ResMed (NYSE:RMD) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=8xsuC6MA
Summary
ResMed reported an 11% increase in headline revenue for Q3 FY2026, with an 8% growth in constant currency terms, primarily driven by strong performance in device and mask sales.
Gross margin expanded by 290 basis points year-over-year, supported by component cost improvements and supply chain optimizations.
The company announced the acquisition of Noctrix Health, aiming to expand its leadership in the sleep health market with a focus on restless leg syndrome treatment.
ResMed’s strategy focuses on maintaining operational excellence, leveraging a strong balance sheet to invest in business growth, and returning capital to shareholders.
Future guidance remains optimistic with expectations for high single-digit revenue growth and earnings growth exceeding revenue growth, bolstered by ongoing investments in innovation and market expansion.
Full Transcript
OPERATOR
Welcome to the Q3 Fiscal Year 2026 ResMed Earnings Conference Call. My name is Darrell and I will be your operator for today’s call. At this time, all participants are in a listen only mode. Also, please note this conference call is being recorded. Later we will conduct a question and answer session. Let me hand the call to Sally Schwartz, ResMed’s chief investor relations Officer.
Sally Schwartz (Chief Investor Relations Officer)
Thanks Darrell. I want to welcome our listeners to ResMed’s third quarter fiscal year 2026 earnings call. We are live webcasting this call and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now. During today’s call we will discuss several non GAAP measures that we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today’s earnings press release to reconcile these non GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward looking statements including but not limited to expectations about our future financial and operating performance. We make these statements based on reasonable assumptions, however, our actual results could differ. Please review our SEC filings for a complete discussion of risk factors that could cause our actual results to differ materially from any forward looking statements made today. I’ll now turn the call over to Mick.
Mick Farrell (CEO)
Thank you Sally. And before we get into the details discussing our results for the quarter, I’m sure all of you have had an opportunity to see our press release and our announcement that Brett will be retiring and Aaron Bloomer has been appointed our next Chief Financial officer here at ResMed. On behalf of our ResMed board and over 10,000 ResMed employees in 140 countries, I’d like to thank Brett who I’ve had the privilege partner with for 26 years including the last 55 quarters. As a CEO and CFO team, Brett’s been an integral part of my executive team that has delivered growth, expanded access and improved hundreds of millions of lives over two decades. As ResMed’s CFO, Brett has built a financial foundation that has allowed us to deliver strong growth, robust free cash flow and best in class operating margins. Brett has also helped shape the company’s culture and his legacy is embedded in our impact on the lives of many millions of patients worldwide. Brett leaves ResMed in a position of strength with a very disciplined and experienced global financial team. I am tremendously grateful to Brett for his service, his leadership, his friendship and his commitment to ResMed. I’d also like to now welcome Aaron Bloomer to ResMed. Aaron brings more than 17 years of global financial leadership, most recently serving as the CFO of Exact Sciences. He has a strong track record of driving strategic growth, operational excellence, financial discipline across complex global organizations, including prior financial leadership roles at 3M and at Baxter. Aaron’s international perspective will be invaluable here at ResMed as we continue to execute on our global 2030 strategy to accelerate our business and to deliver long term value for our shareholders around the world. We look forward to introducing you to Aaron over the coming quarters. Okay, now Turning to the third quarter, we delivered another set of strong results including 11% growth in headline revenue or 8% growth on a constant currency basis. We delivered operating leverage leading to margin expansion both year on year as well as sequentially resulting in 21% growth in non GAAP earnings per share. A huge thank you to the global ResMed team for their steadfast dedication in serving patients in more than 140 countries worldwide. ResMed continues to build the world’s leading digital health ecosystem, encompassing sleep health, breathing health and healthcare technology delivered in the home. I’d like to return to the three key themes that I’ve been highlighting over the past year. 1. That ResMed is an operational excellence machine and an innovation machine 2 that ResMed’s robust free cash flow and strong balance sheet position us to both invest in the business and return capital to our shareholders and three that ResMed remains a compelling investment opportunity, especially amidst global macro uncertainty. We just continue to deliver the results. I’ll address each of these three themes in my prepared remarks here before we go to Q and A. Our gross margin expansion in the quarter was strong, 290 basis points year over year and 50 basis points of gross margin expansion sequentially. These results demonstrate the operational excellence that is a ResMed hallmark we’ve continued to execute on our pipeline of supply chain optimization initiatives. These efforts, along with our experience from past supply chain perturbations, including Covid impacts, the major recall of a competitor and semiconductor chip shortages, position us well to navigate the current geopolitical uncertainty and any other external impacts to our resilient global supply chain. ResMed also remains an innovation machine. We’ve continued the global rollout of our portfolio of novel fabric based masks. These masks are designed to deliver an elevated comfort experience for patients and they are changing the basis of competition in mask technology. The AirTouch N30i and more recently the F30i comfort as well as the F30i clear have achieved strong early adoption combined with incredibly positive patient feedback and home care provider feedback. And now we also have real world data that shows that the AirTouch N30i drives 6% higher 90 day compliance than its silicone equivalent. Those of you that truly understand the clinical and business relevance of adherence know that those 600 basis points of extra compliance will mean as what that what the 600 basis points of extra compliance will mean as this technology expands. Adherence is the single biggest driver of lifetime value for patients, for physicians, for HME providers and for resmed. Watch this space as fabric technology expands its impact in our full face category with the F30i product lines, both the F30i comfort and the F30i clear. On the device side of our business, we have made further progress with the global rollout of the AirSense 11 platform, including most recently in markets in Latin America and just this month in our fast growing China market. For our China market, as we’ve discussed before, we leverage a local digital ecosystem intentionally separated from our global ecosystems, including integration with platforms such as WeChat and that creates a personalized patient engagement experience. This is an element of our broader strategy to scale our global ecosystem model, encompassing devices, software and data, yet also customized for ecosystems models that target local market needs. ResMed also continues to drive awareness in the sleep medicine clinical community. Our Continuing Medical Education or CME programs include Sleep Medicine Physician Society approved guidelines including the benefits of cpap, APAP and bilevel therapy as the clinical gold standard, the frontline treatment for any patient diagnosed with sleep apnea. Our sleep apnea educational courses have now been completed more than 80,000 times by more than 45,000 unique clinicians. Surveys at the end of these courses show that 78% of these providers intend to change their clinical practices related to improving sleep health and breathing health based on what they learned. We’re following up with these clinicians to ensure that their intentions can translate into actions that benefit patients on their screening, diagnosis and prescription journey. Early feedback suggests more patients being assessed for obstructive sleep apnea and higher numbers of obstructive sleep apnea diagnoses are occurring. We see this in our virtuox numbers as well. We will remain laser focused on continuous improvement of the sleep apnea pathway to ensure patients who need cpap, APAP and BI level therapy can readily access it and be treated for life. On the clinical research front, we continue to invest in and track important studies that provide new evidence in sleep health. Last quarter I noted a study in JAMA Neurology where researchers found that early treatment of obstructive sleep apnea with CPAP may reduce the risk of developing Parkinson’s disease. Further, in the field of neurology and brain health, we are tracking an increased volume of clinical literature showing that sleep apnea is linked to higher risks of Alzheimer’s disease as well as the broader field of dementia. Specifically, a large population based study recently published in the medical journal Thorax analyzed data from more than 2 million adults in the United Kingdom and found that obstructive sleep apnea was associated with an increased risk of all cause dementia and vascular dementia. Notably, individuals with obstructive sleep apnea who were treated with CPAP and did not show they did not show an elevated risk of dementia compared with matched controls that did not have CPAP treatment. This is huge. Additionally, a meta analysis published in the journal Geroscience showed that individuals with apnea have a 33% higher risk of developing dementia and obstructive sleep apnea was associated with a 45% increased risk of Alzheimer’s disease. The growing body of evidence supports increased focus on screening, diagnosis and treatment of sleep apnoea as part of broader health and aging strategies. This is an area of rising cost and rising relevance for payers, providers, healthcare systems, patients as well as their caregivers and loved ones. On the GLP1 front, I’d like to share some new data with you. We looked at patients on Pap who subsequently start GLP1 therapy to see what happened to their pap use versus a control group that only has Pap therapy. For this real world analysis we analyzed a cohort of N equals 1.7 million DE, identified patient records and focused on the clinical and business relevant outcome of mask and accessory resupply. Our findings were that Pap patients who subsequently start GLP1 therapy show higher Pap adherence rates than patients on Pap alone. Specifically, the two year resupply rates are 5.1% higher and the three year resupply rates are 6.2% higher for patients who are on Pap and then start GLP1 therapy versus patients on PAP alone. As highlighted by Eli Lilly’s own clinical trials in this space these two therapies are better. Together this makes sense. Sleep apnea risk factors always include age, gender, craniofacial anatomy as well as weight. obstructive sleep apnea therefore very often persists after even very significant weight loss and still needs to be treated. Cpap, APAP and BI level therapy remain the gold standard for treatment of obstructive sleep apnea and the reason is simple because these therapies are the most efficacious period. Building on our ongoing real world analyses in this space and the ongoing growth of our own mask and accessories business over the last number of quarters and years. We continue to see that patients on a GLP1 both initiate CPAP therapy more and stay on CPAP therapy longer. As an update to our ongoing large scale claims analysis data that is built from a claims database of over 30 million patients, our specifically analysed cohort includes n equals 2.1 million DE identified patients. Our latest update to this analysis is that we are consistently seeing that patients who have scripts for both PAP and and GLP1 are approximately 11% more likely to start on Pap therapy than patients who have a script for Pap alone. They are also more than 3% more likely to have a resupply event at the one year time period and more than 6% more likely to have a resuptly event at the three year time period. These data have remained consistent over the last years as have our very strong masks and accessories business growth. The data are in sync we believe GLP1s are truly a megatrend and a once in a generation demand gen opportunity for ResMed. Both GLP1s and wearables alike are driving more patients to talk with their doctors and ultimately we believe this will lead to more patients coming into the ResMed ecosystem. In order to ensure that these patients receive the care they need, we’re making meaningful investments, both organic in our business and inorganic in capturing and channeling the increased consumer awareness. We want to educate the clinicians to manage the interest and questions that come to them and we want to create life changing healthcare technologies that people love. Watch this space for more investments and partnerships from ResMed in this exciting area of better helping the 1 billion people worldwide impacted by sleep apnea to find their way to screening, diagnosis and ongoing therapy from ResMed. This theme dovetails with my second message which is that ResMed’s strong free cash flow generation and robust balance sheet provide us with significant flexibility to both invest in our business and to return capital to shareholders. We will continue to invest in our digital sleep health concierge capabilities, expanding the ecosystems to help patients quickly move from awareness through testing all the way to being adherent on our therapy for life. I’m excited to announce today that we are expanding our leadership across the broader sleep health market. This week we signed an M and A deal to acquire Noctrix, a company with an FDA de novo classified medical device that treats restless leg syndrome. Known in the medical community by the acronym rls. RLS is the world’s third most prevalent sleep disorder after sleep APNEA and insomnia. RLS impacts approximately 7% of adults globally and around 17 million people in the US alone. RLS has meaningful overlap with our core market of obstructive sleep apnea. RLS treatments from Noctrix are non invasive, clinically proven and drug free, just like our cpap, APAP and BI level therapies. RLS prescriptions are written predominantly by sleep physicians and the flagship product from Noctrix called Nidra, flows through the same HME DME delivery channel that we here at ResMed lead in market share for our other sleep products. We expect to close this transaction on or around June 1, 2026. Brett will talk more about the expected impact to our financials in a few minutes and we can discuss this strategic tuck in acquisition in further detail during Q and A. I’ll just say this that its revenue growth rate is higher than ResMed’s and its gross margin is higher than ResMed’s and we’re very excited about this tuck in the reach of our ResMed brand among sleep physicians and HME providers as well as our national and international distribution channel. Strength makes us the best owner of this scarce asset. The market and clinical need is incredible. 7% of the world’s adult population need our help. Okay with regard to our residential care software business, we continue our disciplined portfolio management approach and work, investing more in high growth areas of the business and looking to find other solutions for the lower growth areas of the the business. We’ve made significant process with our portfolio management work this quarter and I remain confident that we will accelerate RCS revenue back to sustainable high single digit growth with double digit operating profit growth in fiscal year 2027. We’ll have further updates for you over the coming months and beyond. While investing back into our business is our first priority for capital allocation through R and D and sales and marketing, ResMed also returns significant capital to shareholders through our combination of dividends and share repurchases. During the third quarter. We returned $262 million to shareholders through this combination of our quarterly dividend and $175 million in share repurchases. As you’ve seen, we picked up the pace of our share repurchases in the last couple of quarters and will continue to deploy meaningful capital here. In concert with our ongoing investments, we delivered strong operating profit growth and robust free cash flow growth in the third quarter. ResMed remains a compelling investment opportunity amidst global uncertainty. This is my final, third and final point during the third quarter resmed strong revenue growth, gross margin, expansion and disciplined investment approach generated 18% growth in non GAAP operating income and $520 million in free cash flow. Another quarter of above 100% free cash flow conversion. Whether you look back at the last 12 months or at the compound annual growth rate of CAGR across three years, five years or even 10 years, we’ve consistently been generating high single digit revenue growth or higher and earnings growth that steadily outpaced revenue growth. This track record delivered by 10,000 plus Resmedians, combined with the enormous market opportunity we have in front of us, underpins our continued confidence in our five year outlook for high single digit revenue growth and earnings growth higher than revenue growth. We have a clear and sustained leadership market position. We are committed to keep delivering for consumers, for patients, for physicians, for providers, for payers and for our communities that we serve and of course for you listening to this call our shareholders. Okay with that, I’ll hand the call over to Brett in Sydney to go through a deeper dive into our financials and then we’ll open the floor for your questions. Brett, over to you.
Brett
Great. Thanks Mick. In my remarks today, I will provide an overview of our results for the third quarter fiscal year 2026. Unless noted, all comparisons out of the prior year quarter and in constant currency terms were applicable. We had strong financial performance in Q3 Group. Revenue for the March quarter was 1.43 billion, an 11% headline increase and 8% in constant currency terms. Revenue growth reflected positive contributions across our device and mask portfolio and in our software business. Year over year, movement in foreign currencies positively impacted revenue by approximately 39 million during the March quarter. Looking at our geographic revenue distribution and excluding revenue …
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