ResMed Inc. (RMD) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates positive financial performance with strong revenue growth in key areas, improved gross margins, and strategic product developments. The Q&A session reinforced this positive sentiment, highlighting strong growth drivers, effective cost management, and strategic expansion plans. Despite some management ambiguity regarding specific investments, the overall outlook is optimistic, with guidance improvements and market expansion strategies. These factors suggest a positive stock price movement in the short term.

Key Financial Performance

Revenue Group revenue for the June quarter was $1.35 billion, a 10% headline increase and 9% in constant currency terms. Revenue growth reflected positive contributions across our product and ReSupply portfolio.

Gross Margin Gross margin of 61.4% in the June quarter increased by 230 basis points year-over-year and by 150 basis points sequentially. These increases were primarily driven by procurement, manufacturing and logistics efficiencies as well as favorable foreign currency movements.

Free Cash Flow Fiscal year 2025 free cash flow was $1.7 billion, providing significant flexibility for investments and shareholder returns.

Operating Profit Operating profit for the quarter increased by 19%, underpinned by revenue growth and gross margin expansion. Operating margin improved to 35% of revenue compared to 33% in the prior year period.

Net Income Net income for the June quarter increased by 22%, and non-GAAP diluted earnings per share increased by 23%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.05 in Q4 FY '25.

SG&A Expenses SG&A expenses for the fourth quarter increased by 9% on a headline basis and by 8% on a constant currency basis. The increase was primarily due to increases in employee-related expenses and marketing expenses, including investments associated with the global brand launch and targeted demand generation activities.

R&D Expenses R&D expenses for the quarter increased by 7%, both on a headline and constant currency basis. The increase was predominantly attributable to increases in employee-related expenses.

Residential Care Software Revenue Residential care software revenue increased by 9% on a constant currency basis in the June quarter, underpinned by robust performance from MEDIFOX DAN and HME verticals.

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Operating Highlights

AirSense 11 platform: Continued rollout to more countries in fiscal year 2026.

AirTouch N30i and AirFit F40: Introduction of new patient interface technologies with advanced features.

AI and GenAI integration: Incorporation into digital products like the myAir app and ReSupply attrition predictor.

VirtuOx acquisition: Enhances diagnostic capabilities and accelerates patient treatment pathways.

Global market presence: Serving over 154 million lives in more than 140 countries.

Brand awareness campaigns: Targeted campaigns in Germany, Australia, New Zealand, Korea, and India, as well as U.S. metropolitan areas.

Tackle Your Sleep campaign: Global campaign to raise awareness about sleep health, featuring prominent athletes.

Gross margin expansion: Achieved 230 basis points year-over-year improvement in Q4 FY 2025.

New manufacturing site: Opening in Calabasas, California, doubling U.S. manufacturing footprint.

AI-driven efficiencies: Use of AI in R&D processes, including virtual fitting studies and test script generation.

ResMed 2030 strategy: Focus on improving over 500 million lives by 2030 through innovation and operational excellence.

Residential Care Software integration: Aligning RCS functions with broader ResMed organization for streamlined operations.

Increased shareholder returns: 13% dividend increase and expanded share buyback program for FY 2026.

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Risk or Challenges

Global macro uncertainty: The company faces challenges related to global macro uncertainty, including tariffs and trade issues, which could impact operations and financial performance.

Competitive bidding program by CMS: The potential resumption of the competitive bidding program by CMS in the U.S. introduces uncertainty regarding product categories and reimbursement rates, which could affect revenue and market dynamics.

Regulatory landscape: Evolving regulatory requirements in key markets such as Washington, Brussels, and Beijing could pose compliance challenges and impact operations.

Global trade environment: The company is monitoring the global trade environment, which could affect supply chain stability and costs.

Employee-related expenses: Increases in employee-related expenses, including marketing and R&D, could pressure operating margins if not managed effectively.

Tax legislation changes: Upcoming tax legislation changes in certain jurisdictions could increase the effective tax rate, impacting net income.

Integration of acquisitions: The integration of recent acquisitions, such as VirtuOx, poses operational and strategic challenges to ensure seamless alignment with the company's goals.

Supply chain and manufacturing: The company is evolving its global manufacturing footprint, which could face risks related to scaling operations and maintaining efficiency.

AI and technology investments: Investments in AI and GenAI technologies require significant resources and carry risks of underperformance or delays in achieving desired outcomes.

Brand awareness campaigns: Global brand awareness and marketing campaigns require substantial investment and may not yield the expected return on investment (ROI).

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Guidance & Outlook

Revenue Growth: ResMed expects gross margin to be in the range of 61% to 63% in fiscal year 2026, supported by procurement, manufacturing, and logistics efficiencies.

SG&A Expenses: SG&A expenses as a percentage of revenue are projected to be in the range of 19% to 20% in fiscal year 2026, with continued investments in marketing and demand generation activities.

R&D Expenses: R&D expenses as a percentage of revenue are expected to be in the range of 6% to 7% in fiscal year 2026, focusing on innovative product development and AI integration.

Tax Rate: The effective tax rate for fiscal year 2026 is estimated to be in the range of 21% to 23%, reflecting changes in global earnings mix and new tax legislation.

Share Buyback Program: ResMed plans to increase its share buyback program to approximately $150 million per quarter in fiscal year 2026, potentially repurchasing 1.5% of outstanding shares.

Dividend Increase: The quarterly dividend has been increased by 13% to $0.60 per share for fiscal year 2026, reflecting confidence in operating performance.

Manufacturing Expansion: ResMed is opening a new manufacturing facility in Calabasas, California, which will double its U.S. manufacturing footprint and support scaling product volumes over the coming years.

Product Launches: ResMed plans to expand the rollout of its AirSense 11 platform and introduce new patient interface technologies, including the AirTouch N30i and AirFit F40, during fiscal year 2026.

AI and Digital Health Integration: The company will expand its AI and GenAI technology integration into digital products, including a wider rollout of the Dawn digital assistant and enhancements to the myAir app in fiscal year 2026.

Marketing Campaigns: ResMed will continue targeted global marketing campaigns to increase brand awareness and drive patient flow, with investments based on strong ROI metrics.

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Shareholder Return Plan

Dividends in FY 2025: ResMed returned significant capital to shareholders through dividends totaling more than $610 million for the year.

Increase in Quarterly Dividend for FY 2026: ResMed's Board of Directors authorized an increase in the quarterly dividend for fiscal year 2026, reflecting confidence in the company's operating performance.

Share Repurchases in FY 2025: ResMed repurchased shares as part of its shareholder return plan, contributing to the $610 million returned to shareholders.

Increase in Share Repurchase Activity for FY 2026: ResMed plans to significantly increase its targeted share repurchase activity for fiscal year 2026, with a goal of purchasing shares worth approximately $150 million per quarter.

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Key Q&A

Q:What contributed to the strong growth in Rest of World devices revenues?

A:The growth in Rest of World devices revenues was attributed to multiple factors, including market growth in Europe, Asia, and other regions, which is estimated to be in the mid-single digits. There were also fluctuations due to buyer behaviors in certain markets like Japan and tenders in other regions. Additionally, there were improvements in demand generation activities, though these were modest.

Q:What were the key drivers of gross margin improvement and guidance for FY '26?

A:The gross margin improvement was driven by foreign currency benefits (particularly the euro), component cost improvements, logistics efficiencies (returning to pre-COVID levels), and the transition from the AS10 to AS11 platform. For FY '26, the guidance of 61%-63% gross margin is supported by ongoing cost optimization initiatives, procurement improvements, manufacturing efficiencies, logistics enhancements, favorable product mix, and new product introductions.

Q:What is the roadmap for the VirtuOx business and its integration into ResMed's portfolio?

A:VirtuOx is part of a broader portfolio that includes Ectosense and Somnoware. ResMed plans to invest in marketing and capabilities to scale home sleep apnea testing, addressing high waitlists and expanding access. VirtuOx will complement existing solutions like NightOwl and AirView software, aiming to create a seamless patient flow. The focus is on long-term growth rather than immediate returns, with updates to be provided quarterly.

Q:What factors contributed to the strong U.S. mask growth?

A:The strong U.S. mask growth, which was in low double digits, was attributed to innovations like the AirTouch N30i and F40 masks, which offer enhanced comfort. There were also improvements in ReSupply programs and patient engagement through platforms like Brightree and myAir. Some market share gains were noted, but the growth was also supported by overall market expansion.

Q:What is ResMed's perspective on competitive bidding and its potential impact?

A:ResMed views the current competitive bidding environment as relatively benign compared to earlier rounds. The company believes that Medicare and private payer rates are now more aligned, reducing the potential for significant disruptions. ResMed plans to support its HME customers and advocate for patient access to care, particularly in rural areas.

Q:What is ResMed's strategy for expanding beyond sleep apnea treatment?

A:ResMed aims to be a one-stop shop for sleep apnea and related conditions. The company is investing in solutions like dental devices, home sleep apnea testing, and software platforms. While monitoring developments in pharmaceuticals and hypoglossal nerve stimulation, ResMed's focus remains on maintaining relationships with patients and offering gold-standard therapies like CPAP, APAP, and bilevel devices.

Q:What are the observations regarding the impact of GLP-1 prescriptions on CPAP adoption?

A:Patients with GLP-1 prescriptions are 11% more likely to start CPAP therapy compared to those without. Additionally, these patients show higher ReSupply rates at 1 year (3% higher) and 2 years (5% higher). ResMed is leveraging this trend by educating primary care physicians and enhancing demand generation efforts.

Q:What are the primary drivers of the FY '26 gross margin guidance improvement?

A:The FY '26 gross margin guidance improvement is driven by cost optimization initiatives, procurement and manufacturing efficiencies, logistics enhancements, product mix tailwinds, and new product introductions. The company expects to start at the lower end of the 61%-63% range and improve throughout the fiscal year.

Q:What is ResMed's outlook on the competitive bidding process and its implications?

A:ResMed believes the competitive bidding process will have minimal impact on its business. The company has navigated previous rounds successfully and views the current environment as less disruptive. ResMed plans to support its HME customers and ensure patient access to care remains unaffected.

Q:Review of Unclear Management Responses

A:Management avoided providing a direct answer to the question about the specific areas of investment for VirtuOx over the next 12 months and the leading indicators to assess returns. The response was broad and focused on the overall ecosystem rather than specific details.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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