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ResMed Inc. Announces Results for the Second Quarter of Fiscal Year 2020

  • 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

)