ResMed Inc. Announces Results for the Third Quarter of Fiscal Year 2020

ResMed Inc. (NYSE: RMD) (ASX: RMD), a world-leading digital health company, today announced results for its quarter ended March 31, 2020.

Third Quarter 2020 Highlights

All comparisons are to the prior-year period

  • Revenue increased 16% to $769.5 million; up 17% on a constant currency basis
  • GAAP gross margin of 58.4%; non-GAAP gross margin expanded 70 bps to 60.0%
  • Net operating profit increased 39%; non-GAAP operating profit up 31%
  • GAAP diluted earnings per share of $1.12; non-GAAP diluted earnings per share of $1.29

“We are operating during unprecedented times, and I am extremely proud of the way our global ResMed team has responded to the COVID-19 crisis,” said Mick Farrell, ResMed’s CEO. “Our primary goals are the safety and well-being of our team members, and the preservation of life – helping people breathe while their immune system fights this coronavirus. We have rapidly pivoted our business to respond by ramping up production of life support ventilators, non-invasive ventilators, and ventilation mask systems for the people who need them most, wherever they live.

“We continue to execute our long-term strategy, supporting customers around the world with digital health technologies and out-of-hospital management software, enabling them to continue to provide better care for those suffering from sleep apnea, COPD, asthma, and for people in out-of-hospital care settings. As we progress through the global COVID-19 pandemic, we are delivering world-leading solutions to governments, health authorities, hospitals, physicians, providers, and, most importantly, to patients.

“Looking ahead, we are confident in our ability to navigate through the challenging clinical and economic environment to deliver for all our stakeholders. Our culture, operational resilience, strong balance sheet, business continuity plans, and growth prospects have positioned us well. In the near term, we remain vigilant and thoughtful about the outlook for our business as we continue to serve our customers and successfully weather the crisis. Over the longer term, we believe our strong foundation will accelerate the adoption of much-needed digital health solutions in the field of respiratory medicine.”

Financial Results and Operating Metrics

Unaudited; $ in millions, except for per share amounts

Three Months Ended

March 31,
2020

March 31,
2019

% Change

Constant
Currency (A)

Revenue

$

769.5

$

662.2

16

%

17

%

Gross margin (B)

58.4

%

57.5

%

2

Non-GAAP gross margin (B)

60.0

%

59.3

%

1

Selling, general and administrative expenses

172.4

164.5

5

7

Research and development expenses

51.4

47.6

8

11

Income from operations

217.5

157.0

39

Non-GAAP income from operations (B)

237.9

182.0

31

Net income

163.1

105.4

55

Non-GAAP net income (B)

187.9

128.1

47

Diluted earnings per share

$

1.12

$

0.73

53

Non-GAAP diluted earnings per share (B)

$

1.29

$

0.89

45

Nine Months Ended

March 31,
2020

March 31,
2019

% Change

Constant
Currency (A)

Revenue

$

2,186.7

$

1,901.6

15

%

16

%

Gross margin (B)

58.0

%

57.4

%

1

Non-GAAP gross margin (B)

59.8

%

58.9

%

2

Selling, general and administrative expenses

511.3

473.4

8

1

Research and development expenses

149.4

129.5

15

-

Income from operations

586.4

458.2

28

Non-GAAP income from operations (B)

647.4

520.1

24

Net income

443.8

335.8

32

Non-GAAP net income (B)

499.5

388.8

28

Diluted earnings per share

$

3.05

$

2.33

31

Non-GAAP diluted earnings per share (B)

$

3.43

$

2.69

28

(A)

In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we provide certain financial information on a “constant currency basis,” which is in addition to the actual financial information presented. In order to calculate our constant currency information, we translate the current period financial information using the foreign currency exchange rates that were in effect during the previous comparable period. However, constant currency measures should not be considered in isolation or as an alternative to U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.

 

(B)

See the reconciliation of non-GAAP financial measures in the table at the end of the press release.

Discussion of Third Quarter Results

All comparisons are to the prior-year period unless otherwise noted

  • Revenue in the U.S., Canada, and Latin America, excluding Software as a Service, grew by 12 percent driven by strong sales across our mask and device product portfolios, including increased demand for our ventilators due to COVID-19.
  • Revenue in combined Europe, Asia, and other markets grew by 27 percent on a constant currency basis primarily driven by sales across our mask and device product portfolios, including increased demand for our ventilators due to COVID-19.
  • Software as a Service revenue increased by 12 percent, due to continued growth in Brightree and MatrixCare service offerings.
  • Gross Margin expanded by 90 basis points. Non-GAAP gross margin expanded by 70 basis points primarily due to benefits from product mix changes, and manufacturing and procurement efficiencies, partially offset by declines in average selling prices.
  • Selling, general, and administrative expenses increased by 5 percent or by 7 percent on a constant currency basis. SG&A expenses improved to 22.4 percent of revenue in the quarter, compared with 24.8 percent in the same period of the prior year.
  • Income from operations increased by 39 percent and non-GAAP income from operations increased by 31 percent.
  • Net income grew by 55 percent and diluted earnings per share grew by 53 percent. Non-GAAP net income grew by 47 percent and non-GAAP diluted earnings per share grew by 45 percent predominantly attributable to strong sales, particularly in masks, coupled with controlled operating costs.
  • Cash flow from operations for the quarter was $239.7 million, compared to net income in the current quarter of $163.1 million. During the quarter we paid $56.4 million in dividends.

Other Business and Operational Highlights

  • Introduced AirFit F30i, its first tube-up full face CPAP mask, rounding out the most complete full face mask portfolio on the market. AirFit F30i’s tube-up design makes it easier for users to sleep in any position, under-nose cushioning prevents soreness and irritation on the nasal bridge, and a quick-release elbow allows users to quickly disconnect and reattach the mask from its tubing.
  • In partnership with ATS Foundation, awarded the third $100,000 research grant to study how remote monitoring can help improve the management of patients with chronic obstructive pulmonary disease. The study aims to detect early changes in lung function from daily recordings and notify patients when to commence more intensive treatment or seek medical attention.
  • Launched a COVID-19 resource page with links to the latest information from global and regional health organizations as well as frequently asked questions about the use of ResMed’s devices in relation to COVID-19 and information for healthcare professionals.

Dividend program

The ResMed board of directors today declared a quarterly cash dividend of $0.39 per share. The dividend will have a record date of May 14, 2020, payable on June 18, 2020. The dividend will be paid in U.S. currency to holders of ResMed’s common stock trading on the New York Stock Exchange. Holders of Chess Depositary Instruments trading on the Australian Securities Exchange will receive an equivalent amount in Australian currency, based on the exchange rate on the record date, and reflecting the 10:1 ratio between CDIs and NYSE shares. The ex-dividend date will be May 13, 2020 for common stockholders and for CDI holders. ResMed has received a waiver from the ASX’s settlement operating rules, which will allow ResMed to defer processing conversions between its common stock and CDI registers from May 13, 2020, through May 14, 2020, inclusive.

Webcast details

ResMed will discuss its third-quarter fiscal year 2020 results on its webcast at 1:30 p.m. U.S. Pacific Time today. The live webcast of the call can be accessed on ResMed’s Investor Relations website at investor.resmed.com. Please go to this section of the website and click on the icon for the “Q3 2020 Earnings Webcast” to register and listen to the live webcast. A replay of the earnings webcast will be accessible on the website and available approximately two hours after the live webcast. In addition, a telephone replay of the conference call will be available approximately two hours after the webcast by dialing +1 877-660-6853 (U.S.) or +1 201-612-7415 (outside U.S.) and entering the passcode 13701214. The telephone replay will be available until May 15, 2020.

About ResMed

At ResMed (NYSE: RMD) (ASX: RMD) we pioneer innovative solutions that treat and keep people out of the hospital, empowering them to live healthier, higher-quality lives. Our cloud-connected medical devices transform care for people with sleep apnea, COPD, and other chronic diseases. Our comprehensive out-of-hospital software platforms support the professionals and caregivers who help people stay healthy in the home or care setting of their choice. By enabling better care, we improve quality of life, reduce the impact of chronic disease, and lower costs for consumers and healthcare systems in more than 140 countries. To learn more, visit ResMed.com and follow @ResMed.

Safe harbor statement

Statements contained in this release that are not historical facts are “forward-looking” statements as contemplated by the Private Securities Litigation Reform Act of 1995. These forward-looking statements – including statements regarding ResMed’s projections of future revenue or earnings, expenses, new product development, new product launches, new markets for its products, the integration of acquisitions, litigation, and tax outlook – are subject to risks and uncertainties, which could cause actual results to materially differ from those projected or implied in the forward-looking statements. Additional risks and uncertainties are discussed in ResMed’s periodic reports on file with the U.S. Securities & Exchange Commission. ResMed does not undertake to update its forward-looking statements.

RESMED INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Income

(Unaudited; $ in thousands, except for per share amounts)

Three Months Ended

Nine Months Ended

March 31,
2020

March 31,
2019

March 31,
2020

March 31,
2019

Net revenue

$

769,455

$

662,228

$

2,186,669

$

1,901,608

Cost of sales

307,657

270,318

880,633

782,874

Amortization of acquired intangibles (1)

12,136

10,940

37,623

27,095

Total cost of sales

$

319,793

$

281,258

$

918,256

$

809,969

Gross profit

$

449,662

$

380,970

$

1,268,413

$

1,091,639

Selling, general and administrative

172,441

164,529

511,304

473,410

Research and development

51,449

47,610

149,425

129,513

Amortization of acquired intangibles (1)

8,272

11,854

21,872

24,406

Litigation settlement expenses (1)

-

-

(600

)

-

Acquisition-related expenses (1)

-

-

-

6,123

Total operating expenses

$

232,162

$

223,993

$

682,001

$

633,452

Income from operations

217,500

156,977

586,412

458,187

Other income (expenses), net:

Interest income (expense), net

$

(9,852

)

$

(11,998

)

$

(30,414

)

$

(21,594

)

Loss attributable to equity method investments

(5,295

)

(5,996

)

(19,082

)

(9,371

)

Other, net

(10,698

)

(1,054

)

(15,922

)

(4,140

)

Total other income (expenses), net

(25,845

)

(19,048

)

(65,418

)

(35,105

)

Income before income taxes

$

191,655

$

137,929

$

520,994

$

423,082

Income taxes

28,518

32,513

77,155

87,291

Net income

$

163,137

$

105,416

$

443,839

$

335,791

Basic earnings per share

$

1.13

$

0.74

$

3.08

$

2.35

Diluted earnings per share

$

1.12

$

0.73

$

3.05

$

2.33

Non-GAAP diluted earnings per share (1)

$

1.29

$

0.89

$

3.43

$

2.69

Basic shares outstanding

144,638

143,316

144,112

142,907

Diluted shares outstanding

145,680

144,333

145,490

144,344

(1)

See the reconciliation of non-GAAP financial measures in the table at the end of the press release.

RESMED INC. AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

(Unaudited; $ in thousands)

March 31,
2020

June 30,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

352,861

$

147,128

Accounts receivable, net

554,859

528,484

Inventories

358,772

349,641

Prepayments and other current assets

203,266

120,113

Total current assets

$

1,469,758

$

1,145,366

Non-current assets:

Property, plant and equipment, net

$

397,209

$

387,460

Operating lease right-of-use assets

126,277

-

Goodwill and other intangibles, net

2,349,421

2,378,399

Deferred income taxes and other non-current assets

167,878

196,457

Total non-current assets

$

3,040,785

$

2,962,316

Total assets

$

4,510,543

$

4,107,682

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Current liabilities:

Accounts payable

$

116,148

$

115,725

Accrued expenses

235,201

266,359

Operating lease liabilities, current

22,795

-

Deferred revenue

97,110

88,667

Income taxes payable

68,278

73,248

Short-term debt

11,987

11,992

Total current liabilities

$

551,519

$

555,991

Non-current liabilities:

Deferred revenue

$

84,615

$

81,143

Deferred income taxes

25,441

11,380

Operating lease liabilities, non-current

107,251

-

Other long term liabilities

7,527

2,058

Long-term debt

1,364,849

1,258,861

Long-term income taxes payable

112,910

126,056

Total non-current liabilities

$

1,702,593

$

1,479,498

Total liabilities

$

2,254,112

$

2,035,489

STOCKHOLDERS’ EQUITY:

Common stock

$

579

$

575

Additional paid-in capital

1,533,905

1,511,473

Retained earnings

2,711,639

2,436,410

Treasury stock

(1,623,256

)

(1,623,256

)

Accumulated other comprehensive income

(366,436

)

(253,009

)

Total stockholders’ equity

$

2,256,431

$

2,072,193

Total liabilities and stockholders' equity

$

4,510,543

$

4,107,682

RESMED INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows

(Unaudited; $ in thousands)

Nine Months Ended

March 31,
2020

March 31,
2019

Cash flows from operating activities:

Net income

$

443,839

$

335,791

Adjustment to reconcile net income to cash provided by operating activities:

Depreciation and amortization

116,341

108,203

Amortization of right-of-use-assets

19,524

-

Stock-based compensation costs

41,421

37,856

Loss attributable to equity method investments

19,082

9,371

Impairment of equity investments

14,519

8,801

Gain on previously held equity interest

-

(1,909

)

Changes in fair value of business combination contingent consideration

(7

)

(272

)

Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable, net

(34,140

)

(1,482

)

Inventories, net

(22,564

)

(55,002

)

Prepaid expenses, net deferred income taxes and other current assets

(68,724

)

(17,453

)

Accounts payable, accrued expenses and other

(57,301

)

(106,671

)

Net cash provided by operating activities

$

471,990

$

317,233

Cash flows from investing activities:

Purchases of property, plant and equipment

(77,360

)

(46,507

)

Patent registration costs

(7,391

)

(6,556

)

Business acquisitions, net of cash acquired

(27,910

)

(951,565

)

Purchases of investments

(31,616

)

(31,092

)

Proceeds / (Payments) on maturity of foreign currency contracts

(32,177

)

3,902

Net cash used in investing activities

$

(176,454

)

$

(1,031,818

)

Cash flows from financing activities:

Proceeds from issuance of common stock, net

26,112

15,346

Taxes paid related to net share settlement of equity awards

(45,106

)

(27,880

)

Purchases of treasury stock

-

(22,844

)

Payment of business combination contingent consideration

(302

)

(648

)

Proceeds from borrowings, net of borrowing costs

990,000

1,414,230

Repayment of borrowings

(883,012

)

(541,394

)

Dividends paid

(168,610

)

(158,592

)

Net cash (used in) / provided by financing activities

$

(80,918

)

$

678,218

Effect of exchange rate changes on cash

$

(8,885

)

$

(5,821

)

Net increase / (decrease) in cash and cash equivalents

205,733

(42,188

)

Cash and cash equivalents at beginning of period

147,128

188,701

Cash and cash equivalents at end of period

$

352,861

$

146,513

RESMED INC. AND SUBSIDIARIES

 

Reconciliation of Non-GAAP Financial Measures

(Unaudited; $ in thousands, except for per share amounts)

 

The measures “non-GAAP gross profit” and “non-GAAP gross margin” excludes amortization expense from acquired intangibles related to cost of sales and are reconciled below:

Three Months Ended

Nine Months Ended

March 31,
2020

March 31,
2019

March 31,
2020

March 31,
2019

Revenue

$

769,455

$

662,228

$

2,186,669

$

1,901,608

Add back: Deferred revenue fair value adjustment (A)

-

2,254

2,102

4,283

Non-GAAP Revenue

$

769,455

$

664,482

$

2,188,771

$

1,905,891

GAAP Cost of sales

$

319,793

$

281,258

$

918,256

$

809,969

Less: Amortization of acquired intangibles (A)

(12,136

)

(10,940

)

(37,623

)

(27,095

)

Non-GAAP cost of sales

$

307,657

$

270,318

$

880,633

$

782,874

GAAP gross profit

449,662

380,970

1,268,413

1,091,639

GAAP gross margin

58.4

%

57.5

%

58.0

%

57.4

%

Non-GAAP gross profit

461,798

394,164

1,308,138

1,123,017

Non-GAAP gross margin

60.0

%

59.3

%

59.8

%

58.9

%

The measure “non-GAAP income from operations” is reconciled with GAAP income from operations below:

Three Months Ended

Nine Months Ended

March 31,
2020

March 31,
2019

March 31,
2020

March 31,
2019

GAAP income from operations

$

217,500

$

156,977

$

586,412

$

458,187

Amortization of acquired intangibles - cost of sales (A)

12,136

10,940

37,623

27,095

Amortization of acquired intangibles - operating expenses (A)

8,272

11,854

21,872

24,406

Deferred revenue fair value adjustment (A)

-

2,254

2,102

4,283

Litigation settlement expenses (A)

-

-

(600

-

Acquisition related expenses (A)

-

-

-

6,123

Non-GAAP income from operations

$

237,908

$

182,025

$

647,409

$

520,094

RESMED INC. AND SUBSIDIARIES

 

Reconciliation of Non-GAAP Financial Measures

(Unaudited; $ in thousands, except for per share amounts)

 

The measures "non-GAAP net income" and “non-GAAP diluted earnings per share” are reconciled with GAAP net income and GAAP diluted earnings per share in the table below:

Three Months Ended

Nine Months Ended

March 31,
2020

March 31,
2019

March 31,
2020

March 31,
2019

GAAP net income

$

163,137

$

105,416

$

443,839

$

335,791

Amortization of acquired intangibles - cost of sales, net of tax (A)

9,287

8,441

28,765

20,963

Amortization of acquired intangibles - operating expenses, net of tax (A)

6,330

9,147

16,723

18,883

Deferred revenue fair value adjustment, net of tax (A)

-

1,727

1,610

3,281

Litigation settlement expenses, net of tax (A)

-

-

(528

-

Acquisition-related expenses (A)

-

-

-

5,362

Fair value impairment of investment (A)

9,100

-

9,100

-

U.S. tax reform

-

3,327

-

4,505

Non-GAAP net income (A)

$

187,854

$

128,058

$

499,509

$

388,785

Diluted shares outstanding

145,680

144,333

145,490

144,344

GAAP diluted earnings per share

$

1.12

$

0.73

$

3.05

$

2.33

Non-GAAP diluted earnings per share (A)

$

1.29

$

0.89

$

3.43

$

2.69

(A)

ResMed adjusts for the impact of the amortization of acquired intangibles, deferred revenue fair value adjustment, litigation settlement expenses, acquisition-related expenses, fair value impairment of investment and the impact of U.S. tax reform on income tax expense from their evaluation of ongoing operations, and believes that investors benefit from adjusting these items to facilitate a more meaningful evaluation of current operating performance.

 

 

ResMed believes that non-GAAP diluted earnings per share is an additional measure of performance that investors can use to compare operating results between reporting periods. ResMed uses non-GAAP information internally in planning, forecasting, and evaluating the results of operations in the current period and in comparing it to past periods. ResMed believes this information provides investors better insight when evaluating ResMed’s performance from core operations and provides consistent financial reporting. The use of non-GAAP measures is intended to supplement, and not to replace, the presentation of net income and other GAAP measures. Like all non-GAAP measures, non-GAAP earnings are subject to inherent limitations because they do not include all the expenses that must be included under GAAP.

RESMED INC. AND SUBSIDIARIES

 

Revenue by Product and Region

(Unaudited; $ in thousands, except for per share amounts)

Three Months Ended

March 31,
2020 (A)

March 31,
2019 (A)

% Change

Constant
Currency (B)

U.S., Canada and Latin America

Devices

$

196.5

$

181.3

8

%

Masks and other

197.1

168.7

17

Total Sleep and Respiratory Care

$

393.5

$

350.0

12

Software as a Service

89.6

79.9

12

Total

$

483.1

$

429.9

12

Combined Europe, Asia and other markets

Devices

$

195.0

$

155.2

26

%

29

%

Masks and other

91.3

77.1

18

22

Total Sleep and Respiratory Care

$

286.3

$

232.3

23

27

Global revenue

Devices

$

391.5

$

336.4

16

%

18

%

Masks and other

288.4

245.8

17

18

Total Sleep and Respiratory Care

$

679.9

$

582.3

17

18

Software as a Service

89.6

79.9

12

12

Total

$

769.5

$

662.2

16

17

Nine Months Ended

March 31,
2020 (A)

March 31,
2019 (A)

% Change

Constant
Currency (B)

U.S., Canada and Latin America

Devices

$

586.9

$

540.2

9

%

Masks and other

584.9

494.8

18

Total Sleep and Respiratory Care

$

1,171.8

$

1,035.0

13

Software as a Service

263.2

190.6

38

Total

$

1,435.0

$

1,225.6

17

Combined Europe, Asia and other markets

Devices

$

509.3

$

463.1

10

%

13

%

Masks and other

242.4

213.0

14

17

Total Sleep and Respiratory Care

$

751.7

$

676.0

11

15

Global revenue

Devices

$

1,096.2

$

1,003.2

9

%

11

%

Masks and other

827.3

707.8

17

18

Total Sleep and Respiratory Care

$

1,923.5

$

1,711.0

12

14

Software as a Service

263.2

190.6

38

38

Total

$

2,186.7

$

1,901.6

15

16

(A)

Totals and subtotals may not add due to rounding.

 

(B)

In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we provide certain financial information on a “constant currency basis,” which is in addition to the actual financial information presented. In order to calculate our constant currency information, we translate the current period financial information using the foreign currency exchange rates that were in effect during the previous comparable period. However, constant currency measures should not be considered in isolation or as an alternative to U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.

Contacts:

For investors
Amy Wakeham
+1 858-836-5000
investorrelations@resmed.com

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