ResMed (RMD 2.53%), a medical device maker focused on respiratory conditions, reported its fiscal third-quarter results on Thursday, April 26. Steady demand gains for the company's continuous positive airway pressure (CPAP) machines and accessories helped drive double-digit revenue growth yet again. Management succeeded in translating that healthy top-line growth into a big gain on the bottom line.

ResMed's earnings results: The raw numbers


Q3 2018

Q3 2017

Year-Over-Year Change


$591.6 million

$514.2 million


Non-GAAP net income

$132.5 million 

$103.3 million


Non-GAAP earnings per share




Data source: ResMed. GAAP = generally accepted accounting principles.

What happened with ResMed this quarter?

  • Revenue growth was aided by favorable currency movements. Adjusting for those changes, revenue growth would have been 10%. 
  • Top-line growth was driven by an 11% increase in worldwide device sales in currency-neutral terms. Masks and other revenue increased 9%. 
  • Brightree revenue, which is ResMed's software-as-a-service business, grew 14% to $39.9 million. 
  • Selling, general, and administrative expenses only grew by 3% in constant currency terms, which helped drive operating leverage. 
  • The big jump in non-GAAP EPS was driven primarily by expense control, but it was also aided by a lower effective tax rate and favorable foreign exchange movements. 
  • The company bought back 200,000 shares during the quarter for $19.4 million.
Man pointing finger at bar chart

Image Source: Getty Images.

What management had to say

CEO Mick Farrell called the quarterly results "strong" and offered investors some commentary on why ResMed continues to win: "Our cloud-connected medical device strategy is succeeding; the major markets for our sleep business are adopting remote monitoring systems, which plays to the strength of our offerings. Our mask business performed well across all markets, and our cloud-based software-as-a-service business also grew rapidly in Q3."

On the call with investors, Farrell highlighted a few recent reimbursements wins that should help drive continued growth. First, France is increasing reimbursement rates for mandibular repositioning devices that are used to treat sleep apnea by 35%. ResMed owns the market-leading device in that country, so this should help drive sales gains. Second, South Korea will soon start reimbursing for devices that are used to treat and diagnose sleep apnea.

Looking forward

Management doesn't offer guidance but CFO Brett Sandercock continued to note that the company will benefit from the recent changes to the U.S. tax code. On a non-GAAP basis, the company's effective tax rate for fiscal 2019 is expected to land between 13% and 15%. However, Sandercock also stated that the company remains engaged in a legal dispute with the Australian government over the company's tax rate from 2009 to 2013. The company is fighting back against the Australian government's claims, but if they are unsuccessful, it could lead to a "significant one-time tax expense and interest charge" down the road. For perspective, the Australian government claims that it is owed more than $190 million dollars, so this is a situation that investors should continue to monitor.

Taxes aside, ResMed's results clearly show that the company is having no problems executing against its long-term growth plan. Farrell continued to assert that the company is well-positioned to keep this trend alive for the foreseeable future: "We continue to innovate. We are improving our existing products and solutions, and have a robust pipeline for the future."