ResMed Inc. has filed its quarterly report for the period ended September 30, 2024. The company reported net sales of $1.34 billion, a 12% increase from the same period last year. Gross margin was 64.1%, and operating income was $444 million, a 15% increase from the same period last year. Net income was $343 million, or $2.33 per diluted share, compared to $294 million, or $2.03 per diluted share, in the same period last year. The company’s cash and cash equivalents increased to $1.43 billion, and its debt decreased to $1.35 billion. ResMed also reported a 14% increase in its respiratory care business and a 10% increase in its sleep business. The company’s financial performance was driven by strong sales growth in its core businesses, as well as the acquisition of Propeller Health, which was completed in the second quarter of 2024.
Overview of ResMed’s Financial Performance
ResMed Inc. is a global leader in the development and manufacturing of medical devices and software applications for the treatment of respiratory disorders. For the three months ended September 30, 2024, the company reported strong financial results, with net revenue increasing 11% to $1.2 billion compared to the same period in the prior year.
The company’s two operating segments - Sleep and Breathing Health, and Residential Care Software - both contributed to the revenue growth. In the Sleep and Breathing Health segment, net revenue increased 11% driven by higher demand and unit sales for both devices and masks. The Residential Care Software segment also saw a 13% increase in net revenue, primarily due to continued growth in the home medical equipment (HME) and MEDIFOX DAN verticals.
Gross margin improved to 58.6% in the quarter, up from 54.4% in the prior year period. This was due to manufacturing efficiencies, component cost improvements, and a reduction in amortization of acquired intangibles. Operating expenses increased 7% on a constant currency basis, with higher selling, general and administrative costs and research and development expenses.
As a result of the strong revenue growth and margin expansion, ResMed’s net income for the quarter increased 42% to $311.4 million, and diluted earnings per share grew 42% to $2.11. The company’s balance sheet remained healthy, with $426.4 million in cash and cash equivalents as of September 30, 2024.
Revenue and Profit Trends
ResMed’s revenue growth was broad-based, with increases in both its key product categories and geographic regions. Device sales grew 11% globally, including 11% in the U.S., Canada and Latin America, and 10% in combined Europe, Asia and other markets (9% on a constant currency basis). Mask and other sales also increased 11% overall, with a 10% rise in the Americas and 13% (11% constant currency) in international markets.
The company’s Residential Care Software business continued to perform well, with a 13% (12% constant currency) increase in revenue. This was driven by growth in the HME and MEDIFOX DAN verticals, which provide software platforms to support home-based healthcare providers.
Gross margin expanded by 420 basis points to 58.6%, as ResMed benefited from manufacturing efficiencies, lower component costs, and reduced amortization of acquired intangibles. This more than offset a 7% increase in operating expenses, which was primarily due to higher employee-related costs in selling, general & administrative, and research & development.
The combination of strong revenue growth, gross margin expansion, and controlled operating expenses led to a 42% increase in net income and diluted earnings per share. ResMed’s effective tax rate for the quarter was 18.8%, down from 19.4% in the prior year period, due to a shift in the global mix of earnings.
Strengths and Weaknesses
ResMed’s key strengths include its market-leading position in sleep and respiratory care devices, its diversified product portfolio, and its growing Residential Care Software business. The company’s continued investment in research and development, which represented 6.5% of revenue in the quarter, has enabled it to develop innovative new products like the AirSense 11 device with enhanced digital features.
ResMed has also successfully integrated its acquisitions of Brightree, HEALTHCAREfirst, MatrixCare, and MEDIFOX DAN, which have expanded its reach into the home healthcare software market. This provides the company with a strong platform for future growth as healthcare systems continue to shift care to the home and lower-cost settings.
One potential weakness is ResMed’s exposure to foreign currency fluctuations, as a significant portion of its revenue and expenses are denominated in currencies other than the U.S. dollar. The company has implemented a hedging program to mitigate this risk, but currency movements can still impact its financial results. Additionally, the company faces competition from other medical device manufacturers, which could pressure pricing and margins over time.
Outlook and Future Prospects
Looking ahead, ResMed appears well-positioned for continued growth. The company’s new operating model, with dedicated leadership in product, revenue, and marketing, is aimed at accelerating product development and enhancing its customer and brand focus. This should help drive profitable growth and improve care across the out-of-hospital continuum.
The company’s robust product pipeline, including the recently launched AirSense 11 device, and its expanding Residential Care Software business provide multiple avenues for future revenue expansion. Additionally, ResMed’s strong balance sheet and access to liquidity, with $1.9 billion in cash and available credit facility capacity, give it the financial flexibility to pursue strategic acquisitions or investments to further strengthen its market position.
However, the company will need to navigate potential headwinds, such as supply chain disruptions, changes in healthcare reimbursement policies, and the implementation of new global tax regulations. Nonetheless, with its market leadership, innovative product development, and diversified business model, ResMed appears well-equipped to deliver long-term growth and value for its shareholders.