnea platforms. As we discussed last quarter, the ASV growth headwind started to subside mid Q4 and we will pass the anniversary of the tale of this impact in this current quarter Q1 fiscal 2017.
We are clearly turning the corner in ASV and we continue to see exciting opportunities ahead for ASV therapy particularly for patients with central sleep apnea, complex sleep apnea, pain management medication and post traumatic stress disorder or PTSD. We are excited to get back to growth on a trajectory for this really innovative, beneficial and high margin therapy. Let me now provide an update on our ResMed 2020 strategy. We have made good progress in global leadership for Connected Care, one of the key foundations of our growth strategy. We have now incorporated into our P and L high quality recurring Software as a Service revenue from Brightree.
We will continue to invest in our portfolio of cloud based computing solutions to help our HME customers become even more efficient and to help them free up cash flow for even better patient care. We recently announced a new CEO and a new COO for Brightree. Matt Malott is the new CEO and Bobby Gauchow is the new COO. Matt's experience in successfully building and running a multistate HME that use Brightree as an integral part of that business sets him up as a strong and capable leader for Brightree. Bobby's experience in running ResMed's IT team for the Americas sets him up to be a great operating partner together with Matt.
So Matt and Bobby together with the Bright leadership team will guide the development and ongoing integration of the Brightree suite of software solutions within and as part of the Air Solutions platform offerings. The goal is clear to provide enhanced value for HME partners, for physicians, for payers and for patients. With our HME channel partners, our current Connected Care solutions are improving operating efficiency. They are eliminating waste, increasing medical device adherence and improving patient outcomes. We intend to continue to grow our Connected Care solutions in COPD as well as other chronic care applications as we move forward.
This strategic foundation of Connected Care is an integral part of our current and our future success. Let me now take a few minutes to update you on the progress against each of our three horizons and then hand over to Brett and then we'll head on to Q and A. In our first horizon of growth, which focuses on our core sleep apnea we have seen strong sustained growth since the launch of the Air Solutions platform. While many companies are talking about Connected Care and Digital Health, we have executed in Connected Care and we lead the market with well over 2,000,000 100% cloud connected medical devices sending data to the cloud every day. This is more than double the nearest competitor.
We also have over 900 patients each day signing up for our patient engagement application called My Air. Air Solutions not only has millions and millions of patients, it is also connected through APIs to hospital and physician managed electronic medical record systems that allow patients to share data with their caregivers. We are in mile 1 of a marathon of population health management and healthcare analytics. Through this ecosystem, we are liberating data that we turn into actionable information for patients, physicians, providers and for payers. At ResMed, we're a company that is clearly founded on scientific principles of research.
During the quarter, Doctor. Dennis Wang of Kaiser Permanente presented results from a large prospective randomized controlled trial at the sleep meeting in Denver, Colorado. The Kaiser Permanente study randomized 1455 patients and its conclusion was that the use of ResMed's cloud based algorithm called uSleep produced a 21% relative increase in CPAP adherence. Doctor. Wang was quoted as saying the following: Anything that significantly increases CPAP use in the 1st 90 days is a big deal.
That initial period is crucial for patients to embrace CPAP to treat their sleep apnea, which is linked to heart failure, atrial fibrillation, Type 2 diabetes and other serious conditions. Tools like U Sleep hold a lot of promise for patients on CPAP and the clinicians who treat them. We think that's a great quote. We believe that uSleep and the broader Air Solutions platform is a huge value to Kaiser Permanente as well as other payer provider models in the U. S.
And around the world including ACOs, IDNs and many government run payer provider models as they look for ways to take better care of patients and essentially to keep their patients out of high cost hospitals and to treat them with high quality and great care in the comfort of their own home. With the close of the Brightree acquisition in Q4, we have augmented air solutions to create an even stronger end to end value proposition for HME customers. We will continue to help our HME partners drive even more efficiencies in their businesses and also continue to invest in market development of new channels for the software as a service offerings of Brightree in home health, home nursing as well as in the hospice channel. Watch this space. In the second horizon of our ResMed 2020 growth strategy, we have continued the integration process at Enova, which is the portable oxygen concentrator company we acquired in Q3.
We have completed the integration of our commercial sales and marketing teams and we are now leveraging our global manufacturing, quality and product development expertise to take Enova to the next level. We clearly have opportunities to grow revenue by selling POCs through our global market channels. And we will prioritize the 100 countries where we sell so as to maximize physician, provider and patient value throughout fiscal year 2017 and beyond. We will create next generation innovative products that provide not only a step up in quality, but also to leverage our global Connected Care leadership in this space. The strategy is to leverage Connected Care solutions for COPD across a broad portfolio of offerings including life support ventilation, non invasive ventilation and now portable oxygen concentrators.
This spectrum of respiratory care products will help patients with neuromuscular diseases like ALS as well as normocapnic COPD and hypercapnic COPD patients. With COPD being the number 3 cause of death in the Western world and the number 2 cause of rehospitalization in the West, we know Connected Care will play a big role in the future. This quarter, we announced that we are adding a ResMed communication module essentially a wireless communication module to our life support ventilator Astral. There will be more to come on this front. Along with our product strategies in this space, we are driving market channel strategies.
In Q4, we announced a group purchasing organization or GPO contract to enable 3,600 member hospitals 120,000 other providers to purchase and use ResMed's best in class respiratory care products and services as patients move from the hospital to in home care. As I noted just a moment ago, there will be more to come on this front as we continue to execute against this part of our strategy. Our 3rd horizon of growth includes a robust portfolio of long term opportunities in new markets including atrial fibrillation, heart failure with preserved ejection fraction, asthma, chronic disease management as well as sleep health and sleep wellness. During the quarter, clinical trial results from the CAT HF trial were presented at the Annual Heart Failure Congress at the European Society of Cardiology or ESC. The overall CAT HF study results were neutral.
However, a pre specified subgroup of heart failure with preserved ejection fraction patients showed a clinically and statistically significant improvement in the primary endpoint. The primary endpoint for this study was a combined measure of mortality, morbidity and functional outcomes of the patient. This study CAT HF is the 1st study globally to show that addressing sleep disordered breathing with adaptive We expect full publication of the CAT HF study shortly and we're very excited about the patient outcome data and the potential opportunities to save hospitalization and rehospitalization costs for the health care system globally. Returning to our financial results. We have been able to put our balance sheet to work this fiscal year.
We have invested $1,000,000,000 into high quality acquisitions that clearly drive us towards our ResMed 2020 growth strategy. You will see us laser focused on ensuring we get return on capital for these investments. Our Board has increased the dividend by 10% reflecting confidence in our long term strategy and our ability to drive ongoing cash flow from the business. Given our significant capital deployment this year, we believe it is prudent to continue to temporarily suspend our share repurchase program. It is important to note that we reserve the right to resume the share buyback program at any time in the future as conditions warrant.
Let me close with this. In fiscal year 2016, we established ourselves as the global leader in digital health and connected care for respiratory medicine. This is only strengthened by our acquisition of Brightree. We have added essential building blocks for our global care strategy particularly in connected care for COPD. We remain excited as we build the road ahead for our industry, for our partners and most importantly for millions and millions of patients around the world.
With that, I'll hand the call over to Brett who is in Sydney for his comments. Over to you, Brett.
Great. Thanks, Mick. In my remarks today, I'll provide an overview of our results for the 4th quarter with more detailed commentary around revenue given our acquisitions this fiscal year. As Mick noted, we had a solid finish to the year. Group revenue for the June quarter was $518,600,000 an increase of 14% over the prior year quarter.
In constant currency terms, revenue increased by 15%. Excluding the acquisition of Brightree, revenue increased by 8% over the prior year quarter. And excluding all acquisitions, organic revenue increased by 6% over the prior year quarter. Taking a closer look at geographic level and excluding revenue from our Brightree acquisition, our sales in the Americas were 295,600,000 dollars an increase of 8% over the prior year quarter. Sales in combined EMEA and Asia Pac totaled $194,100,000 an increase of 8% over the prior year quarter.
In constant currency terms, sales in combined EMEA and Asia Pacific also increased by 8% over the prior year quarter. Breaking out revenue between product segments. Americas device sales were $161,000,000 an increase of 6% over the prior year quarter. Masks and other sales were $134,600,000 an increase of 10% over the prior year quarter. For revenue in combined EMEA and Asia Pac, device sales were 133,600,000 dollars an increase of 10% over the prior year quarter or in constant currency terms an increase of 11%.
Masks and other sales were $60,500,000 an increase of 4% over the prior year quarter or in constant currency terms also an increase of 4%. Globally in constant currency terms device sales increased by 8% while masks and other increased by 9% over the prior year quarter. I'd now like to provide some additional information about the Brightree revenue contribution. Brightree revenue for the Q4 was 28,900,000 dollars On a pro form a full quarter basis, Brightree's revenue would have been $32,200,000 This represents the most relevant measure of Brightree's 4th quarter revenue run rate. The difference in our reported revenue and pro form a revenue is related to 2 items.
First, the one time $2,300,000 fair value adjustment to Brightree's deferred revenue balances required on the U. S. GAAP purchase accounting rules. And second, the pro form a revenue of $32,200,000 for the quarter includes a few days revenue that was not included in reported revenue due to the close of the Brightree acquisition on April 4. As it relates to acquisitions, during the quarter we also incurred $1,900,000 in acquisition and integration related expenses associated with the Enova and Brightree acquisition.
During the rest of my commentary today, I'll be referring to non GAAP numbers. The non GAAP measures adjust for the impact of acquisition and integration expenses associated with our acquisitions of Brightree and Anova, the amortization of acquired intangibles, the Brightree acquisition one time deferred revenue fair value CERVHF accrual release and the cumulative tax benefit associated with the adoption of accounting standard ASU 20 sixteen-nine. In the prior year comparable, they exclude the CERV HF accrual, amortization of acquired intangibles and the donation to UCSD and the ResMed Foundation. We have provided a full reconciliation of the non GAAP to GAAP numbers in our 4th quarter earnings press release. Our non GAAP gross margin for the June quarter was 58.2%.
On a year over year basis, our gross margin declined by 20 basis points, reflecting typical declines in average selling prices and changes in product mix, essentially offset by manufacturing and procurement efficiencies and the favorable impact from our Brightree acquisition. On a sequential basis, our gross margin increased by 90 basis points, largely attributable to the Brightree acquisition and a more consistent product mix. Assuming current exchange rates and likely trends in product and geographic mix, we expect gross margin to continue to be in a range of 57% to 60% for fiscal year 2017. Moving on to operating expenses. Our SG and A expenses for the quarter were 133 $900,000 an increase of 9% over the prior year quarter.
In constant currency terms, SG and A expenses increased by 10%. SG and A expenses as a percentage of revenue improved to 25.8% compared to 27 point 2% that we reported last year. Looking forward and subject to currency movements, we expect SG and A as a percentage of revenue to be in the range of 26 percent to 27 percent for fiscal year 2017. R and D expenses for the quarter was 34 point $4,000,000 an increase of 21% over the prior year quarter or on a constant currency basis an increase of 24%. This increase largely reflects the impact of our recent acquisitions and incremental investments across our R and D portfolio.
R and D expenses as a percentage of revenue was 6.6% compared to the year ago figure of 6.3%. Looking forward and subject to currency movements, we expect R and D expenses as a percentage of revenue to be in the range of 7% for fiscal year 2017. Amortization of acquired intangibles was $12,600,000 for the quarter, an increase of $10,500,000 over the prior year, reflecting the additional amortization associated with our recent acquisitions. Stock based compensation expense for the quarter was 11,600,000 dollars Non GAAP operating profit for the quarter was $135,100,000 an increase of 20% over the prior year quarter. Non GAAP net income for the quarter was $104,400,000 an increase of 8% over the prior year quarter.
Net income for the quarter was $83,100,000 Non GAAP diluted earnings per share for the quarter was 0 point 7 $4 an increase of 9% over the prior year quarter, while diluted earnings per share for the quarter were $0.59 Overall, foreign exchange movements positively impacted 4th quarter earnings by $0.02 per share reflecting the favorable impact from the weaker Australian dollar. During the quarter, we adopted the new accounting standard that was issued in the U. S. Called ASU 20 sixteen-nine improvements to employee share based payment accounting. As a result of adopting this standard, we recognized a full year tax benefit of $11,200,000 and this provide us with an opportunity to increase our foreign cash repatriation to the U.
S. With the additional tax expense largely offsetting the tax benefit. With this adoption and the increase in cash repatriation, our full year effective tax rate remained relatively consistent at 19.8 percent compared to the prior year tax rate of 19%. On a non GAAP basis, we have reflected full year tax benefit from the adoption of the standard within our tax expense for the Q4, resulting in non GAAP effective tax rate of 22%. Looking forward, we estimate our effective tax rate for fiscal year 2017 will be in the range of 20% to 22%.
Cash flow from operations was $143,000,000 for the quarter. This reflects strong underlying earnings and an improvement in net working capital balances. Capital expenditure for the quarter was $14,400,000 Depreciation and amortization for the June quarter totaled $27,000,000 dollars For fiscal year 2016, we generated record operating cash flow of $547,900,000 an increase of 43% over the prior fiscal year. Our Board of Directors today declared a quarterly dividend of $0.33 per share, an increase of 10% over our previous quarterly dividend. As previously announced, we have temporarily suspended our share repurchase program due to recent acquisitions.
Consequently, we any shares during the June quarter and we remain at any time elect to reinitiate the share repurchase program. At the end of June, we had approximately 13,600,000 shares remaining under our authorized share repurchase program. At June 30, we have approximately $1,200,000,000 in gross debt and $444,000,000 in net debt. Our balance sheet remains modestly geared and very strong. At June 30, total assets were $3,300,000,000 and net equity was 1,700,000,000 And with that, I will hand the call back to Agnes.
Thanks, Brett. We will now turn to Q and A and we ask everyone to limit themselves to one question and one follow-up question. If you have additional questions after that, please get back into the queue. Laurel, we are now ready for the Q and A portion of the call.
Thank you. We'll now begin the question and answer Andrew Goodsall from UBS is online with a question.
Thanks very much for taking my question. I was just wondering if you're willing to tell us something about your new mask range we've seen the 510 there and perhaps if you're not willing to go into too much detail whether you're willing to talk about the opportunity to evolve the business model with the ASM-ten and the connectivity piece?
Thanks for the question, Andrew. You're right in your caveat around the question that we for competitive reasons, we don't think it benefits sort of shareholder value to go into details of product timing and product launches. But as you noted, there's some activity there in 510s. And we do plan to launch at least one new mask before the end of the calendar year. And that's all the information I'll give on that.
But in terms of your second part of your question which was about connectivity and how we can use the fantastic ecosystem of connectivity that we have and the installed base of 2,000,000 cloud connected medical devices to interact with patients and the MyAir application where patients are connected directly to the cloud. We think it's great to liberate these data and then to provide actionable information to patients. We think patients should know how long they've had their mask and when it's time to replace a mask and we're seeing patients really engage in that. So we do think there is a strong link to that. And I think if you look at this quarter where we saw 11% growth in masks and accessories In the Americas, clearly, we have patients engaging on that front.
More to come on new products and more to come on engaging patients over fiscal year 2017.
Thanks very much.
Thanks, Andrew.
Next online, we have Joanne Wuensch from BMO Capital Markets. Your line is open.
Thank you very much for taking the questions. A couple of things. Australian dollar has been up and down a little bit, but mostly down. How do we think about that impact for next year's gross margins?
I'll hand that question over to Brett Sandicock, our CFO.
Yes. Thanks, John. I mean, yes, if you looked at it, sort of year on year through to Q4, we did see some a little bit of benefit from FX in particularly the Aussie. Going forward into FY 2017, we're seeing more recently I guess that sort of bit of an uptick in the Australian dollar strengthened a little bit against the U. S.
Dollar. So in that context, if you look at it sequentially into Q1 that's probably around a 50 basis point headwind for us on the gross margin there, at least in the kind of the near term. Longer term, I guess it depends where the Aussie dollar goes. But short term probably a little bit of a headwind, but you'd have to think longer term should be still beneficial for us with the Ovi, but has strengthened recently and we really don't know where that's going to go.
Okay. And can you just take a bigger step back and talk about the sleep apnea landscape, how it may be changing competitively. One of your comments talked about some pressure on average selling prices. So anything related to pricing or products would be appreciated? And thank you.
Yes. Thanks, Joanne. The whole sleep industry landscape has changed fundamentally, I'd say in these last 18 months since we launched 18 plus months since we launched approaching 24 months since we launched Air Solutions. And the basis of competition in the space is now changed to be not only do the devices have to be quieter, smaller, more comfortable, but they also have to be more connected. And we think that connectivity has really, really changed the space.
It's meant that we're able to take waste out to increase adherence of patients and to remove some of the inefficient steps in the value chain and therefore extract some value for our partners, our HME partners, our patient partners, our physician partners and also ourselves out of that. And so there's some mitigation of some of the historic price impacts. We don't go into details on that, but at a high level, I think that shift to value from price discussions has been a really beneficial one for us and our partners and the whole industry in general.
Your next question comes from the line of Anthony Petrone with Jefferies. Your line is open.
Great. My first one will be for Brett, just some of the moving parts on the tax line. And maybe can you walk us through the benefit of the ASU, but also the additional tax expense that you incurred from the repatriation of foreign cash and just how much foreign cash was repatriated in the quarter?
Yes. I'll give you a sense. So we did adopt that standard. And what we did, I guess, is we took that opportunity to increase the cash repatriation and the tax expense associated with that largely offset that benefit. So you saw on our full year tax rate was pretty consistent with what we saw last year.
To give you an idea on the repatriation, if you look at the repatriation, we basically repatriated an additional $60,000,000 this year compared to what we did last year. So quite significant for us. So we felt that that was the best thing to do and just take the opportunity I guess with the implementation of the standard. So overall if you kind of looked at it, our overall full year tax rate and tax rates going forward, I think we'll continue to be pretty consistent.
Okay, great. That's helpful. And then maybe my follow-up would just be back on pricing a bit. And maybe just a little bit more details on underlying pricing in sleep, specifically it relates to the competitive landscape. We did some checks earlier in the quarter and our understanding is Respironics came in with more of a price discount since the beginning of the year.
And additionally, we're hearing 3B Medical is sort of out there with more aggressive pricing. So any comments there would be helpful. Thanks.
Thanks for the question, Anthony. Yes, we don't go into particular details about competitor A or competitor B. I'll reiterate what I said before a little bit and I'll maybe give to Jim Hollingshead, our President of the Americas to give a little more color and detail around the U. S. Environment.
But at a high level, I think the shift to value and the shift to talk about how much data you're extracting from devices, how you're getting that data in to my customer who for our customer, their customer is either the hospital or the physician or even the payer. And by providing those data we're extracting value for their customer and their customers' customers. So you're sort of changing the conversation from a pure price to a value one. And if your box is X dollars cheaper, but the value provided is X plus, then the discussion goes back to the value side of it. But with that as a prelude, Jim any further comments on pricing?
Sure. I think everybody is aware that the big driver of pricing in the U. S. Market has been ongoing Medicare changes and reimbursement and that's pressure that the market has been under for several months through the competitive bidding process. Think our results in Q4 show that our air solutions offer, so our AirSense and AirCurve devices coupled with our software platforms
create
a lot of value. So we our revenue grew against a huge Q4 comp last year precisely because we really shifted as Mick said just earlier, we really shifted the nature of what we're doing with our HME customers to allow them to create more value out of their business. So our offerings allow them to increase their revenue and cut their operating costs. And that's why our offerings have held up so well over the course of the year and continue to maintain share and volume growth.
Thank you. Thanks, Anthony.
Next, we have Sean Laman from Morgan Stanley. Please go ahead.
Thank you, operator. Good morning, everybody, and thanks for taking my question. Just a question on Brightree. You've owned it for 1 quarter now. I don't know, Mick, if you could give us a sense on the retention of existing customers and the uptake of new ones just some commentary around there to give us something to work with would be fantastic.
Sure, Sean. Thanks for the question. Yes, so we're 90 days plus into the close of Brightree and beyond that from the announcement. And I can tell you these first 3 or 4 months have been a really smooth transition. We've seen great contributions from Dave Cormack, the CEO in this transition and the new appointment of Matt Mallott as the CEO.
And a part of the directly after the announcement, which was 4 or 5 months ago that we announced the acquisition, there was a series of phone calls and I might hand over to Jim to talk a little bit about the details. But Jim Hollingsetter runs our Americas and Raj Soady who runs our global he's the President of our Global Business Unit for Healthcare Informatics along with Dave Cormack called all the top customers and individually spoke to them both in our core HME space and in the Brightree space and had really good discussions with them about what we were trying to do with this acquisition which is help them and reinvest with them to take costs and waste out and to improve patient adherence and have better flow of data through the industry and extract value for all the partners. The conversations I had which were with a small subset of those customers were very positive and we've seen very good customer attention in fact no significant change in customer attention pre or post the announcement or the close of the acquisition on both the core business and on Brightree. But Jim, you were involved in a lot more of those calls.
You want to provide some more color for Sean?
Sure. Thanks, Mick. Sean, we've had by and large, very favorable responses from customers, whether they were individual customers on both sides, whether the ResMed customer, Brightree customer or whether they were shared customers. And there are several 100 shared customers out in the world. Initially, we had terrific conversations with customers and I think the response has held up over time.
We've maintained virtually all of our customer relationships with both businesses and any concerns that customers had about how the 2 units work together, I think have been effectively addressed both by the fact that we've kept Brightree operating as a separate commercial unit, separate sales force, etcetera, and just in conversations that we've had. If I just go back quickly to one of the rationales for the acquisition was we were already working together out in the world, making our customers' business processes more streamlined. So we had data connections that we're allowing an HME. So for example, in sleep, if you set up a patient on a ResMed Flowgen, you could port all of the same data into the Brightree application and we go straight into our compliance applications with a click of a button. That kind of labor savings made a big difference.
And I think customers see what we're trying to do, which is to extend our health informatics offering from the therapy into their back office operations and just continue to add value by taking out cost and streamlining their business. And I think the customer response is by and large been very, very favorable.
Great. Thank you, Jim. And just one quick follow-up. Is there any reason for perhaps seasonality in the revenue for Brightree?
Why don't I hand that over to Brett?
Yes. Thanks, Mick. Yes, Sean. That I mean it's very much a subscription model. So you'd certainly from that perspective, you certainly get much less seasonality.
So it's less of an impact than it would be for example for our kind of core existing business. So less seasonality due to subscription model.
Yes. As I thought, Brett. Thank you. And thank you, Mick, and that's all the questions I have.
Thanks a lot, Sean.
Your next question comes from the line of Ben Andrew with William Blair. Your line is open.
Good afternoon. I guess maybe a question for Brett to try to be direct. Can you give us a sense of what the tax hit was for the $60,000,000 of extra repatriation? And could you keep saying largely offset, but can you be more precise?
Yes. I mean, well, to that extent, it did largely offset that size, a slightly smaller number, but not it's around that number.
But very close to the actual incremental.
Around that sort of 9, 10,000,000 mark on repatriation.
Okay. Thank you for that. That's very helpful, Brett.
Yes.
And I guess the second question for me, as we look at the Brightree revenues of $32,200,000 is what growth rate does that represent year over year? And how do you think about the sustainability of that growth rate? Or what should we be looking for the business in the next balance of the fiscal year?
Yes. Thanks, Ben. It's Mick here. One of the beauties of a recurring software as a service business model that the Brightree has established over these last 7, 8, 9 years since they've been in business is that it's 80%, 90 plus percent recurring revenue. And so you see a really steady flow to Sean's question previously, really steady flow, not much seasonality in sort of building up of per customer, per user, per member per month, if you like, per user per month type of revenue models and they build up over time.
We've seen really solid double digit growth in Brightree year on year to get to where they are now and we expect to continue to do that. We really like the Brightree model. We really like what value it provides in the core business, which is its HME channel and partnership business. One of the upsides I alluded to in the prepared remarks, but I think related to your question there about growth and future growth is home nursing, home health and hospice channels. These 2 as our population ages in the West and it's particularly focused on the U.
S. Market for this, There's some really exciting software as a service revenue models including iPad applications for home nurses directly entering data in the home that goes directly to the cloud, efficiency savings that are well ahead of the competition and really value that we can help extract for us and from new channel partners. And there's an upside for us in that there may be a large chunk of undiagnosed sleep apnea and COPD and untreated sleep apnea and COPD amongst those two channels. So there's sort of two levels of upside. 1 is the core business is Software as a Service and Brightree revenue in those two new channels, but secondly identifying patients for our core business in sleep apnea and our growing business in COPD.
Great. And just to be again direct, Mick, is that mid teens growth for Brightree or is it lower than that, higher than that? Thanks.
Yes. It's going to be around that mid teens number. Brett, you want to go into any further detail on that or are we good with that?
No, that's right, Mickey. It's definitely tracking along mid teens. Thanks, guys.
Thanks a lot, Ben.
The next
Mick, maybe just one question. I wonder if you could talk to what you see as an industry growth rate. You've mentioned this in the past on previous quarters where you think the industry is growing maybe in the U. S. And then rest of the world just in a sense are you going ahead of market?
What do you see industry growth rates across the 2 key regions that
you participate in? Thanks. Yes.
Look, thanks for the question. So we think the market growth rate for the market that we play in is in that mid to high single digits revenue range globally. And so we think hitting that 8% constant currency growth in EMEA and APAC, we're slightly ahead of market growth there. We think we took some share in that sort of combined sleep and respiratory care space. And if you look at excluding Brightree, the core Americas business excluding Brightree grew at 8% as well.
And so again, I'd say we're taking some share there, not a huge amount of share, but taking some share. And against a very tough comparable from Q4 last year, we think that's a pretty good performance. And as we look forward, that's our goal, right? We don't accept market growth. We like to drive market growth.
We like to have innovations that create opportunities for us to grow ahead of the curve. And so we don't give guidance as you know, but we see the market growing in that mid to high single digits and we like to meet or beat on a regular basis.
Great. Thank you.
Thanks, Saul.
Your next question comes from the line of Ian Abbott with Goldman Sachs. Please go ahead.
Yes. Good morning. One thing, when you speak to DMEs, one of their focuses is on resupply and they're focusing on trying to ship more accessories with masks. And I'm just wondering from your perspective, how far do you think there is to go on this? And secondly, with your solutions, with connectivity, is that how is that helping them?
So good question, Ian. I'll do a first part and then hand over to Jim for some further detail in the Americas and what we're doing in resupply. As a personal user of an AirSense 10 device and an AirFit P10 mask, I like to change my mask on a regular sort of 3 monthly basis. Any patient who puts a piece of plastic on their face every day and wears it for 6, 7 hours, I think would find that a hygienic and an appropriate thing to do. The numbers out there in the industry are far below that, well below that sort of 4 times replacement per year.
In fact, I think there was some data from some government showing around 1.8, 1.9 mass per year which remains lasting 6, 6.5 months. Personally, I think there's a lot of runway as patients get more engaged with high deductible health plans and health savings accounts in the U. S. And take more control of their own health care that they will invest the copay dollars or even full cash pay through sipab.com type payments to get themselves involved in this as the deductibles go up and so on. But I'm just talking from a personal patient experience.
Jim, why don't you give sort of the broader U. S. Market thought on that?
Thanks, Mick. And thanks for the question, Ian. The first thing I'd say is just as Mick is relating his own experience, it's really important to remember that we have a very firm belief that resupply is very good for patients. The experience of therapy for patients is always made better by fresh equipment, equipment does wear out, it gets old, etcetera. And so when the experience of therapy is better, it leads to better adherence and just better long term health for the patients.
So and that's one of the reasons I think both ResMed and our customers seek to drive resupply. It also happens to be good obviously for our customers' business. We've been working with customers for years to help them to understand how to efficiently resupply patients. And with the advent of our Air Solutions offering, we've been able to provide some software platforms that help to automate that process. And as a reminder, we actually have 2 platforms now with the acquisition of Brightree.
We have a platform called ResMed Resupply, which is a platform we built out of the acquisitions of CareTouch and JSAQ previously. And that's an automated resupply platform that has both a software component and a call center live call and automated call component. And then Brightree has a platform called Connect, which is also an automated resupply platform. Both of them create a lot of value for our HME customers because it allows them to resupply in a very cost efficient and cost effective way. And we've seen very good growth both in terms of number of customers joining these platforms and growth of resupply through them over the course of the year and that's an ongoing phenomenon for us.
So our customers are enjoying the benefits of it. It has helped our resupply numbers obviously, so our accessory sales and it helps patients. Patients love getting fresh equipment on an appropriate basis because it improves their quality of therapy, their quality of life.
Great. Thank you.
Thanks, A.
Your next question comes from the line of Matt Taylor with Barclays. Your line is open.
Hi, thanks for taking the question. Can you hear me okay?
Yes, Matt. Got you loud and clear.
Great. So I just want to cover one thing with the gross margin. Previously, you had said that Brightree was going to add about 700 bps. Is that about what you saw in the quarter? And is that what we should think about as kind of the contribution for next year?
Hi, Matt. Yes, the Q4 came pretty much in the middle there. It was 80 basis points that have contributed. And then look going forward, I think I'd stick to that range around that sort of 70 to 100 basis points.
Okay. And I guess with the moving parts that alluded to before the $100 talked about, but also your HUD gone down. How does that factor into your guidance for GMs for next year? So what are you assuming there?
Matt, I apologize. I missed the first half of that question.
Yes. I'm just asking with the euro as well not being a little bit weaker in recent weeks. How are you thinking about those 2 major currencies for gross margin next year?
Yes. I mean that plays in I think we talked about that a little earlier on. Just it does. I mean obviously a weaker euro or weaker pound or whatever it might be does impact us there. If I looked at it just at least in the sort of near term into Q1 with that sort of strengthening of Aussie and probably some weakening in some of the European currencies.
I think all opposite it probably at the moment estimates probably a 50 basis point headwind for us going into Q1. And then it's just a question I guess that then would kind of stay where they are from there on in then you wouldn't see any further impact on a sequential basis. We might see a little bit on a year on year basis. But pretty volatile at the moment, so it's hard to say on that. But near term, I'd say, look, it's about 50 basis points.
And of course that can change depending on what currencies do. But at the moment, I'll put around that kind of number.
Great. And then can you just give us a sense of how to model the interest and other expense for next year since you have the debt from Brightree? I think the truth modeling some income, you had some expense this quarter. Is there any parameters you can give us around the interest rate or the cadence of the debt pay down to help with that number?
Yes, Matt. The interest rate for us would be around is rough number around that 2% mark in terms of funding costs on the interest if you use that. At Brightree basically the acquisition from close to the beginning of the quarter and I think we finished with kind of this net interest expense for the quarter around 2,400,000 dollars So that's probably kind of a reasonable go forward number going into FY 2017.
Okay. Thank you.
Your next question comes from the line of Steve Wien with Evans and Partners. Please go ahead.
Yes. Hi, guys. Just a quick question on the GPO announcement that you made. Is there any milestones in terms of volumes that are required? And is there any sort of color you can give around how that will contribute going forward?
And then just if you could, Brett, go sort of talk on the gross margin outlook for FY 'seventeen? You've mentioned FX and you've mentioned Brightree, but just any other sort of moving parts that we should be mindful of? Thanks very much.
Thanks for the questions, Steve. I'll answer the first one. And then as you indicated, I'll hand to Brett for the second. Yes, the GPO announcement was really as an example of us executing on that channel strategy. And you may or may not see further press releases from us about other GPO and government contracts that we have over time, but we don't give details of any particular customer milestones associated with them on a sort of milestone basis.
Essentially, the GPO contracts are hunting licenses and then you're allowed to go in hospital by hospital and move forward on it. But it's an upfront negotiated air cover for the sales folks to go in there and work with those 3,600 hospitals and 120,000 other providers and push forward on our respiratory care growth within the channel. So I said in my prepared remarks more to come on that front. There will be a lot more to come. We might not put press releases out on all of them.
It's really just an indicator of where we're moving on that front. Brett, do you want to take the second question about gross margin?
Sure. Yes. Steve, on the outlook there on gross margin, I guess, as you know, there's a lot of moving parts on that. We've mentioned on the FX. If I look at certainly from a product mix perspective, it's definitely that sort of unfavorable mix is certainly moderated for us and is far more consistent.
To the extent and Mick mentioned earlier in terms of new mask introduction and so on, you could probably expect that would be supportive on a product mix front as we get through FY 2017. We've done the team's been doing some really good work around the manufacturing, procurement and so on. We've seen some of that come through. So I'm quite positive on that. And then you've got obviously the Brightree is now kind of built into that Q4 Q4 margin, but that will continue to be supported as well.
I mean you have the usual ASP declines and things like that coming through. But overall in the mix, I think some of the big unfavorable items are certainly moderating and potentially could have as masks are introduced and so on that should be beneficial. So overall we've got it's probably a near term currency headwinds a bit unhelpful. But overall, that's pretty comfortable with that 57% to 60% range. And we're kind of more or less just about in right in the midpoint of that range at the moment.
So that's kind of how I characterize the moving pieces.
Great. Thanks very much.
Thanks for the question, Steve.
Next we have a question from the line of Chris Callos with Morningstar.
Just a quick follow-up on the cardiology trial. Mick, from the sound of your of the CAT HF numbers, they're neutral to positive. Does that now maybe reboot your efforts in cardiology? And are you planning any more sponsoring of clinical trials in that space?
Thanks for the question, Chris. That allows us to talk through our sort of 3rd horizon portfolio, if you like. And yes, we are absolutely dedicated to cardiorespiratory, which is it's almost not sure it's a medical term out there in the formal literature is something that we are really leading the market on. And I define it as sleep disorder breathing amongst atrial fibrillation, sleep disorder breathing amongst heart failure with preserved ejection fraction. And I would also include play in hypertension and some other cardiovascular diseases.
But clearly, the data from CAT HF were incredibly exciting. I don't know if you had a look at the detail that was presented there at ESC or the halfway of Congress at ESC. But as you start to look at those clinical data and the level of clinical and statistical significance from a relatively small group of patients, it certainly indicates to us and if you talk to Chris O'Connor who is the primary investigator who was formerly at Duke and is still the PI on the trial, Clearly, our investigators and all the hospitals and all the clinicians involved want to do some follow on work in the heart failure with preserved ejection fraction space. So it certainly gives me more excitement in the space. The clinicians are very excited about it, the nurses, the doctors.
And to we would like to continue to invest in the space. And so we won't go into details about what that investment will look like large multi year clinical trials or a lot of market development work or some combination of the above. But you'll hear a lot more from us regarding that Horizon 3 growth opportunity including the CAT HF trial follow-up in the coming quarters.
Mick just on that is the data strong enough to incorporate into marketing to cardiologists? And also these initiatives, are they in the next 2 years in terms of next steps? Is that the sort of time frame we're talking about?
So the data are not strong enough for an indication for use or IFU to start marketing to cardiologists. So no, it would require a lot further work on that front. What you might see is some work with we talked about that trial with Kaiser Permanente where we did some work on U Sleep. We might work with payer providers who are looking at these clinical data saying that's exciting. We'd like to work on that in some sort of IRB or other controlled environment.
But yes, I don't want to go into sort of real details here on the final question of our Q and A about what that part of Horizon 3 will look like at this point. But what I'll say Chris is you will hear more from us over the coming quarters as to what we're doing in the cardiorespiratory care space. But it's pretty exciting data from CAT HF. I'm glad you noticed that.
Great. Thanks, Mick.
Thanks, Chris. Maybe one last question, right?
Yes, of course. Your next question comes from the line of Will Dunlop with Merrill Lynch. Please go ahead.
Hi, guys. Thanks for taking my question. Just wondering if you could please give more detail on your Rest of the World Flowgen's growth and what countries perhaps and what products are driving good 11% growth there please?
So I'll hand over to Rob Douglas, our President COO to talk about EMEA and APAC.
Yes, Will. Thanks for that question. We yes, you saw we reported pretty good results through there. We're not going to break it out by country, but we saw good continued take up of the AirSense platform. We had previously talked about the value proposition really came on very strong, but it's been a little more work to get that value proposition going in some of the other countries and we're very pleased with the progress going through there.
And so we're really seeing good take up across the board of that. So it's really been a good result.
Okay. Thank you.
Thanks a lot for your question, Will.
We are now at the 1 hour mark. So I'll now turn the call back over to Mick Farrell.
So in closing, I would like to thank the now more than 5,000 strong ResMed team from around the world for their commitment to changing the lives of millions of patients with every breath. I'm really proud of what the team accomplished not just here in Q4, but throughout the whole fiscal 2016 to establish ResMed really as the world's leading tech driven medical device company. Through clinical research, new features that expand our products and solutions and our acquisitions, we're transforming how health care is delivered and shaping a new frontier in connected care in respiratory medicine. We remain focused on our long term goal of improving 20,000,000 lives by 2020. Thanks for your time and we will talk to you again in 90 days.
I'll hand back to Agnes.
Thank you everyone again for joining us today. If there are any additional questions, please feel free to contact me. The webcast replay will be available on our website in about 2 hours atinvestors. Resmed.com. Laurel, you may now close the call.
Thank you. This concludes ResMed's Q4 of fiscal year 2016 earnings live webcast. You may now disconnect.