ResMed Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2013; fiscal year ends June 30. The unaudited filing covers a medical-device company focused on equipment for sleep-disordered breathing and other respiratory disorders.
Financial performance
Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Quarter ended Dec. 31, 2013 | Quarter ended Dec. 31, 2012 | Six months ended Dec. 31, 2013 | Six months ended Dec. 31, 2012 |
|---|---|---|---|---|
| Revenue | $384.3 | $376.5 | $742.0 | $716.3 |
| Gross profit | $248.8 | $232.7 | $476.7 | $441.4 |
| Gross margin | 64.7% | 61.8% | 64.3% | 61.6% |
| Operating income | $105.0 | $92.1 | $201.9 | $172.6 |
| Net income | $86.6 | $77.9 | $167.6 | $149.2 |
| Diluted EPS | $0.60 | $0.53 | $1.15 | $1.02 |
- Quarterly revenue grew 2% reported, or 1% at constant currency; six-month revenue grew 4% reported, or 3% at constant currency. Quarterly diluted EPS rose 13% year over year; six-month diluted EPS rose 13%.
- Quarterly operating margin was approximately 27.3%, versus 24.5% a year earlier; six-month operating margin was approximately 27.2%, versus 24.1%.
- Quarterly gross-margin improvement reflected manufacturing and supply-chain gains, product and geographic mix, and favorable currency effects, partly offset by lower average selling prices.
- Six-month operating cash flow was $174.6, versus $171.9. Investing cash outflow was $49.0, including $36.4 of capital expenditures. Financing cash outflow was $12.6; the company paid $71.1 in dividends and spent $93.6 on treasury-stock purchases.
- Cash and cash equivalents were $972.7 at December 31, up from $876.0 at June 30, 2013. Working capital was $1.3 billion. Total debt was $435.8, including $435.0 outstanding under the revolving facility; cash exceeded reported debt by about $536.9.
Business developments and changes versus prior period
- Quarterly flow-generator revenue rose 2% overall, while masks and accessories rose 2%. North and Latin American revenue declined 2%; international revenue increased 8% reported and 5% at constant currency. Management cited competitive activity and market restructuring from competitive bidding in the Americas.
- For the six months, flow-generator revenue increased 4% and masks and accessories 3%; international sales grew 8% reported, compared with flat revenue in North and Latin America.
- The company entered a new $700 million senior unsecured, five-year revolving credit facility in October 2013, replacing its prior facility. It may seek an additional $300 million in commitments; $435.0 million was outstanding at quarter-end. The stated rate was 1.2%, and ResMed reported compliance with its covenants.
- Compared with June 30, total assets increased to $2.35 billion from $2.21 billion, and total equity rose to $1.64 billion from $1.61 billion. Treasury-stock purchases and dividends continued; 2.6 million shares remained authorized for repurchase at quarter-end.
Outlook, risks and unusual items
- Management expected SG&A to be approximately 29% of revenue and R&D approximately 8% for fiscal 2014. The filing provides no specific revenue or EPS guidance and cautions that interim results are not necessarily indicative of full-year results.
- Currency movements affected results: foreign exchange favorably added about $4.1 million to quarterly revenue and $7.7 million to six-month revenue. Currency-hedging instruments generated a $14.5 million loss for the six months, partly offset by $10.6 million of gains on other foreign-currency transactions. The net foreign-exchange-related loss reported in other income was $3.8 million.
- Foreign currency translation reduced six-month comprehensive income by $13.2 million; the quarter’s translation loss was $51.4 million. Most cash—$950.2 million of the $972.7 million total—was held by non-U.S. subsidiaries and would be subject to U.S. tax if repatriated; management intends to keep it invested abroad.
- Legal matters include ongoing U.S. and international patent disputes involving APEX and BMC. ResMed reported German preliminary injunctions against certain products and stated it did not expect these matters to materially affect its consolidated financial statements. The company also reported no material change to the risk factors in its prior annual report.
- Accounts-receivable days outstanding increased to 70 from 68 a year earlier. The allowance for doubtful accounts rose to 4.0% of receivables from 3.0% at June 30, primarily due to an additional provision for one customer account.
Key facts for investors to verify
- Whether revenue growth and margin gains persist, particularly in the face of lower selling prices, competitive bidding, and weaker North and Latin American sales.
- The location, tax implications, and practical availability of overseas cash, alongside the company’s borrowing needs and variable-rate debt exposure.
- Subsequent developments and potential financial consequences in the APEX and BMC patent proceedings.
- Collections from the customer that prompted the additional doubtful-account provision, and the continued trend in receivables and inventory.
- Execution against the stated fiscal 2014 SG&A and R&D expense expectations; the filing gives no full-year revenue or EPS target.