ResMed Inc. 10-Q Summary: Quarter Ended March 31, 2010
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for ResMed Inc., a leading developer and manufacturer of medical equipment for sleep-disordered breathing and respiratory disorders. The report covers the three and nine-month periods ended March 31, 2010. The company operates globally with manufacturing in Australia, Singapore, France, and the U.S.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2010 | Nine Months Ended Mar 31, 2010 |
|---|---|---|
| Net Revenues | $278.7 million | $800.8 million |
| Gross Profit | $166.6 million | $481.0 million |
| Gross Margin | 59.8% | 60.1% |
| Net Income | $48.8 million | $136.9 million |
| Diluted EPS | $0.63 | $1.77 |
| Cash and Equivalents | $520.9 million (Balance Sheet) | N/A |
| Operating Cash Flow | N/A | $129.3 million |
| Total Debt | $143.7 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 22% ($50.8 million) for the quarter and 20% for the nine-month period compared to the prior year. Growth was driven by increased unit sales of flow generators and masks, as well as favorable foreign currency movements (approx. $9.2 million impact for the quarter).
- Profitability: Net income rose 25% for the quarter and 36% for the nine-month period. Diluted EPS increased from $0.51 to $0.63 for the quarter.
- Expenses: Selling, general, and administrative (SG&A) expenses increased 19% for the quarter, partly due to currency impacts and increased personnel. R&D expenses increased 32% for the quarter due to clinical trials and consulting fees.
- Acquisitions: The company acquired Laboratoires Narval SA in October 2009, adding a mandibular repositioning device therapy to its portfolio.
Outlook, Risks, and Management Commentary
- Guidance: Management expects future SG&A expenses to be between 30% and 31% of net revenue, and R&D expenses to remain between 6% and 8% of net revenue.
- Regulatory Risk: The Patient Protection and Affordable Care Act (PPACA) introduces a 2.3% excise tax on medical device sales in the U.S. starting in 2013. The company notes this will apply to all its products and could materially affect financial results.
- Liquidity: The company maintains strong liquidity with $520.9 million in cash. However, it holds $3.7 million in auction rate securities which currently lack liquidity; management believes this is temporary and does not impact operations.
- Debt Covenants: The company is in compliance with all debt covenants. A revolving facility of $64.1 million was outstanding as of March 31, 2010.
Investor Verification Checklist
- Verify the impact of the 2.3% PPACA excise tax on future U.S. margins starting in 2013.
- Monitor the liquidity status of the $3.7 million auction rate securities and potential write-downs if they cannot be redeemed at par.
- Assess the sustainability of revenue growth excluding the favorable foreign currency impact (organic growth was 18% for the quarter).
- Review the status of ongoing litigation, including the University of Sydney intellectual property dispute and the Vaughn Medical Equipment Repair Service complaint.
- Track the execution of the share repurchase program, which has 8.3 million shares remaining available for purchase.