ResMed Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022 (ResMed fiscal 2023 first quarter; unaudited). ResMed designs and sells sleep and respiratory care devices and related products, and provides software as a service (SaaS) to out-of-hospital health providers.
Financial performance
- Revenue: $950.3 million, up 5% year over year (9% on a constant-currency basis). Sleep and Respiratory Care revenue was $844.4 million, up 5% reported and 9% constant currency; SaaS revenue was $105.9 million, up 9%.
- Regional and product trends: U.S., Canada and Latin America revenue rose 16% overall, led by device sales, including Card-to-Cloud models. Combined Europe, Asia and other markets revenue fell 16% reported and 6% constant currency, primarily due to device component shortages. Global device revenue increased 5% reported and 9% constant currency.
- Profit and margins: Gross profit was $540.8 million, up 7%; GAAP gross margin was 56.9%, versus 56.0%. Operating income was $275.7 million, up 5%. Net income was $210.5 million, up 3%; diluted EPS was $1.43 versus $1.39. Effective tax rate was 19.6%, compared with 21.3%.
- Expenses and other items: SG&A increased 10% to $193.9 million (16% constant currency); R&D rose 5% to $63.2 million. Other loss was $13.9 million, versus $3.1 million, reflecting a $3.3 million loss on equity investments versus a $5.6 million gain a year earlier, higher equity-method losses and interest expense. Non-GAAP diluted EPS was $1.51 in both periods; the filing’s non-GAAP measures exclude specified items and should be considered alongside GAAP results.
- Cash flow: Operating cash flow was $44.7 million, compared with cash used of $65.7 million. The comparison was affected by the prior-year $284.8 million Australian tax settlement payment; current-period cash use also reflected inventory purchases and working-capital changes. Investing cash outflow was $58.8 million, including $19.1 million for an acquisition; financing cash outflow was $41.9 million, including $64.4 million of dividends. Cash declined $66.5 million to $207.2 million.
- Liquidity and debt: Current assets were $2.03 billion and current liabilities $692.7 million. Total debt, net of borrowing costs, was $795.3 million; the filing also describes $800 million outstanding under its credit facilities and senior notes. The company had $1.4 billion available under its $1.5 billion revolver and reported $1.6 billion of cash plus available revolver liquidity. It reported compliance with debt covenants.
- Balance sheet and distributions: Total assets were $5.18 billion and stockholders’ equity $3.43 billion. Inventory increased to $864.9 million from $743.9 million at June 30. The company declared a quarterly dividend of $0.44 per share; share repurchases remained suspended.
Changes, outlook and risks
- Revenue growth was stronger on a constant-currency basis; currency movements reduced reported Sleep and Respiratory Care revenue by approximately $36.2 million. Gross margin improved, supported mainly by higher average selling prices and lower acquired-intangible amortization, partly offset by product mix and foreign exchange.
- Management cited continuing electronic-component shortages, which constrained device sales particularly in Europe, Asia and other markets. AirSense 11 launches continued, alongside Card-to-Cloud AirSense 10 and AirCurve 10 models intended to address the patient therapy backlog.
- No specific quarterly or full-year revenue or earnings guidance is provided in the supplied filing text. Management stated that current liquidity sources should fund operations, expected capital expenditures and requirements for the next 12 months and beyond; cash flow may fluctuate with operating results, supply disruptions, working capital and capital deployment.
- The planned MEDIFOX DAN acquisition, subject to regulatory clearance and customary conditions and expected to close in fiscal 2023, carries stated consideration of EUR 950 million. The filing lists approximately $929.8 million in acquisition consideration in contractual obligations, expected within fiscal 2023, and says part of the funding is expected to come from the revolver.
- Risks and contingencies include semiconductor supply constraints, foreign-exchange exposure, inflation and the potential effect of higher costs on margins, variable-rate debt, and unresolved patent litigation. The company could not reasonably estimate any loss range for open matters. NYU patent litigation was proceeding through discovery, with PTAB institution decisions expected in early December 2022; Cleveland Medical patent claims were also being contested. A separate Philips ITC proceeding concluded with no violation found, and Philips did not appeal.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing says there were no material changes to the risk factors previously disclosed in the fiscal 2022 Form 10-K.
Investor verification points
- Confirm whether device supply constraints and regional sales trends improved after September 30, 2022, and how Card-to-Cloud products affected demand and product mix.
- Track inventory growth, working-capital conversion and operating cash flow; assess whether inventory accumulation supports demand or creates excess-stock risk.
- Verify MEDIFOX DAN closing status, final consideration and funding, including the effect on debt and liquidity.
- Review subsequent debt balances, interest costs, covenant headroom and the company’s ability to maintain dividends while financing the acquisition.
- Monitor NYU and Cleveland Medical litigation developments and any changes to potential exposure; the filing provides no clear loss estimate for open cases.
- Reconcile the MD&A overview’s statement that diluted EPS was a “diluted loss” of $1.39 for the prior period with the financial statements, which report prior-year diluted EPS of positive $1.39.