What can we do in demand gen? What can we do to get patients into the funnel? I truly believe to the three questions focused on this new class of drugs. I do believe we are seeing more patients come into the funnel, more patients into primary care. That’s great. I mean I think there’s $1 trillion worth of market cap now from these companies and they will turn that into marketing to bring people in for the miracle drug, and that will absolutely bring patients in for assessment for all the comorbidities that are associated with a patient that might have been severely overweight and now likely on the other side of these will still be overweight, including sleep apnea, COPD and other cardiovascular diseases and beyond. So we’re watching that really closely.
Look, we’ve consistently over decades that we’ve been in business, not just accepted mask growth rates from the market, we said, let’s drive it higher and higher. The 23% is extraordinary and very strong in a highly competitive market. But I look at what we’re doing with resupply, I look at what we’re doing with new product launches, I look at what we’re doing to drive patients into the funnel. And I think we can meet and beat that high single digits that the market would grow at. And with us being such a strong share, we get to — when we do demand gen, we get to get a very good share of those patients through the funnel. So there’s more of an incentive for ResMed to drive demand gen initiatives when we get such a good share of it on the device and mask side, and we’re seeing that in many of the markets we operate in worldwide.
But it’s a great question.
Operator: Next question is coming from Sean Laaman from Morgan Stanley.
Sean Laaman: Mick, really good OpEx control in the quarter. And I think Brett mentioned, if I pick it up correctly, 18% to 20% as a guide on revenue going forward. I’m just wondering if there is more restructuring to done or to be done or you think you’re rightsized at the moment?
Mick Farrell: And as I said in the prepared remarks, stuff that impacts our people are the toughest decisions to make, and we did this week, have a change in 5% of our global workforce reduction of 5% of our global workforce and tough decisions to make. I really think that, that is — if you think about it, that is the restructuring. There are some changes I’m looking at it in the operating model, sort and roles and responsibilities and a focus on a more product-led and brand-led company that will come over time, but they’re not massive restructures. And I think what that 18% to 20% revenues that Brett talked about in SG&A is indicative of the change that we’ve made here and reestablished a new base and a push for, as you said, really strong profitable growth across our business.
But look, the world has changed. We are already a product led organization but our brand has increased in its value across the world, and we need to document and understand that and understand how to engage people in nonreimbursed markets as consumers into the funnel. And we’ve already invested in a number of our D2C markets in that, and we’re driving that. And in our B2B and B2B2C markets, we’re also working with our healthcare partners and distributors in the channel to work out how to best get patients into the funnel. So we’re sort of, if you like, we’re freeing up cash to reinvest in demand gen, reinvest in getting patients into the funnel. And we think there’s a billion reasons in terms of the patients that need our help to get out there and do it.
And that’s going to be there for decades and we’ve got to find better ways to do it. But to answer your question directly, yes, that restructure is done and we’re now focused on moving forward.
Operator: Your next question is coming from Margarette Kaczor from William Blair.
Margarette Kaczor: I wanted to focus on the quarter as well. You guys talked about this all time high patient flow number, which is notable. When you said the channel, I guess, were you referencing those are CPAP prescriptions or folks getting tests? And any color you can give us on how that growth profile compared to recent quarters, and anything kind of on the US device growth this quarter as well?
Mick Farrell: So look, we have a relatively low share of the diagnostic space in home sleep apnea testing with our ApneaLink Air product. So we are tracking that,those are up. The best data we have is through Air Solutions System. So we talk about the 22.5 million patients on our Air Solutions platform and almost 7 million patients that we now have on myAir patients directly engaged in. So we watch those starts very closely. We also do have de-identified and objective data from Brightree showing across the whole industry, patients coming into the funnel in sleep apnea but also across other home medical equipment categories. And I can tell you the patients are getting engaged and finding their way into the to the primary care treatment funnel and specifically in sleep apnea.
And we believe it’s not short term that this is a sustainable rate of growth for patients coming in, and I think it’s really exciting to see that. To your question specifically about device growth, yes, so it’s 8% globally. I mean I got to say I’m incredibly proud of our Europe, Asia and rest of world markets growing 20% this quarter year-on-year, that’s where we’re competing directly with our competitor that was out for their recall. They’re back in many countries, in Europe, Asia and rest of world, and meeting and beating them head-to-head, I think, proves out the thesis that ResMed has the best-in-class products, but services and solutions, not just the hardware but the software and the capability we’ve been investing in that for a long period of time.
This period a year ago, the September quarter 2022, we had just unleashed card to cloud on an unallocated basis, and it took off despite usually what is quite a low growth quarter in September, given that summer here in the US. We had incredible growth last summer with our card to cloud solutions, so we’re lapping that growth. I think the team with that device growth of 2% is building on what was an extraordinary uptick from card to cloud. But when we look at the number of patients coming through, the diagnostic funnel and the setups coming into AirView and the setups of the patients coming into myAir, the growth rate of patients is mid single digits plus and with recap really up there. And so I think that’s why I can say that I think it’s sustainable for us to meet and beat sort of the pre-COVID 2019 earlier CAGR of mid single digit growth for devices, we can meet and beat that throughout demand gen and high single digit growth in masks.
We can definitely meet and beat that through our work and experience and expertise now on resupply, engagement with patients and the changes that happen during COVID are focused on respiratory health and respiratory hygiene. So I hope that answers your question, Margaret. Thanks to that.
Operator: Next question is coming from Steve Wheen from Jarden.
Steve Wheen: Just a question back on to the gross margin. When we think about fourth quarter’s growth margin, it went down largely because of FX and mix and yet we’ve got that going in your favor in this quarter. I’m just curious as to really what is holding that gross margin back when you do have such a strong mix geographically with devices in rest of world up but also masks as a category overall up and you’ve got the FX tailwind as well? And just to clarify, the Astral field safety notice cost is not in the 56% gross margin from what I can work out, if that’s correct as well?
Brett Sandercock: Yes, that’s correct, that’s excluded as a non-GAAP item from 56%. But if you’re talking year-on-year on the gross margin, really the biggest impact coming through was component cost increases that we’re still cycling through and working through inventory. So that was the biggest factor. We did see some product mix favorability there, but not enough to offset those component cost increases, for example. That was the biggest impact on the year-on-year reduction in GM.
Operator: Next question is coming from Saul Hadassin from Barrenjoey Capital.
Saul Hadassin: Mick, you’ve kind of commented on sustainability of US flow gen growth. I just wanted to ask you, so the growth rate based on revenues this quarter implies about a 17% CAGR going back to 1Q fiscal ’20, so the September ’19 quarter. So I’m just wondering if you think you can sustain sort of the dollars of flow gen sales that you reported this quarter, or if you think sales are going to step down as we work through the rest of fiscal ’24? Just wondering if you can sustain the level of sales in dollar terms?
