Business context and reporting period
ResMed Inc. designs, manufactures and markets sleep and respiratory care devices and provides software as a service (SaaS) to out-of-hospital healthcare providers. This unaudited Form 10-Q covers the quarter and six months ended December 31, 2021, the company’s fiscal second quarter and first half of fiscal 2022. Comparisons are with the corresponding periods ended December 31, 2020. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Quarter ended Dec. 31, 2021 | Year-over-year change | Six months ended Dec. 31, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $894.9 million | +12% (+13% constant currency) | $1,798.9 million | +16% (+16% constant currency) |
| Gross profit / margin | $504.3 million / 56.4% | Profit +9%; margin down 1.4 percentage points | $1,010.6 million / 56.2% | Profit +12%; margin down 1.9 points |
| Operating income | $248.7 million | Up from $221.7 million | $510.6 million | Up from $438.6 million |
| Net income | $201.8 million | +12% | $405.4 million | +13% |
| Diluted EPS | $1.37 | Up from $1.23 | $2.76 | Up from $2.45 |
| Operating cash flow | Not separately stated for the quarter | — | $154.2 million | Down from $313.9 million |
Quarterly Sleep and Respiratory Care revenue was $795.8 million, up 12%; SaaS revenue was $99.0 million, up 8%. For the six months, Sleep and Respiratory Care revenue rose 17% to $1,602.3 million and SaaS rose 7% to $196.6 million. Quarterly device revenue increased 15%; masks and other revenue increased 9%.
Gross margin declined mainly because of higher logistics and manufacturing costs; the six-month decline also reflected lower average selling prices. Favorable product mix partly offset these pressures. Six-month selling, general and administrative expense rose 10% to $362.1 million, while research and development expense rose 12% to $122.5 million.
Financial position and liquidity
- At December 31, 2021, cash and cash equivalents were $194.5 million, down from $295.3 million at June 30, 2021. Total assets were $4.735 billion and stockholders’ equity was $3.146 billion.
- Total debt was approximately $680.0 million, including $12.0 million short-term and $668.0 million long-term debt, net. The filing reports $682.0 million outstanding under the credit agreements and senior notes; the difference reflects presentation of debt net of borrowing costs. The company reported compliance with debt covenants.
- The $1.6 billion revolving credit facility was fully available for drawdown; cash plus revolver availability totaled approximately $1.8 billion. Management said liquidity should be sufficient for operations and expected capital expenditures for the next 12 months and beyond.
- For the six months, investing cash outflow was $125.2 million and financing cash outflow was $125.0 million. Cash declined by $100.8 million overall. Inventory rose to $592.1 million from $457.0 million at June 30.
Material changes, outlook and risks
- Revenue growth reflected increased device and mask sales, including demand following a competitor’s product recall, and recovery in sleep-patient flow previously affected by the pandemic. Six-month growth was partly offset by lower COVID-19-related ventilator demand.
- Management cited shortages of raw materials and electronic components, constrained transportation capacity, longer lead times, higher freight and manufacturing costs, and supplier minimum-purchase commitments and upfront payments. The duration and extent of these supply-chain pressures were uncertain and could continue to weigh on gross margin.
- The company said it did not expect material COVID-19-generated demand for ventilators for the remainder of fiscal 2022. It also noted uncertainty about the continuing effects of the pandemic on sleep diagnostic and prescription pathways and SaaS customer adoption. No numerical revenue or earnings guidance was provided.
- Operating cash flow fell by $159.7 million year over year, primarily due to the $284.8 million final payment to the Australian Taxation Office (ATO) and higher inventory purchases, partly offset by increased operating profit and other working-capital changes. The ATO settlement resolved the transfer-pricing dispute for tax years 2009–2018; its stated net impact was $238.7 million.
- ResMed acquired Ectosense, maker of the NightOwl home sleep-testing device, on October 1, 2021. Six-month acquisition cash outflow was $35.9 million.
- Reported GAAP results include investment gains and losses and acquired-intangible amortization. The prior-year comparable period also included expenses related to closure of the portable oxygen concentrator business; no additional material restructuring expense was recorded in the current periods.
- Disclosed legal matters include a patent infringement case brought by New York University and litigation involving Ectosense and Itamar Medical. The company said it could not reasonably estimate any loss or range of losses for the described matters; it did not expect ordinary-course proceedings to have a material adverse effect overall.
Important facts for investors to verify
- Whether supply-chain constraints, elevated logistics and manufacturing costs, and purchase commitments persist or ease, and their effect on margins and product availability.
- Whether device and mask sales growth following the competitor recall is sustainable, alongside recovery in patient flow and declining pandemic-related ventilator demand.
- Working-capital and cash-flow trends, especially inventory levels and the effects of the ATO settlement payment.
- Debt balances and facility availability, including the April 2023 maturity of the revolving and term credit agreements.
- Developments in the disclosed patent and trademark litigation, and the outcomes of the AirSense 11 launch and Ectosense integration.