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ResMed's Revenue Growth Accelerates

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ResMed (NYSE: RMD), a medical device company focused on breathing disorders, reported its fiscal third-quarter 2019 results on Thursday.

Revenue growth jumped 12% from the year-ago period, which represents a modest acceleration on a sequential basis. However, bottom-line profits are still under pressure since the company is currently digesting a number of acquisitions.

ResMed's fiscal third-quarter results: The raw numbers

What happened with ResMed this quarter?

  • On a currency-neutral basis, revenue growth would have been 15%. The double-digit gain was credited to strong sales in North America and a big boost in software revenue.
  • Software sales more than doubled to $79 million, thanks to mid-single-digit organic growth from Brightree and the recent acquisitions of HEALTHCAREfirst and MatrixCare.
  • Gross margin expanded 110 basis points to 59.5%, thanks to manufacturing efficiencies and higher software sales.
  • Selling, general, and administrative expenses increased by 11% and R&D costs grew 27%. Both of these costs are being affected by recent acquisitions.
  • Non-GAAP operating profit expanded 15% to $182 million. However, Non-GAAP net income fell 4%. The divergence between these two figures is explained by acquisition costs, a big jump in interest expenses, and increased income tax expense.
  • Wall Street was expecting only $0.84 in non-GAAP EPS for the quarter, so the actual result pleasantly surprised market watchers.
  • The company's long-term debt balance ballooned to $1.3 billion from $269 million last year on the back of the recent acquisition spree.
  • Ten million patients now use AirView, the company's trial-based patient management system.
  • ResMed acquired a home medical equipment supplier in South Korea called HB Healthcare, to expand its presence in the region.

What management had to say

CEO Mick Farrell was thrilled with the company's broad performance during the quarter:

On the conference call with investors, Farrell talked up the big opportunity ahead for the company's growing software-as-a-service (SaaS) portfolio:

Check out the latest ResMed earnings call transcript.

Looking forward

ResMed's stock jumped 6% in the trading session following the earnings release. The jump is most likely attributable to the better-than-expected non-GAAP EPS result.

Farrell ended his prepared remarks on the conference call by reminding everyone the company still has a huge market opportunity ahead:

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool recommends ResMed. The Motley Fool has a disclosure policy.