It was a standout quarter for San Diego-based Resmed Inc., which saw revenues jump to $681.1 million, with the U.S., Canada and Latin America serving as bright spots.

"We have started fiscal year 2020 right where we left off with 2019," Michael Farrell, Resmed's CEO, said during a call on the results. "Our team achieved another quarter of the balanced growth across the portfolio, driven by continued strong performance in the mask category."

Excluding revenue from its software-as-a-service (SaaS) business, the company saw sales in U.S., Canada and Latin America countries of $370 million. That figure represented an increase of 13% over the prior-year quarter. Device sales in these regions stood at $187 million, an increase of 8% over the prior-year quarter. Sales for masks and other stood out, coming in at $183 million, an increase of 19% over the prior year quarter.

Gretel Janu of Crédit Suisse noted the company's performance in the U.S. in terms of device strength and asked about how that related to new patient setups.

"So, we don't actually have full visibility even to the number," Farrell noted, adding that the company sells to medical equipment companies, which in turn sell to those on their five-year renewal or to new patients.

"But it is interesting with a reasonably sized patient pool in the [U.S.], it would be a good double-digit percentage or so of those that will be replenishment devices," he added. "But the 8% growth I think is really ahead of market. We think the market growth is in the sort of mid-single digits, and so the 8% growth in the U.S. shows that we are taking some share due to the value of Air Solutions, Airview and Myair and all the sort of digital health solutions that are there," he concluded.

The company also had decent sales in Europe, Asia and other markets, raking in $224 million. That was 4% above the prior-year quarter. Masks and other proved a popular category, coming in at $72 million, an increase of 15% over the prior-year quarter.

And while masks stood out, SaaS saw a big rise, with revenue of $87 million, an increase of 83% over the prior-year quarter.

Exceeding expectations

Margaret Kaczor, of William Blair, noted that overall revenues exceeded the expectations of her organization and the Street. "Demand for the company's core sleep therapies remains high as awareness grows. Resmed is taking share across the category and benefiting from its digital ecosystem and steady stream of new and innovative mask launches," she wrote.

During the call, Kaczor asked what might hold the company back from continuing its double digit topline growth rate.

Farrell noted that he is excited about the company's innovation. "But you can't outgrow market forever, right?" he added. "But as we look through the fiscal year, we think we can meet or beat market growth, but you're not going to beat it every single time."

Still, Kaczor sees promise. "We continue to believe the company has a long runway ahead of it in all three areas of growth: sleep, COPD [chronic obstructive pulmonary disease], and out-of-hospital SaaS. We expect the strong market dynamics and backbone of sleep remain, with more benefits still to come in masks."

She highlighted that there are other bright spots with the company and rated the stock as outperform.

Tariffs, Cerner agreement

For his part, David Low with J.P. Morgan asked about tariffs against the backdrop of issues Royal Philips NV, of Amsterdam, had experienced related to its connected care business.

Rob Douglas, COO of Resmed, responded that the company has not been affected by specific tariffs as a result of the way its supply chain is configured.

"We export very little into China from the U.S. and very little from China to the U.S. Our supply chain is more Southeast Asian focused," he noted. Douglas added that the company's team in China has done well for local products in that country.

Also discussed was a recently disclosed collaboration with North Kansas City, Mo-based Cerner Corp., reported after the end of the quarter. Of note, Cerner has designated Resmed's Brightree Home Health and Hospice platform as its preferred solution in the space to integrate with its Cerner Millennium electronic health record (EHR). Cerner also plans to connect other Resmed digital health data platforms to its EHR and Healtheintent population health platform.

Saul Hadassin of UBS Investment Bank asked about Cerner in the context of the SaaS business and how much work it would take to have the two systems talk to one another.

In his response, Farrell highlighted interoperability. "Cerner [is] looking for Resmed and really truly through our Matrixcare managed team to take care of home health and hospice customers for them. So [it has] customers that have hospital systems. But for the out-of-hospital part where it goes to home health and hospice they want Resmed to be their partner to take care of those."

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