- Year-over-year revenue grows 13%, non-GAAP operating profit up
21%
- Balanced growth across product portfolio, software solutions,
and global markets
Note: A webcast of ResMed’s conference call will be available at
4:30 p.m. ET today at http://investor.resmed.com
ResMed Inc. (NYSE: RMD) (ASX: RMD), a world-leading digital
health company, today announced results for its quarter ended
December 31, 2019.
Second Quarter 2020 Highlights
- Revenue increased 13% to $736.2 million; up 14% on a constant
currency basis
- GAAP gross margin of 58.0%; non-GAAP gross margin expanded 60
bps to 59.7%
- Net operating profit increased 26%; non-GAAP operating profit
up 21%
- GAAP diluted earnings per share of $1.10; non-GAAP diluted
earnings per share of $1.21
“We had a strong December quarter with double-digit top-line
growth and further gross margin expansion, as well as continued
fiscal discipline that resulted in improvements in operating
leverage and double-digit growth at the bottom line,” said Mick
Farrell, ResMed’s CEO. “We are seeing continued strong customer
demand for our new products, particularly in masks and accessories
with another quarter of high-teens growth in that category. ResMed
is continuing to lead in digital health as we transform lives in
out-of-hospital healthcare, leading the innovation of medical
devices and software that improve health outcomes, create
efficiencies, and reduce overall healthcare system costs. With over
100 million lives improved in 2019, and strong growth ahead, we’re
well on our way to improving 250 million lives in out-of-hospital
healthcare in 2025.”
Financial Results and Operating
Metrics
Unaudited; $ in millions, except for per
share amounts
Three Months Ended
December 31, 2019
December 31, 2018
% Change
Constant Currency (A)
Revenue
$
736.2
$
651.1
13
%
14
%
Gross margin (B)
58.0
%
57.5
%
1
Non-GAAP gross margin (B)
59.7
%
59.1
%
1
Selling, general and administrative
expenses
171.4
161.6
6
8
Research and development expenses
49.9
43.1
16
18
Income from operations
197.8
157.1
26
Non-GAAP income from operations (B)
218.5
181.1
21
Net income
160.6
124.6
29
Non-GAAP net income (B)
176.3
144.5
22
Diluted earnings per share
$
1.10
$
0.86
28
Non-GAAP diluted earnings per share
(B)
$
1.21
$
1.00
21
Six Months Ended
December 31, 2019
December 31, 2018
% Change
Constant Currency (A)
Revenue
$
1,417.2
$
1,239.4
14
%
15
%
Gross margin (B)
57.8
%
57.3
%
1
Non-GAAP gross margin (B)
59.6
%
58.7
%
2
Selling, general and administrative
expenses
338.9
308.9
10
12
Research and development expenses
98.0
81.9
20
22
Income from operations
368.9
301.2
22
Non-GAAP income from operations (B)
409.5
338.1
21
Net income
280.7
230.4
22
Non-GAAP net income (B)
311.7
260.7
20
Diluted earnings per share
$
1.93
$
1.60
21
Non-GAAP diluted earnings per share
(B)
$
2.14
$
1.81
18
(A) In order to provide a framework for assessing how our
underlying businesses performed excluding the effect of foreign
currency fluctuations, we provide certain financial information on
a “constant currency basis,” which is in addition to the actual
financial information presented. In order to calculate our constant
currency information, we translate the current period financial
information using the foreign currency exchange rates that were in
effect during the previous comparable period. However, constant
currency measures should not be considered in isolation or as an
alternative to U.S. dollar measures that reflect current period
exchange rates, or to other financial measures calculated and
presented in accordance with U.S. GAAP.
(B) See the reconciliation of non-GAAP financial measures in the
table at the end of the press release.
Discussion of Second Quarter Results
- Revenue in the U.S., Canada, and Latin America, excluding
Software as a Service, grew by 14 percent compared to the prior
year period, driven by strong sales across our mask and device
product portfolios.
- Revenue in combined Europe, Asia, and other markets grew by 8
percent on a constant currency basis compared to the same period of
the prior year, primarily driven by strong mask sales.
- Software as a Service revenue increased by 37 percent, compared
to the prior year period, due to continued growth in Brightree
service offerings and incremental contribution from the acquisition
of MatrixCare, which closed in the second quarter of fiscal year
2019.
- Gross Margin expanded by 50 basis points over the prior year.
Non-GAAP gross margin expanded by 60 basis points over the prior
year period, primarily due to benefits from product mix changes and
manufacturing and procurement efficiencies, partially offset by
declines in average selling prices.
- Selling, general, and administrative expenses increased by 6
percent compared to the prior year period, or by 8 percent on a
constant currency basis. Excluding the impact of recent
acquisitions, selling, general, and administrative expenses
increased by 2 percent on a constant currency basis. SG&A
expenses improved to 23.3 percent of revenue in the quarter,
compared with 24.8 percent in the same period of the prior
year.
- Income from operations increased by 26 percent and non-GAAP
income from operations increased by 21 percent compared to the
prior year period.
- Net income grew by 29 percent and diluted earnings per share
grew by 28 percent compared to the prior year quarter. Non-GAAP net
income grew by 22 percent and non-GAAP diluted earnings per share
grew by 21 percent compared with the prior year quarter,
predominantly attributable to strong sales, particularly in masks,
coupled with controlled operating costs.
- Cash flow from operations for the quarter was $69.9 million,
compared to net income in the current quarter of $160.6 million.
Cash flow from operations included tax payments of $111.0 million
and legal settlement payments of $40.6 million. During the quarter
we paid $56.1 million in dividends.
Other Business and Operational Highlights
- Announced a collaboration agreement with Cerner Corporation
(NASDAQ: CERN), designating ResMed’s Brightree Home Health and
Hospice platform as its preferred solution to integrate with its
Cerner Millenium® electronic health record.
- Introduced AirFit N30, the world’s first tube-down nasal cradle
CPAP mask with a front-facing tube, a brand new option for sleep
apnea treatment. Other key features include an adjustable elastic
headgear, a nasal cradle cushion that sits under the nasal bridge
to eliminate soreness, and a curved design to provide a secure seal
regardless of how the wearer sleeps or moves.
- Announced an upgraded AirView for Respiratory program that
provides HMEs and physicians with quicker access to essential
respiratory patient data, including more granular clinical data and
respiration trends, and management by exception, allowing them to
provide better care.
- Agreed in January to acquire SnapWorx, a privately held
software company providing patient contact management and workflow
optimization for the sleep apnea resupply market. SnapWorx’s
software platform automates workflow and document retrieval in ways
that complement Brightree’s industry-leading, multi-channel
resupply solution. The combination of Brightree ReSupply’s
technology and live call services with SnapWorx creates the most
comprehensive set of resupply solutions in the industry. The
transaction is expected to close shortly. It is expected to be
initially neutral to non-GAAP earnings per share, and accretive to
non-GAAP earnings per share in fiscal year 2021.
Dividend program
The ResMed board of directors today declared a quarterly cash
dividend of $0.39 per share. The dividend will have a record date
of February 13, 2020, payable on March 19, 2020. The dividend will
be paid in U.S. currency to holders of ResMed’s common stock
trading on the New York Stock Exchange. Holders of Chess Depositary
Instruments trading on the Australian Securities Exchange will
receive an equivalent amount in Australian currency, based on the
exchange rate on the record date, and reflecting the 10:1 ratio
between CDIs and NYSE shares. The ex-dividend date will be February
12, 2020, for common stockholders and for CDI holders. ResMed has
received a waiver from the ASX’s settlement operating rules, which
will allow ResMed to defer processing conversions between its
common stock and CDI registers from February 12, 2020, through
February 13, 2020, inclusive.
Webcast details
ResMed will discuss its second quarter fiscal year 2020 results
on its webcast at 1:30 p.m. U.S. Pacific Time today. The live
webcast of the call can be accessed on ResMed’s Investor Relations
website at investor.resmed.com. Please go to this section of the
website and click on the icon for the “Q2 2020 Earnings Webcast” to
register and listen to the live webcast. A replay of the earnings
webcast will be accessible on the website and available
approximately two hours after the live webcast. In addition, a
telephone replay of the conference call will be available
approximately two hours after the webcast by dialing +1
800-585-8367 (U.S.) or +1 416-621-4642 (outside U.S.) and entering
the passcode 8829576. The telephone replay will be available until
February 13, 2020.
About ResMed
At ResMed (NYSE: RMD, ASX: RMD) we pioneer innovative solutions
that treat and keep people out of the hospital, empowering them to
live healthier, higher-quality lives. Our cloud-connected medical
devices transform care for people with sleep apnea, COPD, and other
chronic diseases. Our comprehensive out-of-hospital software
platforms support the professionals and caregivers who help people
stay healthy in the home or care setting of their choice. By
enabling better care, we improve quality of life, reduce the impact
of chronic disease, and lower costs for consumers and healthcare
systems in more than 140 countries. To learn more, visit ResMed.com
and follow @ResMed.
Safe harbor statement
Statements contained in this release that are not historical
facts are “forward-looking” statements as contemplated by the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements – including statements regarding
ResMed’s projections of future revenue or earnings, expenses, new
product development, new product launches, new markets for its
products, the integration of acquisitions, litigation, and tax
outlook – are subject to risks and uncertainties, which could cause
actual results to materially differ from those projected or implied
in the forward-looking statements. Additional risks and
uncertainties are discussed in ResMed’s periodic reports on file
with the U.S. Securities & Exchange Commission. ResMed does not
undertake to update its forward-looking statements.
RESMED INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Income
(Unaudited; $ in thousands, except for per
share amounts)
Three Months Ended
Six Months Ended
December 31, 2019
December 31, 2018
December 31, 2019
December 31, 2018
Net revenue
$
736,157
$
651,100
$
1,417,213
$
1,239,380
Cost of sales
296,975
267,369
572,976
512,556
Amortization of acquired intangibles
(1)
12,052
9,199
25,488
16,154
Total cost of sales
$
309,027
$
276,568
$
598,464
$
528,710
Gross profit
$
427,130
$
374,532
$
818,749
$
710,670
Selling, general and administrative
171,422
161,579
338,862
308,881
Research and development
49,943
43,111
97,976
81,902
Amortization of acquired intangibles
(1)
8,556
6,641
13,599
12,553
Litigation settlement expenses (1)
(600
)
-
(600
)
-
Acquisition-related expenses (1)
-
6,123
-
6,123
Total operating expenses
$
229,321
$
217,454
$
449,837
$
409,459
Income from operations
197,809
157,078
368,912
301,211
Other income (expenses), net:
Interest income (expense), net
$
(10,018
)
$
(6,809
)
$
(20,562
)
$
(9,595
)
Loss attributable to equity method
investments
(6,924
)
(3,375
)
(13,786
)
(3,375
)
Other, net
(2,115
)
(621
)
(5,225
)
(3,086
)
Total other income (expenses), net
(19,057
)
(10,805
)
(39,573
)
(16,056
)
Income before income taxes
$
178,752
$
146,273
$
329,339
$
285,155
Income taxes
18,198
21,634
48,637
54,778
Net income
$
160,554
$
124,639
$
280,702
$
230,377
Basic earnings per share
$
1.11
$
0.87
$
1.95
$
1.61
Diluted earnings per share
$
1.10
$
0.86
$
1.93
$
1.60
Non-GAAP diluted earnings per share
(1)
$
1.21
$
1.00
$
2.14
$
1.81
Basic shares outstanding
144,212
142,923
143,966
142,796
Diluted shares outstanding
145,575
144,349
145,479
144,418
(1) See the reconciliation of non-GAAP financial measures in the
table at the end of the press release.
RESMED INC. AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(Unaudited; $ in thousands)
December 31, 2019
June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
204,095
$
147,128
Accounts receivable, net
528,039
528,484
Inventories
377,784
349,641
Prepayments and other current assets
190,567
120,113
Total current assets
$
1,300,485
$
1,145,366
Non-current assets:
Property, plant and equipment, net
$
408,364
$
387,460
Operating lease right-of-use assets
96,745
-
Goodwill and other intangibles, net
2,351,508
2,378,399
Deferred income taxes and other
non-current assets
196,837
196,457
Total non-current assets
$
3,053,454
$
2,962,316
Total assets
$
4,353,939
$
4,107,682
LIABILITIES AND STOCKHOLDERS’
EQUITY:
Current liabilities:
Accounts payable
$
114,322
$
115,725
Accrued expenses
217,847
266,359
Operating lease liabilities, current
20,038
-
Deferred revenue
92,950
88,667
Income taxes payable
42,904
73,248
Short-term debt
11,984
11,992
Total current liabilities
$
500,045
$
555,991
Non-current liabilities:
Deferred revenue
$
86,140
$
81,143
Deferred income taxes
27,709
11,380
Operating lease liabilities,
non-current
79,458
-
Other long term liabilities
2,062
2,058
Long-term debt
1,287,509
1,258,861
Long-term income taxes payable
112,910
126,056
Total non-current liabilities
$
1,595,788
$
1,479,498
Total liabilities
$
2,095,833
$
2,035,489
STOCKHOLDERS’ EQUITY:
Common stock
$
578
$
575
Additional paid-in capital
1,521,992
1,511,473
Retained earnings
2,604,910
2,436,410
Treasury stock
(1,623,256
)
(1,623,256
)
Accumulated other comprehensive income
(246,118
)
(253,009
)
Total stockholders’ equity
$
2,258,106
$
2,072,193
Total liabilities and stockholders'
equity
$
4,353,939
$
4,107,682
RESMED INC. AND
SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows
(Unaudited; $ in thousands)
Six Months Ended
December 31, 2019
December 31, 2018
Cash flows from operating
activities:
Net income
$
280,702
$
230,377
Adjustment to reconcile net income to cash
provided by operating activities:
Depreciation and amortization
77,077
66,453
Amortization of right-of-use-assets
12,323
-
Stock-based compensation costs
27,309
25,011
Loss attributable to equity method
investments
13,786
3,375
Impairment of equity investments
5,419
2,959
Changes in fair value of business
combination contingent consideration
(7
)
(272
)
Changes in operating assets and
liabilities, net of effect of acquisitions:
Accounts receivable, net
(275
)
32,366
Inventories, net
(28,294
)
(30,570
)
Prepaid expenses, net deferred income
taxes and other current assets
(66,818
)
(26,922
)
Accounts payable, accrued expenses and
other
(88,927
)
(125,190
)
Net cash provided by operating
activities
$
232,295
$
177,587
Cash flows from investing
activities:
Purchases of property, plant and
equipment
(47,771
)
(31,425
)
Patent registration costs
(4,871
)
(4,643
)
Business acquisitions, net of cash
acquired
(3,423
)
(739,249
)
Purchases of investments
(21,841
)
(27,967
)
Proceeds / (Payments) on maturity of
foreign currency contracts
1,064
(3,127
)
Net cash used in investing activities
$
(76,842
)
$
(806,411
)
Cash flows from financing
activities:
Proceeds from issuance of common stock,
net
24,297
12,784
Taxes paid related to net share settlement
of equity awards
(41,091
)
(27,340
)
Purchases of treasury stock
-
(22,844
)
Payment of business combination contingent
consideration
(302
)
(430
)
Proceeds from borrowings, net of borrowing
costs
730,000
1,091,230
Repayment of borrowings
(700,012
)
(352,798
)
Dividends paid
(112,202
)
(105,567
)
Net cash (used in) / provided by financing
activities
$
(99,310
)
$
595,035
Effect of exchange rate changes on
cash
$
824
$
(5,444
)
Net increase / (decrease) in cash and cash
equivalents
56,967
(39,233
)
Cash and cash equivalents at beginning of
period
147,128
188,701
Cash and cash equivalents at end of
period
$
204,095
$
149,468
RESMED INC. AND
SUBSIDIARIES
Reconciliation of Non-GAAP Financial
Measures
(Unaudited; $ in thousands, except for per
share amounts)
The measures “non-GAAP gross profit” and
“non-GAAP gross margin” excludes amortization expense from acquired
intangibles related to cost of sales and are reconciled below:
Three Months Ended
Six Months Ended
December 31, 2019
December 31, 2018
December 31, 2019
December 31, 2018
Revenue
$
736,157
$
651,100
$
1,417,213
$
1,239,380
Add back: Deferred revenue fair value
adjustment (A)
657
2,029
2,102
2,029
Non-GAAP Revenue
$
736,814
$
653,129
$
1,419,315
$
1,241,409
GAAP Cost of sales
$
309,027
$
276,568
$
598,464
$
528,710
Less: Amortization of acquired intangibles
(A)
(12,052)
(9,199)
(25,488)
(16,154)
Non-GAAP cost of sales
$
296,975
$
267,369
$
572,976
$
512,556
GAAP gross profit
427,130
374,532
818,749
710,670
GAAP gross margin
58.0
%
57.5
%
57.8
%
57.3
%
Non-GAAP gross profit
439,839
385,760
846,339
728,853
Non-GAAP gross margin
59.7
%
59.1
%
59.6
%
58.7
%
The measure “non-GAAP income from operations” is reconciled with
GAAP income from operations below:
Three Months Ended
Six Months Ended
December 31, 2019
December 31, 2018
December 31, 2019
December 31,
2018
GAAP income from operations
$
197,809
$
157,078
$
368,912
$
301,211
Amortization of acquired intangibles -
cost of sales (A)
12,052
9,199
25,488
16,154
Amortization of acquired intangibles -
operating expenses (A)
8,556
6,641
13,599
12,553
Deferred revenue fair value adjustment
(A)
657
2,029
2,102
2,029
Litigation settlement expenses (A)
(600
)
-
(600
)
-
Acquisition related expenses (A)
-
6,123
-
6,123
Non-GAAP income from operations
$
218,474
$
181,070
$
409,501
$
338,070
RESMED INC. AND
SUBSIDIARIES
Reconciliation of Non-GAAP Financial
Measures
(Unaudited; $ in thousands, except for per
share amounts)
The measures "non-GAAP net income" and
“non-GAAP diluted earnings per share” are reconciled with GAAP net
income and GAAP diluted earnings per share in the table below:
Three Months Ended
Six Months Ended
December 31, 2019
December 31, 2018
December 31, 2019
December 31, 2018
GAAP net income
$
160,554
$
124,639
$
280,702
$
230,377
Amortization of acquired intangibles -
cost of sales, net of tax (A)
9,210
7,127
19,478
12,525
Amortization of acquired intangibles -
operating expenses, net of tax (A)
6,538
5,144
10,392
9,733
Deferred revenue fair value adjustment,
net of tax (A)
503
1,554
1,610
1,554
Litigation settlement expenses, net of tax
(A)
(528
)
-
(528
)
-
Acquisition-related expenses (A)
-
5,362
-
5,362
U.S. tax reform transition impact (A)
-
644
-
1,178
Non-GAAP net income (A)
$
176,277
$
144,470
$
311,654
$
260,729
Diluted shares outstanding
145,575
144,349
145,479
144,418
GAAP diluted earnings per share
$
1.10
$
0.86
$
1.93
$
1.60
Non-GAAP diluted earnings per share
(A)
$
1.21
$
1.00
$
2.14
$
1.81
(A) ResMed adjusts for the impact of the amortization of
acquired intangibles, deferred revenue fair value adjustment,
litigation settlement expenses, acquisition-related expenses, and
the impact of U.S. tax reform on income tax expense from their
evaluation of ongoing operations, and believes that investors
benefit from adjusting these items to facilitate a more meaningful
evaluation of current operating performance.
ResMed believes that non-GAAP diluted earnings per share is an
additional measure of performance that investors can use to compare
operating results between reporting periods. ResMed uses non-GAAP
information internally in planning, forecasting, and evaluating the
results of operations in the current period and in comparing it to
past periods. ResMed believes this information provides investors
better insight when evaluating ResMed’s performance from core
operations and provides consistent financial reporting. The use of
non-GAAP measures is intended to supplement, and not to replace,
the presentation of net income and other GAAP measures. Like all
non-GAAP measures, non-GAAP earnings are subject to inherent
limitations because they do not include all the expenses that must
be included under GAAP.
RESMED INC. AND
SUBSIDIARIES
Revenue by Product and Region
(Unaudited; $ in thousands, except for per
share amounts)
Three Months Ended
December 31, 2019
December 31, 2018
% Change
Constant Currency (A)
U.S., Canada and Latin America
Devices
$
203.5
$
186.5
9
%
Masks and other
204.5
172.0
19
Total Sleep and Respiratory Care
$
408.0
$
358.5
14
Software as a Service
86.7
63.2
37
Total
$
494.7
$
421.7
17
Combined Europe, Asia and other
markets
Devices
$
162.3
$
156.2
4
%
6
%
Masks and other
79.2
73.2
8
11
Total Sleep and Respiratory Care
$
241.5
$
229.4
5
8
Global revenue
Devices
$
365.8
$
342.7
7
%
8
%
Masks and other
283.7
245.2
16
16
Total Sleep and Respiratory Care
$
649.5
$
587.9
10
11
Software as a Service
86.7
63.2
37
37
Total
$
736.2
$
651.1
13
14
Six Months Ended
December 31, 2019
December 31, 2018
% Change
Constant Currency (A)
U.S., Canada and Latin America
Devices
$
390.4
$
358.9
9
%
Masks and other
387.8
326.1
19
Total Sleep and Respiratory Care
$
778.2
$
685.0
14
Software as a Service
173.6
110.7
57
Total
$
951.8
$
795.7
20
Combined Europe, Asia and other
markets
Devices
$
314.2
$
307.9
2
%
5
%
Masks and other
151.2
135.8
11
15
Total Sleep and Respiratory Care
$
465.4
$
443.7
5
8
Global revenue
Devices
$
704.6
$
666.8
6
%
7
%
Masks and other
539.0
461.9
17
18
Total Sleep and Respiratory Care
$
1,243.6
$
1,128.7
10
11
Software as a Service
173.6
110.7
57
57
Total
$
1,417.2
$
1,239.4
14
15
(A) In order to provide a framework for assessing how our
underlying businesses performed excluding the effect of foreign
currency fluctuations, we provide certain financial information on
a “constant currency basis,” which is in addition to the actual
financial information presented. In order to calculate our constant
currency information, we translate the current period financial
information using the foreign currency exchange rates that were in
effect during the previous comparable period. However, constant
currency measures should not be considered in isolation or as an
alternative to U.S. dollar measures that reflect current period
exchange rates, or to other financial measures calculated and
presented in accordance with U.S. GAAP.
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