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    RMD
    Earnings call· Dec 2024(Q2 FY25)

    RESMED INC RMD

    Jan 30, 2025 Source

    Executive summary

    ResMed Q2 FY25 — Strong Device and Mask Growth, Gross Margin Expansion

    ResMed delivered a strong Q2 FY25, driven by robust global demand for its devices and masks, alongside significant gross margin expansion. The company is strategically investing in R&D and operational efficiencies, while also preparing for increased patient flow from megatrends like GLP-1 medications and consumer wearables. Management is focused on scaling infrastructure to convert this growing awareness into sustained therapy adherence and long-term growth.

    Highlights

    5

    • Global revenue increased by 10% on both a headline and constant currency basis.

    • Non-GAAP gross margin expanded by 230 basis points to 59.2%.

    • Non-GAAP diluted earnings per share increased by 29%.

    • Global device sales grew double digits year-over-year.

    • Masks and accessories business delivered double-digit global growth.

    Concerns

    2

    • Foreign currency movements negatively impacted Q2 revenue by approximately $2 million.

    • Foreign currency movements are expected to negatively impact Q3 revenue by $15 million to $20 million.

    Guidance & targets

    8
    CategoryTargetConfidence
    Q3 FY25 Revenue FX Impact
    negative $15M to $20M
    medium materiality
    High
    H2 FY25 Non-GAAP Gross Margin
    59% to 60%
    high materiality
    Medium
    H2 FY25 SG&A Expenses as % of Revenue
    18% to 20%
    medium materiality
    Medium
    H2 FY25 R&D Expenses as % of Revenue
    6% to 7%
    medium materiality
    Medium
    FY25 Effective Tax Rate
    19% to 21%
    medium materiality
    Medium
    H2 FY25 Net Interest Income
    generate net interest income
    low materiality
    High
    Quarterly Share Buyback
    approximately $75 million per quarter
    medium materiality
    High
    Residential Care Software Net Operating Profit Growth
    double-digit growth
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Total Group
    Group revenue increased by 10% on both a headline and constant currency basis.
    		$1.28B10%——
    U.S., Canada, Latin America (excluding software)
    Sales increased by 12%, supported by solid ongoing new patient diagnosis and growth in resupply and new patient setups.
    Device sales growth: 12%Masks and other sales growth: 12%
    		—12%——
    Europe, Asia, Other Regions (excluding software)
    Sales increased by 8% on a constant currency basis.
    Device sales growth (constant currency): 9%Masks and other sales growth (constant currency): 7%
    		—8%——
    Residential Care Software
    Underpinned by strong performance from the MEDIFOX DAN software vertical, with Brightree performing in line with the segment's high single-digit growth.
    MEDIFOX DAN performance: strongBrightree performance: high single digits
    		—8%——

    Operational metrics

    21
    Non-GAAP Gross Margin
    59.2%up 230 bps YoY
    Q2 FY25

    Increased due to operational efficiencies, despite a sequential negative FX headwind.

    SG&A Expenses
    18.8%vs 19.1% in prior year
    Q2 FY25

    Improved as a percentage of revenue, reflecting disciplined investment.

    R&D Expenses
    6.3%vs 6.4% in prior year
    Q2 FY25

    Maintained as a percentage of revenue, reflecting ongoing investment in innovation.

    Interest Expense
    $1M
    Q2 FY25

    Low due to reduced debt levels.

    Effective Tax Rate
    18%vs 20.7% in prior year
    Q2 FY25

    Decreased primarily due to higher tax benefits from employee equity compensation.

    Capital Expenditure
    $21M
    Q2 FY25

    Investment in capital assets.

    Depreciation and Amortization
    $46M
    Q2 FY25

    Non-cash expense for the quarter.

    Cash Balance
    $522M
    as of Dec 31, 2024

    Ending cash balance for the quarter.

    Gross Debt
    $673M
    as of Dec 31, 2024

    Total gross debt at quarter end.

    Net Debt
    $151M
    as of Dec 31, 2024

    Net debt position at quarter end.

    Revolver Facility Available
    $1.5B
    as of Dec 31, 2024

    Available capacity under the revolver facility, indicating strong liquidity.

    Quarterly Dividend
    $0.53
    Q2 FY25

    Declared quarterly dividend by the Board of Directors.

    Share Buyback Executed
    $75M
    Q2 FY25

    Shares purchased under the authorized share buyback program.

    Annual R&D Investment
    $300M-$350M
    Annual

    Ongoing investment in R&D to drive innovation, representing 6-7% of trailing 12 months revenue.

    Patients with GLP-1 and PAP Prescriptions
    1.2Mup from 300,000+ a year ago
    Current

    Number of patients tracked who have prescriptions for both GLP-1 medicines and positive airway pressure therapy.

    PAP Therapy Start Rate (GLP-1 patients)
    >10%vs garden variety PAP patient
    Current

    GLP-1 patients are more likely to start PAP therapy compared to typical PAP patients.

    PAP Adherence (GLP-1 patients)
    >3%vs garden variety PAP patient
    1 year

    GLP-1 patients show higher adherence and propensity to purchase masks and accessories after one year.

    PAP Resupply Propensity (GLP-1 patients)
    >5%vs garden variety PAP patient
    2 years

    GLP-1 patients show increased propensity for resupply after two years compared to typical PAP patients.

    People Reached by ResMed Products/Services
    147M
    LTM

    Number of people provided with a ResMed product or digital health solution in the last 12 months.

    Sleep Apnea Prevalence
    >1B
    Current

    Estimated global population suffering from sleep apnea, indicating a large addressable market.

    Total Healthcare Cost Reduction (CPAP Adherence)
    7%
    Per hour of sleep

    Peer-reviewed data shows a dose-response relationship between CPAP use and reduction in all-cause healthcare costs.

    Industry KPIs

    6
    MetricValueDetails
    Tariff impact—
    New product launch ramp—
    FCF conversion leverage guidance$151MUSD
    Segment franchise organic growth—
    Consumables recurring revenue mixdouble-digit% growth
    Indicated addressable patient populationover 1 billionpeople

    Product announcements

    3
    ProductTypeDetails
    AirSense 11expansion
    AirTouch N30ilaunch
    Kontor Head Straplaunch

    Deals & partnerships

    2
    Apple Vision Pro teamCollaboration for a premium accessory (Kontor Head Strap) for the Apple Vision Pro.

    ResMed's expertise in facial interfaces was leveraged to create a comfortable and supportive head strap for extended wear of the Apple Vision Pro, demonstrating convergence of med tech and consumer tech.

    SamsungIntegration of Samsung Galaxy Watch's sleep apnea detection with ResMed's treatment products.

    Samsung showcased the link between their Galaxy Watch ecosystem and ResMed's products at CES, indicating a partnership to drive patients detected with sleep apnea by the watch towards ResMed's solutions.

    Risks & headwinds

    3
    Foreign Currency ImpactQ2 FY25 and Q3 FY25

    Negative $2 million on Q2 revenue; expected negative $15 million to $20 million on Q3 revenue.

    Mitigation: Management expects a relatively neutral impact on gross margin and slight benefit on R&D/SG&A from FX in Q3 due to lag effects and specific currency movements.

    Potential TariffsComing weeks and months

    Could negatively impact competitors (e.g., Chinese imports to US, Mexican manufacturing for USMCA) but ResMed expects no direct impact.

    Mitigation: ResMed's manufacturing is diversified (Sydney, Singapore, Atlanta), not reliant on affected regions. Company advocates for med tech and food industry carve-outs from tariffs.

    Sleep Physician Capacity ConstraintsOngoing

    Sleep physicians in the U.S. are struggling to see all potential patients, creating bottlenecks for diagnosis and treatment.

    Mitigation: ResMed is scaling home sleep testing (HST) capabilities, which can flex quickly to meet new demand, allowing sleep labs to focus on more severe cases. The company is partnering with sleep labs and HST providers to optimize patient flow.

    What to watch in Q3 FY25

    5

    GLP-1 patient flow into treatment funnel

    Over the coming 1, 3, 5 quarters
    CurrentVery early stages of impact, 1.2M patients tracked with both GLP-1 and PAP Rx
    TargetIncreased patient flow and demand generation from GLP-1 awareness

    Why it matters

    GLP-1s are activating a new population of patients into the healthcare system, representing a significant long-term growth driver for ResMed.

    I think we're in the very early innings of the flow of extra patients from GLP-1s and from consumer tech.

    Q&A highlights

    6

    What is the expected forward-looking FX impact on the P&L, beyond the negative top-line impact already mentioned?

    Management expects a relatively neutral impact on gross margin from FX, with a slight benefit on a headline basis through R&D and SG&A in Q3, due to a lag effect where some benefits from weaker currencies (e.g., Singapore dollar, Aussie dollar) offset Euro weakness.

    “my expectation on gross margin will be relatively neutral on our gross margin and we'll get a slight benefit, if you like, on a headline basis through R&D and SG&A.”

    asked by Dan Hurren · answered by Brett Sandercock

    3 min read6 chapters

    Detailed Narrative

    01

    GLP-1 Impact and Strategy

    Eli Lilly gained FDA approval for Zepbound's use in obesity and moderate to severe sleep apnea in December. ResMed notes that Lilly's educational materials align with AASM guidelines, emphasizing PAP devices as the frontline treatment. ResMed is tracking 1.2 million patients with both GLP-1 and PAP prescriptions, observing over 10% higher PAP initiation rates and over 5% increased resupply propensity at two years. The company plans to address educational gaps with CME programs for primary care physicians, particularly high-volume GLP-1 prescribers, to leverage this new patient activation into the healthcare system.

    02

    Consumer Wearables Megatrend

    The Samsung Galaxy Watch received FDA clearance for OSA detection in early 2024, and Apple announced similar capabilities for its latest Apple Watch. ResMed anticipates these wearables will drive gradual but steady long-term demand for sleep apnea diagnosis and treatment, benefiting from increased awareness among millions of users. The company is integrating myAir scores with these devices to enhance adherence through gamification and is preparing infrastructure for demand generation, capture, and conversion.

    03

    Innovation and New Product Launches

    ResMed continues its global rollout of the AirSense 11 platform, with a Q2 launch in India and more planned for CY25. The company also launched the AirTouch N30i, a fabric-based nasal mask, to select markets, which is receiving positive feedback for comfort and fit. A collaboration with Apple resulted in the Kontor Head Strap, a premium accessory for the Apple Vision Pro, showcasing ResMed's expertise in facial interfaces beyond medical technology. ResMed also highlighted its presence at CES 2025, including a partnership with Samsung to integrate Galaxy Watch sleep apnea detection with ResMed's treatment products.

    04

    Operational Efficiency and Investment

    The company achieved 230 basis points of non-GAAP gross margin expansion, reaching 59.2%, driven by manufacturing and logistics efficiencies and component cost improvements. Disciplined investments in R&D (6.3% of revenue) and SG&A (18.8% of revenue) contributed to a 19% increase in operating profit and 29% increase in non-GAAP EPS. ResMed invests $300 million to $350 million annually in R&D, focusing on creating advanced devices, masks, and software solutions, including ML, AI, and generative AI.

    05

    ResMed 2030 Strategy and Vision

    ResMed's 2030 strategy focuses on three pillars: growing and differentiating its core sleep and breathing health business, expanding into adjacent areas like respiratory insufficiency (COPD, insomnia, COMISA), and leveraging digital health leadership. The company aims to build brand awareness and ensure ROI for demand generation efforts, targeting over 1 billion people with sleep apnea worldwide. The long-term goal is to empower 500 million people by 2030 with sleep health, breathing health, and home healthcare technology.

    06

    Infrastructure for Patient Flow

    To manage the anticipated increase in patient flow, ResMed is focusing on scaling home sleep testing capabilities, which can flex quickly to meet new demand. The company aims to reduce the time from referral to diagnosis and therapy, ensuring patients do not wait months for tests. ResMed's digital health platforms, like ApneaLink Air and NightOwl, support this infrastructure, partnering with sleep labs and home sleep apnea testing companies to optimize the process for both simple and complex cases.

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