ResMed Inc. (RMD) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals strong financial performance, especially in product development and shareholder return plans with increased dividends and share buybacks. The Q&A section highlights strategic expansions and acquisitions, enhancing growth prospects. Despite some unclear management responses, the overall sentiment is positive due to the focus on innovation, market expansion, and robust growth strategies. The positive impact of new product launches and strategic acquisitions outweighs concerns about restructuring costs and tax impacts, suggesting a positive stock price movement.
Key Financial Performance
Revenue Growth 9% reported revenue growth or 8% on a constant currency basis. Growth driven by high single-digit growth in devices (8%) and double-digit growth in masks and other category (12%) in U.S., Canada, and Latin America. Europe, Asia, and Rest of World devices grew 7% on a constant currency basis. Masks and other category in these regions grew 4% on a constant currency basis, impacted by a strong prior year comparable of 11%.
Residential Care Software (RCS) Business Mid-single-digit growth with 6% reported and 5% constant currency growth. Strong performance from MEDIFOX platform and Brightree platforms, but challenging growth environment for skilled nursing facilities segment.
Gross Margin 62% in the September quarter, increased by 280 basis points year-over-year and 60 basis points sequentially. Driven by component cost improvements and manufacturing and logistics efficiencies.
Operating Margin Improved to 36.1% of revenue compared to 33.2% in the prior year period. Underpinned by revenue growth and gross margin expansion.
Net Income Increased by 15% year-over-year. Non-GAAP diluted earnings per share increased by 16%. Movements in foreign exchange rates positively impacted earnings per share by approximately $0.02.
Cash Flow from Operations $457 million, reflecting strong operating results and disciplined working capital management.
SG&A Expenses Increased by 8% on a headline basis and 7% on a constant currency basis. Increase due to VirtuOx acquisition, growth in employee costs, and ongoing marketing and technology investments. SG&A expenses as a percentage of revenue improved to 19.4% from 19.5%.
R&D Expenses Increased by 10% on both a headline and constant currency basis. Increase due to higher employee-related expenses. R&D expenses as a percentage of revenue remained consistent at 6.5%.
Restructuring Costs $16 million restructuring charge due to workforce planning review to align with 2030 strategic priorities. Comprised of employee severance and other onetime termination benefits.
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Operating Highlights
New AirTouch F30i mask platform: Launched two variants: F30i Comfort (premium fabric-wrapped frame and fabric-based oronasal interface) and F30i Clear (traditional silicon frame with fabric oronasal interface).
AI-enabled Comfort Match: Beta launched in Australia to optimize patient comfort settings using machine learning.
Dawn AI assistant: Rolled out in the U.S. market to provide personalized 24/7 support for therapy adherence.
Expansion in direct-to-consumer markets: Focused on China, India, Korea, Australia, and New Zealand to drive mask resupply and growth.
New distribution center in Indianapolis: To improve delivery speed and network resilience, operational by 2027.
Gross margin improvement: Achieved 280 basis points year-over-year expansion through supply chain optimization and cost efficiencies.
Restructuring efforts: $16 million restructuring charge to align workforce with strategic priorities.
RCS portfolio management: Shifting focus to high-growth, higher-margin areas while reducing exposure to lower-margin services.
AI and digital health integration: Incorporating AI/ML into products to enhance patient outcomes and operational efficiency.
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Risk or Challenges
Skilled Nursing Facilities Segment: Challenging growth environment for the skilled nursing facilities segment within the Residential Care Software (RCS) business.
RCS Portfolio Management: Need to reduce exposure to lower growth, lower-margin areas such as services businesses, which could impact overall growth and profitability.
Global Trade Environment and Regulatory Landscape: Potential risks from evolving global trade policies and regulatory investigations, including the U.S. Department of Commerce's Section 232 investigation into medical supplies.
Competitive Bidding Program by CMS: Uncertainty around the timing, product categories, and methodology of the CMS competitive bidding program, which could impact reimbursement rates and market dynamics.
Supply Chain and Manufacturing: Dependence on global supply chain optimization and manufacturing expansions, including the new Indianapolis facility, which may face delays or cost overruns.
Economic Uncertainty: Global macroeconomic uncertainty could impact demand generation and financial performance.
Tariff Relief: Ongoing reliance on tariff relief for medical devices, which could be subject to changes in policy.
Workforce Restructuring: Restructuring charges and workforce planning adjustments could lead to operational disruptions or morale issues.
R&D and SG&A Investments: High levels of investment in R&D and SG&A could strain financial resources if not yielding expected returns.
Regulatory and Reimbursement Risks: Potential changes in reimbursement policies and regulatory requirements could impact market access and profitability.
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Guidance & Outlook
Future growth in Europe, Asia, and Rest of World masks and other category: The company expects to accelerate to high single-digit growth in this category starting in the current quarter.
Residential Care Software (RCS) business growth: The company plans to reaccelerate growth in RCS platforms from mid-single-digit growth at the start of fiscal year 2026 to mid- to high single-digit growth in the back half of fiscal year 2026, achieving sustainable high single-digit growth with double-digit operating profit growth in 12 months.
Expansion of U.S. manufacturing and distribution: The company is investing in a third distribution center in Indianapolis, Indiana, expected to be operational in 2027, which will expand distribution capacity and improve delivery times.
New product launches: The company launched two new full-face fabric masks, the AirTouch F30i Comfort and F30i Clear, with plans to expand these products into additional markets.
AI and digital health technology: The company is expanding its AI-based technologies, including the Dawn digital assistant and Comfort Match feature, to improve patient adherence and outcomes. These technologies are being scaled globally.
Market trends and demand generation: The company is focusing on expanding diagnostic funnels and leveraging consumer wearables and GLP-1 medication awareness to drive demand for sleep apnea solutions.
Gross margin improvements: The company expects gross margins to remain in the range of 61% to 63% for fiscal year 2026, supported by component cost improvements and manufacturing efficiencies.
SG&A and R&D investments: SG&A expenses are expected to be 19% to 20% of revenue, and R&D expenses are expected to be 6% to 7% of revenue for fiscal year 2026.
Dividend and share repurchase program: The company plans to continue its dividend and share buyback program, targeting $150 million in share repurchases per quarter for the remainder of fiscal year 2026.
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Shareholder Return Plan
Quarterly Dividend: Declared a quarterly dividend of $0.60 per share for fiscal year 2026.
Dividend Increase: Increased the quarterly dividend for fiscal year 2026.
Share Repurchase Program: Repurchased approximately 523,000 shares for $150 million during the quarter.
Future Share Repurchase Plans: Plans to continue purchasing shares worth approximately $150 million per quarter for the remainder of fiscal year 2026.
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Key Q&A
Q:Can you highlight the unique attributes of the new mask launched in Australia and the U.S. and its importance in the full-face category?
A:The AirTouch F30i mask features fabric-based technology, offering comfort with fabric touching the face and headgear. It targets the full-face category, which is significant as 30-40% of people breathe through both their nose and mouth while sleeping. Two variants are available: F30i Comfort for premium markets and F30i Clear for B2B markets. The product aims to accelerate growth, especially in ex-U.S. regions, and shift competition in masks from silicon to fabric.
Q:Can you discuss the focus on tuck-in acquisitions and their role in the ResMed 2030 strategy?
A:ResMed has made tuck-in acquisitions like Ectosense (NightOwl product), VirtuOx, and Somnoware to enhance the patient funnel, improve retention, and provide seamless flows between pulmonary doctors and PCPs. These acquisitions have contributed to strong growth in U.S. devices and align with the ResMed 2030 strategy to minimize patient churn and improve adherence.
Q:What are the plans for manufacturing in the U.S. and the 'Made in America' strategy?
A:ResMed is expanding its U.S. manufacturing and distribution capacity, including facilities in Calabasas, Moreno Valley, Indianapolis, and Atlanta. The strategy includes producing motors, masks, and potentially devices in the U.S. to meet demand, address geopolitical uncertainties, and align with long-term goals for 2030 and beyond.
Q:Can you elaborate on the demand initiatives for U.S. devices and their impact on growth?
A:ResMed uses targeted social and digital media campaigns to generate demand, focusing on demographics and geographies with screening and diagnostic capacity. The company achieved 8% growth in U.S. devices, outperforming market growth. While not committing to consistent high single-digit growth, ResMed aims to systematically improve growth through innovation and channel evolution.
Q:What are the compensating factors for the global minimum tax jurisdiction's impact on the tax rate?
A:ResMed has an agreement with the Singapore government for a refundable investment credit (ROIC), which offsets some tax impacts through COGS, SG&A, and R&D. The benefits will build over time, particularly through FY '26 and FY '27, but do not completely offset the tax impact.
Q:What is the penetration of the U.S. market for OSA, and how does RePAP contribute to growth?
A:The U.S. market penetration for OSA is 15-20%, Europe is 10-15%, and Asia Pacific/Rest of World is below 5%. RePAP is a growing part of the devices category, and ResMed focuses on increasing PCP awareness and driving patients into the funnel to address rising prevalence and improve penetration.
Q:Why was SaaS growth below typical levels, and what are the plans to return to higher growth?
A:SaaS growth was impacted by a focus on lower-margin services revenue. ResMed plans to invest more in core SaaS platforms like Brightree, MEDIFOX, and MatrixCare, which have higher growth and margins. The goal is to achieve high single-digit top-line growth and double-digit net operating profit growth.
Q:Can you provide more details on NightOwl's performance and its role in reducing the patient backlog?
A:NightOwl, integrated with VirtuOx services, is performing well and contributing to 8% growth in U.S. devices. ResMed aims to expand NightOwl's availability and provide services to primary care physicians to manage diagnostics and patient care effectively.
Q:What are your thoughts on the range of outcomes for competitive bidding?
A:ResMed believes HME customers are sophisticated and will bid appropriately, considering inflation and costs. The company expects outcomes to be favorable, as sleep apnea diagnosis and treatment are cost-saving for the healthcare system. ResMed will continue to support HME customers with advanced systems.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the range of outcomes for competitive bidding, the exact metrics for NightOwl's performance, and the precise plans for U.S. manufacturing expansion. Responses were often broad and lacked numerical specifics.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI technology
API
Asia World
Australia
BB
Brett
Fi
Indianapolis
OSA
RCS portfolio
RD
ResMed ability
SGA
Sleep Institute
World mask
access outcome
adult
aircraft industry
call
category digit
comfort
course
digit currency
effort
epidemiology
fabric mask
fabric oronasal
health care
health environment
industry experience
industry outcome
insight
investigation
mask category
myAir platform
oronasal patient
policy
relief
role
setting
technology health
theme
variant
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The earnings call presented a mixed picture. While revenue and net income showed year-over-year growth, the decrease in gross margin and free cash flow raises concerns. The absence of strategic updates and risk assessments in the call adds uncertainty. Given these mixed signals, the stock is likely to remain stable, resulting in a neutral sentiment.
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The earnings call summary indicates strong financial performance with double-digit revenue growth, gross margin expansion, and increased operating profit. The Q&A section reveals positive sentiment towards new product launches and strategic initiatives like AI integration and market expansion. Despite higher SG&A expenses due to acquisitions and promotions, the overall outlook remains optimistic. The shareholder return plan, including dividends and buybacks, further supports a positive sentiment. However, uncertainty about Philips' market reentry and SG&A expenses slightly tempers the outlook, resulting in a positive but not strong positive prediction.
RMD Slides
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Frequently Asked Questions
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