RESMED INC Q3 FY2025 earnings call

• Mick Farrell introduced Sally Schwartz as Chief Relations Officer, highlighting her experience in capital markets, healthcare, and technology.
• ResMed delivered strong top-line and bottom-line results, with solid revenue growth, gross margin expansion, strong free cash flow generation, and disciplined investments in R&D and SG&A.
• The company is well-positioned with tariff exemptions for products treating chronic respiratory conditions. It is expanding manufacturing with a new facility in Calabasas, California, and investing in distribution and R&D in the US.
• ResMed launched Nite Owl, a home sleep apnea test, and expanded VPAP TX platform. It has a comprehensive brand evolution strategy to unify its global brand portfolio.
• A Lancet study showed CPAP therapy reduces all-cause mortality by 37% and cardiovascular mortality by 55%, highlighting the importance of ResMed's products.

In Q3 Fiscal Year 2025, ResMed's group revenue was $1.29 billion, an 8% headline increase and 9% in constant currency terms. Device sales increased by 7% globally on constant currency basis, while masks and other sales increased by 12%. Residential care software revenue increased by 10% on constant currency basis in the March quarter, underpinned by strong performance from Medifox DAN software. Gross margin increased by 140 basis points to 59.9% in the March quarter, driven by manufacturing and logistics efficiencies, favorable product mix, partially offset by unfavorable foreign currency movements. Sequential gross margin increased by 70 basis points primarily due to manufacturing and logistics efficiency.

• Gross margin in Q4 FY2025 expected to be broadly consistent with Q3 gross margin.
• SG&A expenses as a percentage of revenue expected to be in the range of 18% to 20% for the remainder of fiscal year 2025.
• R&D expenses as a percentage of revenue expected to be in the range of 6% to 7% for the remainder of fiscal year 2025.
• Effective tax rate for the full fiscal year 2025 estimated to be in the range of 19% to 21%.
• Plan to increase share buyback program to approximately $100 million per quarter commencing in Q4 FY2025.

• Discussions around US tariffs, but ResMed confirmed tariff exemptions for its products and do not expect material impact on financial results. Also, general market and geopolitical risks that could affect operations.

Q: Can you talk us through the factors attributed to gross margin expansion?

A: The big driver was manufacturing and distribution efficiencies, including manufacturing efficiencies, better recoveries through factories, improvements in distribution and freight, the AS ten to AS eleven transition, and component cost contributions. Also, favorable product mix with mask growth relative to device growth.

Q: How are you tracking metrics related to sleep lab backlogs and patient funnel?

A: Tracking metrics like time to titration, time to test, time from titration/test to therapy onset, and churn in patients dropping out. Metrics include time from referral to diagnostic, from diagnostic to therapy, and long-term adherence. Also tracking impact of home sleep apnea testing and demand generation efforts.

Q: Confidence in share buybacks given demand environment and capital allocation?

A: Board and management feel confident due to strong operating cash flows, robust business, and net cash position. Upticking share buyback to $100M per quarter is accretive and balances capital allocation with buybacks, dividends, and potential M&A.

Q: State of GLP ones and impact on CPAP funnel?

A: Lilly and others are investing in GLP ones for sleep apnea, but direct D2C campaigns are expected in 6-12 months. ResMed is doing CME education and targeting high volume GLP one providers and primary care physicians to educate them on gold standard CPAP therapy and its benefits.

Q: Tariff exemption and application to all CPAP therapy?

A: ResMed has had tariff exemptions for decades, reaffirmed just earlier this month. Exemptions apply under the Nairobi protocol, and competitors from other regions may have different tariff situations. ResMed is well-positioned with strong balance sheet and other strengths.