Investment research report for RMD

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

ResMed Inc. is a leading global provider of medical devices and cloud-based software solutions for the treatment of sleep apnea, chronic obstructive pulmonary disease (COPD), and other respiratory disorders. The company operates in two segments: Sleep and Respiratory Care, and Software as a Service (SaaS). ResMed’s products include continuous positive airway pressure (CPAP) devices, masks, and accessories, as well as digital health solutions and software platforms for out-of-hospital care.

Growth Opportunities

  1. Rising global prevalence of sleep apnea and respiratory disorders, coupled with increasing awareness and diagnosis rates, presents a significant long-term growth opportunity for ResMed’s core product lines.
  2. Expansion into alternative therapies beyond CPAP, such as dental devices and digital health solutions, allows ResMed to address a broader patient population and drive adherence.
  3. The SaaS business, which provides software solutions for home medical equipment, skilled nursing, and home health, is expected to see accelerated growth as the demand for out-of-hospital care solutions increases.

Competitive Advantages

  1. Strong market position and brand recognition in the sleep apnea and respiratory care markets, supported by a comprehensive product portfolio and digital health ecosystem.
  2. Robust research and development capabilities, with a focus on innovation and developing new technologies to improve patient outcomes and drive operational efficiencies.
  3. Global distribution network and presence in over 140 countries, providing a strong platform for international growth.

Financial Strength

  1. Consistent revenue growth, with a track record of delivering double-digit revenue increases in recent years, driven by strong demand and successful product launches.
  2. Healthy profitability, with gross margins around 55-57% and a focus on operational efficiency and cost management.
  3. Robust cash flow generation and a strong balance sheet, providing financial flexibility for investments in research and development, strategic acquisitions, and shareholder returns.

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Valuation Analysis

PE Ratio

  • Low: 23.64993351386848
  • Base: 42.880050097256586
  • High: 62.110166680644696

PB Ratio

  • Low: 5.172599622250337
  • Base: 8.370596908192113
  • High: 11.568594194133887

EPS Growth

  • Low: 3.92%
  • Med: 12.11%
  • High: 17.00%

DPS Growth

  • Low: 4.54%
  • Med: 5.06%
  • High: 5.55%

Unable to provide price targets since this company’s financials are highly unstable. We recommend not to hold this stock in your portfolio.

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Industry and Competitors Analysis

ResMed Inc. (RMD) operates in the medical devices industry, specifically focused on developing, manufacturing, and distributing products for the treatment of respiratory disorders and sleep apnea. Its main competitors in this space include:

Philips Respironics

A major player in the sleep and respiratory care market, offering a range of products similar to ResMed.

Fisher & Paykel Healthcare

A New Zealand-based company that manufactures respiratory care devices and systems.

Invacare Corporation

A manufacturer of home and long-term care medical products, including respiratory therapy equipment.

Dräger

A German company that produces medical and safety technology products, including ventilators and respiratory care devices.

In terms of competitive positioning, ResMed appears to be a market leader in the sleep apnea and respiratory care segment, with a strong product portfolio and global presence. Its financial metrics, such as revenue growth, profitability ratios, and market capitalization, suggest a strong competitive position relative to some of the other companies in the industry.

However, it’s important to note that the medical devices industry is highly competitive, and ResMed faces competition not only from the companies mentioned above but also from other players in the market. Additionally, factors such as technological advancements, regulatory changes, and shifts in healthcare trends can impact the competitive landscape.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has a healthy current ratio around 3, indicating good liquidity to cover short-term obligations. The debt-to-equity ratio is relatively low at around 0.2-0.4, suggesting a conservative capital structure and low financial risk. Interest coverage ratios are negative in recent years due to non-operating losses, but the company generates solid operating cash flows to service debt.

Potential for Growth

Revenue growth has been modest in the single-digits over the past few years, though analyst estimates project higher revenue growth going forward. The company has been investing in acquisitions and expanding its software/services offerings, which could drive future growth. Consistent positive free cash flow generation provides funds for investments and expansion.

Competitive Advantage

ResMed operates in the medical device and healthcare software space, which has high barriers to entry and requires regulatory approvals. The company has a global presence and distribution network in over 140 countries. Its focus on respiratory care solutions and cloud-based software could provide a competitive edge in remote patient monitoring and data analytics.

Quality of Management

Profitability metrics like return on equity and assets have been relatively stable, indicating decent operational performance. The company has been consistently paying and growing dividends, suggesting a shareholder-friendly approach. Acquisitions and expansion into complementary areas like software solutions point towards a growth-oriented strategy.

Shareholder Friendliness

ResMed has a modest dividend payout ratio, allowing for reinvestment while still providing returns to shareholders. Share buybacks have been limited, but the company has been able to grow earnings per share over time. Valuation multiples like P/E and P/FCF are not excessive, suggesting reasonable investor expectations.

Valuation

The stock’s P/E ratio is currently around 23-30x, which is reasonable for a healthcare company with growth prospects. Price-to-free cash flow multiples are higher but have been declining, potentially due to acquisitions impacting cash flows. Analyst estimates suggest expectations of continued revenue and earnings growth, supporting the current valuation levels.

Overall, ResMed appears to be a financially stable company with decent growth prospects, competitive advantages in its industry, shareholder-friendly policies, and a reasonable valuation based on analyst projections. However, future performance will depend on successful execution of growth strategies and maintaining profitability.

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Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

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Chart of Absolute Metrics

"Chart of Absolute Metrics"

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Earnings Call Multi-Year Analysis

Long-term Growth Opportunities

ResMed sees a massive long-term growth opportunity in sleep apnea and respiratory care markets like COPD and asthma, driven by rising global prevalence and underdiagnosis. The company is investing heavily in demand generation initiatives to drive patient flow into diagnosis and treatment.

Diversified Product Portfolio

ResMed is focused on expanding its portfolio beyond PAP devices into alternative therapies like dental devices, digital health solutions, and software platforms. This comprehensive approach aims to address the full spectrum of sleep apnea and respiratory care patients.

SaaS Business Growth

The software-as-a-service (SaaS) business for out-of-hospital care solutions is a key growth driver, expected to see double-digit growth going forward. ResMed is making strategic acquisitions and investments in this area to strengthen its SaaS capabilities.

Margin Expansion Opportunities

ResMed sees opportunities to drive margin expansion through favorable product mix shifts towards higher-margin products like masks, accessories, and software solutions. However, supply chain constraints and cost pressures have created some near-term margin headwinds.

Cost Optimization and Efficiency

The company is taking actions to optimize costs, improve operational efficiency, and prioritize the right growth initiatives, including workforce reductions, to accelerate profitable growth and long-term value creation.

Competitive Positioning

ResMed appears confident in its ability to navigate competitive challenges and maintain market leadership through its technology advantages, digital health ecosystem, and focus on value over price competition.

Investing for Sustainable Growth

While facing near-term supply chain disruptions, ResMed remains committed to investing in R&D, innovation, and digital health capabilities to drive sustainable long-term growth across its core sleep and respiratory care businesses.

Overall, the key message is that ResMed is well-positioned to capitalize on attractive long-term market opportunities through its comprehensive product portfolio, digital health solutions, and focus on operational excellence, despite some near-term challenges.

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Financial Statements Multi Year

Revenue Growth

ResMed has demonstrated consistent revenue growth across its Sleep and Respiratory Care and SaaS segments, driven by increased demand, new product launches, and strategic acquisitions like MEDIFOX DAN. Revenue grew in the high single-digits to low double-digits annually.

Profitability

The company has maintained healthy gross margins around 55-57%, with fluctuations due to product mix, costs, and one-time items. Operating income and net income have grown steadily, reflecting ResMed’s ability to control costs and drive operational efficiencies.

Cash Flow and Liquidity

ResMed generates robust operating cash flows, which have increased over time. The company has a strong balance sheet with ample cash and available credit facilities, providing financial flexibility for investments and shareholder returns.

Innovation and R&D

ResMed consistently invests around 6-7% of revenue in research and development, reflecting its commitment to innovation and developing new products and solutions to drive future growth.

Strategic Acquisitions

The company has successfully integrated acquisitions like MEDIFOX DAN to expand its SaaS offerings and support its shift towards digital health and out-of-hospital care solutions.

Shareholder Returns

ResMed has a track record of returning capital to shareholders through consistent dividend payments and share repurchase programs.

Overall, the financial statements demonstrate ResMed’s ability to deliver consistent top-line growth, maintain profitability, generate strong cash flows, and invest in strategic initiatives to drive long-term value creation, making it an attractive investment opportunity for long-term investors.

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Insider Trading Analysis

Long-Term Patterns

The CEO (Michael J. Farrell) and CFO (Brett Sandercock) have been consistently active in trading ResMed stock over the past several years. Both the CEO and CFO have regularly exercised stock options and sold shares, indicating they are actively managing their equity positions. Other key insiders like the President (Robert Andrew Douglas) and Chief Legal Officer (David Pendarvis) have also been regularly trading ResMed stock.

Short-Term Patterns

In the most recent 12-24 months, the CEO and CFO have continued their pattern of exercising options and selling shares, though the volumes have varied. The CEO has made some larger gift transfers of shares to family members, likely for estate planning purposes. Other insiders like the President and Chief Legal Officer have also continued their regular trading activity, with a mix of option exercises, share sales, and some gift transfers.

Implications

The consistent trading activity by the CEO, CFO, and other key insiders suggests they are actively managing their equity positions in the company. The mix of option exercises, share sales, and some gift transfers indicates they are diversifying their holdings and taking some cash off the table, while still maintaining significant equity stakes. For long-term investors, the insider trading patterns do not raise major red flags, as the activity appears to be routine portfolio management rather than any concerning sell-offs. Short-term investors may want to monitor the trading volumes and timing to look for any potential signals, but the overall activity seems in line with normal practices for a company of this size and maturity.

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Management Compensation Benchmark Analysis

Alignment with Shareholder Value

The compensation structure for RMD’s executives appears to be heavily weighted towards long-term incentives like stock awards, which aligns their interests with creating long-term shareholder value. The base salary portion of total compensation is relatively low, ranging from around 10-16% for the top executives.

Lack of Bonuses

Notably, the RMD executives do not receive any cash bonuses, with their variable compensation coming entirely from stock awards and incentive plan payouts. This suggests the company places a strong emphasis on equity-based compensation to drive long-term performance.

Consistency over Time

The compensation structure has remained relatively consistent over the years examined, with a similar mix of salary, stock awards, and incentive plan payouts for the top executives.

Benchmarking against Peers

Comparing RMD’s executive compensation to that of other medical device companies like Teleflex (TFX) and West Pharmaceutical Services (WST), the base salary portion of total compensation at RMD appears to be lower on average. This indicates RMD’s focus on aligning executive pay more heavily with long-term shareholder value creation.

In summary, the executive compensation structure at RMD seems well-designed to incentivize the leadership team to deliver strong long-term performance and create value for shareholders. The lack of cash bonuses and emphasis on equity-based compensation are positive signals for long-term investors.

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Proxy Statement Analysis

Adjusted Net Sales as Key Metric

The analysis indicates that the company uses Adjusted Net Sales as the most important financial metric to link executive compensation to company performance. This focus on organic growth, excluding the impacts of acquisitions and currency fluctuations, suggests an emphasis on sustainable long-term growth.

Compensation Tied to Profitability

Executive compensation is analyzed in relation to the company’s Net Income, which measures profitability and long-term value creation. This alignment between pay and profitability is a positive sign for long-term investors.

Total Shareholder Return Evaluation

The company evaluates Total Shareholder Return (TSR) against the compensation paid to executives. Additionally, the company’s TSR is compared to a relevant industry peer group index, providing a benchmark for performance.

Equity-Based Compensation

A significant portion of executive compensation is in the form of long-term equity awards, whose value is directly tied to the company’s stock price performance over time. This incentivizes executives to focus on driving long-term shareholder value.

Detailed Analysis and Transparency

The company provides detailed analysis and graphics showing the relationship between executive pay and key performance metrics like net income and TSR over multi-year periods. This level of transparency is valuable for investors to assess the alignment between pay and performance.

Overall, the emphasis on adjusted net sales for organic growth, profitability metrics like net income, long-term equity incentives, and evaluating pay versus TSR suggest an effort to align executive compensation with sustained long-term value creation for shareholders. A long-term investor would likely find these compensation practices encouraging in terms of incentive alignment.

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News Analysis

Positive Factors

  1. Strong financial performance: ResMed has consistently beaten earnings and revenue estimates in recent quarters, indicating robust demand for its sleep apnea devices and solid execution.

  2. Product launches and innovation: The company continues to launch new products like the AirSense 11 PAP series, AirFit F40 mask, and AirCurve 11 device, expanding its portfolio and driving growth.

  3. Benefiting from competitor’s recall: ResMed is likely gaining market share due to the massive recall of Philips’ respiratory devices, as customers switch to ResMed’s products.

  4. Focus on digital health and SaaS: ResMed is investing in digital health solutions and software-as-a-service (SaaS) offerings, which could drive long-term growth and recurring revenue streams.

  5. Acquisitions for growth: The company has made strategic acquisitions like Somnoware and MEDIFOX DAN to expand its capabilities and offerings.

Potential Concerns

  1. Supply chain challenges: Like many companies, ResMed has faced supply chain constraints and inflationary pressures, which could impact margins and growth in the near term.

  2. Competitive landscape: While benefiting from Philips’ recall currently, ResMed operates in a competitive market, and sustained success will depend on continued innovation and execution.

  3. Valuation concerns: Some analysts have raised concerns about ResMed’s valuation being stretched, given the strong run-up in its stock price.

Overall, the sentiment seems positive for ResMed as a long-term investment, given its strong fundamentals, product pipeline, and growth opportunities in the sleep apnea and digital health markets. However, investors should monitor the company’s ability to navigate supply chain challenges, competitive pressures, and valuation concerns.

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Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a potential short-term consolidation or pullback in the next week. The 10-day RSI is around 50, indicating the stock is not overbought or oversold. The 20-day TEMA is slightly below the current price, suggesting the short-term trend may be weakening. Traders may look for opportunities to take profits or enter short-term positions on any pullbacks.

Resistance and Support Levels

The 50-day and 200-day SMAs provide key support and resistance levels to watch. The 50-day SMA is currently around $204, which could act as a support level. The 200-day SMA is around $175, which could provide stronger support if the stock pulls back further. Resistance may be found near the 20-day SMA around $213.

Short-Term Investor

Short-term investors may want to monitor the stock’s price action and technical indicators closely. The recent pullback from the highs and the neutral RSI reading suggest the stock may consolidate or experience a minor correction in the near term. Short-term investors could look for opportunities to enter or add to positions on any dips towards support levels.

Long-Term Investor

For long-term investors, the overall technical picture remains positive. The 200-day SMA is trending higher, and the stock is trading above this key long-term indicator. The 50-day SMA has also been rising, indicating a positive medium-term trend. As long as the stock maintains above the 200-day SMA, the long-term uptrend remains intact, and long-term investors may consider using any pullbacks as potential buying opportunities.

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Chart of Valuation History

"Chart of Valuation History"

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Strong Revenue Growth

ResMed’s net revenue increased 18% to $4.23 billion in fiscal year 2023, driven by 20% growth in the Sleep and Respiratory Care segment and 24% growth in the Software as a Service (SaaS) segment. The company saw increased demand, reduced competitive supply, and higher average selling prices for its devices.

Improved Profitability

Gross profit increased 16% to $2.36 billion, with a gross margin of 55.8%. Operating income grew 13% to $1.13 billion, reflecting the company’s ability to manage costs despite inflationary pressures.

Robust Cash Flow and Liquidity

Operating cash flow was $693 million, and the company had $227 million in cash and $7.45 billion available under its revolving credit facility as of June 30, 2023, providing ample liquidity to fund operations and strategic initiatives.

Successful Acquisition Integration

ResMed completed the acquisition of MEDIFOX DAN, a German software provider, in November 2022. The integration of MEDIFOX DAN is progressing well, contributing $645 million in revenue to the SaaS segment.

Continued Investment in Innovation

The company invested $287 million, or 6.8% of revenue, in research and development to drive new product development and enhancements, including the launch of the AirSense 11 platform with new digital features.

Shareholder Returns

ResMed paid $258 million in dividends to shareholders during the year, reflecting its commitment to returning capital to investors.

Overall, ResMed delivered strong financial performance in fiscal year 2023, demonstrating its ability to grow its core sleep and respiratory care business while expanding its SaaS offerings to support the shift to out-of-hospital care. The company’s focus on innovation, operational efficiency, and strategic acquisitions positions it well for continued success.

Financial Statements Annual 2023 Q2

Revenue Growth

ResMed’s total revenue increased by 12% in fiscal year 2022 compared to fiscal year 2021, reaching $3.58 billion. This growth was driven by a 13% increase in the Sleep and Respiratory Care segment and a 7% increase in the SaaS segment.

Profitability

ResMed’s net income increased by 64% to $779.4 million in fiscal year 2022, compared to $474.5 million in fiscal year 2021. This was driven by higher revenue, improved gross margins, and lower tax expenses.

Segment Performance

The Sleep and Respiratory Care segment saw a 16% increase in revenue in the U.S., Canada and Latin America, and an 11% increase (on a constant currency basis) in combined Europe, Asia and other markets. The SaaS segment grew revenue by 7%, reflecting continued growth in the HME and Home Health and Hospice verticals.

Gross Margin

Gross margin decreased slightly to 56.6% in fiscal year 2022 from 57.5% in fiscal year 2021, due to higher logistics and manufacturing costs, partially offset by favorable changes in product mix.

Operating Expenses

Selling, general and administrative expenses increased by 10% (12% on a constant currency basis), while research and development expenses increased by 13% (14% on a constant currency basis), as ResMed continued to invest in new product development and digital health technologies.

Cash Flow and Liquidity

Operating cash flow was $351.1 million in fiscal year 2022, down from $736.7 million in the prior year, primarily due to the $2.85 billion payment to settle the Australian Tax Office dispute. ResMed had $273.7 million in cash and cash equivalents and $1.4 billion in available liquidity under its credit facilities as of June 30, 2022.

Acquisitions

ResMed signed a definitive agreement to acquire MEDIFOX DAN, a German provider of out-of-hospital care software, which is expected to close during fiscal year 2023 subject to regulatory approvals.

Overall, ResMed delivered strong financial performance in fiscal year 2022, with robust revenue growth, improved profitability, and continued investment in product innovation and digital health solutions, despite the challenges posed by supply chain disruptions.

Financial Statements Annual 2022 Q2

Revenue Growth

ResMed’s total revenue increased by 8% to $3.20 billion in fiscal year 2021, compared to $2.96 billion in the prior year. This was driven by an 8% increase in the Sleep and Respiratory Care segment and a 5% increase in the Software as a Service (SaaS) segment.

Profitability

ResMed’s net income decreased by 24% to $474.5 million in fiscal year 2021, compared to $621.7 million in the prior year. This was primarily due to an increase in unrecognized tax benefits, which reduced diluted earnings per share by $1.70.

Segment Performance

The Sleep and Respiratory Care segment revenue increased by 8% to $2.82 billion, driven by higher unit sales of devices and masks. The SaaS segment revenue increased by 5% to $373.6 million, driven by continued growth in resupply service offerings.

Gross Margin

Gross profit margin decreased to 57.5% in fiscal year 2021 from 58.1% in the prior year, primarily due to product mix changes, declines in average selling prices, and geographic mix changes.

Cash Flow and Liquidity

ResMed generated $736.7 million in operating cash flow in fiscal year 2021 and had $295.3 million in cash and cash equivalents as of June 30, 2021. The company had $655.4 million in total debt outstanding at the end of the fiscal year.

Acquisitions

ResMed did not complete any material business acquisitions during fiscal years 2021 and 2020. In fiscal year 2019, ResMed acquired MatrixCare, a provider of software solutions for post-acute care, for $750 million.

Restructuring

In fiscal year 2021, ResMed recognized $13.9 million in restructuring expenses related to the closure of its Portable Oxygen Concentrator business.

Overall, ResMed delivered solid revenue growth in fiscal year 2021, particularly in its core Sleep and Respiratory Care business, but profitability was impacted by higher unrecognized tax benefits. The company maintained a strong financial position with healthy cash flow and liquidity.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue Growth

Total revenue for the three months ended March 31, 2024 increased by 7% to $1.197 billion compared to the prior year period. Revenue from the Sleep and Respiratory Care segment increased by 7% to $1.049 billion, driven by increased demand and unit sales of devices and masks. Revenue from the SaaS segment increased by 8% to $148 million, driven by continued growth in the HME and MEDIFOX DAN verticals.

Profitability

Gross margin improved to 57.9% in the current quarter compared to 55.3% in the prior year quarter, due to reductions in freight and manufacturing cost improvements. Operating income increased by 24.6% to $374.6 million, driven by the higher gross margin. Net income increased by 29.2% to $300.5 million, and diluted EPS increased by 29.1% to $2.04.

Cash Flow and Liquidity

Cash provided by operating activities was $961.1 million for the nine months ended March 31, 2024, an increase of $505.3 million compared to the prior year period. As of March 31, 2024, the company had $237.9 million in cash and cash equivalents and $1.175 billion available under its revolving credit facility, providing ample liquidity.

Restructuring

The company recorded $64.2 million in restructuring expenses during the nine months ended March 31, 2024, related to an evaluation of its operations to increase efficiency, decrease costs, and improve profitability.

Hedging and Risk Management

The company entered into foreign currency hedging programs, including cross-currency swaps, to mitigate exposure to foreign currency risk. Interest rate risk is managed, with variable-rate debt representing a small portion of the company’s total debt.

Overall, the financial statements demonstrate strong revenue growth, improved profitability, healthy cash flow, and proactive risk management, despite the impact of the restructuring program.

Financial Statements Quarterly 2024 Q1

Strong revenue growth

ResMed reported a 12% increase in net revenue for the three months ended December 31, 2023 compared to the prior year period, driven by 11% growth in the Sleep and Respiratory Care segment and 24% growth in the Software as a Service (SaaS) segment. This demonstrates the company’s ability to grow its core medical device business as well as its higher-margin SaaS offerings.

Profitability and margins

Gross margin remained relatively stable at 55.6% for the three months ended December 31, 2023, despite some headwinds from field safety notification expenses. The company’s non-GAAP gross margin improved slightly to 56.9%, indicating good cost control. Non-GAAP operating income margin was 31.5%, showing the company’s ability to leverage its scale.

Ongoing investment in R&D

ResMed continues to invest heavily in R&D, spending $73.9 million or 6.4% of revenue in the quarter. This investment in new product development and innovation should help drive future growth.

Acquisition integration and restructuring

The company recorded $64.2 million in restructuring expenses during the quarter related to an evaluation of its operations to increase efficiency and profitability. While this represents a near-term cost, it suggests ResMed is proactively managing its cost structure.

Strong balance sheet and liquidity

ResMed ended the quarter with $2.1 billion in cash and cash equivalents and $9.6 billion in available liquidity under its revolving credit facility. This provides ample financial flexibility to fund organic growth initiatives, make strategic acquisitions, and return capital to shareholders.

Shareholder returns

ResMed paid $70.7 million in dividends during the quarter and has authorization to repurchase up to an additional 125 million shares, demonstrating its commitment to returning capital to shareholders.

Overall, the financial results indicate ResMed is executing well on its growth strategy, maintaining profitability, and investing for the future, which should be attractive to long-term investors.

Financial Statements Quarterly 2023 Q4

Revenue Growth

Total revenue increased 16% year-over-year to $1.102 billion, with a 15% increase on a constant currency basis. Sleep and Respiratory Care revenue grew 14% (13% constant currency), driven by increased demand and unit sales for both devices and masks. SaaS revenue grew 32%, primarily due to the acquisition of MEDIFOX DAN in November 2022.

Profitability

Gross margin decreased from 56.9% to 54.4%, primarily due to a $79 million provision for the Astral field safety notification and higher component and manufacturing costs, partially offset by favorable product mix and currency movements. Operating expenses increased, with selling, general and administrative expenses up 15% (14% constant currency) and R&D expenses up 20% (21% constant currency), driven by increased investment in digital health technologies and SaaS solutions, as well as acquisition-related costs. Net income increased 4% to $219.4 million, and diluted EPS increased 4% to $1.49.

Cash Flow and Liquidity

Cash provided by operating activities increased to $286.3 million, up from $44.7 million in the prior year period, driven by lower inventory purchases and higher customer payments. Capital expenditures were $40.9 million, and the company used $103.2 million for business acquisitions, primarily for the Somnoware acquisition. The company had $209.1 million in cash and cash equivalents and $8.25 billion available under its revolving credit facility as of September 30, 2023.

Segment Performance

The Sleep and Respiratory Care segment saw revenue growth of 14% (13% constant currency), with strong performance in both devices and masks. The SaaS segment revenue grew 32%, driven by the MEDIFOX DAN acquisition and continued growth in the HME vertical.

Overall, the financial statements show ResMed delivering solid revenue growth, managing profitability amidst cost pressures, and maintaining a strong liquidity position to fund ongoing operations and strategic investments.

Financial Statements Quarterly 2023 Q3

Strong revenue growth

ResMed reported a 29% increase in net revenue for the three months ended March 31, 2023 compared to the prior year period, driven by 28% growth in the Sleep and Respiratory Care segment and 35% growth in the Software as a Service (SaaS) segment. This demonstrates the company’s ability to grow both its core medical device business as well as its higher-margin SaaS offerings.

Healthy profitability

Gross margin remained strong at 55.3% for the quarter, though it declined slightly from 56.8% in the prior year period due to higher component costs and unfavorable product mix. Operating margin was 26.9%, and net income grew 30% year-over-year, indicating ResMed’s ability to maintain profitability even as it invests in R&D and integrates acquisitions.

Robust cash flow and liquidity

ResMed generated $455.9 million in operating cash flow for the first nine months of fiscal 2023, up from $271.7 million in the prior year period. The company had $227.9 million in cash and $6.05 billion available under its revolving credit facility as of March 31, 2023, providing ample liquidity to fund operations, capital expenditures, and strategic initiatives.

Successful acquisitions

ResMed’s acquisition of MEDIFOX DAN, a German software provider, in November 2022 has already started contributing to the SaaS segment’s growth. The company’s ability to identify and integrate complementary businesses should continue to drive long-term value creation.

Ongoing R&D investment

ResMed maintained a high level of R&D spending at 6.8% of revenue, demonstrating its commitment to developing innovative products and solutions that can improve patient outcomes and drive future growth.

Overall, the financial statements indicate that ResMed is executing well on its strategy, with strong revenue growth, healthy profitability, robust cash flow, and a track record of successful acquisitions. These factors should make the company an attractive long-term investment opportunity.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Massive Long-Term Opportunity

ResMed sees a massive long-term opportunity, with the global prevalence of sleep apnea expected to grow from 936 million in 2015 to over 1.2 billion by 2050, even with aggressive assumptions around the impact of new obesity drugs. This provides a multi-decade runway for growth.

Driving Patient Flow

ResMed is focused on driving patient flow into the diagnosis and treatment funnel through demand generation initiatives, leveraging both traditional healthcare channels and direct-to-consumer campaigns. Patient flow into the funnel is at all-time highs.

Impact of Obesity Drugs

While new obesity drugs may impact a subset of sleep apnea patients, ResMed’s data so far shows no significant changes in PAP adherence or resupply rates for patients on these drugs. ResMed plans to continue closely tracking this cohort and publishing the data.

Expanding Solution Portfolio

ResMed is investing in alternative therapies beyond PAP, such as dental devices and other technologies, to ensure it can address the full sleep apnea patient population, even those who may not tolerate or adhere to PAP.

Software-as-a-Service (SaaS) Growth

The software-as-a-service (SaaS) business is expected to drive double-digit organic growth going forward, with a focus on improving profitability and leveraging synergies with the core respiratory business.

Cost Optimization and Prioritization

ResMed is taking actions to optimize costs and prioritize the right initiatives, including a 5% workforce reduction, to accelerate profitable growth and long-term value creation.

Overall, ResMed appears well-positioned to capitalize on the large and growing sleep apnea and respiratory care markets, with a focus on driving patient flow, expanding its solution portfolio, and improving operational efficiency.

Earnings Call Analysis 2024 Q1

Strong Double-Digit Growth Across Businesses

ResMed has maintained strong double-digit growth across its device, mask, and software businesses, demonstrating its ability to meet market demand despite supply chain challenges.

Scaling Production of Latest AirSense 11 Platform

The company is focused on scaling production and availability of its latest AirSense 11 platform, while also leveraging its unconstrained AirSense 10 platform to meet customer needs.

Investing in Digital Health Initiatives

ResMed is investing heavily in digital health initiatives, including AI-driven data products and capabilities for its AirView and myAir platforms, to drive increased patient engagement and therapy adherence.

Opportunities to Improve Gross Margins

The company sees opportunities to improve gross margins through favorable product and geographic mix, as well as growth in higher-margin segments like bi-level and non-invasive ventilators, masks, and software solutions.

Monitoring Competitive Landscape

ResMed is closely monitoring the competitive landscape, particularly the potential re-entry of a key competitor, but believes it is well-positioned to maintain market share and meet customer demand.

Driving Operational Efficiencies and Cost Reductions

The company is focused on driving operational efficiencies and cost reductions to accelerate bottom-line growth, while continuing to invest in R&D to maintain its technology leadership.

Strong Foundation for Long-Term Growth

ResMed’s large and growing installed base of connected devices, along with its expanding software ecosystem, provide a strong foundation for long-term growth and value creation.

Overall, the call suggests ResMed is executing well on its strategic priorities and is well-positioned to capitalize on the growing demand for its respiratory care and digital health solutions, despite near-term supply chain and competitive challenges.

Earnings Call Analysis 2023 Q4

Device Revenue Growth

Device revenue growth was very strong at 43% globally, driven by improved supply and availability of the AirSense 10 platform. The company expects to steadily improve availability of the newer AirSense 11 platform over the next several quarters.

Mask and Accessory Revenue

Mask and accessory revenue grew 15% globally, supported by both new patient growth and strong resupply programs. The company sees the heightened awareness of respiratory health as a permanent change that will continue to drive mask demand.

Digital Health and Software Solutions

The company is investing heavily in digital health technology and software solutions, with a focus on using AI and machine learning to improve patient adherence and outcomes. This ecosystem approach across devices and software is a key competitive advantage.

Software-as-a-Service (SaaS) Business

The software-as-a-service (SaaS) business grew 35%, including the contribution from the MEDIFOX DAN acquisition. The company sees significant opportunity to grow this out-of-hospital care software business.

Gross Margin Outlook

Gross margins declined 200 basis points due to product mix, component cost increases, and currency headwinds, but the company expects margin expansion in the double-digit basis points range going forward as these headwinds subside.

Market Leadership and Competition

The company is well-positioned to maintain its market leadership when a key competitor, Philips, eventually re-enters the market, citing its technology advantages, digital ecosystem, and focus on value over price competition.

Overall, the company is executing well, investing for the long-term, and sees significant growth opportunities ahead in both its core sleep/respiratory business and its software solutions. The strong financial performance and strategic positioning suggest a positive long-term outlook.

Earnings Call Analysis 2023 Q3

Demand and Supply

ResMed is focused on meeting the high demand for its sleep and respiratory care devices globally, working to increase production and delivery to fulfill all customer demand by the end of 2023. This includes ramping up supply of its latest AirSense 11 platform.

The company sees opportunities to drive growth through both addressing the existing patient backlog as well as new patient demand generation, as it expects to be able to meet all customer demand by the end of this calendar year.

Software-as-a-Service (SaaS) Business

ResMed’s Software-as-a-Service (SaaS) business continues to perform well, with 18% year-over-year growth in Q2, including the contribution from the MEDIFOX DAN acquisition. The SaaS business is seen as an important part of ResMed’s future growth strategy.

Margins and Profitability

Gross margins declined slightly due to product mix shifts and currency impacts, but management expects margins to remain steady going forward as freight costs improve and the MEDIFOX DAN acquisition is accretive.

Innovation and Expansion

The company is focused on driving innovation and adoption of its connected device platforms, like the AirSense 11, as well as expanding into new respiratory care areas like home-based high flow therapy.

Competitive Landscape

ResMed appears confident in its ability to navigate the competitive landscape, including the potential re-entry of a competitor, as it believes it can continue to grow its market share and meet patient demand.

Overall, the key message is that ResMed is executing well on its strategic priorities despite supply chain challenges, and sees opportunities for continued strong growth across its device, mask, and SaaS businesses.

Earnings Call Analysis 2023 Q2

Supply Chain Constraints and Device Production

Supply chain constraints remain a challenge, but ResMed is seeing more predictable supply and expects steady increases in device production throughout fiscal 2023. The launch and adoption of ResMed’s next-generation AirSense 11 device platform is going well, with over 60% of patients using the myAir app. Increasing AirSense 11 production is a top priority.

Growth Opportunities in Respiratory Care

ResMed sees significant growth opportunities in respiratory care solutions like COPD and asthma, with an estimated 590 million COPD patients globally by 2050.

Software-as-a-Service (SaaS) Business

The Software-as-a-Service (SaaS) business continues to see high single-digit growth, driven by the trend towards lower-cost, lower-acuity care settings. ResMed’s acquisition of MediFoxDAN in Germany is on track to close by the end of 2022.

Competitor’s Product Recall

ResMed is focused on meeting the excess demand in the market caused by a competitor’s product recall, with strategies to ramp up production of its AirSense 10 Card-to-Cloud and AirSense 11 devices.

Pricing and Competitive Landscape

Pricing remains stable, with ResMed competing on value rather than price. The company is not seeing major pricing pressure from competitors at this time.

Demand Generation Initiatives

ResMed is investing in demand generation initiatives, including partnerships and digital health solutions, to identify, engage and enroll new sleep apnea patients, especially in high-growth markets like Asia and Latin America.

Overall, ResMed appears to be navigating the supply chain and competitive challenges well, while continuing to invest in its core sleep and respiratory care businesses as well as its SaaS platform for out-of-hospital care. The long-term growth opportunities remain promising.

Earnings Call Analysis 2023 Q1

Supply Chain Challenges and Production Outlook

Supply chain challenges remain, but are starting to improve – ResMed is seeing a “stable to improving” component supply environment, though they still face bottlenecks that need to be addressed. They expect sequential improvements in production volumes throughout fiscal 2023.

Demand and Competitive Landscape

Demand remains very strong, outpacing supply – Due to a competitor’s recall, ResMed expects demand to exceed supply for at least the next 12 months. They are focused on maximizing production to meet this demand.

Digital Health Solutions and Patient Engagement

Digital health solutions are driving higher patient engagement and adherence – Adoption of ResMed’s myAir app is more than double on the new AirSense 11 platform compared to the prior generation. This is helping drive higher long-term patient adherence.

Software-as-a-Service (SaaS) Business Growth

Software-as-a-Service (SaaS) business continues to grow at a high single-digit rate – ResMed sees strong demand for its SaaS solutions across home medical equipment, home health, and senior living verticals. The recent MEDIFOX DAN acquisition expands its SaaS footprint in Germany.

Margin Pressures and Mitigation Strategies

Gross margins face some headwinds from supply chain, but pricing actions and manufacturing improvements are expected to help – Freight and component costs have been a drag, but ResMed is implementing price increases and working to optimize manufacturing as supply stabilizes.

Overall, the key message is that ResMed is navigating supply chain challenges well, capitalizing on strong demand, and investing in digital health solutions and SaaS to drive long-term growth, despite some near-term margin pressures.

Earnings Call Analysis 2022 Q4

Supply Chain Constraints and Impact on Revenue

Supply chain constraints and component shortages, particularly semiconductors, are significantly impacting ResMed’s ability to meet the high demand for its products. This has led to a reduction in the expected incremental revenue from a competitor’s recall, from $300-350 million to $200-250 million.

Addressing Supply Chain Issues

ResMed is taking a multi-pronged approach to address the supply chain issues, including securing new suppliers, validating new parts, and re-engineering designs to eliminate bottlenecks. However, these efforts will take time to fully resolve the supply constraints.

Demand for Sleep and Respiratory Care Products

Despite the supply challenges, ResMed is seeing strong demand for its sleep and respiratory care products, with double-digit revenue growth in these segments. The company is prioritizing production and delivery of devices to meet the needs of high-acuity patients first.

Growth in Software-as-a-Service (SaaS) Business

ResMed’s software-as-a-service (SaaS) business continues to grow at a high single-digit rate, as customers recognize the need for technology solutions to improve efficiency and scale.

Focus on Innovation and Long-term Growth

The company is focused on driving long-term growth through innovation, including the launch of the AirSense 11 device platform and the development of digital health solutions that improve patient engagement and outcomes.

Analyst Concerns

Analysts’ questions suggest concerns about the sustainability of ResMed’s incremental revenue from the competitor’s recall, as well as the potential impact of a recessionary environment on patient demand and behavior.

Overall, the key insights highlight ResMed’s strong market position and growth potential, but also the significant near-term challenges it faces due to supply chain disruptions and the potential for broader economic headwinds.

Earnings Call Analysis 2022 Q3

Strong demand and market share gains

ResMed is seeing extremely high demand for its sleep and respiratory care devices, driven by a competitor’s recall. This has led to double-digit revenue growth, with ResMed gaining significant market share that it expects to be sustainable even after the competitor returns.

Supply chain challenges

ResMed is facing significant supply chain constraints, particularly for electronic components and semiconductors. This is limiting its ability to fully meet the elevated demand. The company is taking various measures to reengineer designs, validate new suppliers, and accelerate new product launches to increase supply.

Prioritizing high-acuity patients

Given the supply constraints, ResMed is prioritizing the production and delivery of devices to meet the needs of the highest acuity patients first, in line with its guiding principles.

Digital health focus

ResMed is driving increased adoption of its digital health solutions like myAir, AirView, and Brightree, which are improving patient engagement, adherence, and provider efficiency. This is a key part of its long-term strategy.

Respiratory care growth

ResMed is focused on growing its respiratory care business, targeting the large patient populations with COPD and asthma, and leveraging solutions like AirView for ventilation.

Software as a Service (SaaS) growth

ResMed’s SaaS business, which provides out-of-hospital care solutions, is expected to see accelerating growth as the impact of COVID-19 subsides.

Long-term confidence

Despite the near-term supply challenges, ResMed remains confident in its long-term strategy and pipeline of innovative solutions to drive sustainable growth in its core sleep and respiratory care businesses, as well as its SaaS offerings.

The analyst questions and management responses suggest ResMed is taking a proactive and patient-centric approach to navigating the current supply chain constraints, while continuing to invest in its long-term growth drivers.

Earnings Call Analysis 2022 Q2

Supply Chain Constraints and Prioritization

Supply chain constraints and component shortages, especially semiconductor chips, are significantly limiting ResMed’s ability to meet the high demand for its products, including from the competitor recall. This is expected to continue through at least Q3 FY2022. Despite the supply challenges, ResMed is prioritizing production and delivery to meet the needs of the highest acuity patients first. This is a strategic focus to ensure critical respiratory care devices reach the patients who need them most.

New Product Launch and Market Share Gains

The launch of the new AirSense 11 device platform has been very successful so far, with positive feedback from physicians, providers and patients. This positions ResMed well to gain market share, especially given the competitor recall.

Software as a Service (SaaS) Business Growth

ResMed’s Software as a Service (SaaS) business is expected to accelerate growth from mid-single digits to high single-digits by the end of FY2022, driven by increasing adoption of its home health and facility-based care solutions.

Acquisition of EctoSense

The acquisition of EctoSense, a leader in home sleep apnea testing technology, aligns with ResMed’s strategy to increase sleep apnea diagnosis rates and awareness globally.

Long-term Growth Strategy and Competitive Advantage

While ResMed is facing significant near-term supply challenges, the management team remains confident in the company’s long-term growth strategy across sleep, respiratory care and SaaS solutions. The focus on innovation, digital health and serving high acuity patients is expected to drive sustainable competitive advantage.

Overall, the key insights highlight ResMed’s resilience in the face of supply chain disruptions, its strategic priorities to serve critical patient needs, and its long-term growth potential in the underserved respiratory medical markets.

Earnings Call Analysis 2022 Q1

Supply chain constraints

ResMed is facing significant supply chain challenges, including shortages of electronic components and freight constraints, which are limiting its ability to fully meet the surge in demand for its products following a competitor’s recall. This supply chain crunch is expected to be most acute in the first half of fiscal 2022.

Incremental revenue opportunity

Despite the supply constraints, ResMed estimates it can capture an additional $300-$350 million in revenue in fiscal 2022 from the increased demand, with the opportunity skewed more towards the second half of the year as supply improves.

Market share gains

ResMed believes it can achieve permanent market share gains as it is able to get its market-leading devices and digital health solutions in front of new customers during this period of heightened demand.

Cost pressures

ResMed is facing elevated freight and component costs, which will pressure gross margins. The company is working to mitigate these through longer-term supplier contracts, but some cost increases are likely to be passed on to customers.

Digital health focus

ResMed continues to invest heavily in its digital health offerings, which it sees as a key growth driver. This includes the launch of its next-gen AirSense 11 platform and ongoing development of its Propeller and Primasun (Verily JV) digital health solutions.

Capital allocation

ResMed maintains a strong financial position, with plans to continue investing in R&D and potential tuck-in acquisitions, while also returning capital to shareholders through dividends.

Overall, the key message is that ResMed is navigating a challenging supply environment, but sees significant long-term opportunities to drive growth and gain market share through its innovative product pipeline and digital health capabilities.

Earnings Call Analysis 2021 Q4

ResMed is a leading provider of medical devices and cloud-based software solutions for sleep apnea, COPD, and asthma. The company has a strong market position and is investing heavily in R&D and digital health innovations.

The COVID-19 pandemic had a significant impact on ResMed’s business, with ventilator sales spiking in 2020 but now returning to more normal levels. The company is seeing a steady recovery in new patient flow for its core sleep apnea and respiratory care products.

ResMed is focused on driving growth through its pipeline of new technology and digital health solutions. The upcoming launch of the AirSense 11 device is expected to be a catalyst for growth in the second half of fiscal 2022.

The company’s software-as-a-service (SaaS) business, which includes solutions for home medical equipment, skilled nursing, home health, and hospice, is seeing mid-single digit growth and has potential to accelerate to high-single digit growth as the post-acute care market recovers.

ResMed is engaged in discussions with the Australian Tax Office regarding transfer pricing assessments dating back to 2009. The company has taken a $255 million reserve to resolve this matter, which it believes is the pragmatic path forward.

Overall, ResMed appears well-positioned for long-term growth, with a focus on innovation, digital health, and expanding its reach in the sleep apnea, COPD, and asthma markets. The company’s strong cash flow and balance sheet provide flexibility for continued investment and capital allocation.

Earnings Call Analysis 2021 Q3

ResMed is seeing steady improvement in patient diagnosis trends for sleep apnea, COPD, and asthma, though still below pre-COVID levels. The recovery is happening gradually, with the US at 70-90% and Germany at 85-90% of pre-COVID patient flow.

Resilient Resupply of Masks and Accessories

The resupply of masks and accessories has been resilient and growing, as patients recognize the importance of respiratory hygiene during the pandemic. This has helped offset the decline in new patient starts.

Serving COPD Patients Across the Disease Spectrum

ResMed is well-positioned to serve COPD patients across the disease spectrum, from early-stage with Propeller’s digital health solutions, to later-stage with non-invasive and life support ventilation. The decision to exit the portable oxygen concentrator business was driven by lack of attractive reimbursement and better opportunities in other COPD-focused areas.

Software-as-a-Service (SaaS) Business Performance

The software-as-a-service (SaaS) business saw mid-single digit growth, with Brightree’s home medical equipment resupply solutions performing well, offsetting some challenges in skilled nursing and hospice settings.

ResMed expects minimal incremental revenue from COVID-19-related ventilator sales going forward, as hospitals have sufficient inventory. This provides a cleaner base for the core sleep and respiratory care businesses to grow from.

Investing in Digital Health Innovations

The company continues to invest heavily in R&D for digital health innovations, which it sees as a key competitive advantage and driver of long-term value for customers and the healthcare system.

Overall, the call suggests ResMed is navigating the pandemic well, with resilient mask sales, gradual recovery in patient flow, and strategic focus on digital health solutions that can drive better outcomes and lower costs. The long-term growth prospects appear intact, though near-term uncertainty remains.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.