Medical device company ResMed (NYSE:RMD) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 7.9% year on year to $1.29 billion. Its non-GAAP profit of $2.37 per share was in line with analysts’ consensus estimates.
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ResMed (RMD) Q1 CY2025 Highlights:
- Revenue: $1.29 billion vs analyst estimates of $1.29 billion (7.9% year-on-year growth, in line)
- Adjusted EPS: $2.37 vs analyst estimates of $2.36 (in line)
- Adjusted EBITDA: $488.3 million vs analyst estimates of $474.1 million (37.8% margin, 3% beat)
- Operating Margin: 33%, up from 31.3% in the same quarter last year
- Free Cash Flow Margin: 43.2%, up from 31.8% in the same quarter last year
- Constant Currency Revenue rose 9% year on year (7% in the same quarter last year)
- Market Capitalization: $34.59 billion
StockStory’s Take
ResMed’s first quarter results were underpinned by broad-based revenue growth and notable gross margin expansion, with management highlighting operational efficiencies and product mix as key drivers. CEO Mick Farrell described the quarter as one where manufacturing and logistics improvements, alongside investments in research and development, positioned the company to capture increasing demand for cloud-connected sleep and respiratory devices. New product launches, such as the Nite Owl home sleep apnea test and the expanded AirSense platform, contributed to enhanced adoption across key markets.
Looking ahead, management is focused on initiatives to further expand the patient funnel and drive adherence, particularly through targeted demand generation programs and digital health investments. Farrell emphasized the company’s strategy to leverage educational outreach, brand evolution, and partnerships with healthcare providers to accelerate diagnosis and therapy adoption. The company also reiterated a disciplined approach to capital allocation, balancing increased share buybacks with ongoing R&D and potential tuck-in acquisitions.
Key Insights from Management’s Remarks
ResMed’s leadership attributed the quarter’s performance to a blend of operational execution, product innovation, and targeted demand generation. Key business updates and management commentary included:
- Manufacturing and Logistics Efficiencies: Improvements in production processes and a shift from air to sea freight reduced costs and contributed to gross margin gains. Brett Sandercock, Chief Financial Officer, indicated that these changes brought margin benefits and positioned the company for sustainable improvement.
- Product Portfolio Expansion: The commercial rollout of Nite Owl, a compact home sleep apnea test, and the launch of the AirSense 11 VPAP TX platform enabled ResMed to address diagnostic backlogs and support more personalized therapy titration for patients.
- Digital Health Ecosystem Growth: Management discussed the integration of diagnostic tools with the AirView cloud software and MyAir patient app, aiming to build a seamless pathway from screening to therapy adherence. The continued adoption of the Somnawhere platform by large U.S. healthcare systems and the Veterans Administration was highlighted as a milestone.
- Brand Evolution Strategy: The company initiated a global brand unification campaign, seeking to raise awareness in sleep health and drive measurable returns on marketing investments. Early results from consumer advertising and physician education programs were described as encouraging for new patient flow.
- Tariff Exemptions and Supply Chain Resilience: Management confirmed that U.S. tariff exemptions remain in place for its medical devices, minimizing exposure to new trade measures. Expansion of manufacturing capacity in California is expected to further strengthen supply chain resilience and support U.S. market growth.
Drivers of Future Performance
Management’s outlook centers on expanding the patient base, boosting adherence, and sustaining margin improvements through operational initiatives and digital health investments.
- Expanding Diagnostic Funnel: Targeted demand generation, including physician education and consumer outreach, is intended to accelerate movement of undiagnosed patients into therapy.
- Margin Improvement Initiatives: Ongoing focus on manufacturing efficiencies, product mix optimization, and procurement strategies is expected to provide a pipeline for further gross margin gains.
- Capital Allocation Flexibility: The company’s strong cash flow supports increased share buybacks, continued R&D investment, and potential tuck-in acquisitions aligned with strategic objectives. Management noted that M&A will be pursued only when a clear strategic and cultural fit is established.
Top Analyst Questions
- Lyanne Harrison (Bank of America): Asked for specifics on margin expansion drivers. Management cited manufacturing efficiencies, distribution improvements, and product mix as key contributors, with each offering meaningful impact.
- Margaret Kaczor (William Blair): Questioned metrics tracked for demand generation investments. CEO Mick Farrell detailed tracking of patient flow timelines and adherence rates, emphasizing ongoing efforts to reduce diagnostic backlogs.
- Suraj Kalia (Goldman Sachs): Inquired about increased share buybacks given market uncertainty. CFO Brett Sandercock pointed to strong cash flow and a net cash position as supporting higher buyback levels, balanced with R&D and M&A priorities.
- Anthony Petrone (Mizuho Group): Asked how GLP-1 medications affect new patient funnel growth. Farrell explained educational outreach to high-volume prescribers and noted early signs that these efforts are increasing patient flow.
- David Low (JPMorgan): Sought clarity on device growth and backlog challenges. Farrell acknowledged normal seasonality and reiterated demand generation efforts to outperform underlying market growth rates.
Catalysts in Upcoming Quarters
Looking forward, the StockStory team will monitor (1) the pace of new patient adoption as targeted demand generation programs scale, (2) the impact of manufacturing capacity expansion in California on supply chain flexibility, and (3) continued gross margin progression as operational initiatives mature. Additionally, developments in digital health platform integration and updates on any tuck-in acquisitions will serve as key indicators of execution against ResMed’s strategic goals.
ResMed currently trades at a forward P/E ratio of 23.2×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report.
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