Q3 2024 Earnings Summary
- Rapid adoption of the AirSense 11 platform, which is already the primary platform in the U.S. market and is ramping up quickly in international markets, leading to revenue growth.
- Significant gross margin improvement of 240 basis points, driven by freight cost reductions and manufacturing cost improvements, showcasing operational excellence and enhancing profitability.
- Strong long-term growth potential in treating patients with COPD and neuromuscular diseases using the AirCurve platform, addressing a market of hundreds of millions of patients worldwide.
- Inventory levels have decreased significantly and are now close to target, limiting potential for further reductions and possibly affecting cash flow.
- Gross margin improvements are heavily dependent on freight cost reductions and manufacturing cost improvements, which may not be sustainable; management is unwilling to provide detailed breakdowns. ,
- Global rollout of the AirSense 11 platform is facing delays due to regulatory hurdles in multiple countries, which could hinder international growth.
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Gross Margin Outlook
Q: How sustainable is the gross margin recovery into Q4 and FY '25?
A: Management explained that gross margin improvements are driven by freight expense reductions and manufacturing efficiencies, and they expect to improve gross margin over FY '25. While acknowledging that gross margin is hard to predict due to factors like product mix and timing of cost improvements, they are focusing on continuous improvement programs to drive further gains. -
Impact of GLP-1 Drugs
Q: How are GLP-1 weight loss drugs affecting ResMed's business?
A: ResMed is seeing that patients on GLP-1 drugs have a 10.5% higher propensity to start CPAP therapy and increased adherence rates, indicating that these drugs are bringing more patients into the healthcare system. Management views this as a tailwind, with no evidence of patients discontinuing CPAP therapy due to GLP-1 drugs. -
Competitor Dynamics
Q: Are you seeing pricing pressure from competitors like Philips, and when might they return to the U.S. market?
A: Management stated that competitors returning to markets are pricing for value but are not impacting ResMed's share as the global market leader. They indicated uncertainty around when Philips might reenter the U.S. market due to a severe consent decree with significant constraints. -
New Patient Starts
Q: How are new patient starts trending, especially in the U.S.?
A: New patient starts are strong and steady, with U.S. device growth at 7% despite a tough comparison to 49% growth in the prior year. Management noted that GLP-1 patients are contributing to growth, and they see a long-term opportunity from this segment. -
Demand Generation Initiatives
Q: What are your plans for market demand drivers and demand generation?
A: ResMed is investing in global marketing efforts, including the establishment of a Global Chief Marketing Officer. They plan to scale demand generation globally, using social media and other media-driven campaigns with a focus on measurable ROI. -
AirSense 11 Rollout
Q: What is the status of the AirSense 11 availability and adoption?
A: AirSense 11 is already the primary platform in the U.S., making up the majority of devices sold and growing quickly. ResMed is working on regulatory clearances to introduce AirSense 11 into all countries and plans to make it the main platform globally. -
Inventory Levels
Q: How do you view inventory levels moving forward?
A: Inventory levels have decreased significantly and are now close to target. Management expects inventory to remain around current levels, with a focus on balancing supply and demand.