What we think about ResMed (RMD)
ResMed in Three Words: Sleep Technology Pioneer
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Background
ResMed is a global leader in sleep technology and a revolutionary force in treating obstructive sleep apnea (OSA) through its pioneering continuous positive airway pressure (CPAP) therapy. The company holds a commanding position in the global OSA homecare market as part of a duopoly with Philips. An estimated 936 million people worldwide suffer from mild to severe OSA, representing a substantially underserved market opportunity with less than 20% of OSA patients diagnosed and treated in most economies.
Beyond sleep apnea, ResMed has expanded into treating various other respiratory conditions including chronic obstructive pulmonary disease, asthma, overlap syndrome, and obesity hypoventilation syndrome – with the goal of improving quality of life, slowing disease progression, and reducing patient management costs. The company has also diversified into the Software as a Service (SaaS) business, providing out-of-hospital software platforms to support healthcare professionals.
In November 2023, ResMed announced a new operating model to accelerate long-term growth, introducing dedicated leadership in Product, Revenue, and Marketing to the global executive team. The company also continued the launch of AirSense 11, which introduces new features such as a touch screen, algorithms for patients new to therapy, and digital enhancements with over-the-air update capabilities.
Recent Q3 2024 results showed strong performance with net revenue increasing by 7% year-over-year to $1.2 billion. The company’s gross margin improved to 57.9% from 55.3% in the same quarter last year. ResMed continues to invest heavily in research and development, spending $77.1 million (6.4% of net revenue) in Q3 2024.
In summary, ResMed’s growth potential, defensible market leadership, and expansion into SaaS make it an attractive opportunity at current valuations, especially considering the vast untapped OSA market.
Conviction Rating Changes
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Recent Company Updates
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February 14, 2025:
ResMed reported solid growth in its recent second quarter results.
“Our second quarter fiscal year 2025 top-line growth, margin expansion, and double-digit EPS growth were the result of increased demand for our sleep health and breathing health products and digital health solutions that people love, as well as our laser-focus on operational excellence,” said ResMed’s Chairman and CEO, Mick Farrell. “We delivered 10% year-over-year revenue growth, 230 bps improvement in gross margin, and $309 million of operating cash flow."
Revenue increased by 10% to $1.3 billion; up 10% on a constant currency basis Gross margin improved 300 bps to 58.6%; non-GAAP gross margin improved 230 bps to 59.2% Income from operations increased 52%; non-GAAP income from operations up 19% Operating cash flow of $309 million [23% margin] Diluted earnings per share of $2.34; non-GAAP diluted earnings per share of $2.43