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    RMD
    Earnings call· Mar 2025(Q3 FY25)

    RESMED Q3 FY25 earnings call RMD

    Apr 23, 2025 Source

    Executive summary

    ResMed Q3 FY25 — Strong Growth, Margin Expansion, and Strategic Investments

    ResMed delivered a strong Q3 FY25, marked by solid revenue growth, significant gross margin expansion, and robust free cash flow generation. The company is strategically investing in R&D, manufacturing expansion, and demand generation initiatives, including new diagnostic tools and consumer outreach, to capitalize on market opportunities and address patient backlogs. Management reaffirmed its tariff exemption status and increased its share buyback program, signaling confidence in its financial position and long-term growth strategy.

    Highlights

    5

    • Group revenue increased by 8% (9% constant currency) to $1.29 billion.

    • Gross margin expanded by 140 basis points year-over-year to 59.9%.

    • Non-GAAP diluted EPS increased by 11% to $2.37, or 13% to $2.41 excluding write-downs.

    • Operating cash flow was $579 million, including a $107 million tax refund, or $472 million excluding the refund.

    • Increased quarterly share buyback program to $100 million, up from $75 million.

    Concerns

    3

    • Foreign currency movements negatively impacted revenue by approximately $13 million.

    • SG&A expenses increased by 7% (8% constant currency) due to employee and marketing expenses, including global brand launch costs.

    • R&D expenses increased by 9% (11% constant currency) primarily due to employee-related expenses.

    Guidance & targets

    6
    CategoryTargetConfidence
    Gross Margin
    Broadly consistent with Q3 FY25, with bias to north of Q3
    medium materiality
    High
    SG&A expenses as a percentage of revenue
    18% to 20%
    medium materiality
    High
    R&D expenses as a percentage of revenue
    6% to 7%
    medium materiality
    High
    Effective tax rate
    19% to 21%
    medium materiality
    High
    Share buyback program
    $100 million per quarter
    high materiality
    High
    Lives improved goal
    500 million people
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    U.S., Canada, and Latin America (excluding Residential Care Software)
    Reflects continued growth in resupply and new patient setups.
    Device sales growth: 6%Masks and other sales growth: 13%
    		—9%——
    Europe, Asia, and other regions (excluding Residential Care Software)
    Growth reported on a constant currency basis.
    Device sales growth (constant currency): 9%Masks and other sales growth (constant currency): 7%
    		—8%——
    Residential Care Software
    Growth on a constant currency basis, underpinned by strong performance from MEDIFOX DAN.
    		—10%——

    Operational metrics

    27
    Group Revenue
    $1.29 billion8% headline increase, 9% constant currency
    Q3 FY25

    Reflects positive contributions across product and resupply portfolio.

    Foreign Currency Impact on Revenue
    $13 millionNegative impact
    Q3 FY25

    Year-over-year movements in foreign currencies negatively impacted revenue.

    Device Sales Growth
    7%YoY
    Q3 FY25

    Global device sales increased.

    Masks and Other Sales Growth
    12%YoY
    Q3 FY25

    Global masks and other sales increased.

    Gross Margin
    59.9%Up 140 bps YoY, Up 70 bps QoQ
    Q3 FY25

    Continued progress on gross margin expansion initiatives.

    SG&A Expenses as % of Revenue
    19%Compared to 19.2% in prior year
    Q3 FY25

    Increased due to employee-related and marketing expenses, including global brand launch and demand generation activities.

    R&D Expenses as % of Revenue
    6.5%Compared to 6.4% in prior year
    Q3 FY25

    Increased predominantly due to employee-related expenses.

    Net Interest Income
    $1 million
    Q3 FY25

    Reported for the quarter.

    Effective Tax Rate (Non-GAAP)
    20.1%Compared to 20.3% in prior year
    Q3 FY25

    The GAAP effective tax rate was 12.6% due to a $30 million tax benefit from IRS refunds, which was treated as a non-GAAP item.

    Net Income Growth
    11%YoY
    Q3 FY25

    Underpinned by revenue growth and gross margin expansion.

    Diluted EPS (Non-GAAP)
    $2.3711% increase
    Q3 FY25

    Reported non-GAAP diluted earnings per share.

    Diluted EPS (Non-GAAP, excl. write-downs)
    $2.4113% increase
    Q3 FY25

    Earnings per share excluding the impact of investment portfolio write-downs.

    Capital Expenditures
    $21 million
    Q3 FY25

    Reported capital expenditures for the quarter.

    Depreciation and Amortization
    $44 million
    Q3 FY25

    Reported for the quarter.

    Cash Balance
    $933 million
    As of March 31

    Cash balance at the end of the third quarter.

    Gross Debt
    $675 million
    As of March 31

    Gross debt at the end of the third quarter.

    Net Cash
    $258 million
    As of March 31

    Net cash position at the end of the third quarter.

    Revolver Facility Available
    $1.5 billion
    As of March 31

    Amount available for drawdown under the revolver facility.

    Quarterly Dividend
    $0.53
    Q3 FY25

    Declared by the Board of Directors.

    Share Buyback Executed
    $75 million
    Q3 FY25

    Purchased under the previously authorized share buyback program.

    Lives Served
    151 million
    Current

    Served through hardware and software platforms.

    CPAP Therapy All-Cause Mortality Reduction
    37%
    Long-term

    Landmark meta-analysis showed CPAP therapy reduces overall death rates.

    CPAP Therapy Cardiovascular Mortality Reduction
    55%
    Long-term

    Landmark meta-analysis showed CPAP therapy reduces cardiovascular death rates.

    AHI Reduction with CPAP/APAP/Bilevel
    95% to 99%
    Therapy

    Reduction in Apnea-Hypopnea Index (AHI) with gold standard treatment.

    Market Growth Rate (Devices)
    mid-single digits
    Current

    The underlying market growth rate for devices if ResMed did not actively drive demand.

    Market Growth Rate (Masks)
    high single digits
    Current

    The underlying market growth rate for masks if ResMed did not actively drive demand.

    Acceleration above Market Growth
    50-125 basis points
    Long-term

    Expected acceleration above market growth rates due to ResMed's demand generation, capture, and curation efforts.

    Industry KPIs

    4
    MetricValueDetails
    Tariff impactNot material
    New product launch rampNightOwl
    FCF conversion leverage guidanceRobust operating cash flows
    Indicated addressable patient population2.3 billionpeople

    Product announcements

    3
    ProductTypeDetails
    NightOwllaunch
    AirSense 11 version of VPAP Txlaunch
    ResMed Brand Evolution Strategyupdate

    Risks & headwinds

    2
    Evolving global trade environment and potential tariffsOngoing

    Foreign currency movements negatively impacted revenue by approximately $13 million.

    Mitigation: ResMed has reaffirmed its tariff exemption status with federal authorities for products treating chronic respiratory conditions, which has been in place for decades. The company is also expanding its manufacturing footprint in the U.S. (Calabasas facility) to improve supply chain resilience. CEO Mick Farrell will advocate for broader medtech tariff exemptions as Chair-elect of AdvaMed.

    Sleep lab backlogs impacting patient flowCurrent

    Sleep lab backlogs are at all-time highs, delaying patient access to diagnosis and therapy.

    Mitigation: Launch of NightOwl (home sleep apnea test) to move patients more efficiently through screening and diagnosis. Introduction of VPAP Tx to empower sleep labs to handle complex cases and improve titration. Tracking metrics like 'time to titration' and 'time to therapy onset' to monitor improvement.

    What to watch in Q4 FY25

    4

    Gross Margin Trend

    Q4 FY25
    Current59.9%
    TargetBroadly consistent with Q3, with bias to north

    Why it matters

    Gross margin expansion is a key driver of profitability and reflects manufacturing efficiency gains and favorable product mix.

    Looking forward and subject to currency movements, we expect our gross margin in Q4 FY '25 to be broadly consistent with our third quarter gross margin.

    Q&A highlights

    6

    What metrics is ResMed tracking for its investments in pre- and post-diagnosis, and when will they show meaningful results, especially concerning sleep lab backlogs?

    ResMed is tracking time to titration/test (TTT) and time from diagnosis to therapy onset, as well as churn rates at various stages. The company aims to reduce backlogs through NightOwl for home testing and VPAP Tx for complex in-lab cases. They expect to see a 'bend in the curve' with less backlog and expanded home sleep apnea testing, with updates provided quarterly.

    “We're tracking many metrics there. The ones we'll go public with are probably around the lines of, are we seeing a bend in that curve? Are we having less of a backlog? Are we getting more patients into the lab? And are we seeing an expansion of home sleep apnea testing...”

    asked by Margaret Kaczor · answered by Michael Farrell

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Investments and Manufacturing Expansion

    ResMed is expanding its manufacturing footprint with a new $30 million advanced facility in Calabasas, California, expected to open in June 2025. This facility will double the current U.S. manufacturing footprint, focusing on motor technology and silicone mask cushions, leveraging advanced molding technology. The company also highlighted its Atlanta, Georgia, distribution campus and increased U.S.-based R&D investment, which now accounts for over half of its global R&D spend.

    02

    Innovation and Digital Health Ecosystem

    The company continues to invest 6-7% of revenues in R&D, leading to recognition as a Top 100 Global Innovator by LexisNexis. Key product introductions include the commercial rollout of NightOwl, a fingertip-sized home sleep apnea test, and the AirSense 11 version of VPAP Tx, a sleep lab testing and titration platform. These are integrated with cloud-based software like AirView and Somnoware to create a connected care pathway from diagnosis to therapy adherence, expanding reach within large healthcare systems like the U.S. VA.

    03

    Demand Generation and Patient Adherence

    ResMed is actively driving demand generation through targeted medical education (CME programs) for physicians and streaming advertising campaigns for sleep health-concerned consumers. These efforts have shown measurable increases in prescriptions and patient flow into the diagnostic funnel. The company also emphasizes long-term patient adherence through world-class resupply programs like Brightree Connect and personalized engagement via myAir, aiming to adapt and scale these globally.

    04

    GLP-1 Medications and Market Dynamics

    The company is closely monitoring the impact of GLP-1 medications and consumer wearables on the patient funnel. While not waiting for pharmaceutical companies to drive direct-to-consumer campaigns for sleep apnea, ResMed is proactively educating high-volume GLP-1 providers and primary care physicians. Initial results indicate that ResMed's own demand generation efforts are working, with GLP-1 patients showing high CPAP adherence rates, suggesting a motivated patient population.

    05

    Tariff Exemption and Global Trade Environment

    ResMed confirmed its long-standing tariff exemption status with U.S. Customs and Border Protection for its medical devices, which are used to treat chronic respiratory conditions. This exemption, reaffirmed in April 2025, means the company does not expect a material financial impact from new U.S. tariffs. CEO Mick Farrell, as Chair-elect of AdvaMed, plans to advocate for broader medtech tariff exemptions on humanitarian grounds.

    06

    Landmark Clinical Evidence for CPAP Therapy

    A recent meta-analysis published in The Lancet Respiratory Medicine, involving over 1 million participants, demonstrated that CPAP therapy reduces all-cause mortality by 37% and cardiovascular mortality by 55%. This significant clinical evidence reinforces CPAP as a life-saving treatment, supporting ResMed's mission to improve patient outcomes and adherence.

    AI-generated summary of the company’s earnings call. Not investment advice.