Pinned straw:
$RMD released their 4Q earnings (and also FY) this morning. I listened to the call and Mick's energy had an even greater effect on waking me up this morning than my Breville Barista Pro - brewed coffee (sorry, I hold $BRG in RL, couldn't resist.)
I'll post here the summary from my BA and then at the end of the straw add a few comments, which I may sharpen up on when the transcript is released, as Mick gave some more helpful information in the Q&A.
TLDR: Another strong performance, both top line and bottom line, with gross margin expansion particularly strong, capping off a strong year.
Unclear where the SP will go today, as it has run hard into the results following the wider post-April recovery in equities. However, it's P/E in the GLP-1 era remains significantly discounted to the pre-GLP-1 era, so there is ample room from strong returns if they continue to execute, IMO.
SUMMARY (Focused on Q4 to PCP)
My Assessment
4thQ rounds out a strong year, the consistency of execution has been tremendous.
Markets outside the Americas helped drive a strong revenue finish, which has been good to see as they've lagged a little in some quarters.
The %GM is stunning, however, about 50% of this is due to favourable FX. Other drivers include 1) ongoing logistics improvement as the ratio of sea-to-air freight returns to pre-pandemic norms, and 2) continuing tailwinds from the shift in mix from AirSense 10 to AirSense 11. Remarkably, Mick (CEO) and Brett (CFO) both talked of the runway ahead for %GM improvement, with %GM being guided to 61% to 63% in FY26. (This should drive some valuation TP upgrades.)
Strategically robust to the tariffs wars, given significant expansions in onshore US manufacturing capacity.
Current risk: is the renogiation of reimbursement regimes in the US at the moment including Medicare / Medicaid, however, Mick expressed a lot of confidence about this, as he has been through this several times before.
Recent bolt-on acquisitions and marketing campaigns demonstrate that $RMD is being very front-footed in growing awareness, growing the home diagnosis capability (Mick spoke about the continuing backlog in sleep clinics). Clearly, $RMD are getting after a much bigger vision of evolving from a CPAP business, to a sleep health and breathing health company. Clearly a lot of ideas and innovations in the pipeline.
He spoke about experiments $RMD on marketing, to raise awareness (e.g. current Lions' Tour) and indicated very favourable ROI metrics on this. He is eyeing what he says are a billion undiagnosed OSA sufferers in their 140 global markets.
Cashflow was very strong with cash and equivalents up from $0.23bn to $1.21bn, over a year, despite growing dividends($0.31bn), share buybacks($0.3bn), a bolt on acquisition ($0.14bn) and repaying debt ($0.04bn) all annual figures.
No significant new developments on the GLP-1, although some data in the full SEC filing was referred to, but this isn't available yet. Mick said they were continuing to see that patients on combination therapy tend to replenish supplies at a significantly higher rate. One remark Mick made was that he considered it likely that GLP-1 will dominate the drug-space because of their wider therapeutic benefits. (I need to go back over the transcript to prooerly understand what we meant.
Foraward guidance on %GM, %SG&A and %R&D all indicate continued operating leverage and double digit earnings growth potential.
Overall, $RMD is executing well. It is probably at fair value, depending on your view on the extent to which GLP-1 crimps its long-term growth prospects.
I'm a happy HOLD at these levels, for now this my largest ASX RL position (took the opportunity to add during the Trump tariff market tantrums).
Disc: Held in RL (9%) and not on SM
Strong guidance from a high base for GM% into FY26--highlight for me
my summaries on two answers --oral sleep apnea drug (which has been mentioned on SM before) and GLP-1 ongoing impacts, sort of related. MF in full flight, i thought the oral drug answer was interesting.
Strategy to include oral drugs?
A one-stop-shop for sleep apnea. Yes, look, ResMed stands for respiratory medicine and residential medicine, it doesn't stand for just CPAP company. And we've had more than a decade of being the best provider of not just CPAP, APAP and bilevel which we've done for 36 years, but over a decade of providing mandibular repositioning devices, which is if CPAP, APAP and bilevel are the gold standard, which they are, I think Olympic medals, the silver goes to dental MRDs. And so ResMed is the #1 provider of 3D printed dental devices in Western Europe, Northern Europe and beyond and everywhere where there's a good economic model for the consumer to get access to dental care. That's where we participate.
For the Bronze medal, for sort of third-tier therapy, if you can't tolerate CPAP, APAP, bilevel can't tolerate dental, which both of them are relatively noninvasive, relatively affordable and use natural things like air and water., very much in line with the sort of make America healthy again and actually European sort of naturalist approaches and cost-effective approaches of any payer, then you might end up if you can't tolerate those on the third-tier therapy.
And I think there's a range there. there's GLP-1s for pharmaceuticals. I think they've taken the wind out of the sales of Apnimed, frankly, because the GLP-1, not only half treats, I'll say half treats because it's about an AHI reduction of 50%, some of the apnea, it leaves a lot of residual and should be used in combination with gold standard and physicians know that. But it does that and some diabetic improvements in cardiovascular and all those. And so I think it's more likely that Zepbound or that type of a drug would be used as that third-tier versus an Apnimed, which only half treats the apnea. But we'll watch this space. We're invested there.
the one-stop shop thing for me, is about ResMed keeping a relationship with the person who suffocates. And if they are on CPAP, APAP, or bilevel, we've got an intimate relationship. They're on dental. We've got an intimate relationship. If they're on those third-tier therapies, whether it's a drug or hypoglossal nerve stim, I want to still have that relationship because, guess what, those drugs may not be inherent for life. even an implant might not be something they want to keep turning on because of side effects or whatever. I want to have a relationship, so I can bring them back and get them a chance to get the gold standard. And so I want to keep that relationship.
GLP-1 impacts
But it's really -- it's sort of well north of 10% increased rate. I think it's now 11% increased rate of a patient with a GLP-1 prescription starting CPAP, APAP or bilevel versus those who don't have the code that they have had a prescription for GLP-1.
So that's strong and just getting a little stronger of that, I'm a motivated patient, I've come in for this new pharmaceutical capability which has the cardiovascular promise, the diabetes promise, the half treating of sleep apnea promise in this, I don't know, I'll call it the Kim Kardashian or Botox effect, right, this aesthetic effect. And so they come into the primary care position wanting that the GP wanting that.
But then when the PCP when the GP sees, they have apnea, they're writing a prescription for CPAP, like it's happening because in the U.S., there's -- you'll get sued if you don't give gold standard therapy if you don't offer the standard of care but also there's the hypocratic oath and they know that this is completely reversible, very cost effective and 100% effective if used as directed. And so that's why we're seeing that. I think that 11% start rate. And you look at 1 year and 2 year end, those are unchanged. They're north of 3% higher ReSupply rate for GLP-1 prescribed patient versus control for 1 year and then north of 5% higher ReSupply rate at 2 years, and those numbers are steady.
held decent size
I concur with everything you have said @mikebrisy (strong execution, about fairly valued).
It’s a treat to have such a steady hand as your largest ASX holding. I have crossed into more than a decade of holding ResMed, mostly only adding along the way, and it’s been very rewarding.
Here’s to the next decade being anywhere as good as the last!