ResMed (RMD -0.24%), a medical device company focused on sleep apnea and chronic obstructive pulmonary disease, reported its first-quarter results after the market closed on Thursday, April 27. While acquisitions and organic growth once again combined to power double-digit growth in the top line, the company's profitability was held back by higher spending on research and development (R&D), as well as selling, general, and administrative expenses (SG&A). 

Here's a deeper dive into what happened at the company during the quarter. 

Woman rising out of bed in morning

Image source: Getty Images.

ResMed fiscal year 2017 Q3: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Sales

$514.2 million

$453.9 million

13.3%

GAAP net income

$87.8 million

$90.8 million

(13.3%)

Non-GAAP net income

$100.7 million

$97.8 million

3%

Non-GAAP EPS

$0.71

$0.69

2.9%

Data source: ResMed.

What happened with ResMed this quarter?

  • Total revenue increased by more than 13% thanks in part to last year's $800 million acquisition of software-as-a-service business Brightree. Excluding the acquisition, revenue grew by 5% in the Americas and 9% internationally on a currency neutral basis. 
  • Gross margin rose 100 basis points year over year to 58.3%. Management credited the gains to manufacturing and procurement efficiencies, as well as the benefits from the Brightree acquisition.
  • Growth in spending on SG&A and R&D continued to outpace overall revenue growth. 
  • Amortization costs related to the Brightree acquisition came in at $11.4 million, which was up sharply when compared to the $4.6 million charge recorded in the year-ago period.
  • The increased spending caused non-GAAP net income and EPS to only grow by 3% year over year to $103.3 million and $0.71, respectively.

Beyond the numbers, ResMed announced that it has officially launched its next-generation continuous positive airway pressure (CPAP) device called the ResMed AirMini for sale. This device is the smallest CPAP solution on the market, and management expects the product to be particularly well received by homecare provider customers.

Management also let investors know that over 5 million patients are now using AirView, the company's cloud-based system for managing patients with sleep-disordered breathing issues. In addition, 45 million patient accounts are listed on Brightree.

What management had to say

ResMed's CEO Mike Farrell was happy with the company's quarterly results, saying, "We had solid double-digit constant currency revenue growth in Q3, led by our Brightree software solutions as well as mask and device sales." 

He also noted that the company is still seeing strong demand for its new AirFit 20 range of masks and that it is making progress with the launch of its AirSolutions cloud-based software platform.

Looking forward

ResMed's stock fell the day following this earnings release. That was likely due to the fact that ResMed's quarterly revenue results came in a little bit below Wall Street's expectations.

Short-term price movements aside, CEO Farrell did his best to remind investors that ResMed remains well positioned to deliver on its mission to improve the lives of millions of sleep disorder patients around the world:

We are incredibly excited about the ongoing launch of our new N20 and F20 mask technologies and our pipeline of products in 2017, including, of course, the new ResMed AirMini. We continue to pioneer connected care with enhanced solutions that lower cost for providers and improve outcomes for patients. We are leading the industry, driving consumer awareness of sleep apnea and COPD so that undiagnosed consumers go to see their doctors and healthcare providers. We continue to bring our strategy into action for the benefit of physicians, providers, payers and, most importantly, to improve the lives of tens of millions of sleep apnea and COPD patients around the world.