RESMED INC Q1 FY2025 earnings call

• Strong revenue growth of 11% across all segments, driven by sleep health and breathing health devices, masks/accessories, and residential care software.
• Gross margin increased by 320 basis points to 59.2% in Q1, driven by manufacturing efficiencies, component cost improvements, and higher average selling prices.
• Operational highlights include double-digit revenue growth across all product and geographic categories, strong performance of AirSense 10 and 11 platforms, and growth in masks/accessories due to new patient activations and ReSupply.
• Macro trends: GLP-1 medications show positive impact on PAP therapy commencement and adherence; consumer wearables like Samsung and Apple integrating sleep apnea detection create awareness for sleep health.
• Strategic pillars: Growing and differentiating core sleep health business, expanding into adjacencies (insomnia, COPD, etc.), and leveraging digital health ecosystem with AI/ML integration.

ResMed delivered strong financial performance in Q1 FY2025. Group revenue was $1.22 billion, up 11% on headline and constant currency basis. Device sales grew double-digit, with global device sales driven by AirSense 10 and 11 platforms. Masks and accessories growth was 11% year-over-year, augmented by new patient activations and ReSupply. Residential Care Software revenue increased by 12% in the September quarter, underpinned by growth from MEDIFOX DAN and HME software vertical. Device sales in U.S., Canada, and Latin America increased by 11%, while masks and other sales increased by 10%. In Europe, Asia, and other regions, device sales increased by 9% on constant-currency basis, and masks and other sales increased by 11%.

• Gross margin expected to be in range of 59%-60% in FY2025.
• SG&A expenses as % of revenue expected to be 18%-20% in FY2025.
• R&D expenses as % of revenue expected to be 6%-7% in FY2025.
• Board declared quarterly dividend of $0.53 per share; plan to purchase shares worth ~$75 million per quarter through remainder of FY2025.
• Net interest expense expected to be less than $1 million in Q2, with potential net interest income in H2 FY2025.

• Middle East conflict and Asian port congestion could impact gross margin.
• Increased air and sea freight costs continuing to affect gross margin in FY2025.
• Supply chain issues, including potential Red Sea, Panama Canal, or union strike impacts.

Q: Do you have any sense of pre-orders for your new mask?

A: It's de-minimis and not material to global financials; commercial team excited but early days.

Q: Rest of world devices growth at 9%, any benefit from AirSense 11 sales?

A: Mix of volume, demand capture, and conversion; Europe, Asia-Pac teams performing well.

Q: Drivers of mask sales growth in North America?

A: New patients, ReSupply expansion, and room for improvement in mask per patient usage.

Q: Working capital headwind related to inventory?

A: Rebalancing sea/air freight, increased stock in transit, expected to stabilize after Q2.

Q: Pricing strategy going forward?

A: Managed past supply chain and freight costs, will monitor costs for potential pricing adjustments.

Q: Tuck-in acquisitions and capital management?

A: Looking for tuck-ins like Snap, Somnoware, NightOwl; capital allocation to R&D, tuck-ins, and share buybacks.

Q: Can N30i technology be applied to other masks? Pricing?

A: Technology can be applied, higher cost due to advanced tech, expected higher adherence and lower healthcare costs.

Q: Strategies to capture new patient demand from wearable tech?

A: Focus on demand generation, capture, and conversion via digital platforms like Dawn, myAir, AirView.

Q: Buffering from Philips return?

A: ResMed's competitive advantage in digital health ecosystem and focus on patient pathway will drive success.

Q: AirSense 11 production and mix?

A: Production firing on all cylinders, over 50% of U.S. sales are AirSense 11, with rePAP opportunity.

Q: Competition in rest of world devices?

A: Competing well, focusing on product, communication, and supply chain to gain share and drive patient funnel.