And if we have to do it with an AirSense 10, which is an amazing seven-year old platform, then we’re going to do it. If we can do it with the brand new AirSense 11 platform, we’re going to do it. And look, nothing’s slowing us down. Our quality and regulatory teams are going geography by geography to get the AirSense 11 approved in each of the regulatory environments. So as soon as that is, we can start selling the products. But the ramp up on AirSense 11 is probably not as fast as it would be in a market where you had all five major competitors competing there because of that excess demand we’re covering a lot of that with the AirSense 10. So that’s sort of how we’re thinking about it. Patient-centric, patient demand, take care of that patient now, get them on our ecosystem, and then ramp as fast as we can AirSense 11, and we’re doing that.
Nothing’s slowing down. The accelerator is firmly pedal to the floor on AirSense 11. And so everyone we make, we sell but it will be on allocation just given the huge demand that we see in the market right now, Chris. Thanks for the question.
Operator: Thank you. Next question is coming from Dan Hurren from MST. Your line is now live.
Dan Hurren: Hi, good morning, and thanks very much. Mick, at the third quarter result, you seem to be very confident about gross margin. In fact, I think at the time we know that it was probably the most positive gross margin commentary we’d heard out of ResMed in recent memory. So I know you’ve spoken to component cost and why you don’t manage the gross margin, but what else changed since the time you gave that, that commentary to the result?
Mick Farrell: Yes. Thanks for the question. And I think actually if you go back and look, the all the factors that I talked about 90 days ago, we’re talking about today, but in addition, the AirSense 11 ramp that we’re putting together there. What happened in these 90 days that was unpredicted was — there was more demand. What we thought a competitor may be back, and there was more demand for CPAPs and APAPs and we didn’t — I know the exact number of how we could have slowed down our AirSense 10 generation to get gross margin to be plus 30 basis points from QtoQ, but we didn’t engineer it and reverse engineer it that way. We said, there’s demand out there, let’s go take care of those patients. That was the unexpected factor.
It was U.S. CPAP and APAP demand. And I mean, you look through the numbers, you’ll see that it was incredibly strong on gross profit generation, cash flow generation, incredibly strong during the quarter. And we did think about it. Oh gosh, do we follow through and saying, oh, we want to get accretive GM, 90-day to 90-day point or do we say take care of that patient? And we said, no, we’re going to do the right thing. We’re going to take care of the patient. So we’re thinking about the long-term here. But no, I’m still bullish over this fiscal year for sure. I — you never can know what demand’s going to look like and where it’s at and we are not going to not take care of a patient. But as those higher inventory costs work their way through our system there’s opportunity for gross margin improvement as we go forward.
There’s also the impact of if you looked at the SG&A this time a year ago in the June quarter of 2022 versus 2023, there was still a lot of people on that sort of COVID. I’m not traveling, I’m not going to see customers, I’m not going to do the strategic meetings and the planning meetings. We’ve opened some of that up, as you saw in our SG&A and so that’s impacting our net margin as well. We’re going to manage those tightly and carefully. And we’ll probably have some further vigilance, if you like, on our SG&A and we won’t be pulling back really on R&D. I think that the innovation engine has to continue to grow, and we’re doubling down on AI, and I think our leadership and digital health, we have to make that happen. So I’m still bullish throughout the fiscal year of FY2024.
