Sign in

    Resmed Inc (RMD)

    You might also like

    ResMed Inc. is a global leader in digital health and cloud-connected medical devices, focusing on treating and managing respiratory disorders such as sleep apnea and chronic obstructive pulmonary disease (COPD), as well as other chronic diseases . The company designs innovative solutions to improve patient quality of life, reduce the impact of chronic disease, and lower healthcare costs by shifting care from hospitals to home settings . ResMed's product lines include medical devices like CPAP systems, mask systems, diagnostic products, and cloud-based software applications for connected care .

    1. Masks, Diagnostic Products, and Accessories - Develops and markets a range of masks, diagnostic tools, and accessories essential for the treatment and management of respiratory disorders.
    2. Software as a Service (SaaS) - Offers out-of-hospital software platforms that support healthcare providers in managing patient care outside of hospitals, enhancing operational efficiencies and patient outcomes.
    3. CPAP Systems - Provides continuous positive airway pressure (CPAP) systems designed to treat sleep apnea and improve patient breathing during sleep.
    4. Cloud-Based Software Applications - Delivers connected care solutions through cloud-based software, facilitating remote monitoring and management of patient health data.
    Initial Price$190.91June 29, 2024
    Final Price$239.00September 29, 2024
    Price Change$48.09
    % Change+25.19%

    What went well

    • ResMed's Rest of World devices grew by 9%, driven by strong demand in Europe and Asia-Pacific regions, achieved through effective demand generation, capture, and conversion in global markets.
    • ResMed is leveraging the consumer wearables macro trend, with products like 'Dawn' and 'NightOwl', positioning itself as a digital sleep health concierge, to capitalize on increased patient demand driven by the adoption of wearable technologies detecting sleep apnea.
    • ResMed is actively pursuing tuck-in acquisitions such as Snap Technologies, Somnoware, and NightOwl, enhancing its capabilities to engage with patients and providers, streamline diagnosis processes, and capitalize on significant growth opportunities.

    What went wrong

    • ResMed's increased inventory levels have led to a headwind on operating cash flow in the quarter. The company is increasing inventory to mitigate higher freight costs, which may impact working capital in the short term.
    • The benign pricing environment suggests ResMed may face limitations in raising prices to offset higher costs, potentially impacting margins. While they have passed on some cost increases previously, management expects pricing to be generally stable going forward.
    • Strong competition in the European market may limit ResMed's ability to gain market share. The company acknowledges competing with other European players and is focusing on logistics and customer service improvements, indicating that competitive pressures remain significant.

    Q&A Summary

    1. Competition with Philips
      Q: How is ResMed buffered from price sensitivity if Philips returns?
      A: ResMed is confident in its competitive position even if Philips re-enters the market. The CEO emphasized strong growth in devices (9%) and masks (11%) in Europe, Asia, and the rest of the world, where Philips is already present. ResMed has a sustainable competitive advantage with its digital health ecosystem, including MyAir and AirView platforms. The company focuses on innovation and believes it will continue to compete effectively.

    2. M&A Priorities and Capital Allocation
      Q: What are your M&A priorities and capital management plans as free cash flow increases?
      A: ResMed is actively pursuing tuck-in acquisitions to enhance its capabilities. Recent examples include Snap Technologies, Somnoware, and Ectosense's NightOwl—all acquired for relatively small amounts. These acquisitions aim to expand ResMed's digital health offerings. The CFO stated that future tuck-in acquisitions could range from $100 million to $500 million. Capital management will also include increasing share buybacks and investing in R&D.

    3. Pricing Strategy and Market Environment
      Q: Will price increases continue to be part of your strategy?
      A: ResMed shared some cost increases with customers during the supply chain crisis but expects a benign pricing environment going forward. The company may adjust prices on specific components where costs remain high, like tubing and humidity. Overall, they anticipate prices to level out as freight and component costs stabilize.

    4. Competition in Europe and Market Share
      Q: Are you seeing a declining presence from Philips in Europe, allowing you to gain market share?
      A: ResMed continues to compete effectively in Europe, achieving 9% device growth in Europe, Asia, and the rest of the world. While not specifically attributing growth to Philips' decline, ResMed credits its improved customer service, better marketing, and supply chain logistics. The competitive environment remains as it was, but ResMed is winning accounts and tenders.

    5. Impact of Samsung and Apple Entering Sleep Apnea Detection
      Q: Are you seeing pull-through from Samsung and Apple's sleep apnea detection technologies?
      A: It's still early days for these technologies. ResMed believes that increased awareness from consumer tech companies is positive for the sleep health market but doesn't expect immediate impact on sales. The company is tracking 989,000 patients with combined GLP-1 and PAP prescriptions, indicating some tailwind effect.

    6. Drivers of Mask and Device Growth
      Q: What are the drivers behind the double-digit growth in mask sales?
      A: Growth is driven by new patients, increased resupply rates, and possibly higher masks per patient per year. Mask and accessories growth in U.S., Canada, and Latin America was 10% on a strong 23% prior-year comp. ResMed is expanding its Brightree and Snap resupply technologies and sees room for further growth as not all patients utilize the full reimbursement available.

    7. Working Capital and Inventory Levels
      Q: Why was there an inventory build impacting operating cash flow?
      A: ResMed increased inventory levels to mitigate increased freight costs and manage sea freight. The company is rebalancing freight strategies, which temporarily increases inventory in transit. Inventory levels may rise slightly in Q2 but are expected to stabilize afterward.

    8. Production and Backlog of AirSense 11
      Q: Is production of AirSense 11 still on track, and is there a backlog?
      A: Production is on track, with the Singapore plant operating at full capacity. In the U.S., the vast majority of devices sold are AirSense 11, comprising well over 50% of sales. There might be a slight backlog from consumers waiting for the AirSense 11, but ResMed sees a long runway and strong momentum for the product.

    9. Strategies to Capture Demand from Wearables
      Q: What strategies are you considering to capture increased demand from wearables?
      A: ResMed focuses on demand generation, capture, and conversion. The company is developing products like Dawn, an AI interaction platform, and integrating acquisitions like Somnoware and NightOwl to create a seamless, end-to-end experience for individuals seeking sleep health solutions.

    10. Rest of World Device Growth and AirSense 11 Impact
      Q: Did AirSense 11 contribute to the 9% Rest of World device growth?
      A: While AirSense 11 contributed in countries where it's launched, the vast majority of growth is from volume and market share gains. ResMed is holding or taking share in markets with full competition and attributes success to having the smallest, quietest, most comfortable devices.

    11. Applying New Fabric Technology to Other Masks
      Q: Can the new N30i fabric technology be applied to other masks, and is there a price premium?
      A: Yes, ResMed plans to apply the new fabric technology to other masks over time. The AirTouch N30i will have a price premium due to higher production costs, but the company expects improved fit rates, lower return rates, and increased adherence, offering a strong return on investment.

    12. Preorders for New Mask
      Q: Do you have any sense of preorders for the new mask?
      A: Preorders are minimal and not material to global financials at this point. However, there's significant excitement from commercial teams, and the company is optimistic about the technology being a game changer.

    Guidance Changes

    Quarterly guidance for Q2 FY 2025:

    • Net Interest Expense: less than $1 million (no prior guidance)

    Annual guidance for FY 2025:

    • Effective Tax Rate: 19% to 21% (no change from 19% to 21% )
    • Gross Margin: 59% to 60% (no change from 59% to 60% )
    • SG&A Expenses: 18% to 20% (no change from 18% to 20% )
    • R&D Expenses: 6% to 7% (no change from 6% to 7% )
    • Share Buyback Program: $75 million per quarter (raised from $50 million per quarter )
    NamePositionStart DateShort Bio
    Michael "Mick" FarrellChairman of the Board and CEOMarch 2013 (CEO), January 2023 (Chairman)Michael "Mick" Farrell has been serving as the Chief Executive Officer and a director of ResMed Inc. since March 2013. He was appointed as the Chairman of the Board in January 2023. Mr. Farrell joined ResMed in 2000 and has held various leadership roles, including President of the Americas region from 2011 to 2013 .
    Bobby GhoshalChief Commercial Officer, SaaSNovember 2023Bobby Ghoshal was appointed as the Chief Commercial Officer, SaaS at ResMed in November 2023. Prior to this role, he served as the President of ResMed's SaaS business from September 2021 to November 2023 .
    Justin LeongChief Product OfficerNovember 2023Justin Leong was appointed as the Chief Product Officer of ResMed in November 2023. Prior to this role, he held progressively increasing responsibilities for ResMed's Asian and Latin American markets from 2018 to 2023 .
    Michael "Mike" RiderGlobal General Counsel and SecretaryJuly 1, 2023Michael "Mike" Rider was appointed as the Global General Counsel and Secretary of ResMed effective July 1, 2023. Prior to this role, he served as ResMed's senior vice president, deputy global general counsel, and legal business partner for ResMed's sleep and respiratory care team from July 2019 through June 2023 .
    Brett SandercockChief Financial OfficerJanuary 2006Brett Sandercock has been serving as the Chief Financial Officer of ResMed since January 2006. Prior to this role, he was ResMed's Vice President of Treasury and Finance from November 2004 until December 2005 .
    Christopher DelOreficeBoard Member and Audit Committee MemberAugust 15, 2024Christopher DelOrefice is a Board Member and Audit Committee Member at ResMed Inc. (RMD). He was elected to the board during the August 15, 2024 board meeting and appointed to the audit committee. DelOrefice is a seasoned financial executive with extensive experience in the medical technology industry .
    1. Given your expansion into adjacent areas like insomnia and COPD, can you elaborate on how you plan to effectively compete in these markets and what specific investments you're making to ensure growth in these areas?
    2. With major consumer tech companies like Apple and Samsung entering the sleep apnea detection space, how do you intend to differentiate ResMed's offerings to capture the potential increase in patient demand and prevent possible disruptions to your traditional business model?
    3. Considering the price increases implemented last year due to supply chain challenges, what is your pricing strategy moving forward, and how do you anticipate this will impact your relationships with customers and your competitive position in the market?
    4. Despite increasing production capacity for the AirSense 11, you mentioned there might still be a backlog of patients waiting for this device; what challenges are you facing in fully meeting the demand, and how might this impact your market share if competitors fulfill orders more promptly?
    5. Your recent "tuck-in" acquisitions like Snap Technologies, Somnoware, and NightOwl have added new capabilities; can you clarify your M&A strategy going forward, specifically regarding the scale of acquisitions you're considering and how you plan to balance these investments with capital management as your free cash flow increases?
    Program DetailsProgram 1
    Approval DateFebruary 21, 2014
    End Date/DurationNo specified end date
    Total additional amount20.0 million shares
    Remaining authorization amount11.8 million shares (as of 2024-12-21)
    DetailsThe program may be accelerated, suspended, delayed, or discontinued at any time at the discretion of the board of directors

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Gross Margin: Expected to be in the range of 59% to 60% .
      2. SG&A Expenses: Expected to be in the range of 18% to 20% of revenue .
      3. R&D Expenses: Expected to be in the range of 6% to 7% of revenue .
      4. Net Interest Expense: Expected to be less than $1 million in the second quarter, with potential net interest income in the second half .
      5. Effective Tax Rate: Estimated to be in the range of 19% to 21% .
      6. Share Buyback Program: Plan to purchase shares worth approximately $75 million per quarter .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Effective Tax Rate: Estimated to be in the range of 19% to 21% .
      2. Gross Margin: Expected to be in the range of 59% to 60% .
      3. SG&A Expenses: Expected to be in the range of 18% to 20% of revenue, with Q1 FY '25 likely at the higher end .
      4. R&D Expenses: Expected to be in the range of 6% to 7% of revenue .
      5. Interest Expense: Expected to be in the range of $1 million to $3 million in Q1 FY '25, with potential net interest income in the second half .
      6. Share Buyback Program: Plan to repurchase shares worth approximately $50 million per quarter .
      7. Residential Care Software Business Growth: Maintain high single-digit to low double-digit growth .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Final quarter of FY 2024 and FY 2025
    • Guidance:
      1. Interest Expense: Expected to be in the range of $7 million to $9 million in the final quarter of FY 2024 .
      2. Effective Tax Rate: Estimated to be in the range of 19% to 21% for FY 2024 .
      3. SG&A Expenses: Expected to be in the range of 18% to 20% for the balance of FY 2024 .
      4. R&D Expenses: Expected to be in the range of 6% to 7% for the balance of FY 2024 .
      5. Gross Margin: Expected improvement over FY 2025, despite short-term impacts .
      6. Software as a Service Business Growth: High single-digit growth for FY 2024, aiming for double-digit growth in FY 2025 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: H2 FY 2024
    • Guidance:
      1. SG&A Expenses: Expected to be in the range of 18% to 20% of revenue .
      2. R&D Expenses: Expected to be in the range of 6% to 7% of revenue .
      3. Interest Expense: Expected to be in the range of $10 million to $12 million per quarter .
      4. Effective Tax Rate: Estimated to be in the range of 19% to 21% .
      5. Share Buyback Program: Plan to purchase approximately $50 million per quarter .

    Competitors mentioned in the company's latest 10K filing.

    • Philips BV; ongoing product recall may impact ResMed's business
    • Fisher & Paykel Healthcare Corporation Limited
    • DeVilbiss Healthcare
    • Apex Medical Corporation
    • BMC Medical Co. Ltd.
    • React Health Corporation
    • Lowenstein