Q1 2025 Earnings Summary
- 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.
- 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.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Effective Tax Rate | Q1 2025 | 19%–21% | 19.3% (calculated from Net Income of 311,355 and EBT of (387,312 - 1,661)) | Met |
Gross Margin | Q1 2025 | 59%–60% | 58.6% ((1,224,509 - 507,290) / 1,224,509) | Missed |
SG&A as % of Revenue | Q1 2025 | 18%–20% | 19.5% (238,979 / 1,224,509) | Met |
R&D as % of Revenue | Q1 2025 | 6%–7% | 6.5% (79,524 / 1,224,509) | Met |
Interest Expense | Q1 2025 | $1M–$3M | $1.66M | Met |
Share Buyback | Q1 2025 | ~$50M per quarter | $50.0M | Met |
Residential Care Software Growth | Q1 2025 | High single-digit to low double-digit | 12.6% YoY (from 139.284To 156.8) | Met |
-
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.
Research analysts covering RESMED.