ResMed Inc. — Form 10-Q Summary
Business context and reporting period. ResMed designs and sells devices, masks and related products for sleep and respiratory care, and provides software-as-a-service (SaaS) for out-of-hospital care providers. This unaudited report covers the three and six months ended December 31, 2023 (fiscal Q2 and first half of fiscal 2024); comparisons are with the corresponding prior-year periods. Amounts below are U.S. dollars.
Key financial results
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter | Six months ended Dec. 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $1,162.8m | $1,033.7m | $2,265.1m | $1,984.0m |
| Gross profit / margin | $646.9m / 55.6% | $579.7m / 56.1% | $1,247.0m / 55.1% | $1,120.5m / 56.5% |
| Operating income | $275.1m | $280.2m | $564.1m | $555.9m |
| Net income | $208.8m | $224.9m | $428.2m | $435.4m |
| Diluted EPS | $1.42 | $1.53 | $2.90 | $2.95 |
| Operating cash flow | Not separately reported for the quarter | $559.1m | $173.3m |
Quarterly revenue rose 12% (11% at constant currency); first-half revenue rose 14% (13% constant currency). In the quarter, Sleep and Respiratory Care revenue grew 11% to $1,017.9m and SaaS revenue grew 24% to $144.9m. SaaS growth was predominantly due to the MEDIFOX DAN acquisition; excluding it, quarterly SaaS revenue increased 10%. Management attributed device and mask growth primarily to stronger demand and unit sales.
Quarterly GAAP gross margin fell 0.5 percentage points, while first-half margin fell 1.4 points. ResMed cited field safety notification costs and higher acquired-intangible amortization, partly offset by a favorable SaaS mix and lower freight costs. Non-GAAP gross margin was 56.9% for the quarter versus 56.8% a year earlier, and 56.4% for the first half versus 57.2%. Non-GAAP diluted EPS was $1.88 for the quarter versus $1.66, and $3.51 for the first half versus $3.17; these exclude specified items and are not substitutes for GAAP results.
Financial position and liquidity
- At December 31, cash and equivalents were $210.2m; total assets were $6.91bn and stockholders’ equity was $4.48bn.
- Total debt, net of borrowing costs, was about $1.23bn, down from $1.44bn at June 30, 2023. The company reported $1.23bn outstanding under its credit facilities and senior notes, was in compliance with debt covenants, and had $955m available under its revolving facility. The variable-rate credit-facility debt carried a 6.3% rate at period-end.
- Current assets were $2.38bn and current liabilities $764.1m. Inventory declined to $933.2m from $998.0m at June 30.
- First-half operating cash flow was $559.1m; investing cash outflow was $190.1m and financing cash outflow was $390.1m. Cash decreased by $17.6m over the six months. Operating cash flow improved substantially year over year, principally due to lower inventory-related cash outflows and greater customer receipts.
- Cash dividends paid in the quarter totaled $70.7m ($0.48 per share). The board declared a further $0.48-per-share dividend payable March 14, 2024, subject to the stated record date. The company repurchased 335,474 shares for $50.0m in the first half.
Material changes, outlook and risks
- Restructuring: The company recorded $64.2m of charges in the quarter and first half to improve operational efficiency and profitability: $28.6m of severance and termination benefits, $33.2m of intangible impairments and $2.4m of other impairments. It expected to complete the actions by June 30, 2024 and did not expect remaining expense to be material.
- Product safety notifications: Quarterly results included $6.4m of estimated costs related to alternative masks following updated contraindications for masks incorporating magnets. First-half results also included $7.9m of costs related to replacing a component in certain Astral ventilators manufactured from 2013 to 2019.
- Management outlook: No quantitative revenue or earnings guidance is provided in the supplied filing text. Management said existing cash, operating cash generation and debt-facility access should be sufficient for operations and expected capital expenditures for the next 12 months and beyond. It cited continued investment in R&D, digital health and SaaS, and ongoing AirSense 11 rollout. The new operating model announced in November 2023 is intended to accelerate product development and sharpen customer and brand focus.
- Key exposures: Risks include foreign-currency movements, interest rates on variable-rate debt, inflation and cost pressures, supply-chain and macroeconomic conditions, regulatory and reimbursement changes, competition, and execution of acquisition and growth strategies. The company reported no material change to the risk factors in its fiscal 2023 Form 10-K.
- Legal matters: The PTAB invalidated the challenged claims in NYU’s asserted patents in December 2023; the district court continued its stay pending any NYU appeal. ResMed said it could not reasonably estimate losses, if any, for the Cleveland Medical patent matters that remained open. It did not expect the outcome of legal proceedings, individually or in aggregate, to materially adversely affect the consolidated financial statements.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether underlying device and mask demand and SaaS growth continue, separating organic SaaS growth from acquisition contributions and currency effects.
- Whether gross margins recover, including the ongoing impact of safety notifications, freight, product mix and acquired-intangible amortization.
- Restructuring execution, realized savings and whether additional costs or impairments arise.
- Debt repayment, interest expense, covenant headroom and access to the revolving facility.
- Developments in the NYU and Cleveland Medical patent disputes and any changes in estimated exposure from product safety matters.
- Cash conversion and working-capital trends, particularly inventory, receivables and the substantial purchase obligations disclosed for the coming periods.