ResMed(RMD) - 2025 Q4 - Annual Report

Part I Item 1. Business ResMed is a global leader in digital health and cloud-connected medical devices for sleep apnea, COPD, and residential care software, operating in over 140 countries General Overview and Corporate History ResMed, founded in 1989, is a global leader in digital health and cloud-connected medical devices for sleep and breathing health, recently acquiring VirtuOx - ResMed is a global leader in digital health and cloud-connected medical devices for treating sleep apnea, COPD, and other chronic diseases, with a focus on out-of-hospital care[14] - The company operates in two segments: Sleep and Breathing Health and Residential Care Software[25] - In May 2025, ResMed acquired VirtuOx, a software-enabled independent diagnostic testing facility (IDTF), to strengthen its position in home-based diagnostics and patient monitoring[19] The Market ResMed targets underpenetrated global markets for sleep apnea (over 936 million affected), COPD (480 million), and residential care software - A 2019 study estimated that mild to severe Obstructive Sleep Apnea (OSA) impacts more than 936 million people worldwide, with over 424 million having moderate to severe cases; diagnosis rates remain low, estimated at less than 20% in the U.S. and 10% or less in other markets[30] - A 2022 study published in CHEST found that consistent PAP therapy use increased survival chances for sleep apnea patients by 39% over a three-year period compared to untreated patients[32] - Chronic Obstructive Pulmonary Disease (COPD) is the world's third leading cause of death and is estimated to affect approximately 480 million people globally[43] - The Residential Care Software business targets providers in home medical equipment (HME), home infusion, home health, hospice, skilled nursing facilities, and senior living communities, helping them manage operational and compliance complexities[50] Business Strategy ResMed's strategy focuses on differentiating sleep apnea products, accelerating market growth, expanding into adjacent health, investing in digital health, and aligning residential care software - Grow and differentiate the core sleep apnea portfolio by integrating AI/ML and simplifying diagnostic pathways, as demonstrated by the acquisition of VirtuOx[55] - Accelerate market growth by increasing awareness of sleep apnea and COPD among the general population, medical specialists, and special interest groups[55] - Leverage its installed base of over 30 million cloud-connected devices on AirView and 10 million patients on myAir to enable personalized and data-driven care[57] - Utilize Residential Care Software solutions to drive revenue synergies and interoperability, supporting over 160 million individual patient accounts[57] Products ResMed's product portfolio comprises Devices (52% of FY2025 revenue), Mask Systems (36%), and Residential Care Software (12%) for sleep, respiratory, and out-of-hospital care Revenue by Product Category (FY2023-2025) | Product Category | FY2025 Revenue % | FY2024 Revenue % | FY2023 Revenue % | | :--- | :--- | :--- | :--- | | Devices | 52% | 52% | 54% | | Masks, diagnostics, accessories | 36% | 35% | 34% | | Residential Care Software | 12% | 12% | 12% | Sales, Manufacturing, and Reimbursement ResMed markets globally, operates a worldwide manufacturing network facing supply constraints, and relies on third-party reimbursement subject to healthcare reforms - The company markets products in over 140 countries through a network of distributors and direct sales staff, with tailored approaches for different geographies[79] - ResMed operates a globally distributed manufacturing network with main facilities in Singapore, Australia, California, Malaysia, and Georgia to optimize quality, cost, and supply chain resilience[86][90] - The supply chain is subject to disruptions and constraints for electronic components like semiconductor chips and magnets; changes in trade policy, such as tariffs, also pose inflation risks[87][88] - Business success is highly dependent on third-party payor reimbursement, which is subject to cost-containment measures such as the DMEPOS Competitive Bidding Program and other healthcare reforms in the U.S. and abroad[91][95] Competition, IP, and Regulations ResMed faces intense competition and alternative therapies, protects its technology with 10,000 patents, and is subject to extensive regulations including FDA, MDR, and data privacy laws - Primary competitors in the Sleep and Breathing Health market include Philips BV, Fisher & Paykel Healthcare, and several other regional and new-entrant manufacturers[106] - The company faces competition from alternative therapies, including surgical procedures, dental appliances, and new pharmaceuticals like GLP-1 weight loss drugs, which may reduce the severity of OSA[107] - ResMed relies on a portfolio of approximately 10,000 pending, allowed, or granted patents and designs globally to protect its proprietary technology[110] - The company's products are subject to extensive regulation by the FDA in the U.S. (typically via 510(k) clearance) and the European Medical Device Regulation (MDR) in the EEA, which requires CE marking[112][124] - ResMed must comply with numerous healthcare fraud and abuse laws (e.g., Anti-Kickback Statute), data privacy regulations (HIPAA, GDPR, CCPA), and emerging laws governing Artificial Intelligence (e.g., EU AI Act)[133][149][160] Human Capital As of June 30, 2025, ResMed employed approximately 10,600 people globally, with a 12% turnover rate, fostering an inclusive, performance-based culture Employee Distribution by Function and Region (as of June 30, 2025) | Category | Number of Employees | Percentage of Total | | :--- | :--- | :--- | | Total Employees | ~10,600 | 100% | | By Function | | | | Cost of Sales (Warehousing/Manufacturing) | ~4,240 | 40% | | Research and Development | ~1,990 | 19% | | Sales, Marketing & Administration | ~4,370 | 41% | | By Region | | | | U.S., Canada & Latin America | ~3,250 | 31% | | Asia | ~3,250 | 31% | | Europe | ~2,530 | 24% | | Australia | ~1,570 | 14% | - The average global employee turnover rate for fiscal year 2025 was approximately 12%[168] - The company supports nineteen employee-driven Employee Resource Groups (ERGs) to foster community and inclusion[170] Item 1A. Risk Factors ResMed faces significant risks from intense competition, alternative therapies, macroeconomic conditions, supply chain disruptions, cybersecurity, and evolving regulatory and reimbursement policies - Competition from new technologies, including pharmaceuticals like GLP-1s for weight loss, could reduce the severity or existence of OSA, potentially making the company's products noncompetitive[193] - Global macroeconomic conditions, including inflation, supply chain disruptions (e.g., for rare earth materials from China), and tariffs, could adversely affect operations and profitability[196][225] - The company is increasingly dependent on IT systems and is vulnerable to cybersecurity threats, including AI-driven attacks, which could lead to data breaches, business disruption, and legal liability under regulations like HIPAA and GDPR[227][228][230] - Healthcare reform, cost-cutting measures, and changes in reimbursement policies by payors like Medicare (e.g., competitive bidding) may negatively impact sales and pricing[255][266] - The acquisition of VirtuOx subjects ResMed to new areas of direct healthcare oversight, including compliance with rules for Medicare-enrolled suppliers and heightened risk under fraud and abuse laws[221] Item 1C. Cybersecurity ResMed manages cybersecurity risks through a NIST and ISO 27001-aligned program, overseen by the Board and CISO, with no material incidents reported to date - The cybersecurity program is aligned with standard industry frameworks such as NIST and ISO 27001 and is integrated into the overall enterprise risk management program[327][328] - The Board of Directors oversees cybersecurity risk management, receiving at least annual updates from the Chief Information Security Officer (CISO)[333] - The CISO, who has over 20 years of experience, manages a team responsible for day-to-day threat management and incident response[335][336] - The company is not aware of any past cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[332] Item 2. Properties ResMed operates global properties, including owned executive offices in San Diego and manufacturing in Sydney, with other key facilities across the U.S., Asia, and Europe Principal Properties (as of June 30, 2025) | Location | Ownership | Square Footage | Primary Usage | | :--- | :--- | :--- | :--- | | San Diego, CA | Owned | 230,000 | Corporate HQ, R&D, Sales | | Sydney, Australia | Owned | 437,000 | Manufacturing, R&D, Sales | | Suzhou, China | Owned | 53,000 | Manufacturing, Warehouse, R&D | | Atlanta, GA | Leased | 467,000 | Manufacturing, Warehouse | | Singapore | Leased | 305,000 | Manufacturing, R&D, Sales | | Johor, Malaysia | Leased | 284,000 | Manufacturing, R&D | Item 3. Legal Proceedings ResMed is involved in ordinary course legal proceedings, including patent infringement cases with NYU and Cleveland Medical Devices, with no material adverse financial impact expected - The company is defending against a patent infringement lawsuit from New York University (NYU) regarding its AutoSet/AutoRamp features; the PTAB has invalidated the challenged claims, and the case is stayed pending NYU's appeal[610] - ResMed is also involved in patent infringement litigation with Cleveland Medical Devices Inc. concerning its connected devices and data platforms; these cases are in various stages, with some proceedings stayed pending PTAB reviews[611][614] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ResMed's common stock trades on NYSE (RMD), with 10.8 million shares remaining for repurchase and $100.0 million in repurchases during Q4 FY2025 - During the three months ended June 30, 2025, the company repurchased 418,734 shares of its common stock at an average price of $238.81 per share[346] - As of June 30, 2025, 10.8 million shares can still be repurchased under the company's approved share repurchase program[346] Item 6. Selected Financial Data ResMed showed consistent five-year growth, with net revenue increasing from $3.20 billion to $5.15 billion and net income from $474.5 million to $1.40 billion by FY2025 Selected Financial Data (2021-2025) | (In millions, except per share data) | 2025 | 2024 | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net revenue | $5,146.3 | $4,685.3 | $4,223.0 | $3,578.1 | $3,196.8 | | Gross profit | $3,055.0 | $2,655.3 | $2,355.7 | $2,024.3 | $1,839.1 | | Income from operations | $1,685.4 | $1,319.9 | $1,131.9 | $1,000.3 | $903.7 | | Net income | $1,400.7 | $1,021.0 | $897.6 | $779.4 | $474.5 | | Diluted earnings per share | $9.51 | $6.92 | $6.09 | $5.30 | $3.24 | | Total assets | $8,174.4 | $6,872.4 | $6,751.7 | $5,095.9 | $4,728.1 | | Total stockholders' equity | $5,967.9 | $4,864.0 | $4,129.9 | $3,360.8 | $2,885.7 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2025, ResMed's net revenue grew 10% to $5.15 billion, gross margin improved to 59.4%, and net income reached $1.40 billion, supported by strong liquidity Results of Operations (FY2025 vs. FY2024) In FY2025, net revenue grew 10% to $5.15 billion, gross margin expanded to 59.4%, and net income significantly increased to $1.40 billion, driven by segment growth and efficiencies Net Revenue by Segment and Product (FY2025 vs. FY2024) | (In millions) | FY 2025 | FY 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | $5,146.3 | $4,685.3 | 10% | | Sleep and Breathing Health | $4,504.9 | $4,101.2 | 10% | | - Devices | $2,665.2 | $2,444.0 | 9% | | - Masks and other | $1,839.7 | $1,657.2 | 11% | | Residential Care Software | $641.4 | $584.1 | 10% | - Gross margin increased to 59.4% in FY2025 from 56.7% in FY2024, primarily due to procurement, manufacturing, and logistics efficiencies, as well as lower expenses related to field safety notifications for masks with magnets and Astral devices[376] - Net income for FY2025 was $1,400.7 million ($9.51 per diluted share), a significant increase from $1,021.0 million ($6.92 per diluted share) in FY2024[390] - The effective income tax rate decreased to 16.5% in FY2025 from 19.3% in FY2024, primarily due to an IRS refund of interest and penalties and tax benefits from the cessation of certain business activities[386] Liquidity and Capital Resources ResMed's liquidity strengthened in FY2025, with cash and equivalents rising to $1.21 billion, operating cash flow at $1.75 billion, and a fully available $1.5 billion credit facility Cash Flow Summary (FY2025 vs. FY2024) | (In millions) | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,751.6 | $1,401.3 | | Net cash used in investing activities | ($200.0) | ($269.8) | | Net cash used in financing activities | ($606.3) | ($1,119.3) | | Net increase in cash | $971.1 | $10.5 | - As of June 30, 2025, the company had cash and cash equivalents of $1,209.5 million and total debt of $670.0 million[397][405] - The company had full availability of its $1,500.0 million revolving credit facility as of June 30, 2025[398][403] - During FY2025, ResMed paid $310.9 million in dividends ($2.12 per share) and repurchased $300.0 million of treasury stock[410][411] Item 7A. Quantitative and Qualitative Disclosures About Market and Business Risks ResMed faces market risks from foreign currency, interest rates, and inflation, mitigating currency exposure with a hedging program totaling $2.54 billion notional value - The company has significant foreign currency exposure from its manufacturing in Australia and Singapore and its international sales operations[434] - ResMed uses a foreign currency hedging program, including cross-currency swaps, options, and forward contracts, to manage exposures mainly in Euros, Australian dollars, and Singapore dollars[435][439] - As of June 30, 2025, the notional value of outstanding foreign cross-currency swaps (designated hedges) was $1.13 billion, and non-designated hedges was $1.41 billion[438][440] - The company is exposed to interest rate risk on its $1.21 billion in cash and cash equivalents and $170.0 million in variable-rate debt; a 10% change in rates in FY2025 would not have been material[446] Item 8. Consolidated Financial Statements and Supplementary Data This section presents ResMed's audited consolidated financial statements for FY2025, including notes and KPMG LLP's unqualified opinion on financials and internal controls Consolidated Financial Statements For FY2025, ResMed reported strong financial health with total assets at $8.17 billion, net revenue of $5.15 billion, and net income of $1.40 billion Key Financial Statement Figures (FY2025) | Metric | Amount (in billions) | | :--- | :--- | | Total Assets | $8.17 | | Total Liabilities | $2.21 | | Total Stockholders' Equity | $5.97 | | Net Revenue | $5.15 | | Net Income | $1.40 | | Diluted EPS | $9.51 | | Net Cash from Operations | $1.75 | Notes to Consolidated Financial Statements The notes detail accounting policies, revenue recognition, goodwill ($3.05 billion), total debt ($668.3 million), stock-based compensation ($91.7 million expense), and segment operating profits for FY2025 - The goodwill balance was $3.05 billion as of June 30, 2025, primarily split between the Residential Care Software ($2.16 billion) and Sleep and Breathing Health ($0.88 billion) segments; no impairment was recorded during the year[534] - Total debt as of June 30, 2025, was $668.3 million, consisting of a term loan, senior notes, and other short-term debt[542] - The company recognized $91.7 million in stock-based compensation costs in FY2025; as of June 30, 2025, 11.9 million shares remained available for future issuance under the 2009 Incentive Award Plan[566][580] Segment Net Operating Profit (FY2025) | Segment | Net Operating Profit (in millions) | | :--- | :--- | | Sleep and Breathing Health | $1,964.4 | | Residential Care Software | $205.0 | | Total | $2,169.4 | Item 9A. Controls and Procedures As of June 30, 2025, management and KPMG LLP concluded that ResMed's disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[636] - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework[643] - KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of June 30, 2025[646] Item 9B. Other Information No Rule 10b5-1 trading arrangements were adopted or terminated in Q4 FY2025, and bylaws were amended on August 6, 2025, regarding stockholder action and board classification - No directors or executive officers adopted or terminated a Rule 10b5-1 trading plan in the fourth quarter of fiscal 2025[656] - On August 6, 2025, the company's bylaws were amended to modify certain limitations on stockholder action by written consent and remove references to a classified board[657] Part III Part III information (Items 10-14) regarding governance, compensation, and security ownership is incorporated by reference from the upcoming definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement[661][664][665] Part IV Part IV lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, SOX certifications, and Inline XBRL financial data - This section lists all exhibits filed as part of the Form 10-K report, including financial statements, schedules, and required certifications[670]