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, and tax outlook. 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, 2020 and elsewhere in this report. 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, 2020 , 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. ? 18
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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 months
ended September 30, 2020 . 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, portable oxygen concentrators 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 September 30, 2020 , we invested
$54.5 million on research and development activities, which represents 7.3% 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. Due to multiple acquisitions,
including Brightree in April 2016 , HEALTHCAREfirst in July 2018 and MatrixCare
in November 2018 , 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").
During the three months ended September 30, 2020 , our net revenue increased by
10% compared to the three months ended September 30, 2019 . Gross margin was
58.3% for the three months ended September 30, 2020 compared to 57.5% for the
three months ended September 30, 2019 . Diluted earnings per share for the three
months ended September 30, 2020 was $1.22 per share, compared to $0.83 per share
for the three months ended September 30, 2019 .
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 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 toU.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). 19
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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
Impact of COVID-19
In March 2020 , the World Health Organization declared the outbreak of a novel
strain of coronavirus ("COVID-19") as a pandemic. Our primary goal during the
COVID-19 pandemic is the preservation of life. We have prioritized protecting
the health and safety of our employees and continuing to use our employees'
talents and our resources to help society meet and overcome the challenges the
pandemic poses.
We have observed increased demand for our ventilator devices and masks, which
can be used to treat COVID-19 patients. Due to governments' varying restrictions
on international and domestic travel, access to labor for our manufacturing
facilities was impacted as was the availability of raw materials and components,
which constrained our manufacturing capacity and restricted our ability to
initially meet the substantial demand for ventilators. Our primary focus is
maximizing the availability of our ventilators and other respiratory support
devices for the patients that need them the most in the countries facing the
greatest challenges. The global increase in our sales for these respiratory care
products during fiscal year 2020 generally followed infection patterns around
the world. We believe the global demand for these devices has largely been met,
however, this may change depending on the ability for regions to contain and
control infection rates, which remains highly uncertain. Additionally, as more
becomes known about the virus and as governments pursue testing and vaccines, we
may see an overall reduction in demand, and then face a corresponding risk of
oversupply by us and by our competitors. While further outbreaks in the future
are highly uncertain, we expect lower demand for ventilator products for the
fiscal year ending June 30, 2021 .
As anticipated, we observed lower demand for our sleep devices during the three
months ended September 30, 2020 as compared to the three months ended September
30, 2019 , and we continue to expect COVID-19 will lead to a temporary decrease
in demand for these products from new patients for some or all of the remainder
of our fiscal year 2021. Specifically, diagnostic pathways for sleep apnea
treatment, including HME suppliers and sleep clinics, have been impacted and, in
some instances, been required, or in the future may be required, to temporarily
close due to governments' "shelter-in-place" orders, quarantines or similar
orders or restrictions enacted to control the spread of COVID-19. In some
countries, new patients are prescribed sleep apnea treatment through hospitals
that are directing their resources to critical care, including COVID-19
treatment. The impact on these diagnostic and prescription pathways has likely
resulted in a decrease in demand from new patients for our products designed to
treat sleep apnea. Given the ongoing uncertainty regarding the duration and
extent of the COVID-19 pandemic and measures taken to control the spread of
COVID-19, we are uncertain as to the duration and extent of decreased demand for
our sleep devices. However, due to the nature of the installed base of existing
patients using our devices, we expect the demand for re-supply of our masks to
be less impacted compared to devices.
Our SaaS business may also be affected by COVID-19 and measures taken to control
the spread of COVID-19. Some of our existing and potential SaaS customers are
HME distributors and, therefore, have been impacted, or may be impacted, by the
same temporary business closures noted above. We also have existing and
potential SaaS customers that operate care facilities and are either receiving
and treating patients infected with COVID-19 or are implementing significant
measures to safeguard their facilities against a potential COVID-19 outbreak.
Given these challenging business conditions and the uncertain economic
environment, we expect businesses will be deterred from adopting new or changing
SaaS platforms, which may adversely impact our ability to engage new customers
for our SaaS businesses, or expand the services used by existing customers.
Our ability to continue to operate without any significant negative impacts will
in part depend on our ability to protect our employees. We have endeavored and
continue to follow recommended actions of government and health authorities to
protect our employees worldwide, but since COVID-19 was declared a pandemic in
March 2020 , we were able to broadly maintain our operations, and we are
beginning the slow and careful process of progressively returning to work in our
offices around the world. The pandemic has not negatively impacted our liquidity
position.
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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
Three Months Ended
Net Revenue
Net revenue for the three months endedSeptember 30, 2020 increased to$751.9 million from$681.1 million for the three months endedSeptember 30, 2019 , an increase of$70.9 million or 10% (a 9% increase on a constant currency basis). The following table summarizes our net revenue disaggregated by segment, product and region for the three months endedSeptember 30, 2020 compared toSeptember 30, 2019 (in thousands): Three Months Ended ?September 30, Constant 2020 2019 % Change Currency*U.S. ,Canada andLatin America Devices$ 197,393 $ 186,887 6 % Masks and other 205,760 183,441
12
Total Sleep and Respiratory Care$ 403,153 $ 370,328 9 Software as a Service 92,143 86,855 6 Total$ 495,296 $ 457,183 8 CombinedEurope ,Asia and other markets Devices$ 176,026 $ 151,925 16 % 11 % Masks and other 80,622 71,948 12 8 Total Sleep and Respiratory Care$ 256,648 $ 223,873 15 10 Global revenue Devices$ 373,419 $ 338,812 10 % 8 % Masks and other 286,382 255,389 12 11 Total Sleep and Respiratory Care$ 659,801 $ 594,201 11 9 Software as a Service 92,143 86,855 6 6 Total$ 751,944 $ 681,056 10 9
*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 endedSeptember 30, 2020 was$659.8 million , an increase of 11% compared to net revenue for the three months endedSeptember 30, 2019 . Movements in international currencies against theU.S. dollar positively impacted net revenues by approximately$9.4 million for the three months endedSeptember 30, 2020 . Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months endedSeptember 30, 2020 increased 9% compared to the three months endedSeptember 30, 2019 . The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks, including as a result of increased demand for our ventilators due to COVID-19. Net revenue from our Sleep and Respiratory Care business in theU.S. ,Canada andLatin America for the three months endedSeptember 30, 2020 increased to$403.2 million from$370.3 million for the three months endedSeptember 30, 2019 , an increase of$32.8 million or 9%. The increase was primarily due to an increase in unit sales of our devices and masks, including as a result of increased demand for our ventilators due to COVID-19. Net revenue in combinedEurope ,Asia and other markets increased for the three months endedSeptember 30, 2020 to$256.6 million from$223.9 million for the three months endedSeptember 30, 2019 , an increase of$32.7 million or 15% (a 10% 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, including as a result of increased demand for our ventilators due to COVID-19. Net revenue from devices for the three months endedSeptember 30, 2020 increased to$373.4 million from$338.8 million for the three months endedSeptember 30, 2019 , an increase of$34.6 million or 10%, including an increase of 6% inthe United States ,Canada andLatin America and an increase of 16% in combinedEurope ,Asia and other markets (an 11% increase on a constant currency basis). Excluding the impact of foreign currency movements, device sales for the three months endedSeptember 30, 2020 increased by 8%. Net revenue from masks and other for the three months endedSeptember 30, 2020 increased to$286.4 million from$255.4 million for the three months endedSeptember 30, 2019 , an increase of$31.0 million or 12%, including an increase of 12% inthe United States ,Canada andLatin America and an increase of 12% in combinedEurope ,Asia and other markets (an 8% increase on a constant currency basis). Excluding the impact of foreign currency movements, masks and other sales increased by 11%, compared to the three months endedSeptember 30, 2019 .
Software as a Service
Net revenue from our SaaS business for the three months endedSeptember 30, 2020 was$92.1 million , an increase of 6% compared to the three months endedSeptember 30, 2019 . The increase was predominantly due to continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings. 21
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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
Gross Profit and Gross Margin
Gross profit increased for the three months endedSeptember 30, 2020 to$438.7 million from$391.6 million for the three months endedSeptember 30, 2019 , an increase of$47.0 million or 12%. Gross margin, which is gross profit as a percentage of net revenue, for the three months endedSeptember 30, 2020 was 58.3% compared to 57.5% for the three months endedSeptember 30, 2019 . The increase in gross margin for the three months endedSeptember 30, 2020 compared to three months endedSeptember 30, 2019 was due primarily to favorable product mix and foreign currency movements, which were partially offset by an increase in procurement and logistics related costs as a result of the COVID-19 pandemic.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased for the three months endedSeptember 30, 2020 to$159.0 million from$167.4 million for the three months endedSeptember 30, 2019 , a decrease of$8.5 million or 5%. Selling, general and administrative expenses were unfavorably impacted by the movement of international currencies against theU.S. dollar, which increased our expenses by approximately$2.7 million , as reported inU.S. dollars. Excluding the impact of foreign currency movements, selling, general and administrative expenses for the three months endedSeptember 30, 2020 decreased by 7% compared to the three months endedSeptember 30, 2019 . As a percentage of net revenue, selling, general and administrative expenses were 21.1% for the three months endedSeptember 30, 2020 , compared to 24.6% for the three months endedSeptember 30, 2019 . The constant currency decrease in selling, general and administrative expenses was primarily due to decreases in travel, marketing and bad debt expenses, partially offset by a$2.8 million impairment charge related to our right-of-use asset during the three months endedSeptember 30, 2020 .
Research and Development Expenses
Research and development expenses increased for the three months endedSeptember 30, 2020 to$54.5 million from$48.0 million for the three months endedSeptember 30, 2019 , an increase of$6.5 million , or 14%. Research and development expenses were unfavorably impacted by the movement of international currencies against theU.S. dollar, which increased our expenses by approximately$0.9 million for the three months endedSeptember 30, 2020 , as reported inU.S. dollars. Excluding the impact of foreign currency movements, research and development expenses increased by 12% compared to the three months endedSeptember 30, 2019 . As a percentage of net revenue, research and development expenses were 7.3% for the three months endedSeptember 30, 2020 , compared to 7.1% for the three months endedSeptember 30, 2019 . The increase in research and development expenses in constant currency terms was primarily due to an increase in the number of research and development personnel to facilitate development of new products and solutions.
Amortization of Acquired Intangible Assets
Amortization of acquired intangible assets for the three months ended
Total Other Income (Loss), Net
Total other income (loss), net for the three months endedSeptember 30, 2020 was a loss of$1.0 million compared to a loss of$20.5 million for the three months endedSeptember 30, 2019 . The decrease was partially due to a decrease in interest expense to$6.8 million for the three months endedSeptember 30, 2020 compared to$11.0 million for the three months endedSeptember 30, 2019 . Additionally, one of our investments, which was previously accounted for under the measurement alternative, completed its initial public offering which resulted in a change of accounting methodology to fair value and the recognition of an unrealized gain of$8.5 million for the three months endedSeptember 30, 2020 . We also recorded losses attributable to equity method investments for the three months endedSeptember 30, 2020 of$2.3 million compared to$6.9 million for the three months endedSeptember 30, 2019 . The losses attributable to equity method investments relate to our joint venture with Verily, which is accounted for using the equity method, whereby we recognize our share of the joint venture's losses. 22
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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
Income Taxes
Our effective income tax rate for the three months ended September 30, 2020 was
17.4% respectively, as compared to 20.2% for the three months ended
September 30, 2019 . The decrease in our effective income tax rate was primarily
related to changes in the geographic mix of our earnings. 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 Act, 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.
Finally, we are under audit by the Australian Tax Office (the "ATO") in three
different cycles: tax years 2009 to 2013, tax years 2014 to 2017 and tax year
2018. We received Notices of Amended Assessments from the ATO for the tax years
2009 to 2013. Based on these assessments, the ATO asserted that we owe $151.7
million in additional income tax and $38.4 million in accrued interest, of which
$75.9 million was paid in April 2018 under a payment arrangement with the ATO.
In June 2018 , we received a notice from the ATO claiming penalties of 50% of the
additional income tax that was assessed, or $75.9 million . As of September 30,
2020 , we recorded a receivable in prepaid taxes and other non-current assets for
the amount paid in April 2018 as we ultimately expect this will be refunded by
the ATO. We do not agree with the ATO's assessments and we continue to believe
we are more likely than not to be successful in defending our position. However,
if we are not successful, we will not receive a refund of the amount paid in
April 2018 and we would be required to pay the remaining additional income tax,
accrued interest and penalties, which would be recorded as income tax expense.
Net Income and Earnings per Share
As a result of the factors above, our net income for the three months endedSeptember 30, 2020 was$178.4 million compared to net income of$120.1 million for the three months endedSeptember 30, 2019 , an increase of 48% over the three months endedSeptember 30, 2019 .
Our diluted earnings per share for the three months ended
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 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. Generally, our non-GAAP financial measures
include adjustments for items such as amortization of acquired intangible
assets, fair value adjustments recognized on publicly traded marketable equity
securities, and certain acquisition related fair value adjustments. 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.
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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
The measure "non-GAAP revenue" is equal to GAAP net revenue once adjusted for
deferred revenue fair value adjustments applied in the purchase accounting for
previous business combinations. 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
non-GAAP revenue and non-GAAP cost of sales, and "non-GAAP gross margin" is the
ratio of non-GAAP gross profit to non-GAAP revenue. These non-GAAP measures are
reconciled to their most directly comparable GAAP financial measures below (in
thousands, except percentages):
Three Months Ended
September 30, September 30,
?2020 ?2019
GAAP Net revenue $ 751,944 $ 681,056
Add back: Deferred revenue fair value adjustment - 1,445
Non-GAAP revenue $ 751,944 $ 682,501
GAAP Cost of sales $ 313,283 $ 289,437
Less: Amortization of acquired intangibles (11,979) (13,436)
Non-GAAP cost of sales $ 301,304 $ 276,001
GAAP gross profit $ 438,661 $ 391,619
GAAP gross margin 58.3 % 57.5 %
Non-GAAP gross profit $ 450,640 $ 406,500
Non-GAAP gross margin 59.9 % 59.6 %
The measure "non-GAAP income from operations" is equal to GAAP income from
operations once adjusted for amortization of acquired intangibles and deferred
revenue fair value adjustments applied in the purchase accounting for previous
business combinations. Non-GAAP income from operations reconciled with GAAP
income from operations below (in thousands):
Three Months Ended
September 30, September 30,
?2020 ?2019
GAAP income from operations $ 216,896 $ 171,102
Amortization of acquired intangibles - cost of sales 11,979 13,436
Amortization of acquired intangibles - operating expenses 8,243
5,044
Deferred revenue fair value adjustment -
1,445
Non-GAAP income from operations$ 237,118
The measure "non-GAAP net income" is equal to GAAP net income once adjusted for
amortization of acquired intangibles (net of tax), deferred revenue fair value
adjustments applied in the purchase accounting for previous business
combinations (net of tax) and fair value adjustments recognized on publicly
traded marketable equity securities. The measure "non-GAAP diluted earnings per
share" is the ratio of non-GAAP net income to diluted shares outstanding. These
non-GAAP measures are reconciled to their most directly comparable GAAP
financial measures below (in thousands, except for per share amounts):
Three Months Ended
September 30, September 30,
?2020 ?2019
GAAP net income $ 178,372 $ 120,148
Amortization of acquired intangibles - cost of sales, net 9,169 10,267
of tax Amortization of acquired intangibles - operating expenses, 6,309
3,855
net of tax Deferred revenue fair value adjustment, net of tax -
1,107
Fair value adjustment of investment (8,476) - Non-GAAP net income$ 185,374 $ 135,377 Diluted shares outstanding 146,100 145,099 GAAP diluted earnings per share $ 1.22 $ 0.83 Non-GAAP diluted earnings per share $ 1.27
$ 0.93
Liquidity and Capital Resources
As ofSeptember 30, 2020 andJune 30, 2020 , we had cash and cash equivalents of$421.4 million and$463.2 million , respectively. Working capital was$932.7 million and$920.7 million atSeptember 30, 2020 andJune 30, 2020 , respectively. As ofSeptember 30, 2020 , we had$1.1 billion of borrowings compared to$1.2 billion of borrowings atJune 30, 2020 . As ofSeptember 30, 2020 , we had$1.2 billion available for draw down under the revolver credit facility and a combined total of$1.6 billion in cash and available liquidity under the revolving credit facility. 24
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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
As of September 30, 2020 and June 30, 2020 , our cash and cash equivalent
balances held within the United States amounted to $204.9 million and
$158.8 million , respectively. Our remaining cash and cash equivalent balances at
September 30, 2020 and June 30, 2020 , were $216.5 million and $304.4 million ,
respectively. Our cash and cash equivalent balances are held at highly rated
financial institutions.
During the year ended June 30, 2018 , as a result of the U.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 to U.S. federal tax if repatriated.
Inventories at
Accounts receivable atSeptember 30, 2020 were$464.9 million , a decrease of$9.8 million or 2% compared to theJune 30, 2020 , balance of$474.6 million . Accounts receivable days outstanding of 57 days atSeptember 30, 2020 , were lower the days outstanding of 65 days atJune 30, 2020 . Our allowance for doubtful accounts as a percentage of total accounts receivable atSeptember 30, 2020 , was 6.0%, compared to 5.7% atJune 30, 2020 . As ofSeptember 30, 2020 , we have recognized a right-of-use asset ("ROU") of$124.5 million and a lease liability of$132.5 million on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease. During the three months endedSeptember 30, 2020 , we generated cash of$144.0 million from operations compared to$162.4 million for the three months endedSeptember 30, 2019 . The decrease in cash generated from operations during the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 was primarily due to the increase in working capital driven by higher inventory levels and the timing of income tax payments, partially offset by the increase in operating profit. Movements in foreign currency exchange rates during the three months endedSeptember 30, 2020 , had the effect of increasing our cash and cash equivalents by$11.6 million , as reported inU.S. dollars. We have temporarily suspended our share repurchase program due to acquisitions, and more recently, as a response to the COVID-19 pandemic. Accordingly, we did not repurchase any shares during the three months endedSeptember 30, 2020 and 2019. In addition, during the three months endedSeptember 30, 2020 and 2019, we paid dividends to holders of our common stock totaling$56.5 million and$56.1 million , respectively. Capital expenditures for the three months endedSeptember 30, 2020 and 2019, amounted to$13.5 million and$22.7 million , respectively. The capital expenditures for the three months endedSeptember 30, 2020 , primarily reflected investment in production tooling, leasehold improvements, equipment and machinery, and computer hardware and software. AtSeptember 30, 2020 , our balance sheet reflects net property, plant and equipment of$424.8 million compared to$417.3 million atJune 30, 2020 .
Contractual Obligations
Details of contractual obligations atSeptember 30, 2020 , are as follows (in thousands): Payments Due by September 30, Total 2021 2022 2023 2024 2025 Thereafter Debt$ 1,060,000 $ 12,000 $ 12,000 $ 536,000 $ - $ -$ 500,000 Interest on debt 142,449 24,084 24,084 21,018 16,725 16,725 39,813 Operating leases 132,138 26,872 19,926 16,689 13,236 10,439 44,976 Purchase obligations 342,633 340,535 1,555 543 - - - Total$ 1,677,220 $ 403,491 $ 57,565 $ 574,250
Details of other commercial commitments atSeptember 30, 2020 , are as follows (in thousands): Amount of Commitment Expiration Per Period Total 2021 2022 2023 2024 2025 Thereafter Standby letter of credit$ 16,680 $ 3,741 $ 520 $ - $ - $ -$ 12,419 Guarantees* 3,548 194 59 66 77 52 3,100 Total$ 20,228 $ 3,935 $ 579 $ 66 $ 77 $ 52 $ 15,519
* The above guarantees mainly relate to requirements under contractual obligations with insurance companies transacting with our German subsidiaries and guarantees provided under our facility leasing obligations.
Credit Facility
OnApril 17, 2018 , we entered into an amended and restated credit agreement (as amended from time to time, the "Revolving Credit Agreement"), as borrower, with lendersMUFG Union Bank, N.A. , as administrative agent, joint lead arranger, joint book runner, swing line lender and letter of credit issuer, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner. 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
The Revolving Credit Agreement, among other things, provided a senior unsecured
revolving credit facility of
Additionally, onApril 17, 2018 ,ResMed Limited entered into a Syndicated Facility Agreement (the "Term Credit Agreement"), as borrower, with lendersMUFG Union Bank, N.A. , as administrative agent, joint lead arranger and joint book runner, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner. The Term Credit Agreement, among other things, providesResMed Limited a senior unsecured term credit facility of$200.0 million . OnNovember 5, 2018 , we entered into a first amendment to the Revolving Credit Agreement to, among other things, increase the size of our senior unsecured revolving credit facility from$800.0 million to$1.6 billion , with an uncommitted option to increase the revolving credit facility by an additional$300.0 million . Our obligations under the Revolving Credit Agreement are guaranteed by certain of our direct and indirectU.S. subsidiaries, andResMed Limited's obligations under the Term Credit Agreement are guaranteed by us and certain of our direct and indirectU.S. subsidiaries. The Revolving Credit Agreement and Term Credit Agreement contain customary covenants, including, in each case, a financial covenant that requires that we maintain a maximum leverage ratio of funded debt to EBITDA (as defined in the Revolving Credit Agreement and Term Credit Agreement, as applicable). The entire principal amounts of the revolving credit facility and term credit facility, and, in each case, any accrued but unpaid interest may be declared immediately due and payable if an event of default occurs, as defined in the Revolving Credit Agreement and the Term Credit Agreement, as applicable. Events of default under the Revolving Credit Agreement and the Term Credit Agreement include, in each case, failure to make payments when due, the occurrence of a default in the performance of any covenants in the respective agreements or related documents, or certain changes of control of us, or the respective guarantors of the obligations borrowed under the Revolving Credit Agreement and Term Credit Agreement. The Revolving Credit Agreement and Term Credit Agreement each terminate onApril 17, 2023 , when all unpaid principal and interest under the loans must be repaid. Amounts borrowed under the Term Credit Agreement will also amortize on a semi-annual basis, with a$6.0 million principal payment required on each such semi-annual amortization date. The outstanding principal amounts will bear interest at a rate equal to LIBOR plus 0.75% to 1.50% (depending on the then-applicable leverage ratio) or the Base Rate (as defined in the Revolving Credit Agreement and the Term Credit Agreement, as applicable) plus 0.0% to 0.50% (depending on the then-applicable leverage ratio). OnSeptember 30, 2020 , the interest rate that was being charged on the outstanding principal amounts was 1.1%. An applicable commitment fee of 0.100% to 0.175% (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving credit facility. As ofSeptember 30, 2020 , we had$1.2 billion available for draw down under the revolving credit facility.
Senior Notes
OnJuly 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 dueJuly 10, 2026 , and$250.0 million principal amount of our 3.45% senior notes dueJuly 10, 2029 ("Senior Notes"). Our obligations under the Note Purchase Agreement and the Senior Notes are unconditionally and irrevocably guaranteed by certain of our direct and indirectU.S. subsidiaries, includingResMed Corp. ,ResMed Motor Technologies Inc. ,Birdie Inc. ,Inova Labs, Inc. ,Brightree LLC ,Brightree Home Health & Hospice LLC,Brightree Patient Collections LLC ,ResMed Operations Inc. ,HEALTHCAREfirst Holding Company ,HCF Holdco Company ,HEALTHCAREfirst, Inc. ,CareFacts Information Systems, LLC andLewis Computer Services, LLC ,MatrixCare Holdings Inc. ,MatrixCare, Inc. ,Reciprocal Labs Corporation andResMed SaaS Inc. , under a Subsidiary Guaranty Agreement dated as ofJuly 10, 2019 . The net proceeds from this transaction were used to pay down borrowings on our Revolving Credit Agreement. Under the terms of the Note Purchase Agreement, we agreed to customary covenants including with respect to our corporate existence, transactions with affiliates, and mergers and other extraordinary transactions. We also agreed that, subject to limited exceptions, we will maintain a ratio of consolidated funded debt to consolidated EBITDA of no more than 3.50 to 1.00 as of the last day of any fiscal quarter, and will not at any time permit the amount of all priority secured and unsecured debt of us and our subsidiaries to exceed 10% of our consolidated tangible assets, determined as of the end of our most recently ended fiscal quarter. OnSeptember 30, 2020 , we were in compliance with our debt covenants and there was a total of$1,060.0 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.
Common Stock
Since the inception of our share repurchase programs and throughSeptember 30, 2020 , 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 more recently, as a response to the COVID-19 pandemic. Accordingly, we did not repurchase any shares during the three months endedSeptember 30, 2020 and 2019. Shares that are repurchased are classified as treasury stock pending future use and reduce the number of shares outstanding used in calculating earnings per share. There is no expiration date for this program, and the program may be accelerated, suspended, delayed 26
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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
or discontinued at any time at the discretion of our board of directors. At
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
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.
Off-Balance Sheet Arrangements
As of
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PART I - FINANCIAL INFORMATION Item 3
RESMED INC. AND SUBSIDIARIES
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