ResMed Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2021. The request metadata says “2020 Q4,” but this filing is the FY2021 annual report; its unaudited fourth-quarter figures are for the quarter ended June 30, 2021. Dollar amounts below are U.S. dollars.
Business context
ResMed develops and sells sleep and respiratory care devices, masks and related products, and out-of-hospital healthcare software. It reports two segments: Sleep and Respiratory Care, and Software as a Service (SaaS). Products are sold in more than 140 countries.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $3,196.8 million | $2,957.0 million | +8% (+6% constant currency) |
| Gross profit / margin | $1,839.1 million / 57.5% | $1,717.8 million / 58.1% | Profit +7%; margin down 0.6 percentage points |
| Operating income | $903.7 million | $809.7 million | +12% |
| Net income | $474.5 million | $621.7 million | −24% |
| Diluted EPS | $3.24 | $4.27 | −24% |
| Operating cash flow | $736.7 million | $802.3 million | −8% |
Revenue growth reflected higher device and mask sales, recovery in sleep patient flow, and competitor-related demand; SaaS revenue rose 5% to $373.6 million, mainly from resupply services. Sleep and Respiratory Care revenue increased 8% to $2,823.2 million. Device revenue rose 7%, and masks and other revenue rose 11%. Gross margin declined primarily due to product and geographic mix and lower average selling prices.
The effective tax rate rose to 46.3% from 15.2%, principally because of a $248.8 million net reserve for disputed tax positions. Management said this reduced FY2021 diluted EPS by $1.70. Excluding that reserve, the reported effective tax rate was 18.2%. Non-GAAP diluted EPS was $5.33 versus $4.76; this measure excludes specified items, including the tax reserve.
Fourth-quarter FY2021 revenue was $876.1 million, gross profit was $490.7 million, net income was $195.1 million, and diluted EPS was $1.33. Fiscal third-quarter net loss was $78.5 million, reflecting the tax-related charge.
Liquidity, debt and capital
At June 30, 2021, cash and cash equivalents were $295.3 million, working capital was $663.0 million, and total assets were $4.73 billion. Cash from operations was $736.7 million; capital expenditures were $102.7 million. Operating cash flow declined mainly due to higher working capital and income tax payments. Inventory increased 10% to $457.0 million, while receivables increased 29% to $614.3 million; days sales outstanding rose to 68 from 65.
Debt principal outstanding was $658.0 million, down from $1.18 billion a year earlier; balance-sheet debt, net of borrowing costs, was $655.4 million. The company reported $1.6 billion available under its revolving facility and $1.9 billion of cash plus available revolving capacity. It was in compliance with debt covenants and stated that cash, operating cash flow and available borrowing capacity should fund operations and expected capital needs. Dividends totaled $226.7 million; no shares were repurchased in FY2021.
Changes, outlook and key risks
- ResMed closed its portable oxygen concentrator business in November 2020, recording $13.9 million of restructuring costs; the restructuring was complete by year-end, with no further related costs expected.
- Management commenced a controlled AirSense 11 launch in FY2021 and planned a broader launch during FY2022. The filing provides no quantitative revenue or earnings guidance.
- Management said it did not expect material COVID-19-generated demand for ventilators in FY2022. Pandemic-related disruption to sleep apnea diagnosis and treatment pathways remained a source of uncertainty; masks and resupply demand had held up.
- Component and semiconductor shortages, longer lead times, freight and input-cost increases, and demand associated with a competitor product recall could constrain supply or pressure margins.
- The Australian Taxation Office is disputing transfer pricing for 2009–2018. It assessed $266.0 million for 2009–2013; later years remained under audit. ResMed recorded $395.3 million in gross unrecognized tax benefits, including interest and penalties, or $248.7 million net of tax credits and deductions. The company was in advanced settlement discussions, but the outcome and ultimate payment could differ materially from the recorded amount.
- Other material risks include reimbursement and healthcare-policy changes, regulation and product quality, competition, cybersecurity and privacy, foreign currency exposure, and reliance on suppliers. The 2019 U.S. government settlement related to marketing practices totaled $40.6 million; a five-year Corporate Integrity Agreement was in effect.
The independent auditor issued an unqualified opinion on the financial statements and internal controls, and identified the Australian tax position as a critical audit matter.
Investor verification priorities
- Confirm the reporting-period mismatch: this is FY2021, not a 2020 Q4 filing; distinguish annual results from the quarter ended June 30, 2021.
- Review the ATO dispute, the $248.7 million net unrecognized tax benefit, prepaid taxes, and potential exposure for audit years 2014–2018.
- Assess whether the FY2021 earnings decline is principally tax-related by reconciling GAAP results to management’s non-GAAP measures.
- Track margin effects, receivables, inventory, and cash conversion amid supply constraints and increased demand.
- Monitor AirSense 11 rollout, recovery in sleep diagnostic pathways, post-pandemic ventilator demand, and reimbursement and competitor developments.