Event Brief of Q3 2007 ResMed Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

PARTICIPANTS

. Peter Farrell, ResMed Inc., CEO . Benjamin Andrew, William Blair & Company, L.L.C., Analyst . Brett Sandercock, ResMed Inc., CFO . Paul Choi, Merrill Lynch, Analyst . Keith Serzen, ResMed Inc., COO for the Americas . Tim Lee, Caris & Company, Analyst . David Pendarvis, ResMed Inc., Sr. VP of Organizational Development . Kieran Gallahue, ResMed Inc., President . Joshua Zable, Natexis Bleichroeder Inc., Analyst . Michael Matson, Wachovia Securities, Analyst . Alexander Smith, JPMorgan, Analyst . Glenn Novarro, Banc of America Securities, LLC, Analyst . Joanna Wuensch, BMO Capital Markets, Analyst . Andrew Goodsall, UBS, Analyst . David Low, Deutsche Bank, Analyst

OVERVIEW

RMD reported nine months ended 03/31/2007 revenues of $525m and diluted EPS of $0.49. Co. also reported 3Q07 revenues of $183m and pro forma diluted EPS of $0.39.

FINANCIAL DATA

A. Key Data From Call 1. Nine months ended 03/31/2007 revenues = $525m. 2. 3Q07 revenue = $183m. 3. Nine months ended 03/31/2007 pro forma net income = $93.6m. 4. Nine months ended 03/31/2007 net income = $38.6m. 5. 3Q07 pro forma net income = $31.1m. 6. Nine months ended 03/31/2007 diluted EPS = $0.49. 7. 3Q07 pro forma diluted EPS = $0.39. 8. 3Q07 GM (excluding the recall issue) = 62.3%. 9. 3Q07 inventory = approx. $157m. 10. 3Q07 AR DSO = 73 days.

PRESENTATION SUMMARY

S1. 3Q07 Results (P.F.) 1. 3Q07 Highlights: 1. Revenue was $183m, a 13% increase over 3Q06. 2. Pro forma income from operations and pro forma net income were $44.3m and $31.1m, increases of 5% and 3% respectively. 3. Pro forma diluted EPS was $0.39. 4. GAAP with the addition of the recall, shows an operating loss

of $22m. 1. This was impacted by the approx. $60m, $41.8m net of tax, for a voluntary product recall. 5. GM excluding the recall issue was 62.3% consistent completely with 3Q06 of 62.2%.

1. GM was impacted negatively by the recall. 6. Pro forma SG&A was $57.4m, an increase of $7.3m or 15% over 3Q06. 7. Pro forma SG&A costs were 31% of revenue for 3Q07 consistent with 3Q06. 8. GAAP SG&A was $61.3m 9. Pro forma R&D was $12.6m.

10. GAAP R&D was $13.1m, or 7% of revenues, an increase of 43%

over 3Q06. 1. Going forward, Co. expects R&D expenses to be in the 7% range. 11. Amortization of acquired intangibles was $1.7m or $1.1m net of tax. 12. Stock-based compensation incurred was $4.7m or $3.5m net of tax. 13. Co. announced in separate press release that it is going to conduct or are in the middle of conducting a voluntary recall, affecting approx. 300,000 S8 flow generators and these are the early batches.

14. Co. is currently in discussions with the FDA and other

regulatory authorities regarding this action. 1. The estimated cost is almost $60m, and it has been recognized as a charge to cost of sales in 3Q07. 2. Nine Months Ended 03/31/2007 Results: 1. Revenues were $525m, an increase of 20% over $436m for the nine months through to 03/31/2006. 2. Pro forma income from operations and pro forma net income were respective $131.9m and $93.6m, increases of 19% and 21% respectively. 3. On an GAAP basis, income from operations was $51.1m. 4. Net income was $38.6m or $0.49 per diluted share. 3. Other Financials: 1. Inventory at approx. $157m increased by $15m. 2. AR DSO at 73 days increased marginally from 72 in 2Q07. 4. 3Q07 Sales Growth: 1. For the Americas, increased by 10%. 1. Excluding the ResMed Mode of Technology or motor division, sales increased by 13% vs. 3Q06. 2. Sales growth for the Americas were impacted by a challenging qtr., and there were four reasons: 1. Co. had extraordinarily tough comparables. 1. The US was up 50% in 3Q06. 2. (ROW) Rest of the World was up 36%. 3. Combined was 45% [quarter]. 2. Co. saw competitor discounting that was never seen before. 1. On the discounting, as one can see from the GM being maintained at 62.3%, there was business that RMD just simply walked away from because Co. just thought it was crazy to do business at some of the prices being requested. 2. It was obviously catalyzed by competitor activities. 3. In ResMed Motor Technologies, in 3Q06, Co. did $3m, in 3Q07 RMD did $0.5m. 4. Neither in 3Q07 or in 2Q07, there was no new product flow. 5. Product Introductions: 1. Later this week at the Medtrade meeting in Las Vegas, Co. will be introducing five new products.

1. C-Series Tango, which is the value CPAP device was released

right at the end of March. 1. So it had no impact on 3Q07 but Co. had got a full-scale press on the Tango. 2. Co. will be releasing another device, the VPAP Malibu and this can be summarized as an auto-setting bi-level unit. 1. Expects the initial sales to be incremental from this product, but also expects as people get experience with

it, that it will be taking market share. 3. In the mask area, Co. has the Swift II nasal pillows system. 4. Co. have two new full-face masks: 1. The Quattro, which has an adjustment where the mask is fitted and the patient is set up and if there is even a

minor leak, an adjustment on the forehead will completely eliminate the leak. 2. The Liberty which is based on the nasal pillow system

upgraded with a full face mask. 6. 3Q07 Sales Outside US: 1. The sales were $88.4m, which was a 16% increase over 3Q06. 2. Operating cash flow was $20.3m. 3. The real impact on 3Q07 came from the US. 7. Voluntary Recall: 1. Overall reliability of the S8 product line is even better than S7 product line, and the reliability of that product range was excellent. 2. The units that failed, there was 0.2% failure rate in 300,000 units over a two-year period. 1. In this 0.2%, drilling down, there is actually seven devices where there was thermal damage. 1. Co. recently became concerned about that in the last few weeks.

2. Co. dealt with the internal people in terms of drilling down

to try to understand what was going wrong. 3. Brought in external consultants in a range of areas. 4. Conclusion was that there was a very remote possibility of any adverse affect. 3. Co. did not think that customers would like it due to the statistical analysis based on the data that RMD had in hand albeit extraordinarily limited. 1. One is dealing with a failure rate of 0.002%.

2. In terms of the thermal damage, this is extraordinarily small.

3. Looking at overall failures in the devices and the nature of the failures the viable analysis suggested that there may be a risk that the failure rate would accelerate going forward. 1. Co. didn't want to be faced two, three, four, five years down the pipe with an accelerated failure and leaving RMD potentially with dissatisfied customers and dissatisfied patients. 4. Co. decided to do a complete product recall. 1. Felt it was best for customers, best for patients, and best for employees. 2. Co. is using external people for this recall. 3. Thinks of being very conservative with the number. 4. Co. is in discussions with the FDA. 5. Expects minimal disruption to the business.

QUESTION AND ANSWER SUMMARY

OPERATOR: (OPERATOR INSTRUCTIONS) Your first question comes from the line of Ben Andrew with William Blair. Please proceed.

BENJAMIN ANDREW, ANALYST, WILLIAM BLAIR & COMPANY, L.L.C.: Good afternoon, Peter.

PETER FARRELL, CEO, RESMED INC.: Ben.

BENJAMIN ANDREW: Few questions on the recall first. The charge you are taking, is that the actual cash charge or cash cost, I should say?

PETER FARRELL: That is our estimated cost for the whole kit and caboodle. Ben, it's overheads and things that we think we need to do, plus replacement of the units as estimated.

BENJAMIN ANDREW: So, that is out-of-pocket cash?

PETER FARRELL: Brett?

BRETT SANDERCOCK, CFO, RESMED INC.: Ultimately that will be probably spent over the next six months or so. Ultimately it will be cash outlay.

BENJAMIN ANDREW: Okay. And Peter, do you have supply of S8s, or how quickly do you think you can replace the units that are affected?

PETER FARRELL: We, believe, Ben, we're pretty good shape on that. We have looked at the supply chain, and it's all very doable. In fact, we don't think that that is going to be a limiting factor. The limiting factor is going to be getting to people and doing the switch out. We're very confident about our ability to produce.

BENJAMIN ANDREW: Okay. And then on the timing front, just kind of walk us through your awareness of this issue. It sounds like there was a component change, I think May of '06. Was there something evident there or this really only came up just recently? …