RESMED, INC. .
Special Note Regarding Forward-Looking Statements
This report contains or may contain certain forward-looking statements and information that are based on the beliefs of our management as well as estimates and assumptions made by, and information currently available to, our management. All statements other than statements regarding historical facts are forward-looking statements. The words "believe," "expect," "intend," "anticipate," "will continue," "will," "estimate," "plan," "future" and other similar expressions, and negative statements of such expressions, generally identify forward-looking statements, including, in particular, statements regarding expectations of future revenue or earnings, expenses, new product development, new product launches, new markets for our products, litigation, tax outlook and the effects of competition and public health crises (including the COVID-19 pandemic) on our business. These forward-looking statements are made in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements reflect the views of our management at the time the statements are made and are subject to a number of risks, uncertainties, estimates and assumptions, including, without limitation, and in addition to those identified in the text surrounding such statements, those identified in our annual report on Form 10-K for the fiscal year endedJune 30, 2022 and elsewhere in this report. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources. In addition, important factors to consider in evaluating such forward-looking statements include changes or developments in healthcare reform, social, economic, market, legal or regulatory circumstances, including the impact of public health crises such as the novel strain of coronavirus (COVID-19) that has spread globally, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of third parties, including suppliers, customers, competitors and governmental authorities and various other factors. If any one or more of these risks or uncertainties materialize, or underlying estimates or assumptions prove incorrect, actual results may vary significantly from those expressed in our forward-looking statements, and there can be no assurance that the forward-looking statements contained in this report will in fact occur. Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in our annual report on Form 10-K for the fiscal year endedJune 30, 2022 , in addition to the other cautionary statements and risks described elsewhere in this report and in our other filings with theSecurities and Exchange Commission ("SEC"), including our subsequent reports on Forms 10-Q and 8-K. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on us, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock will likely decline and you may lose all or part of your investment. 23
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PART I - FINANCIAL INFORMATION Item 2
RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The following is an overview of our results of operations for the three and six
months ended December 31, 2022 . Management's discussion and analysis of
financial condition and results of operations ("MD&A") is intended to help the
reader understand our results of operations and financial condition.
Management's discussion and analysis is provided as a supplement to, and should
be read in conjunction with, the condensed consolidated financial statements and
notes included in this report.
We are a global leader in the development, manufacturing, distribution and
marketing of medical devices and cloud-based software applications that
diagnose, treat and manage respiratory disorders, including sleep disordered
breathing ("SDB"), chronic obstructive pulmonary disease, neuromuscular disease
and other chronic diseases. SDB includes obstructive sleep apnea and other
respiratory disorders that occur during sleep. Our products and solutions are
designed to improve patient quality of life, reduce the impact of chronic
disease and lower healthcare costs as global healthcare systems continue to
drive a shift in care from hospitals to the home and lower cost settings. Our
cloud-based software digital health applications, along with our devices, are
designed to provide connected care to improve patient outcomes and efficiencies
for our customers.
Since the development of continuous positive airway pressure therapy, we have
expanded our business by developing or acquiring a number of products and
solutions for a broader range of respiratory disorders including technologies to
be applied in medical and consumer products, ventilation devices, diagnostic
products, mask systems for use in the hospital and home, headgear and other
accessories, dental devices, and cloud-based software informatics solutions to
manage patient outcomes and customer and provider business processes. Our growth
has been fueled by geographic expansion, our research and product development
efforts, acquisitions and an increasing awareness of SDB and respiratory
conditions like chronic obstructive pulmonary disease as significant health
concerns.
We are committed to ongoing investment in research and development and product
enhancements. During the three months ended December 31, 2022 , we invested $69.9
million on research and development activities, which represents 6.8% of net
revenues, with a continued focus on the development and commercialization of
new, innovative products and solutions that improve patient outcomes, create
efficiencies for our customers and help physicians and providers better manage
chronic disease and lower healthcare costs. During the three months ended
December 31, 2022 we continued the launch of AirSense 11, which introduces new
features such as a touch screen, algorithms for patients new to therapy and
digital enhancements and over-the-air update capabilities as well as continued
to expand our global offering of devices to include Card-to-Cloud ("C2C")
versions of our prior model AirSense 10 and AirCurve 10 products that do not
incorporate a communications module. We introduced these C2C models to address
the growing backlog of patients waiting for therapy with our devices due to the
global semiconductor supply shortage. Due to multiple acquisitions, including
Brightree in April 2016 , HEALTHCAREfirst in July 2018 , MatrixCare in November
2018 , and MEDIFOX DAN in November 2022 , our operations now include
out-of-hospital software platforms designed to support the professionals and
caregivers who help people stay healthy in the home or care setting of their
choice. These platforms comprise our SaaS business. These products, our
cloud-based remote monitoring and therapy management system, and a robust
product pipeline, should continue to provide us with a strong platform for
future growth.
We have determined that we have two operating segments, which are the sleep and
respiratory disorders sector of the medical device industry ("Sleep and
Respiratory Care") and the supply of business management software as a service
to out-of-hospital health providers ("SaaS").
Net revenue for the three months ended December 31, 2022 was $1,033.7 million ,
an increase of 16% compared to the three months ended December 31, 2021 . Gross
margin was 56.1% for the three months ended December 31, 2022 compared to 56.4%
for the three months ended December 31, 2021 . Diluted earnings per share was
$1.53 for the three months ended December 31, 2022 , compared to diluted earnings
per share of $1.37 for the three months ended December 31, 2021 .
At
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
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PART I - FINANCIAL INFORMATION Item 2
RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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
Results of Operations
Three Months Ended
Net Revenue
Net revenue for the three months endedDecember 31, 2022 increased to$1,033.7 million from$894.9 million for the three months endedDecember 31, 2021 , an increase of$138.9 million or 16% (a 20% increase on a constant currency basis). The following table summarizes our net revenue disaggregated by segment, product and region (in thousands): Three Months Ended December 31, 2022 2021 % Change Constant Currency*U.S. ,Canada andLatin America Devices$ 345,525 $ 244,775 41 % Masks and other 269,733 242,032 11
Total
26 CombinedEurope ,Asia and other markets Devices$ 197,275 $ 207,736 (5) % 5 % Masks and other 104,448 101,297 3 14 Total Combined Europe,Asia and other markets$ 301,723 $ 309,033 (2) 8 Global revenue Total Devices$ 542,800 $ 452,511 20 % 25 % Total Masks and other 374,181 343,329 9 13
Total Sleep and Respiratory Care
15 20 Software as a Service 116,763 99,034 18 Total$ 1,033,744 $ 894,874 16 20
*Constant currency numbers exclude the impact of movements in international currencies.
Sleep and Respiratory Care
Net revenue from our Sleep and Respiratory Care business for the three months endedDecember 31, 2022 was$917.0 million , an increase of 15% compared to net revenue for the three months endedDecember 31, 2021 . Movements in international currencies against theU.S. dollar negatively impacted net revenue by approximately$35.8 million for the three months endedDecember 31, 2022 . Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months endedDecember 31, 2022 increased by 20% compared to the three months endedDecember 31, 2021 . The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks. Net revenue from our Sleep and Respiratory Care business in theU.S. ,Canada andLatin America for the three months endedDecember 31, 2022 increased to$615.3 million from$486.8 million for the three months endedDecember 31, 2021 , an increase of$128.5 million or 26%. The increase was primarily due to an increase in unit sales of our devices, including incremental sales of the C2C devices, and masks. Net revenue in combinedEurope ,Asia and other markets decreased for the three months endedDecember 31, 2022 to$301.7 million from$309.0 million for the three months endedDecember 31, 2021 , a decrease of$7.3 million or 2% (an 8% increase on a constant currency basis). The constant currency increase in sales in combinedEurope ,Asia and other markets predominantly reflects an increase in unit sales of our devices and masks. 25
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PART I - FINANCIAL INFORMATION Item 2
RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Net revenue from devices for the three months ended December 31, 2022 increased
to $542.8 million from $452.5 million for the three months ended December 31,
2021 , an increase of $90.3 million or 20%, including an increase of 41% in the
U.S. , Canada and Latin America and a decrease of 5% in combined Europe , Asia and
other markets (a 5% increase on a constant currency basis). Excluding the impact
of foreign currency movements, device sales for the three months ended December
31, 2022 increased by 25%.
Net revenue from masks and other for the three months ended December 31, 2022
increased to $374.2 million from $343.3 million for the three months ended
December 31, 2021 , an increase of $30.9 million or 9%, including an increase of
11% in the U.S. , Canada and Latin America and an increase of 3% in combined
Europe , Asia and other markets (a 14% increase on a constant currency basis).
Excluding the impact of foreign currency movements, masks and other sales for
the three months ended December 31, 2022 increased by 13%.
Software as a Service
Net revenue from our SaaS business for the three months endedDecember 31, 2022 increased to$116.8 million from$99.0 million for the three months endedDecember 31, 2021 , an increase of$17.7 million or 18%. The constant currency increase was predominantly due to our recent acquisition of MEDIFOX DAN, which was acquired onNovember 21, 2022 , in addition to continued growth in the HME vertical within our SaaS business.
Six Months Ended
Net Revenue Net revenue for the six months endedDecember 31, 2022 increased to$1,984.0 million from$1,798.9 million for the six months endedDecember 31, 2021 , an increase of$185.1 million or 10% (a 14% increase on a constant currency basis). The following table summarizes our net revenue disaggregated by segment, product and region (in thousands): Six Months Ended December 31, 2022 2021 % Change Constant Currency*U.S. ,Canada andLatin America Devices$ 685,070 $ 520,707 32 % Masks and other 508,293 457,139 11
Total
22 CombinedEurope ,Asia and other markets Devices$ 375,305 $ 425,961 (12) % (2) % Masks and other 192,756 198,532 (3) 9 Total Combined Europe,Asia and other markets$ 568,061 $ 624,493 (9) 2 Global revenue Total Devices$ 1,060,375 $ 946,668 12 % 17 % Total Masks and other 701,049 655,671 7 11
Total Sleep and Respiratory Care
10 14 Software as a Service 222,614 196,551 13 Total$ 1,984,038 $ 1,798,890 10 14 Sleep and Respiratory Care Net revenue from our Sleep and Respiratory Care business for the six months endedDecember 31, 2022 was$1,761.4 million , an increase of 10% compared to net revenue for the six months endedDecember 31, 2021 . Movements in international currencies against theU.S. dollar negatively impacted net revenue by approximately$72.3 million for the six months endedDecember 31, 2022 . Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the six months endedDecember 31, 2022 increased by 14% compared to the six months endedDecember 31, 2021 . The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks. 26
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RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Net revenue from our Sleep and Respiratory Care business in the U.S. , Canada and
Latin America for the six months ended December 31, 2022 increased to $1,193.4
million from $977.8 million for the six months ended December 31, 2021 , an
increase of $215.5 million or 22%. The increase was primarily due to an increase
in unit sales of our devices, including incremental sales of the C2C devices,
and masks.
Net revenue in combined Europe , Asia and other markets decreased for the six
months ended December 31, 2022 to $568.1 million from $624.5 million for the six
months ended December 31, 2021 , a decrease of $56.4 million or 9% (a 2% increase
on a constant currency basis). The constant currency increase in sales in
combined Europe , Asia and other markets predominantly reflects an increase in
unit sales of our masks, partially offset by a decrease in our unit sales of
devices.
Net revenue from devices for the six months ended December 31, 2022 increased to
$1,060.4 million from $946.7 million for the six months ended December 31, 2021 ,
an increase of $113.7 million or 12%, including an increase of 32% in the U.S. ,
Canada and Latin America and a decrease of 12% in combined Europe , Asia and
other markets (a 2% decrease on a constant currency basis). Excluding the impact
of foreign currency movements, device sales for the six months ended December
31, 2022 increased by 17%.
Net revenue from masks and other for the six months ended December 31, 2022
increased to $701.0 million from $655.7 million for the six months ended
December 31, 2021 , an increase of $45.4 million or 7%, including an increase of
11% in the U.S. , Canada and Latin America and a decrease of 3% in combined
Europe , Asia and other markets (a 9% increase on a constant currency basis).
Excluding the impact of foreign currency movements, masks and other sales
increased by 11%, compared to the six months ended December 31, 2021 .
Software as a Service
Net revenue from our SaaS business for the six months endedDecember 31, 2022 was increased to$222.6 million from$196.6 million for the six months endedDecember 31, 2021 , an increase of$26.1 million or 13%. The increase was predominantly due to our recent acquisition of MEDIFOX DAN, which was acquired onNovember 21, 2022 , in addition to continued growth in the HME vertical within our SaaS business.
Gross Profit and Gross Margin
Gross profit increased for the three months endedDecember 31, 2022 to$579.7 million from$504.3 million for the three months endedDecember 31, 2021 , an increase of$75.4 million or 15%. Gross margin, which is gross profit as a percentage of net revenue, for the three months endedDecember 31, 2022 was 56.1% compared to 56.4% for the three months endedDecember 31, 2021 . The decrease in gross margin for the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 was due primarily to unfavorable product mix, higher distribution and warehouse related costs, and unfavorable foreign currency movements, partially offset by increases in average selling prices and a decrease in the amortization of acquired intangible assets. Gross profit increased for the six months endedDecember 31, 2022 to$1,120.5 million from$1,010.6 million for the six months endedDecember 31, 2021 , an increase of$109.9 million or 11%. Gross margin for the six months endedDecember 31, 2022 was 56.5% compared to 56.2% for the six months endedDecember 31, 2021 . The increase in gross margin for the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 was due primarily to favorable average selling prices and a decrease in the amortization of acquired intangible assets, partially offset by unfavorable product mix changes and higher distribution and warehouse related costs. 27
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PART I - FINANCIAL INFORMATION Item 2
RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Operating Expenses
The following table summarizes our operating expenses (in thousands):
Three Months Ended
December 31,
2022 2021 Change % Change Constant Currency
Selling, general, and
administrative $ 211,672 $ 185,362 $ 26,310 14 % 20 %
as a % of net revenue 20.5 % 20.7 %
Research and development 69,874 62,507 7,367 12 % 15 %
as a % of net revenue 6.8 % 7.0 %
Amortization of acquired
intangible assets 9,563 7,738 1,825 24 % 24 %
Six Months Ended
December 31,
2022 2021 Change % Change Constant Currency
Selling, general, and
administrative $ 404,860 $ 362,082 $ 42,778 12 % 17 %
as a % of net revenue 20.4 % 20.1 %
Research and development 133,062 122,457 10,605 9 % 12 %
as a % of net revenue 6.7 % 6.8 %
Amortization of acquired
intangible assets 17,513 15,445 2,068 13 % 14 %
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased for the three months endedDecember 31, 2022 to$211.7 million from$185.4 million for the three months endedDecember 31, 2021 , an increase of$26.3 million or 14%. Selling, general, and administrative expenses were favorably impacted by the movement of international currencies against theU.S. dollar, which decreased our expenses by approximately$10.3 million , as reported inU.S. dollars. Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the three months endedDecember 31, 2022 increased by 20% compared to the three months endedDecember 31, 2021 . As a percentage of net revenue, selling, general, and administrative expenses were 20.5% for the three months endedDecember 31, 2022 , compared to 20.7% for the three months endedDecember 31, 2021 . The constant currency increase in selling, general, and administrative expenses during the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 was primarily due to increases in employee-related costs, increases in travel and entertainment expenses, and additional expenses associated with the consolidation of recent acquisitions. Selling, general, and administrative expenses increased for the six months endedDecember 31, 2022 to$404.9 million from$362.1 million for the six months endedDecember 31, 2021 , an increase of$42.8 million or 12%. Selling, general, and administrative expenses were favorably impacted by the movement of international currencies against theU.S. dollar, which decreased our expenses by approximately$20.5 million , as reported inU.S. dollars. Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the six months endedDecember 31, 2022 increased by 17% compared to the six months endedDecember 31, 2021 . As a percentage of net revenue, selling, general, and administrative expenses were 20.4% for the six months endedDecember 31, 2022 , compared to 20.1% for the six months endedDecember 31, 2021 . The constant currency increase in selling, general, and administrative expenses during the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 was primarily due to increases in employee-related costs, increases in travel and entertainment expenses, and additional expenses associated with the consolidation of recent acquisitions.
Research and Development Expenses
Research and development expenses increased for the three months endedDecember 31, 2022 to$69.9 million from$62.5 million for the three months endedDecember 31, 2021 , an increase of$7.4 million , or 12%. Research and development expenses were favorably impacted by the movement of international currencies against theU.S. dollar, which decreased 28
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
our expenses by approximately $2.2 million for the three months ended December
31, 2022 , as reported in U.S. dollars. Excluding the impact of foreign currency
movements, research and development expenses increased by 15% compared to the
three months ended December 31, 2021 . As a percentage of net revenue, research
and development expenses were 6.8% for the three months ended December 31, 2022
compared to 7.0% for the three months ended December 31, 2021 .
The increase in research and development expenses in constant currency terms was
primarily due to increased investment in our digital health technologies and
SaaS solutions as well as additional expenses associated with the consolidation
of recent acquisitions.
Research and development expenses increased for the six months ended December
31, 2022 to $133.1 million from $122.5 million for the six months ended December
31, 2021 , an increase of $10.6 million , or 9%. Research and development expenses
were favorably impacted by the movement of international currencies against the
U.S. dollar, which decreased our expenses by approximately $4.2 million for the
six months ended December 31, 2022 , as reported in U.S. dollars. Excluding the
impact of foreign currency movements, research and development expenses
increased by 12% compared to the six months ended December 31, 2021 . As a
percentage of net revenue, research and development expenses were 6.7% for the
six months ended December 31, 2022 , compared to 6.8% for the six months ended
December 31, 2021 .
The increase in research and development expenses in constant currency terms was
primarily due to increased investment in our digital health technologies and
SaaS solutions as well as additional expenses associated with the consolidation
of recent acquisitions.
Amortization of Acquired Intangible Assets
Amortization of acquired intangible assets for the three months ended
Amortization of acquired intangible assets for the six months endedDecember 31, 2022 totaled$17.5 million compared to$15.4 million for the six months endedDecember 31, 2021 . The increase in amortization expense was primarily attributable to our acquisition of MEDIFOX DAN.
Total Other Income (Loss), Net
The following table summarizes our other income (loss) (in thousands):
Three Months Ended
December 31,
2022 2021 Change
Interest (expense) income, net$ (10,338) $ (5,948) $ (4,390) Loss attributable to equity method investments (2,826) (1,914) (912) Gain (loss) on equity investments 8,368 (4,404) 12,772 Other, net (1,707) 841
(2,548)
Total other income (loss), net$ (6,503) $ (11,425) $ 4,922 Six Months Ended December 31, 2022 2021 Change Interest (expense) income, net (17,472) (11,308)$ (6,164) Loss attributable to equity method investments (4,853) (3,300) (1,553) Gain (loss) on equity investments 5,088 1,208
3,880
Other, net (3,211) (1,150) (2,061) Total other income (loss), net$ (20,448) $
(14,550)
Total other income (loss), net for the three months endedDecember 31, 2022 was a loss of$6.5 million compared to a loss of$11.4 million for the three months endedDecember 31, 2021 . The decrease in loss was primarily due to gains associated with our investments in marketable and non-marketable equity securities, which were a gain of$8.4 million for the three months endedDecember 31, 2022 compared to a loss of$4.4 million for the three months endedDecember 31, 2021 . The 29
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
gain in investments for the three months ended December 31, 2022 is primarily
attributable to observable price adjustments on non-marketable equity
securities. We recorded higher losses attributable to equity method investments
for the three months ended December 31, 2022 of $2.8 million compared to $1.9
million for the three months ended December 31, 2021 . Additionally, interest
expense, net, increased to $10.3 million for the three months ended December 31,
2022 compared to $5.9 million for the three months ended December 31, 2021 due
to higher debt levels associated with the acquisition of MEDIFOX DAN, which was
funded by our Revolving Credit Agreement.
Total other income (loss), net for the six months ended December 31, 2022 was a
loss of $20.4 million compared to a loss of $14.6 million for the six months
ended December 31, 2021 . Interest expense, net, increased to $17.5 million for
the six months ended December 31, 2022 compared to $11.3 million for the six
months ended December 31, 2021 due to higher debt levels associated with the
acquisition of MEDIFOX DAN, which was funded by our Revolving Credit Agreement.
In addition, we recorded higher losses attributable to equity method investments
for the six months ended December 31, 2022 of $4.9 million compared to $3.3
million for the six months ended December 31, 2021 . These losses were partially
offset by gains associated with our investments in marketable and non-marketable
equity securities, which were a gain of $5.1 million for the six months ended
December 31, 2022 compared to a gain of $1.2 million for the six months ended
December 31, 2021 .
Income Taxes
Our effective income tax rate for the three and six months ended December 31,
2022 was 17.8% and 18.7% as compared to 15.0% and 18.3% for the three and six
months ended December 31, 2021 . Our effective rate of 17.8% for the three months
ended December 31, 2022 differs from the statutory rate of 21.0% primarily due
to research credits, foreign operations and windfall tax benefits related to the
vesting or settlement of employee share-based awards. The increase in our
effective tax rate for the three and six months ended December 31, 2022 was
primarily due to a reduction in the windfall tax benefits related to the vesting
or settlement of employee share-based awards.
Our Singapore operations operate under certain tax holidays and tax incentive
programs that will expire in whole or in part at various dates through June 30,
2030 . As a result of the U.S. Tax Cuts and Jobs Act of 2017, we treated all
non-U.S. historical earnings as taxable during the year ended June 30, 2018 .
Therefore, future repatriation of cash held by our non-U.S. subsidiaries will
generally not be subject to U.S. federal tax, if repatriated.
On September 19, 2021 , we concluded the settlement agreement with the Australian
Taxation Office ("ATO") in relation to the previously disclosed transfer pricing
dispute for the tax years 2009 through 2018 ("ATO settlement"). The ATO
settlement fully resolved the dispute for all prior years, with no admission of
liability and provides clarity in relation to certain future taxation
principles.
On
Net Income and Earnings per Share
As a result of the factors above, our net income for the three months endedDecember 31, 2022 was$224.9 million compared to$201.8 million for the three months endedDecember 31, 2021 , an increase of$23.2 million , or 11%. Our net income for the six months endedDecember 31, 2022 was$435.4 million compared to$405.4 million for the six months endedDecember 31, 2021 , an increase of$30.0 million , or 7%. Our diluted earnings per share for the three months endedDecember 31, 2022 was$1.53 per diluted share compared to$1.37 for the three months endedDecember 31, 2021 , an increase of 12%. Our diluted earnings per share for the six months endedDecember 31, 2022 was$2.95 per diluted share compared to$2.76 for the six months endedDecember 31, 2021 , an increase of 7%.
Summary of Non-GAAP Financial Measures
In addition to financial information prepared in accordance with GAAP, our
management uses certain non-GAAP financial measures, such as non-GAAP revenue,
non-GAAP cost of sales, non-GAAP gross profit, non-GAAP gross margin, non-GAAP
income from operations, non-GAAP net income, and non-GAAP diluted earnings per
share, in evaluating the performance of our business. We believe that these
non-GAAP financial measures, when reviewed in conjunction with
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GAAP financial measures, can provide investors better insight when evaluating
our performance from core operations and can provide more consistent financial
reporting across periods. For these reasons, we use non-GAAP information
internally in planning, forecasting, and evaluating the results of operations in
the current period and in comparing it to past periods. These non-GAAP financial
measures should be considered in addition to, and not superior to or as a
substitute for, GAAP financial measures. We strongly encourage investors and
shareholders to review our financial statements and publicly-filed reports in
their entirety and not to rely on any single financial measure. Non-GAAP
financial measures as presented herein may not be comparable to similarly titled
measures used by other companies.
The measure "non-GAAP cost of sales" is equal to GAAP cost of sales less
amortization of acquired intangible assets relating to cost of sales. The
measure "non-GAAP gross profit" is the difference between GAAP net revenue and
non-GAAP cost of sales, and "non-GAAP gross margin" is the ratio of non-GAAP
gross profit to GAAP net revenue.
These non-GAAP measures are reconciled to their most directly comparable GAAP financial measures below (in thousands, except percentages):
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 2022 2021
GAAP Net revenue $ 1,033,744 $ 894,874 $ 1,984,038 $ 1,798,890
GAAP Cost of sales $ 454,029 $ 390,556 $ 863,514 $ 788,282
Less: Amortization of acquired
intangibles (7,305) (11,231) (13,680) (22,289)
Non-GAAP cost of sales $ 446,724 $ 379,325 $ 849,834 $ 765,993
GAAP gross profit $ 579,715 $ 504,318 $ 1,120,524 $ 1,010,608
GAAP gross margin 56.1 % 56.4 % 56.5 % 56.2 %
Non-GAAP gross profit $ 587,020 $ 515,549 $ 1,134,204 $ 1,032,897
Non-GAAP gross margin 56.8 % 57.6 % 57.2 % 57.4 %
The measure "non-GAAP income from operations" is equal to GAAP income from operations once adjusted for amortization of acquired intangibles and acquisition-related expenses. Non-GAAP income from operations is reconciled with GAAP income from operations below (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 2022 2021
GAAP income from operations $ 280,194 $ 248,711 $ 555,932 $ 510,624
Amortization of acquired intangibles - cost of
sales 7,305 11,231 13,680 22,289
Amortization of acquired intangibles -
operating expenses 9,563 7,738 17,513 15,445
Acquisition-related expenses 8,412 - 9,157 -
Non-GAAP income from operations $ 305,474 $
267,680
The measure "non-GAAP net income" is equal to GAAP net income once adjusted for
amortization of acquired intangibles (net of tax), acquisition related expenses
(net of tax) and reserve for disputed tax positions. The measure "non-GAAP
diluted earnings per share" is the ratio of non-GAAP net income to diluted
shares outstanding. These non-GAAP measures
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Management's Discussion and Analysis of Financial Condition and Results of
Operationsare reconciled to their most directly comparable GAAP financial measures below (in thousands, except for per share amounts):
Three Months Ended Six Months Ended
December 31, December 31,
2022 2021 2022 2021
GAAP net income $ 224,914 $ 201,751 $ 435,392 $ 405,364
Amortization of acquired intangibles - cost of 5,494 8,564 10,329 16,999
sales, net of tax
Amortization of acquired intangibles - 7,192 5,901 13,222 11,780
operating expenses, net of tax
Acquisition related expenses, net of tax 6,782 - 7,527 -
Reserve for disputed tax positions - - - 4,111
Non-GAAP net income $ 244,382 $ 216,216 $ 466,470 $ 438,254
Diluted shares outstanding 147,405 147,040 147,367 147,044
GAAP diluted earnings per share $ 1.53 $ 1.37 $ 2.95 $ 2.76
Non-GAAP diluted earnings per share $ 1.66 $ 1.47 Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from operations and access to our revolving credit facility. Our primary uses of cash have been for research and development activities, selling and marketing activities, capital expenditures, strategic acquisitions and investments, dividend payments and repayment of debt obligations. We expect that cash provided by operating activities may fluctuate in future periods as a result of several factors, including fluctuations in our operating results, which include impacts from supply chain disruptions, working capital requirements and capital deployment decisions. Our future capital requirements will depend on many factors including our growth rate in net revenue, third-party reimbursement of our products for our customers, the timing and extent of spending to support research development efforts, the expansion of selling, general and administrative activities, the timing of introductions of new products, and the expenditures associated with possible future acquisitions, investments or other business combination transactions. As we assess inorganic growth strategies, we may need to supplement our internally generated cash flow with outside sources. If we are required to access the debt market, we believe that we will be able to secure reasonable borrowing rates. As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow generation as well as our ability to access the market considering those earning levels. As ofDecember 31, 2022 andJune 30, 2022 , we had cash and cash equivalents of$253.2 million and$273.7 million , respectively. Our cash and cash equivalents held withinthe United States atDecember 31, 2022 andJune 30, 2022 were$72.6 million and$70.0 million , respectively. Our remaining cash and cash equivalent balances atDecember 31, 2022 andJune 30, 2022 , were$180.6 million and$203.7 million , respectively. Our cash and cash equivalent balances are held at highly rated financial institutions.
As of
As a result of theU.S. Tax Act, we treated all non-U.S. historical earnings as taxable, which resulted in additional tax expense of$126.9 million which was payable over the proceeding eight years. Therefore, future repatriation of cash held by our non-U.S. subsidiaries will generally not be subject toU.S. federal tax if repatriated. We believe that our current sources of liquidity will be sufficient to fund our operations, including expected capital expenditures, for the next 12 months and beyond.
Revolving Credit Agreement, Term Credit Agreement and Senior Notes
OnJune 29, 2022 , we entered into a second amended and restated credit agreement (as amended from time to time, the "Revolving Credit Agreement"). The Revolving Credit Agreement, among other things, provided a senior unsecured revolving credit facility of$1,500.0 million , with an uncommitted option to increase the revolving credit facility by an 32
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Operations
additional amount equal to the greater of $1,000.0 million and 1.00 times the
EBITDA for the trailing twelve-month measurement period. Additionally, on
June 29, 2022 , ResMed Pty Limited entered into a Second Amendment to the
Syndicated Facility Agreement (the "Term Credit Agreement"). The Term Credit
Agreement, among other things, provides ResMed Limited a senior unsecured term
credit facility of $195.0 million . The Revolving Credit Agreement and Term
Credit Agreement each terminate on June 29, 2027 , when all unpaid principal and
interest under the loans must be repaid. As of December 31, 2022 , we had $390.0
million available for draw down under the revolving credit facility.
On July 10, 2019 , we entered into a Note Purchase Agreement with the purchasers
to that agreement, in connection with the issuance and sale of $250.0 million
principal amount of our 3.24% senior notes due July 10, 2026 , and $250.0 million
principal amount of our 3.45% senior notes due July 10, 2029 ("Senior Notes").
On December 31, 2022 , there was a total of $1,805.0 million outstanding under
the Revolving Credit Agreement, Term Credit Agreement and Senior Notes. We
expect to satisfy all of our liquidity and long-term debt requirements through a
combination of cash on hand, cash generated from operations and debt facilities.
Cash Flow Summary
The following table summarizes our cash flow activity (in thousands):
Six Months Ended
December 31,
2022 2021
Net cash provided by operating activities $ 173,298 $ 154,222
Net cash used in investing activities (1,085,218)
(125,182)
Net cash (used in) / provided by financing activities 891,022 (125,004) Effect of exchange rate changes on cash
387 (4,838)
Net decrease in cash and cash equivalents$ (20,511) $ (100,802) Operating Activities Cash provided by operating activities was$173.3 million for the six months endedDecember 31, 2022 , compared to cash provided of$154.2 million for the six months endedDecember 31, 2021 . The$19.1 million increase in cash flow from operations was primarily due to the payment of our tax settlement with the ATO of$284.8 million during the six months endedDecember 31, 2021 , partially offset by greater purchases of inventory to secure adequate components for increasing sales demand and other net changes in working capital balances during the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . Investing Activities Cash used in investing activities was$1,085.2 million for the six months endedDecember 31, 2022 , compared to cash used of$125.2 million for the six months endedDecember 31, 2021 . The$960.0 million decrease in cash flow from investing activities was primarily due to cash used to acquire MEDIFOX DAN.
Financing Activities
Cash provided by financing activities was$891.0 million for the six months endedDecember 31, 2022 , compared to cash used of$125.0 million for the six months endedDecember 31, 2021 . The$1,016.0 million increase in cash flow from financing activities was primarily due to borrowing activity under our Revolving Credit Agreement in order to finance our acquisition of MEDIFOX DAN.
Dividends
During the three months ended
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Common Stock
Since the inception of our share repurchase programs and through December 31,
2022 , we have repurchased a total of 41.8 million shares for an aggregate of
$1.6 billion . We have temporarily suspended our share repurchase program due to
recent acquisitions and as a response to the COVID-19 pandemic. Accordingly, we
did not repurchase any shares during the three months ended December 31, 2022
and 2021. Shares that are repurchased are classified as treasury stock pending
future use and reduce the number of shares of common stock outstanding used in
calculating earnings (loss) per share. There is no expiration date for this
program, and the program may be accelerated, suspended, delayed or discontinued
at any time at the discretion of our board of directors. At December 31, 2022 ,
12.9 million additional shares can be repurchased under the approved share
repurchase program.
Critical Accounting Principles and Estimates
The preparation of financial statements in conformity withU.S. GAAP requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to allowance for doubtful accounts, inventory reserves, warranty obligations, goodwill, potentially impaired assets, intangible assets, income taxes and contingencies. We state these accounting policies in the notes to the financial statements and at relevant sections in this discussion and analysis. The estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.
For a full discussion of our critical accounting policies, see our Annual Report
on Form 10-K for the year ended
In addition to the critical accounting policies and estimates previously disclosed in our Form 10-K for the fiscal year endedJune 30, 2022 , due to recent transactions and events, we also consider the following to be part of our critical accounting policies and estimates due to the high degree of judgment and complexity in its application: Business Combinations. The MEDIFOX DAN acquisition was accounted for using the acquisition method of accounting, or acquisition accounting, in accordance with ASC Topic 805, Business Combinations. The acquisition method of accounting involved the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed. This allocation process involves the use of estimates and assumptions made in connection with determining the fair value of assets acquired and liabilities assumed including cash flows expected to be derived from the use of the asset, the timing of such cash flows, the remaining useful life of assets and applicable discount rates. Acquisition accounting allows up to one year to obtain the information necessary to finalize the fair value of all assets acquired and liabilities assumed on theNovember 21, 2022 acquisition date. As ofJanuary 26, 2023 , we have recorded a preliminary allocation of consideration to net tangible and intangible assets acquired, which is subject to revision as we obtain additional information necessary to complete the fair value studies and acquisition accounting. In the event that actual results vary from the estimates or assumptions used in the valuation or allocation process, we may be required to record an impairment charge or an increase in depreciation or amortization in future periods, or both. Refer to Note 12, Business Combinations, to the accompanying condensed consolidated financial statements for additional information about accounting for the MEDIFOX DAN acquisition.
Recently Issued Accounting Pronouncements
See note 1 to the unaudited condensed consolidated financial statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.
Contractual Obligations and Commitments
Other than for purchase obligations, debt, interest on debt and MEDIFOX DAN acquisition consideration, there have been no material changes outside the ordinary course of business in our outstanding contractual obligations from those disclosed
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Operations
within "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our Annual Report on Form 10-K for the fiscal year ended
Details of our purchase obligations, debt and associated interest as of
Payments Due by December 31,
Total 2023 2024 2025 2026 2027 Thereafter
Purchase obligations $ 1,682,235 $ 1,445,813 $ 222,034 $ 10,857 $ 326 $ 1,367 $ 1,838
Debt 1,805,000 10,000 10,000 10,000 260,000 1,265,000 250,000
Interest on debt 275,630 59,828 59,557 59,285 55,639 27,665 13,656
MEDIFOX DAN acquisition - - - - - - -
consideration (1)
Total $ 3,762,865 $ 1,515,641 $ 291,591 $ 80,142 $ 315,965 $ 1,294,032 $ 265,494 (1)Refer to Note 12, Business Combinations, to the accompanying condensed
consolidated financial statements for additional information about our
acquisition of MEDIFOX DAN, which completed on
Off-Balance Sheet Arrangements
As of
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