RESMED INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: ResMed delivered strong global top-line and bottom-line growth in Q2. Revenue grew 10%, non-GAAP gross margin expanded by 230 basis points to 59.2%, and non-GAAP earnings per share increased 29%.
• Product Launches: Launched AirSense 11 platform in India and planned global launches in 2025. Launched AirTouch N30i with a unique fabric-based patient interface. Collaborated with Apple Vision Pro team on the Kontor Head Strap.
• Digital Health and GLP-1 Impact: Digital health ecosystem (AirView, Brightree, myAir app) powers ReSupply programs. GLP-1s drive awareness of sleep apnea, with real-world evidence showing combination of GLP-1 and PAP prescriptions leads to higher adherence and better outcomes.
• Long-Term Vision: Focus on three pillars: growing core sleep and breathing health business, expanding into adjacent areas (COPD, insomnia, etc.), and leveraging digital health for better patient outcomes. Aim to empower 500 million people by 2030.

Segment Performance

• Devices: Global device sales grew double-digit year-over-year. In the U.S., device sales increased by 12%; in Europe, Asia, and rest of world, by 9%. Revenue contribution from devices is significant as a key segment.
• Masks and Accessories: Had double-digit global growth. Ongoing rollout of Brightree ReSupply and Snap technology in the U.S. market contributed to this growth.
• Residential Care Software: Revenue increased by 8% in the December quarter, with the MEDIFOX DAN software vertical performing strongly.

Guidance

• Revenue: Group revenue for Q2 was $1.28 billion, up 10% on headline and constant currency basis. Foreign currency expected to negatively impact Q3 revenue by $15M-$20M.
• Gross Margin: Expect gross margin to be in the range of 59%-60% in the second half of FY2025.
• SG&A and R&D: SG&A expenses as a percentage of revenue expected to be 18%-20% in the second half; R&D expenses as a percentage of revenue expected to be 6%-7% in the second half.
• Dividend and Share Buyback: Declared a quarterly dividend of $0.53 per share. Plan to continue a share buyback program of approximately $75 million per quarter.

Risks

• Foreign Currency Impact: Fluctuations in foreign exchange rates can negatively impact revenue and margins.
• Pharmaceutical and Consumer Tech Competition: Entry of GLP-1s and consumer wearables into sleep apnea space can impact market dynamics and ResMed's market share if not managed effectively.
• Regulatory and Reimbursement Challenges: Different regulatory, reimbursement, economic, and cultural norms in 140 countries where ResMed operates pose challenges in expanding and optimizing ReSupply programs.

Question and Answer

• Q: Currency impact on margins and EPS? **A: Brett Sandercock mentioned a negative $0.02 impact on EPS for the quarter due to FX, with expectations of some benefit in Q3 but still some Euro weakness coming through.
• Q: GLP-1 impact on devices growth? **A: Michael Farrell stated GLP-1s and consumer tech are driving patient awareness of sleep apnea, but the direct impact from Eli Lilly's Zepbound indication is early, with pharmaceutical companies typically waiting 6+ months for direct-to-consumer advertising.
• Q: Scaling home sleep testing and remote setup? **A: Michael Farrell discussed leveraging home sleep apnea testing and partnerships with sleep labs to scale and ensure timely testing for new patients, focusing on triaging patients to appropriate testing methods.
• Q: Device growth drivers and rePAP? **A: Michael Farrell noted ResMed's ability to outpace market growth through demand-generation, ReSupply, and rePAP opportunities, with ongoing efforts to capture and convert patients into therapy.
• Q: Gross margin guidance for 2H FY2025? **A: Brett Sandercock said gross margin is expected to be in the 59%-60% range, driven by manufacturing, procurement, product mix, and new product rollouts.