ResMed Inc. Q4 FY2025 earnings call

• Free cash flow for fiscal year 2025 was $1.7 billion, providing flexibility for investments and returning capital to shareholders.
• Completed acquisitions of Somnoware, Ectosense, and VirtuOx to accelerate the ResMed 2030 strategy, with VirtuOx helping reduce diagnostic delays and improve patient flow through the sleep care funnel.
• Gross margin in the June quarter was 61.4%, up 230 basis points year-over-year and 150 basis points sequentially, driven by procurement, manufacturing, and logistics efficiencies and favorable foreign currency movements.
• Invested in R&D, including AI and GenAI integration, such as the digital assistant Dawn in myAir, smart coaching in the myAir app, and the ReSupply attrition predictor. Also, continued to roll out products like the AirSense 11 platform and new patient interface technologies.
• Implemented a ResMed brand evolution strategy with targeted marketing campaigns to build brand awareness and drive undiagnosed patients to seek care. Announced the acceleration of the ResMed 2030 operating model by integrating residential care software functions into the broader organization.
• Recognized the importance of advocating for policies protecting patient access to care and fair reimbursement for HME providers amidst competitive bidding and global macro uncertainty.

In the fourth quarter, ResMed achieved 10% year-over-year reported revenue growth. Group revenue for the June quarter was $1.35 billion. Excluding residential care software, sales in U.S., Canada, and Latin America increased by 9%, while Europe, Asia, and other regions also saw 9% growth on a constant currency basis. Device sales: U.S., Canada, and Latin America increased by 7% on a constant currency basis; Europe, Asia, and other regions increased by 10% on a constant currency basis. Masks and other sales: U.S., Canada, and Latin America had strong performance; Europe, Asia, and other regions saw 7% growth on a constant currency basis. Residential care software revenue increased by 9% on a constant currency basis in the June quarter, driven by MEDIFOX DAN and HME verticals.

• Gross margin for fiscal year 2026 is expected to be in the range of 61% to 63%.
• SG&A expenses as a percentage of revenue are expected to be in the range of 19% to 20% in fiscal year 2026.
• R&D expenses as a percentage of revenue are expected to be in the range of 6% to 7% in fiscal year 2026.
• Board of Directors authorized an increase in the quarterly dividend for fiscal year 2026 and significantly increased targeted share repurchase activity for fiscal year 2026, with plans to purchase shares worth approximately $150 million per quarter starting in Q1 of fiscal year 2026.

• Global macro uncertainty, including tariffs, trade, and regulatory changes.
• Competitive bidding program by CMS, which could impact patient access to care and reimbursement for HME providers.
• Supply chain issues, although ResMed has a robust global supply chain and has navigated previous crises well.

Q: Just wanted to understand the Rest of World devices growth, kind of really good growth there. I just wanted to understand the dynamics you're seeing.

A: Yes. Very good growth in Europe, Asia, and Rest of World devices at 10%. Market growth for these regions is in the mid-single digits, with ResMed seeing growth from early experiments in demand generation. No large tenders as the approach is in early stages with tens of basis points of improvement from experiments.

Q: Looking at gross margin and even better guidance. Brett, can you just talk through the elements of that gross margin guidance? And maybe touch on the FX, which is probably going to get against you a little bit coming into '26.

A: The gross margin improvement is due to a combination of factors. Almost half the sequential improvement was from foreign currency, particularly the euro. The remaining was from efficiencies like component cost improvements, freight changes (sea freight to airfreight ratio back to pre-COVID levels), and the AS 10 to AS 11 platform transition. FX will have an impact coming into 2026, but the team is focused on ongoing gross margin initiatives.

Q: Just wanted to discuss VirtuOx. What are the areas of investment that ResMed will be making over the next 12 months?

A: ResMed is investing in integrating VirtuOx with other acquisitions like Somnoware and Ectosense to create a seamless patient funnel. Focus is on expanding home sleep apnea testing, leveraging VirtuOx to scale this, and working with HME and sleep lab partners to improve patient flow through the sleep care funnel. Watch for ongoing updates on the integration and expansion of these capabilities.

Q: Just a question on U.S. mask growth. Once again, low double digits seems to be ahead of what you described market growth at is high single digits on the last quarter. So just wondering if you can go into a bit of detail as to how much you think that is share gains versus just stronger growth in ReSupply overall at an industry level.

A: There is some share gain from new products like the AirTouch N30i and AirFit F40, which are comfortable and recommended by respiratory therapists. Also, ReSupply initiatives and better contact with patients through myAir and Brightree are contributing. Market growth is high single digits, and ResMed is seeing stronger performance in U.S., Canada, and Latin America through these initiatives.

Q: Congrats on another strong quarter. The first one, Mick, competitive bidding, the proposal is calling for maybe just a consolidation of the number of contract suppliers out there. That just seems like pretty good draconian proposal. Maybe just walk through that a little bit. If that does kind of stick in the final rule, like how rapidly do you think consolidation occurs in the DME space. And then on the second question is a broader strategy question. Mick, you've sort of commented in the past that ResMed today is a one-stop shop for sleep apnea but certainly wants to continue to expand across the spectrum. So maybe talk a little bit about oral drugs. There was a favorable outcome there from Apnimed Phase III study and just the latest thinking on hypoglossal nerve stimulation.

A: Competitive bidding is being closely monitored. ResMed has experience with previous rounds and will advocate for policies protecting patient care and HME providers. On the one-stop shop, ResMed aims to maintain relationships with patients on various therapies, including oral drugs and hypoglossal nerve stimulation, to ensure access to gold standard therapy. Apnimed's Phase III study and hypoglossal nerve stimulation are being watched, with ResMed interested in maintaining relationships to support patients through different therapies.

Q: You sort of touched it on the last question there, Mick, but just post the Zepbound label, interested in your observations around new patients coming into the system and then maybe any feedback you can provide around the physicians prescribing patterns post that label, if they are starting to prescribe GLP-1s in conjunction with CPAP. Any observations on those 2 would be appreciated.

A: There is a well-north of 10% increased rate of patients with a GLP-1 prescription starting CPAP, APAP, or bilevel. Physicians are prescribing GLP-1s in conjunction with these therapies, and ResMed is seeing increased demand generation from pharma-driven, consumer tech wearable-driven, and ResMed-driven efforts. Focus on CME to educate primary care physicians on gold standard, silver, and bronze therapies for sleep apnea is ongoing.

Q: Just wanted to circle back on the gross margin question from earlier. I thought the answer on 4 key drivers was very clear. I just wanted to follow up more on the FY '26 guidance, 61% to 63% represents 200 bps year-over-year at the midpoint and 300 bps at the high end, so a pretty significant there. And I was hoping you could talk through maybe the primary drivers supporting that level of expected improvement, how much do you think is coming from the FX movement this quarter? And then any considerations around seasonality or phasing that we should be thinking about.

A: The guidance for FY '26 gross margin is driven by multiple factors including continuing procurement initiatives, manufacturing improvements, scale benefits, logistics efficiencies, the transition of AS10 to AS11 platform, favorable product mix, and new product introductions. FX movement this quarter contributed to the sequential improvement, but the team is focused on strong execution across multiple fronts to drive gross margin improvement in FY '26. There are no specific seasonality or phasing issues that outweigh the ongoing execution efforts.

Q: I did want to go back, Mick, because you had so much experience with competitive bidding last time. Maybe you could just summarize in your words, the impact that it did have on your business and maybe more importantly, didn't have. I know there was a lot of concerns covering it back then and then ultimately, it wasn't that bad. And could you draw any lines from that situation to what may happen now.

A: When taking over as CEO 13 years ago, ResMed navigated competitive bidding through previous rounds. The last round saw HME customers bidding up against proposals, leading CMS to adjust. ResMed has experience advocating for patient access and fair reimbursement. The current competitive bidding situation is being closely monitored, and ResMed will continue to advocate for policies protecting patients and HME providers, with similarities to past rounds but no major perturbations expected based on past experience.