ResMed (RMD) Q2 Earnings Beat Estimates, Margins Expand

ResMed Inc. (NYSE:RMD) announced second-quarter fiscal 2020 results, wherein adjusted earnings per share (EPS) were $1.21, up 21% year over year. The metric also beat the Zacks Consensus Estimate by 19.8%.

On a GAAP (reported) basis, EPS was $1.10 for the quarter under review, reflecting an increase of 27.9% from the year-ago period.

Second-quarter revenues, on a reported basis, increased 13.1% year over year (up 14% at constant exchange rate or CER) to $736.2 million. The figure surpassed the Zacks Consensus Estimate by 1.5%.

Non-GAAP revenues (adding back fair value adjustment of deferred revenues) were $736.8 million, reflecting an improvement of 12.8% from the year-ago adjusted figure.

A Closer View of the Top Line

Geographically, excluding Software-as-a-Service, revenues in the United States, Canada and Latin America improved 14% from the prior-year period to $408 million on the robust performance of its mask and device product portfolios.

Global revenues from Software-as-a-Service in the quarter under review summed $86.7 million, representing a 37% increase year over year.

Revenues in combined Europe, Asia and other markets were $241.5 million, highlighting an 8% rise at CER from the year-earlier number.

Margins

Gross margin for the fiscal second quarter was 59.7%, reflecting a 72-basis point (bps) expansion from the year-ago number. The expansion was fueled by benefits from changes in the product mix, and manufacturing and procurement efficiencies.

Selling, general and administrative expenses were up 6.1% year over year to $171.4 million (up by 8% at constant exchange rate or CER). However, excluding the effects of recent acquisitions, the metric rose to 23.3% year over year (or up 2% at CER).

Research and development expenses increased 15.8% to $49.9 million (up 18% at CER). This, in turn, increased adjusted operating expenses by 8.1%, which amounted to $221.4 million. However, adjusted operating margin in the reported quarter expanded 209 bps to 29.6%.

Financial Updates

ResMed exited the second quarter of fiscal 2020 with cash and cash equivalents of $204.1 million compared with $172.2 million at the end of the first quarter.

Cumulative cash flow from operating activities was $232.3 million at the end of the second quarter compared with $177.6 million in the year-ago period.

Along with the earnings release, ResMed announced a regular quarterly dividend payout of 39 cents per share.

Our Take

The company exited second-quarter fiscal 2020 on a solid note, with earnings and revenues beating the Zacks Consensus Estimate. It is encouraging to note that ResMed registered growth at CER across both its key operating segments — Total Sleep and Respiratory Care, and Software-as-a-Service.

Mask sales were particularly strong in Europe and Asia. Within Software-as-a-Service, the company recorded continued momentum in the Brightree service portfolio and an additional contribution from the MatrixCare buyout.

However, in the quarter, device sales in France were impacted as customers completed their connected device upgrade programs.

Zacks Rank and Key Picks

ResMed currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are SeaSpine Holdings Corporation (NASDAQ:SPNE) , STERIS plc (NYSE:STE) and DexCom, Inc. (NASDAQ:DXCM) , all these currently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SeaSpine’s fourth-quarter 2019 revenues is pegged at $43.6 million, suggesting 14.7% growth from the prior-year reported figure. The same for loss per share is anticipated at 44 cents, implying a 16.9% improvement from the year-ago reported number.

The Zacks Consensus Estimate for STERIS’s third-quarter fiscal 2020 revenues is pegged at $749.7 million, hinting at a 7.7% increase from the year-earlier reported figure. The same for adjusted earnings per share stands at $1.43, indicating a 13.5% rise from the year-ago reported figure.

The Zacks Consensus Estimate for DexCom’s fourth-quarter 2019 revenues is pegged at $457 million, suggesting 35.2% growth from the prior-year reported figure. The same for adjusted earnings per share stands at 72 cents, implying a 33.3% improvement from the year-earlier reported figure.

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