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ResMed Posts Record $4.2B Revenue

MEDICAL DEVICES: ‘Perfect Storm of Impacts’ Powers Growth

ResMed Inc.’s last four quarters have been a period of growth that followed a period of pivots and unpredictable market forces.

Mick Farrell
CEO
ResMed Inc.

“If you go over the last couple of years, there’s been a sort of perfect storm of impacts,” said ResMed CEO Mick Farrell.

Those impacts include the COVID pandemic; a subsequent supply chain crisis where the company couldn’t get access to semiconductors; and a third factor where ResMed’s biggest competitor Philips had a massive recall of 5.5 million of its CPAP devices worldwide that “led to a situation where parts were hard to get, demand was approaching infinite and every device we’d make, we’d sell,” Farrell added. “We’ve just these last two quarters reached the point where we are unconstrained by supply. We’ve now got enough supply to meet all the demand in the market.”

Meeting that demand led to ResMed’s record annual revenue of $4.2 billion and a year-over-year revenue growth of 18%, according to the company’s FY2023 earnings report released Aug. 3.

The report highlighted ResMed’s “incredible double-digit growth” with the past three quarters of more than a billion dollars each in revenue for the company, Farrell said.

Street and Analyst Reactions

Despite the solid year-over-year growth at ResMed (NYSE: RMD), revenue, EPS (earnings per share) and gross margins came in lower than expected and investors sent shares tumbling from around $220 to around $180.

Farrell said that investments into ramping up production of CPAP machines to meet the need of patients played a factor in lowering gross margins because they were not as profitable a growth business as ResMed’s consumables, such as masks and tubing, or the company’s software services.

“But the way we look at it is, if a patient needs one of our devices, they’re going to get one. And if a competitor’s out, we’re going to make it even if it is a lower growth margin,” he said. “We got punished by the Street for having lower gross margins, but we think we did the right thing by patients – and in the long run, those patients are going to stick on our therapy and buy masks and tubing and filters for life.”

Even with the selloff, many investment analysts remain bullish on RMD. William Blair analysts Margaret Kaczor and Macauley Kilbane cited ResMed’s better than expected mask revenue, especially in the Americas.

“Despite the margin miss this quarter, we continue to see fundamental top-line tailwinds to come as supply improves and its commercial efforts around masks continue to take hold. With strong pull-through on mask sales starting to come to fruition in recent quarters, we see durable growth benefits from these share gains,” they reported, adding that they view ResMed “as one of the higher-quality growth names” on William Blair’s coverage list and rated RMD stock “Outperform.”

Goldman Sachs Equity Research also remains bullish on RMD, stating it views “the forward profile from here as attractive.” And Morgans views RMD as “well positioned” to have strong sales “as margin headwinds abate.”

Positioned for Growth

Highlighted in ResMed’s FY2023 report were new facilities and acquisitions that helped make the company “well positioned” for the coming years.

This past year, ResMed cut the ribbon on a new advanced manufacturing center in Tuas, Singapore – “the biggest manufacturing facility for sleep apnea devices in the world,” Farrell said.

The opening of the 270,000-square-foot facility is “good timing,” he added, because it was designed to handle manufacturing the growth in sales volumes expected through 2040. The facility is also located next to an airport and seaport.

ResMed also opened an R&D facility in Dubin, Ireland, providing the company access to “really smart people coming from University College Dublin and Trinity College,” Farrell said, to work on ResMed sensor technologies with AI and machine learning and “how to use that across the many, many billions of nights of medical data we have in the cloud.”

ResMed also expanded its software business with two acquisitions: MEDIFOX DAN, a German SaaS company for home nursing and nursing homes that expanded ResMed’s international presence; and Somnoware, a sleep diagnostics and pulmonary diagnostics and practice management SaaS.

Farrell said ResMed’s software business had organic growth of 8% in FY2023 and sees that as an area of expansion for the company, “going from 8% to 9 to 10 – hitting double digit growth.”

ResMed is also expecting continued growth in its mask and consumables business.

“I think COVID taught people the importance of respiratory health and respiratory hygiene. I think it improved people’s mentality about ‘I should change that mask,’” Farrell said.

Despite the possibility of Philips regaining access to the market and Big Pharma’s push into weight loss drugs (obesity is a major cause of apnea), Farrell said there is reason to be bullish on CPAP devices.

“A billion people worldwide have sleep apnea. And if you add COPD, respiratory insufficiency and those who need help in out of hospital care, the whole market for ResMed is over 2 billion patients worldwide and we got less than 20 million on treatment, so we got very low penetration into it,” he said.

ResMed Inc.

Founded: 1989
CEO: Mick Farrell
Headquarters: Spectrum Center, Kearny Mesa
Business: Maker of cloud-connected medical devices, specialist in digital health
Stock: RMD (NYSE)
Revenue: $4.2 billion (FY2023)
Employees: 10,000+
Website: www.resmed.com
Social Impact: ResMed is committed to working with employees, suppliers and customers to protect the environment
Notable: ResMed has sold more than 20.5 million cloud-connectable devices in more than 140 countries

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