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

- Year-over-year revenue grows 9%, non-GAAP operating profit up 24%

Note: A webcast of ResMed’s conference call will be available at 4:30 p.m. ET today at http://investor.resmed.com

SAN DIEGO--(BUSINESS WIRE)--ResMed Inc. (NYSE: RMD, ASX: RMD), a world-leading digital health company, today announced results for its quarter ended June 30, 2020.

Fourth Quarter 2020 Highlights

All comparisons are to the prior year period

• Revenue increased 9% to $770.3 million; up 10% on a constant currency basis
• GAAP gross margin of 58.3%; non-GAAP gross margin expanded 60 bps to 59.9%
• Net operating profit increased 84%; non-GAAP operating profit up 24%
• GAAP diluted earnings per share of $1.22; non-GAAP diluted earnings per share of $1.33

Full Year 2020 Highlights

All comparisons are to the prior year period

• Revenue increased 13% to $3.0 billion; up 15% on a constant currency basis
• GAAP gross margin of 58.1%; non-GAAP gross margin expanded 80 bps to 59.8%
• Net operating profit increased 40%; non-GAAP operating profit up 24%
• GAAP diluted earnings per share of $4.27; non-GAAP diluted earnings per share of $4.76

“Our fourth quarter results reflect the strength and resiliency of our business in today’s uncertain environment. We finished fiscal year 2020 with double-digit revenue growth to $3.0 billion and operating profit up 24% on a non-GAAP basis,” said Mick Farrell, ResMed’s CEO. “Throughout our fiscal fourth quarter, we continued to support the COVID-19 pandemic response through increased manufacturing of our ventilators, including bilevels, and ventilation mask systems while also supporting our customers with digital health solutions and other innovative tools to enable remote care for patients. Looking ahead, we are confident in our ability to navigate through the ongoing challenging clinical and economic environment to deliver for all our stakeholders. Sleep labs and physician practices are reopening across many geographies, and we’re seeing accelerated adoption of digital health solutions which supports our long-term strategy. We remain vigilant and thoughtful about the outlook for our business as we continue to serve our customers, and we believe our strong foundation will accelerate our growth over the longer term.”

Financial Results and Operating Metrics
Unaudited; $ in millions, except for per share amounts
	Three Months Ended
	June 30, 2020			June 30, 2019			% Change		Constant Currency^(A)
Revenue	$	770.3		$	705.0		9	%	10	%
Gross margin ^(B)		58.3	%		57.1	%	2
Non-GAAP gross margin ^(B)		59.9	%		59.3	%	1
Selling, general and administrative expenses		165.4			171.6		(4)		0
Research and development expenses		52.5			51.1		3		4
Income from operations		223.2			121.1		84
Non-GAAP income from operations ^(B)		243.4			196.2		24
Net income		177.8			68.8		158
Non-GAAP net income^(B)		193.3			137.6		40
Diluted earnings per share	$	1.22		$	0.48		154
Non-GAAP diluted earnings per share ^(B)	$	1.33		$	0.95		40
	Twelve Months Ended
	June 30, 2020			June 30, 2019			% Change		Constant Currency^(A)
Revenue	$	2,957.0		$	2,606.6		13	%	15	%
Gross margin ^(B)		58.1	%		57.3	%	1
Non-GAAP gross margin ^(B)		59.8	%		59.0	%	1
Selling, general and administrative expenses		676.7			645.0		5		7
Research and development expenses		201.9			180.7		12		14
Income from operations		809.7			579.3		40
Non-GAAP income from operations ^(B)		890.9			716.3		24
Net income		621.7			404.6		54
Non-GAAP net income^(B)		692.8			526.4		32
Diluted earnings per share	$	4.27		$	2.80		53
Non-GAAP diluted earnings per share ^(B)	$	4.76		$	3.64		31

(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 Fourth Quarter Results

All comparisons are to the prior year period unless otherwise noted

• Revenue in the U.S., Canada, and Latin America, excluding Software as a Service, grew by 4 percent, driven by strong sales across our mask product portfolio and increased demand for our ventilators due to COVID-19, partially offset by a decrease in demand for our sleep devices.
• Revenue in combined Europe, Asia, and other markets grew by 22 percent on a constant currency basis, primarily driven by sales across our device product portfolio, including increased demand for our ventilators due to COVID-19.
• Software as a Service revenue increased by 7 percent, due to continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings.
• Gross margin expanded by 120 basis points while non-GAAP gross margin expanded by 60 basis points. These expansions were primarily due to benefits from product mix changes, partially offset by declines in manufacturing and procurement efficiencies driven by higher air freight costs.
• Selling, general, and administrative expenses decreased by 4 percent or consistent on a constant currency basis. SG&A expenses improved to 21.5 percent of revenue in the quarter, compared with 24.3 percent in the same period of the prior year. These changes in SG&A expenses were mainly due to savings in travel and other cost management as a result of the COVID-19 pandemic.
• Income from operations increased by 84 percent and non-GAAP income from operations increased by 24 percent.
• Net income grew by 158 percent and diluted earnings per share grew by 154 percent, largely attributable to the impact of legal settlement expenses in the prior year. Non-GAAP net income grew by 40 percent and non-GAAP diluted earnings per share grew by 40 percent, predominantly attributable to strong ventilator device sales and controlled operating costs.
• Cash flow from operations for the quarter was $330.3 million, compared to net income in the current quarter of $177.8 million. During the quarter we paid $56.5 million in dividends.

Other Business and Operational Highlights

• Accelerated the launch of cloud-based remote monitoring software for ventilators and Lumis devices across Europe, via the AirView platform. Through the new release, clinicians and care providers can remotely monitor patients’ respiratory rate and blood oxygen saturation, two key indicators to track changes in a respiratory patient's condition.
• Launched ResMed MaskSelector, a digital tool to make remote patient mask selection and sizing easier and more effective, helping patients receive the care they need from home. ResMed MaskSelector creates personalized ResMed mask recommendations based on a patient’s sleep attributes and facial measurements enabling HMEs to support patients when they can’t physically set them due to physical distancing.

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 August 20, 2020, payable on September 24, 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 Interests (“CDIs”) 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 August 19, 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 August 19, 2020, through August 20, 2020, inclusive.

Webcast details

ResMed will discuss its fourth 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 “Q4 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 [phone] (U.S.) or [phone] (outside U.S.) and entering the passcode 2498310. The telephone replay will be available until August 19, 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 digital health technologies and 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				Twelve Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Net revenue	$	770,343	$	704,964	$	2,957,013	$	2,606,572
Cost of sales		308,991		287,114		1,189,624		1,069,987
Amortization of acquired intangibles ^(1)		11,980		15,418		49,603		42,514
Total cost of sales	$	320,971	$	302,532	$	1,239,227	$	1,112,501
Gross profit	$	449,372	$	402,432	$	1,717,786	$	1,494,071
Selling, general and administrative		165,385		171,600		676,689		645,010
Research and development		52,520		51,138		201,946		180,651
Amortization of acquired intangibles ^(1)		8,220		8,019		30,092		32,424
Restructuring expenses ^(1)		-		9,401		-		9,401
Litigation settlement expenses ^(1)		-		41,199		(600)		41,199
Acquisition-related expenses ^(1)		-		-		-		6,123
Total operating expenses	$	226,125	$	281,357	$	908,127	$	914,808
Income from operations		223,247		121,075		809,659		579,263
Other income (expenses), net:
Interest income (expense), net	$	(8,942)	$	(12,264)	$	(39,356)	$	(33,857)
Loss attributable to equity method investments		(5,976)		(6,463)		(25,058)		(15,833)
Other, net		3,765		(6,587)		(12,157)		(10,726)
Total other income (expenses), net		(11,153)		(25,314)		(76,571)		(60,416)
Income before income taxes	$	212,094	$	95,761	$	733,088	$	518,847
Income taxes		34,259		26,964		111,414		114,255
Net income	$	177,835	$	68,797	$	621,674	$	404,592
Basic earnings per share	$	1.23	$	0.48	$	4.31	$	2.83
Diluted earnings per share	$	1.22	$	0.48	$	4.27	$	2.80
Non-GAAP diluted earnings per share ^(1)	$	1.33	$	0.95	$	4.76	$	3.64
Basic shares outstanding		144,792		143,435		144,338		143,111
Diluted shares outstanding		145,866		144,687		145,652		144,484

(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)
	June 30, 2020		June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	463,156	$	147,128
Accounts receivable, net		474,643		528,484
Inventories		416,915		349,641
Prepayments and other current assets		168,745		120,113
Total current assets	$	1,523,459	$	1,145,366
Non-current assets:
Property, plant and equipment, net	$	417,335	$	387,460
Operating lease right-of-use assets		118,348		-
Goodwill and other intangibles, net		2,338,492		2,378,399
Deferred income taxes and other non-current assets		189,742		196,457
Total non-current assets	$	3,063,917	$	2,962,316
Total assets	$	4,587,376	$	4,107,682
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	135,786	$	115,725
Accrued expenses		270,353		266,359
Operating lease liabilities, current		21,263		-
Deferred revenue		98,617		88,667
Income taxes payable		64,755		73,248
Short-term debt		11,987		11,992
Total current liabilities	$	602,761	$	555,991
Non-current liabilities:
Deferred revenue	$	87,307	$	81,143
Deferred income taxes		13,011		11,380
Operating lease liabilities, non-current		101,880		-
Other long term liabilities		8,347		2,058
Long-term debt		1,164,133		1,258,861
Long-term income taxes payable		112,910		126,056
Total non-current liabilities	$	1,487,588	$	1,479,498
Total liabilities	$	2,090,349	$	2,035,489
STOCKHOLDERS’ EQUITY:
Common stock	$	580	$	575
Additional paid-in capital		1,570,694		1,511,473
Retained earnings		2,832,991		2,436,410
Treasury stock		(1,623,256)		(1,623,256)
Accumulated other comprehensive income		(283,982)		(253,009)
Total stockholders’ equity	$	2,497,027	$	2,072,193
Total liabilities and stockholders' equity	$	4,587,376	$	4,107,682

RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited; $ in thousands)
	Twelve Months Ended
	June 30, 2020		June 30, 2019
Cash flows from operating activities:
Net income	$	621,674	$	404,592
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization		154,850		150,795
Amortization of right-of-use-assets		26,523		-
Stock-based compensation costs		57,559		52,073
Loss attributable to equity method investments		25,058		15,833
Impairment of equity investments		14,519		15,007
Gain on previously held equity interest		-		(1,909)
Changes in fair value of business combination contingent consideration		(7)		(286)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net		54,383		(18,013)
Inventories, net		(69,881)		(84,188)
Prepaid expenses, net deferred income taxes and other current assets		(58,999)		(47,575)
Accounts payable, accrued expenses and other		(23,424)		(27,278)
Net cash provided by operating activities	$	802,255	$	459,051
Cash flows from investing activities:
Purchases of property, plant and equipment		(95,330)		(68,710)
Patent registration costs		(10,608)		(8,632)
Business acquisitions, net of cash acquired		(27,910)		(951,383)
Purchases of investments		(31,616)		(46,717)
Proceeds / (Payments) on maturity of foreign currency contracts		(14,397)		(264)
Net cash used in investing activities	$	(179,861)	$	(1,075,706)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		48,182		36,727
Taxes paid related to net share settlement of equity awards		(46,061)		(28,104)
Purchases of treasury stock		-		(22,844)
Payment of business combination contingent consideration		(302)		(909)
Proceeds from borrowings, net of borrowing costs		1,190,000		1,519,230
Repayment of borrowings		(1,284,012)		(711,745)
Dividends paid		(225,093)		(211,712)
Net cash (used in) / provided by financing activities	$	(317,286)	$	580,643
Effect of exchange rate changes on cash	$	10,920	$	(5,561)
Net increase / (decrease) in cash and cash equivalents		316,028		(41,573)
Cash and cash equivalents at beginning of period		147,128		188,701
Cash and cash equivalents at end of period	$	463,156	$	147,128

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						Twelve Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Revenue	$	770,343		$	704,964		$	2,957,013		$	2,606,572
Add back: Deferred revenue fair value adjustment ^(A)		-			1,065			2,102			5,348
Non-GAAP Revenue	$	770,343		$	706,029		$	2,959,115		$	2,611,920
GAAP Cost of sales	$	320,971		$	302,532		$	1,239,227		$	1,112,501
Less: Amortization of acquired intangibles ^(A)		(11,980)			(15,418)			(49,603)			(42,514)
Non-GAAP cost of sales	$	308,991		$	287,114		$	1,189,624		$	1,069,987
GAAP gross profit		449,372			402,432			1,717,786			1,494,071
GAAP gross margin		58.3	%		57.1	%		58.1	%		57.3	%
Non-GAAP gross profit		461,352			418,915			1,769,491			1,541,933
Non-GAAP gross margin		59.9	%		59.3	%		59.8	%		59.0	%

The measure “non-GAAP income from operations” is reconciled with GAAP income from operations below:
	Three Months Ended				Twelve Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
GAAP income from operations	$	223,247	$	121,075	$	809,659	$	579,263
Amortization of acquired intangibles - cost of sales ^(A)		11,980		15,418		49,603		42,514
Amortization of acquired intangibles - operating expenses ^(A)		8,220		8,019		30,092		32,424
Deferred revenue fair value adjustment ^(A)		-		1,065		2,102		5,348
Restructuring expenses ^(A)		-		9,401		-		9,401
Litigation settlement expenses ^(A)		-		41,199		(600)		41,199
Acquisition related expenses ^(A)		-		-		-		6,123
Non-GAAP income from operations	$	243,447	$	196,177	$	890,856	$	716,272

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				Twelve Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
GAAP net income	$	177,835	$	68,797	$	621,674	$	404,592
Amortization of acquired intangibles - cost of sales, net of tax^(A)		9,167		11,447		37,933		32,477
Amortization of acquired intangibles - operating expenses, net of tax^(A)		6,290		5,954		23,012		24,769
Deferred revenue fair value adjustment, net of tax ^(A)		-		786		1,610		4,067
Restructuring expenses, net of tax ^(A)		-		7,205		-		7,205
Litigation settlement expenses, net of tax ^(A)		-		36,248		(528)		36,248
Fair value impairment of investment ^(A)		-		5,000		9,100		5,000
U.S. tax reform		-		2,149		-		6,654
Acquisition-related expenses ^(A)		-		-		-		5,362
Non-GAAP net income ^(A)	$	193,292	$	137,586	$	692,801	$	526,374
Diluted shares outstanding		145,866		144,687		145,652		144,484
GAAP diluted earnings per share	$	1.22	$	0.48	$	4.27	$	2.80
Non-GAAP diluted earnings per share ^(A)	$	1.33	$	0.95	$	4.76	$	3.64

(A)

ResMed adjusts for the impact of the amortization of acquired intangibles, deferred revenue fair value adjustment, restructuring expenses, litigation settlement expenses, fair value impairment of investment, the impact of U.S. tax reform on income tax expense and acquisition-related expenses 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 millions, except for per share amounts)
	Three Months Ended
	June 30, 2020 (A)		June 30, 2019 (A)		% Change		Constant Currency ^(B)
U.S., Canada and Latin America
Devices	$	205.9	$	202.9	1	%
Masks and other		194.7		182.6	7
Total Sleep and Respiratory Care	$	400.5	$	385.5	4
Software as a Service		91.5		85.2	7
Total	$	492.0	$	470.7	5
Combined Europe, Asia and other markets
Devices	$	205.8	$	155.5	32	%	35	%
Masks and other		72.6		78.8	- 8		- 6
Total Sleep and Respiratory Care	$	278.3	$	234.3	19		22
Global revenue
Devices	$	411.6	$	358.4	15	%	16	%
Masks and other		267.2		261.4	2		3
Total Sleep and Respiratory Care	$	678.9	$	619.8	10		11
Software as a Service		91.5		85.2	7		7
Total	$	770.3	$	705.0	9		10
	Twelve Months Ended
	June 30, 2020 (A)		June 30, 2019 (A)		% Change		Constant Currency ^(B)
U.S., Canada and Latin America
Devices	$	792.8	$	743.1	7	%
Masks and other		779.6		677.4	15
Total Sleep and Respiratory Care	$	1,572.3	$	1,420.5	11
Software as a Service		354.6		275.8	29
Total	$	1,927.0	$	1,696.3	14
Combined Europe, Asia and other markets
Devices	$	715.1	$	618.5	16	%	19	%
Masks and other		315.0		291.8	8		11
Total Sleep and Respiratory Care	$	1,030.1	$	910.3	13		16
Global revenue
Devices	$	1,507.8	$	1,361.6	11	%	12	%
Masks and other		1,094.6		969.2	13		14
Total Sleep and Respiratory Care	$	2,602.4	$	2,330.8	12		13
Software as a Service		354.6		275.8	29		29
Total	$	2,957.0	$	2,606.6	13		15

(A)

Totals and subtotals may not add due to rounding.

(B)

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.