Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ResMed Inc (RMD, Financial) reported strong double-digit growth in both revenue and net operating profit for Q4 fiscal year 2024.
- The masks and accessories business experienced a 15% year-over-year growth, driven by new product innovations like the AirFit F40.
- The residential care software business delivered a 10% year-over-year growth, supported by the Brightree and MEDIFOX DAN brands.
- ResMed Inc (RMD) has a significant market opportunity with over 2.4 billion people worldwide suffering from sleep apnea, insomnia, or respiratory insufficiency.
- The company is leveraging its extensive digital health ecosystem, including AirView and myAir, to improve patient outcomes and drive market penetration.
Negative Points
- Freight costs are expected to be a headwind in fiscal year 2025, impacting gross margins.
- Device sales growth of 6% was lower than some analysts' expectations, raising concerns about market competition and pricing impacts.
- The company faces ongoing competition from other players in the market, including Philips, which is re-entering international markets.
- There are concerns about the impact of GLP-1 medications on the long-term demand for CPAP therapy, despite current data showing no significant increase in CPAP quitters.
- ResMed Inc (RMD) needs to continue investing in demand generation initiatives to maintain and grow its market share in an underpenetrated market.
Q & A Highlights
Q: Can you give us some color in terms of the 6% increase in device revenues? How much of that is driven by November price increases, the AX 11 mix benefit, and volume? Are you seeing any change in the new start pipeline coming through?
A: The 6% growth in device revenues is primarily driven by patient flow rather than price increases. While there have been some adjustments to pricing due to increased costs, the main driver is the robust flow of new patients. The market is growing in mid-single digits, and ResMed is holding or gaining share. The focus remains on demand generation and ensuring that any spare capacity in screening, diagnosis, and treatment is utilized effectively.
Q: Are you going to quantify the freight-related expectations for the next quarter? Are you able to introduce rate levies again given the spike in sea freight charges?
A: Freight costs are expected to be a headwind due to significant increases in rates. However, ResMed aims to maintain a gross margin in the range of 59% to 60% for fiscal year 2025. The company is monitoring the situation and will consider adjustments as the year progresses.
Q: How should we think about the cadence of gross margin throughout the first half and second half of FY25? Will it be weaker in the first half and stronger in the second half due to freight costs, or relatively consistent throughout each quarter?
A: The gross margin is expected to gradually improve throughout FY25. The company exited the fourth quarter at 59.1% and aims to maintain a range of 59% to 60% for the fiscal year.
Q: Have you seen Philips reentering any of the international markets in any meaningful way with devices specifically?
A: Philips is back in many markets in Europe, Asia, and the rest of the world. However, ResMed continues to take market share in these regions, growing 8% in Europe, Asia, and the rest of the world. ResMed remains confident in its competitive position, offering the smallest, quietest, most comfortable, and most connected devices.
Q: Can you provide some commentary around the SURMOUNT-OSA write-up in the New England Journal, particularly the secondary endpoints related to the reduction in AHI? Do you have any data tracking people who have been able to come off CPAP after being prescribed GLP-1 medications?
A: The SURMOUNT-OSA study showed significant reductions in AHI, even in the placebo arm, due to the comprehensive support provided to patients. However, the majority of patients still had residual apnea levels that would require treatment. Real-world data shows no significant increase in CPAP quitters among patients prescribed GLP-1 medications. Instead, these patients are more motivated and have higher adherence rates.
Q: How do you plan to leverage the increased awareness from GLP-1 medications and consumer tech wearables to drive new patient growth?
A: ResMed aims to be a digital health concierge, helping patients find their path to treatment. The company is investing in both traditional and digital channels to drive awareness and facilitate screening, diagnosis, and treatment. The goal is to increase market growth by 50 to 125 basis points through these initiatives.
Q: How do you see the decision-making process evolving for patients considering CPAP therapy, dental devices, and other treatments in light of the GLP-1 medications?
A: ResMed supports a continuum of care, starting with the least invasive and most efficacious treatments like CPAP. The company also invests in dental devices, pharmaceuticals, and hypoglossal nerve stimulation to provide alternative therapies for patients who cannot tolerate CPAP. The goal is to offer a comprehensive range of treatments to meet the needs of all patients.
Q: How do you plan to sustain the strong growth in masks and accessories? Is the current growth rate representative of what new products can sustain?
A: The strong growth in masks and accessories is driven by new product introductions, demand generation, and improved resupply programs. While double-digit growth may not be sustainable indefinitely, ResMed aims to meet or beat market growth by continuing to innovate and improve its offerings.
Q: How should we think about inventory levels for masks and accessories? Is there anything out of the normal?
A: Inventory levels have been brought down to more appropriate levels over the past 12 months. The company manages inventory for masks and accessories similarly to devices and components, and there is nothing particularly unusual to report.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
