ResMed : Q3 2024 ResMed Earnings Results Webcast Transcript

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EDITED TRANSCRIPT

RMD.N - Q3 2024 Resmed Inc Earnings Call

EVENT DATE/TIME: APRIL 25, 2024 / 8:30PM GMT

OVERVIEW:

Company Summary

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Amy Wakeham ResMed Inc. - Chief IR Officer

Brett A. Sandercock ResMed Inc. - CFO

Michael J. Farrell ResMed Inc. - CEO & Chairman

C O N F E R E N C E C A L L P A R T I C I P A N T S

AnthonyCharlesPetroneMizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst of Medical Devices,Diagnostics & Therapeutics Craig Wong-Pan RBC Capital Markets, Research Division - Director of Equity Research & Equity Research Analyst

Dan Hurren MST Financial Services Pty Limited, Research Division - Senior Analyst

David Bailey Macquarie Research - Analyst

Gretel Janu E&P Financial Group Limited - Executive Director & Healthcare Research Analyst

Laura Sutcliffe UBS Investment Bank, Research Division - Equity Research Analyst

Lyanne Harrison BofA Securities, Research Division - VP in Global Equity Research

Malgorzata Maria Kaczor Andrew William Blair & Company L.L.C., Research Division - Partner & Research Analyst Michael Stephen Matson Needham & Company, LLC, Research Division - Senior Analyst

Mike Toomey Jefferies - Equity Trader

Saul Hadassin Barrenjoey Markets Pty Limited, Research Division - Analyst

Steven David Wheen Jarden Limited, Research Division - MD, Head of Healthcare & Analyst

Suraj Kalia Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

Brett Fishbin

P R E S E N T A T I O N

Operator

Hello, and welcome to the Q3 Fiscal Year 2024 ResMed Earnings Conference Call. My name is Kevin, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference call is being recorded.

I'll now turn the call over to Amy Wakeham, Chief Investor Relations Officer. Amy, you may begin.

Amy Wakeham - ResMed Inc. - Chief IR Officer

Great. Thank you, Kevin. Hello, everyone. Welcome to ResMed's Third Quarter Fiscal Year 2024 Earnings Call. We are live webcasting this call, and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now.

During today's call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for the GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile the non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements including, but not limited to, expectations about our future financial and operating performance.

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today.

I'd like to now turn the call over to ResMed's Chairman and CEO, Mick Farrell.

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Thanks, Amy, and thank you to all of our shareholders for joining us today. Our third quarter fiscal year 2024 results reflect another strong period of execution across our entire business, resulting in solid top line growth and strong double-digit bottom line growth. Our results were driven by ongoing new patient demand for our devices across global markets, high single-digit growth in our Software as a Service business and double-digit global growth in our masks and accessories business. This is exceptional performance, given that we are annualizing a very strong quarter of growth in the prior year.

The recent launch of our ResMed 2030 operating model and our steady focus on driving increased operating leverage are delivering excellent bottom line results and keeping us on a clear trajectory of ongoing profitable growth. Over 2 billion people worldwide suffer from sleep apnea, what I call sleep suffocation, insomnia or respiratory insufficiency due to chronic obstructive pulmonary disease or neuromuscular disease. These chronic conditions form a healthcare epidemic that ResMed is uniquely positioned to address.

We believe that healthcare should be delivered at the lowest cost, lowest acuity, and highest comfort location possible. In the optimal case, that's in a person's own home. We are the global strategic leader in providing therapies for this epidemic as well as market-leading enterprise software for residential care, including home medical equipment, home nursing and beyond.

ResMed is the global leader in digital health solutions with over 18 billion nights of medical data in the cloud, and over 24.5 million 100% cloud connectable medical devices that have been sold into over 140 countries worldwide. We are the clear leader in sleep apnea, a market of over 1 billion people globally. Our end markets remain significantly underpenetrated. We believe the latest advances in big consumer tech and big pharma can potentially bring incredible numbers of new patients into the healthcare system, where ResMed is uniquely positioned to provide ongoing care at home.

We have a myriad of opportunities to add value, to reduce friction, to improve interoperability, to lower costs, and to improve patient outcomes. We're the global strategic leader with software supporting hundreds of millions of people as they take control of their healthcare journey and navigate the complex healthcare world beyond the hospital system.

Many more people can benefit from our products and solutions, and we're laser-focused on growing the market to help people get on the therapy they need, and on a pathway to better sleep, better health, and better long-term care.

Sales of our devices, including the category-leading AirSense platforms grew 5% year-over-year globally. Excluding the onetime COVID-related ventilator sales in the third quarter of last year, global devices grew about 300 basis points higher than that, so right around 8% global devices growth.

We are maintaining supply of two of the two market-leading 100% cloud connectable platforms, the AirSense 10 and AirSense 11. We're working to increase the global availability of AirSense 11 platform by securing market-by-market regulatory clearances.

We are following a similar path with our recently launched AirCurve 11 bilevel, and noninvasive ventilator platform as we continue its launch in the U.S. and beyond in the period ahead.

Our commercial teams are successfully demonstrating the clinical and economic benefits of the ResMed mask portfolio. Our masks and accessories business achieved 10% growth year-over-year, expanding at or above the market in a competitive category globally.

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

During the quarter, we introduced our latest mask innovation into the U.S. market called the AirFit F40. The F40 features a proprietary new technology that we call AdaptiSeal. It is a silicon cushion designed to create and maintain a better facial seal even when the person is moving frequently during sleep. It leverages a fully flexible frame technology to cope with such frequent nocturnal movement.

Physicians, respiratory therapists and patients love the F40 for its comfort, its fit, and its ease of use. It is the smallest full-face mask on the market from ResMed. Patients are voting with their wallets and respiratory therapists and physicians are voting with their recommendations and their prescriptions. We look forward to ongoing success in the U.S. and to swiftly bring the F40 to other global markets very soon.

Mask and accessory resupply programs are an important element of our offering as we serve the ongoing therapy needs of patients globally. ResMed's clinical and commercial teams continue to partner with physicians and providers to drive resupply programs directly for their patients.

In our cash pay markets, we have established a number of subscription programs that have been adopted by consumers. Research shows that resupply programs lead to better patient adherence and better long-term clinical outcomes for the patients and their caregivers.

In the U.S., our resupply programs are powered by our digital health ecosystem, including AirView for physicians, myAir for patients, and Brightree for home medical equipment providers. We will continue to develop, launch and scale these technologies as well as direct subscription programs to help people take control of their own health, regularly refreshing ongoing therapy needs, including masks, tubing, humidifiers and other accessories.

Let's now turn to a discussion of our top three global strategic priorities here at ResMed. Number one is to grow and differentiate our core sleep health and breathing health business. Number two is to design, develop and deliver market-leading med tech and digital health solutions that can be scaled in 140-plus countries worldwide. Number three is to create and leverage the world's best software solutions for residential care.

As the global market leader in these significantly under-penetrated markets, our most significant opportunity is actually to expand and grow the market itself through awareness, diagnosis and pathways to treatment. We aspire to be the digital health concierge for each person as they pursue their personal journey to better sleep, better breathing and better care where they live. We are ramping up our demand generation initiatives to do just that.

The ResMed 2030 operating model changes that we made recently position us for success as a product-led,customer-centric,brand-enhanced leader in healthtech. We're raising awareness and creating pathways for patients to find access to care for their sleep health and their breathing health across the globe. We are leveraging traditional market channels and investing in cost-effective, social media-drivendemand-generation campaigns. The goal is to help consumers concerned about their sleep and breathing find their way into appropriate screening, diagnostic, treatment, and management pathways.

As we continue on our journey to create this digital health concierge for individuals, we are tracking progress with hard metrics. We are looking at new patient starts in our physician and provider-based ecosystem, including AirView, which now contains more than 27 million patient records. We're also tracking new starts in myAir, our consumer patient engagement app where people choose to participate in their personalized healthcare journey to better sleep and better breathing. myAir now includes a population of 7.8 million users. We will drive more and more of the over 1 billion people worldwide who need our help for their sleep suffocation into the healthcare system.

We believe two global megatrends will further support our ongoing growth. Awareness driven by consumer tech specifically sleep tracking wearables like the Samsung Galaxy Watch, which has a de novo FDA clearance to screen for sleep apnea. We expect similar capabilities from other wearables from big tech, including the Apple Watch and Google's Fitbit. In addition, we believe that the population of patients -- the other megatrend, the population of patients coming from big pharma as they focus on obesity and related impacts on health, including sleep health will bring an incredible volume of patients into the healthcare system and the patients will have clinically significant sleep apnea that is best addressed by our therapies post these other therapies.

We love this attention from big consumer tech on the field of sleep wellness tracking, and we believe that many of these wearable technologies will help consumers find out if they have issues with breathing during sleep while maintaining high quality sleep. This could be one of the biggest

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

ways of people taking control of their own pathway for discovering they have sleep issues like sleep apnea, or insomnia, or both - a new disease state that is being called by the physicians, COMISA.

Ultimately, we believe that this will lead to increased patient awareness and sustainable long-term growth for ResMed. Our goal is to educate people as they move from sleep wellness tracking with these wearables to what I call sleep health tracking. And from consumer awareness to a true healthcare pathway for screening, diagnosis, treatment, and ultimately ongoing management of their sleep health and breathing health. We believe that here at ResMed, we are uniquely positioned to help. Big pharma is squarely focused on GLP-1 medications right now. For many people dealing with their obesity, their healthcare goals are focused on losing weight, while improving their diet, exercise and their sleep routines. We believe that increased utilization of GLP-1s to treat obesity will bring many new people into the healthcare funnel, activating them to see their primary care physicians as they strive for weight loss and other medical health.

We believe this will open these patients up to knowledge of their other chronic diseases from their primary care physicians, including awareness of chronic diseases such as sleep apnea, ultimately driving new patients into diagnosis and treatment pathways that may not have previously been considered or being treated for, for those patients. So we believe this will drive not just more patients into our channel, but also more motivated patients into our channel.

ResMed has been tracking the impact of GLP-1s through a de-identified patient analysis using an overlap of our data and third-party claims data. With another quarter of data analyzed, we are now up to an incredible N=660,000 subjects in our analysis. The bottom line is that the data show that GLP-1s are having a positive impact on patients seeking and adhering to positive airway pressure therapy. The latest numbers are an improvement from what we presented previously.

For patients prescribed a GLP-1 medication, the latest data show a 10.5% higher propensity to start positive airway pressure therapy over those not taking the drug. As we follow these patients longitudinally, the resupply rate at T=12 months is 310 basis points higher. That's 3.1 absolute basis percentage points higher for patients who have a GLP-1 prescription. And then at T=24 months, the resupply rate is 500 basis points, so 5.0 absolute percentage points higher for patients who have a GLP-1 prescription. These data show clearly that these new GLP-1 pharmaceutical class is actually a tailwind for our ResMed business, bringing more patients and more motivated patients into the healthcare system.

We've included the full analysis of these data in our investor deck, and I encourage you to review the data there. It's very positive information and very thorough and detailed work by our healthcare economics and outcomes research as well as our digital health analytics teams here at ResMed. Existing clinical studies show many factors impact sleep apnea epidemiology, including craniofacial anatomy, age of the subject, gender, and weight. With over 1 billion people on the planet with sleep apnea right now, 80-plus percent of them are undiagnosed in our biggest market, the United States, and over 90% of patients are undiagnosed globally. There remains an incredible opportunity to help people sleep and breathe better through positive airway pressure therapy, the universally recognized gold standard for treating sleep apnea. We look forward to more patients entering the healthcare system for care and more motivated patients who can get on our therapy faster and stay on it longer.

In terms of best-in-class treatments for sleep apnea, achieving that goal of good sleep and good breathing, we have peer-reviewed and published evidence demonstrating that we can achieve over 87% of patients adherent through our positive airway pressure technology by combining our market-leading device platforms, our market-leading masks, with our digital health solutions. Even with this best-in-class global tech just over 10% of patients still need alternative therapies, and we have a very high volume of patients coming through these days.

We're investing in alternative therapies and we're working to help patients who just can't adhere to positive airway pressure therapy despite the latest technology to find their path to second-line therapies, such as dental devices where ResMed has the market-leading 3D printed dental device on the planet for sleep apnea in Western Europe and Northern Europe. That's called Narval.

In addition, we have investments in third-line therapies, including pharmaceutical options, we're an investor in Apnimed. And we're also an investor in hypoglossal nerve stimulation technology, through our investment in a company called Nyxoah. ResMed is about sleep health. It's about breathing health, and it's about delivering the best care right where you live. We make sure the person finds the path to the highest efficacy, lowest cost, most comfortable therapy that's best for them.

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

Let's pivot now to talk about our digital health technology investments, leveraging our 18 billion nights of de-identified medical data in the cloud and our 24.5[DR1] 100% cloud connectable devices that are there in our ecosystem across 140 countries. We are investing in a portfolio of artificial intelligence-driven capabilities as well as customer-facing AI products in our ecosystem. We continue to roll out these products in our AirView ecosystem, such as compliance coach that I talked about last quarter, that's rolling out in the United States. We're also progressing well with our generative AI capabilities to help patients along their journey, really people before their patients and then they become people seeking sleep health and breathing health solutions and then on their journey, they become patients. And we're rolling out that GenAI capability in the Asia Pac region for now, and we'll look to scale that as we move forward. We'll continue to share progress on this front as this revolutionary tech is developed and scaled across our business and many of medtech and healthtech peers are doing the same and our ecosystem will move forward.

Our respiratory health business continues to be supported by sustained activity across our noninvasive ventilator platforms and our life support ventilator platforms. We continue to invest in clinical and economic trials for high-flow therapy that we call HFT to treat chronic obstructive pulmonary disease at home at a cost-effective rate. This is a long-term opportunity focused on generating evidence, developing pathways, and driving new reimbursement options. We are focused on driving adoption of these technologies for treatment at home. The prevalence of respiratory insufficiency due to COPD as well as neuromuscular diseases, continues to increase, and we have low-cost, high efficacy, and high-tech treatments in HFT and beyond to address this healthcare epidemic.

Turning to our Software as a Service business in the field of residential care, we had another strong quarter with year-over-year growth of 8%. We plan to maintain high single-digit growth in the remainder of fiscal year 2024, and we plan to accelerate to double-digit growth for our residential care Software as a Service business on an organic basis throughout fiscal year 2025. We are seeing ongoing customer-facing synergies between our Brightree offering in the U.S. and our core home medical equipment channel and its resupply capabilities. We are driving good growth across both our residential care SaaS and our core sleep health and breathing health businesses, while serving many hundreds of thousands of patients.

Our residential care SaaS business is integral to ResMed's growth portfolio, and we're excited to have created a global business that will achieve double-digit growth on organic basis throughout fiscal year 2025. We continue to drive OpEx leverage by managing our capabilities for cloud compute, cybersecurity, interoperability, privacy, and R&D across our go-to-market brands that include Brightree, MatrixCare and MEDIFOX DAN. And those synergies go not just across the SaaS businesses, but also directly into our core sleep health and breathing health business.

And beyond this infrastructure leverage, our residential care SaaS business drives platform development synergies and customer engagement facilities and capabilities that are synergies as well. And these highly complement the market-leading med tech and software solutions capability that's there right in our core sleep health and breathing health business ecosystem, including products like AirView and myAir and beyond.

We are transforming respiratory medicine and residential care at scale. We are leading the industry in developing, applying and adopting digital health technology across our markets. We continue to scale and drive efficiencies in our operations. We're focused on driving topline revenue growth, focused cost discipline and increased efficiencies to accelerate profitability all the way to the bottom line and we made very good progress on that this quarter. The team delivered non-GAAP operating income up 23% and non-GAAP net income up 27%. We have created differentiated products and solutions for customers worldwide, driving long-term sustainable value for our shareholders. We lead the industry in digital health technology with the smallest, quietest, most comfortable, most connected and most intelligent medtech solutions.

During the last 12 months, we have improved over 174 million lives by delivering a medical device directly to a patient, a complete mask system to a patient, or a digital health software solution that provides personal care for a patient right where they live. We've helped each person sleep better, breathe better and live higher-quality lives with best-in-class healthcare.

In closing, I want to express my sincere gratitude to the more than 10,000 ResMedians for their perseverance hard work and dedication today and every day. Thank you.

With that, I'll hand over the call to Brett in Sydney for his remarks, and then we'll open up to Q&A with the entire team between Sydney and San Diego. Over to you, Brett.

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

Brett A. Sandercock - ResMed Inc. - CFO

Great. Thanks, Mick. In my remarks today, I'll provide an overview of our results for the third quarter of fiscal year 2024. Unless noted, all comparisons are to the prior year quarter and in constant currency terms, where applicable. We had strong financial performance in Q3. Group revenue for the March quarter was $1.2 billion, a 7% headline increase and a 7% increase in constant currency terms. Revenue growth reflects positive and consistent contributions across our product and resupply portfolio. Year-over-year movements in foreign currencies had a negligible impact on revenue during the March quarter.

Looking at our geographic revenue distribution and excluding revenue from our Software as a Service business, sales in U.S., Canada and Latin America increased by 9%. Sales in Europe, Asia and other markets increased by 3%. Globally, device sales increased by 5%, while masks and other sales increased by 10%.

Breaking it down by regional areas. Device sales in the U.S., Canada and Latin America increased by 7%, supported by solid ongoing new patient diagnosis, while masks other sales increased by 12% and reflecting growth in both resupply and new patient setups.

In Europe, Asia and other markets, device sales increased by 1% on a constant currency basis. Year-over-year growth moderated due to incremental revenue in the prior year quarter of approximately $15 million from COVID-related demand. Excluding the COVID-related sales, device revenue increased by 8% on a constant currency basis. Masks and other sales increased by 6% on a constant currency basis.

Software as a Service revenue increased by 8% in the March quarter, underpinned by growth from MEDIFOX DAN and continued strong performance from our HME vertical.

During the rest of my commentary today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our third quarter earnings press release.

Gross margin increased by 240 basis points to 58.5% in the March quarter. The increase was driven by reductions in freight expense, manufacturing cost improvements, favorable product mix, and an increase in device average selling prices. Sequential gross margin improved by 160 basis points. We continue to monitor potential headwinds that could arise from the Middle East conflict. Disruptions in the Red Sea have increased freight costs and shipping lead times. We estimate this will negatively impact our Q4 gross margin by around 30 to 50 basis points.

Moving on to operating expenses. SG&A expenses for the third quarter increased by 1%. SG&A expenses as a percentage of revenue improved to 19.2% compared to 20.5% in the prior year period and reflects savings and ongoing cost discipline following restructuring actions undertaken early in the December quarter.

Looking forward and subject to currency movements, we expect SG&A expenses as a percentage of revenue to be in the range of 18% to 20% for the balance of fiscal year 2024.

R&D expenses for the quarter increased by 2% on a constant currency basis. R&D expenses as a percentage of revenue was 6.4% compared to the 6.8% in the prior year period. Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for the balance of fiscal year 2024.

Operating profit for the quarter increased by 23%, underpinned by revenue growth, gross margin expansion, and modest growth in our operating expenses. Our net interest expense for the quarter was $11 million. Given our lower debt levels, we expect interest expense to be in the range of $7 million to $9 million in the final quarter of fiscal year 2024.

Our effective tax rate for the March quarter was 20.3%, broadly consistent with the prior year quarter. We continue to estimate our effective tax rate for fiscal year 2024 will be in the range of 19% to 21%. Our net income for the March quarter increased by 27% and non-GAAP diluted earnings per share also increased by 27%.

Cash flow from operations for the quarter was $402 million, reflecting solid underlying earnings and improvement in our working capital position.

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

Capital expenditure for the quarter was $21 million, depreciation and amortization for the quarter totaled $43 million. We ended the third quarter with a cash balance of $238 million. On March 31, we have $1 billion in gross debt and 670 -- sorry, $769 million in net debt.

During the quarter, we reduced our debt by $220 million. On March 31, we had approximately $1.2 billion available for drawdown under our revolver facility, and we continue to maintain a solid liquidity position. Today, our Board of Directors declared a quarterly dividend of $0.48 per share.

During the quarter, we purchased 261,000 shares under our previously authorized share buyback program for consideration of $50 million. We plan to continue to purchase shares to the value of approximately $50 million per quarter for the balance of fiscal year 2024. This will more than offset any dilution from the vesting of equity to employees during the year. Going forward, we plan to continue to reinvest in growth through R&D, pay down outstanding debt and deploy further capital for tuck-in acquisitions.

And with that, I will hand the call back to Amy.

Amy Wakeham - ResMed Inc. - Chief IR Officer

Great. Thank you, Brett. Thanks, Mick. Kevin, let's go ahead and turn the call back over to you to provide the instructions and then run the Q&A portion of the call.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions) Our first question today is coming from Dan Hurren from MST Marquee.

Dan Hurren - MST Financial Services Pty Limited, Research Division - Senior Analyst

Look, I just wanted to ask about the gross margin predictably. That recovery is pretty sharp, whereas I think you had perhaps talked to a more modest gross margin recovery in the second half. So I just want to ask how sustainable that recovery is into fourth quarter and into '25?

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Yes. Thanks, Dan. It's a good question. And obviously, as we talked about on the call a quarter ago and two quarters ago, we've got long-term programs and short-term programs that are moving very carefully to move our gross margin up some very long term as we walk through the launch of our AirSense 11 platform, which is at a better cost point, a better price point, launch of our new masks, the F40 last quarter and these have effects that go over the long term.

Some of the faster impacts we're able to do is working through the inventory that were higher freight costs from the semiconductor crisis and the supply chain crisis from 6, 9, 12, 18 months ago that are flowing through our system.

So look, I'm not upset when the team overperforms my expectations as they did here. As Brett said, in Q4, we'll see some moderation of that due to Red Sea impacts of couple of tens of basis points, sort of 30, 40 basis points, Brett can give more detail on that. But look, Dan, I'm very -- what I'm excited about (technical difficulty)

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

Operator

Please stand by, we appear to be having technical difficulties. Please stand by.

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Brett says he can't hear us.

Operator

Please proceed.

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Can you hear me now, Kevin?

Operator

We can now. Please proceed. We did lose your audio briefly. We do apologize. Please proceed.

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Okay. Great. Well, I'll hand over to Brett to answer the question on gross margin, and then I'll follow up. I don't know where I got cut off there, Brett, you do -- over to you.

Brett A. Sandercock - ResMed Inc. - CFO

Yes. Thanks, Mick. Not sure where that landed, but yes, in terms of gross margin, it is hard to predict given the movements in -- we have product mix, geographic mix, timing of cost improvements, FX, freight costs. So it's all into the mix that we had pretty strong improvement through freight expense, through manufacturing efficiencies and so on coming through, and that helped a lot. Stable component costs also means that's no longer a headwind there. So I think that's all reflected in the gross margin improvement. And as Mick said, in the short term, there is some Red Sea freight cost impacts that will come through in Q4. But our goal remains to improve gross margin over the course of FY '25.

Operator

Next question is coming from Laura Sutcliffe from UBS.

Laura Sutcliffe - UBS Investment Bank, Research Division - Equity Research Analyst

Just sticking with gross margin, could you possibly give us an indication of how much of that 240 basis point improvement in core gross margin was freighting and how much was manufacturing?

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Brett, you can answer that.

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APRIL 25, 2024 / 8:30PM, RMD.N - Q3 2024 Resmed Inc Earnings Call

Brett A. Sandercock - ResMed Inc. - CFO

Sure. Yes. Thanks, Mick. Yes, I mean of that year-on-year the 240 basis points, the biggest contributors were the freight cost reduction and also the manufacturing cost improvements were the biggest drivers there. We saw some benefit or some favorable product mix playing out there, and a little bit in terms of ASP increases, but by far the most significant, too, which were significant contributors in their own right with a freight expense reduction and the manufacturing cost improvements.

Laura Sutcliffe - UBS Investment Bank, Research Division - Equity Research Analyst

Are you able to tell us sort of how it falls between freighting and manufacturing cost improvement?

Brett A. Sandercock - ResMed Inc. - CFO

I'd say -- I won't get drawn into specifics of each of the components, but I would say both of those are material in their own right of contributing to that 240 basis points.

Operator

Our next question is coming from Craig Wong-Pan from RBC.

Craig Wong-Pan - RBC Capital Markets, Research Division - Director of Equity Research & Equity Research Analyst

Just wanted to touch on the rest of world markets to see whether you're seeing much impact from Philips there. And if any benefit was coming through from the backlog of activity with home care companies?

Michael J. Farrell - ResMed Inc. - CEO & Chairman

Yes. Thanks for the question, Craig. And yes, no, we really didn't see -- I mean, look, we've got many competitors out there in Europe, Asia, rest of world, including the one you mentioned. And it's a full playing field. It has been the whole time on masks. So there's no change to anyone coming back or leaving on the mask side. On the device side, no huge impacts. We were comping a very large device number. Europe, Asia, Rest of World, this quarter last year, we had a 36% growth that we're comping. And so we had good growth there on 36 comp at plus 1%! And if you take out from last year, a large ventilation provision in China, this time a year ago, China had a big COVID impact and ventilator purchase, it you take that out, the year-on-year growth would have been 8% in Europe, Asia, Rest of World devices, so up 700 basis points.

So look, the way I look at it is we're maintaining or growing share in all of our markets on the device side. We're the market leader with the AirSense 11 platform and we've got the second best platform in the world with the AirSense 10 platform against all competitors. And so really strongly, so no major impacts from restocking and no major impacts from competitive activity, and I think we had a very, very strong performance from the team in terms of their ability to ramp up the supply over the last period and get it all out there.

And we're not -- no customer is not being able to fulfill an order. If they have an order for devices, we fill it up as much as we can with AirSense 11 and then we fill up the remainder with AirSense 10s, and we're able to take care of those customer needs. And so really good quarter of execution by our supply chain teams as well as our delivery teams and our commercial teams out there.

Operator

Next question is coming from David Bailey from Macquarie.

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