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MarketScreener Homepage  >  Equities  >  Nyse  >  ResMed, Inc.    RMD

RESMED, INC.

(RMD)
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ResMed : Management's Discussion and Analysis of Financial Condition and Results of Operations

10/30/2020 | 05:08am EST

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 ended June 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 ended June 30, 2020, in addition to the other cautionary statements and
risks described elsewhere in this report and in our other filings with the
Securities 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.


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Table of Contents

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 September 30, 2020, our cash and cash equivalents totaled $421.4 million, our total assets were $4.6 billion and our stockholders' equity was $2.7 billion.


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 accounting principles generally accepted in the
United States ("GAAP").

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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 September 30, 2020 Compared to the Three Months Ended September 30, 2019

Net Revenue


Net revenue for the three months ended September 30, 2020 increased to $751.9
million from $681.1 million for the three months ended September 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 ended September 30, 2020 compared to
September 30, 2019 (in thousands):

                                                  Three Months Ended
                                                    ?September 30,
                                                                                        Constant
                                                   2020         2019      % Change      Currency*
U.S., Canada and Latin 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
Combined Europe, 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
ended September 30, 2020 was $659.8 million, an increase of 11% compared to net
revenue for the three months ended September 30, 2019. Movements in
international currencies against the U.S. dollar positively impacted net
revenues by approximately $9.4 million for the three months ended September 30,
2020. Excluding the impact of currency movements, total Sleep and Respiratory
Care net revenue for the three months ended September 30, 2020 increased 9%
compared to the three months ended September 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 the U.S., Canada and
Latin America for the three months ended September 30, 2020 increased to $403.2
million from $370.3 million for the three months ended September 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 combined Europe, Asia and other markets increased for the three
months ended September 30, 2020 to $256.6 million from $223.9 million for the
three months ended September 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 combined Europe, 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 ended September 30, 2020 increased
to $373.4 million from $338.8 million for the three months ended September 30,
2019, an increase of $34.6 million or 10%, including an increase of 6% in the
United States, Canada and Latin America and an increase of 16% in combined
Europe, 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 ended September 30, 2020 increased by 8%.

Net revenue from masks and other for the three months ended September 30, 2020
increased to $286.4 million from $255.4 million for the three months ended
September 30, 2019, an increase of $31.0 million or 12%, including an increase
of 12% in the United States, Canada and Latin America and an increase of 12% in
combined Europe, 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 ended September 30, 2019.

Software as a Service


Net revenue from our SaaS business for the three months ended September 30, 2020
was $92.1 million, an increase of 6% compared to the three months ended
September 30, 2019. The increase was predominantly due to continued growth in
resupply service offerings and stabilizing patient flow in out-of-hospital care
settings.

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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 ended September 30, 2020 to $438.7
million from $391.6 million for the three months ended September 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 ended September 30, 2020 was
58.3% compared to 57.5% for the three months ended September 30, 2019.

The increase in gross margin for the three months ended September 30, 2020
compared to three months ended September 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
ended September 30, 2020 to $159.0 million from $167.4 million for the three
months ended September 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 the U.S. dollar, which increased our expenses
by approximately $2.7 million, as reported in U.S. dollars. Excluding the impact
of foreign currency movements, selling, general and administrative expenses for
the three months ended September 30, 2020 decreased by 7% compared to the three
months ended September 30, 2019. As a percentage of net revenue, selling,
general and administrative expenses were 21.1% for the three months ended
September 30, 2020, compared to 24.6% for the three months ended September 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 ended September 30, 2020.

Research and Development Expenses


Research and development expenses increased for the three months ended
September 30, 2020 to $54.5 million from $48.0 million for the three months
ended September 30, 2019, an increase of $6.5 million, or 14%. Research and
development expenses were unfavorably impacted by the movement of international
currencies against the U.S. dollar, which increased our expenses by
approximately $0.9 million for the three months ended September 30, 2020, as
reported in U.S. dollars. Excluding the impact of foreign currency movements,
research and development expenses increased by 12% compared to the three months
ended September 30, 2019. As a percentage of net revenue, research and
development expenses were 7.3% for the three months ended September 30, 2020,
compared to 7.1% for the three months ended September 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 September 30, 2020 totaled $8.2 million compared to $5.0 million for the three months ended September 30, 2019.

Total Other Income (Loss), Net


Total other income (loss), net for the three months ended September 30, 2020 was
a loss of $1.0 million compared to a loss of $20.5 million for the three months
ended September 30, 2019. The decrease was partially due to a decrease in
interest expense to $6.8 million for the three months ended September 30, 2020
compared to $11.0 million for the three months ended September 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 ended September 30,
2020. We also recorded losses attributable to equity method investments for the
three months ended September 30, 2020 of $2.3 million compared to $6.9 million
for the three months ended September 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.



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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 ended
September 30, 2020 was $178.4 million compared to net income of $120.1 million
for the three months ended September 30, 2019, an increase of 48% over the three
months ended September 30, 2019.

Our diluted earnings per share for the three months ended September 30, 2020 were $1.22 per diluted share compared to $0.83 for the three months ended September 30, 2019, an increase of 47%.

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

$ 191,027



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 of September 30, 2020 and June 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 at September 30, 2020 and June 30, 2020,
respectively. As of September 30, 2020, we had $1.1 billion of borrowings
compared to $1.2 billion of borrowings at June 30, 2020. As of September 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.

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                          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 September 30, 2020 were $478.0 million, an increase of $61.1 million or 15% from the June 30, 2020 balance of $416.9 million. The increase in inventories was required to support our revenue growth and respond to additional complexity and elongation of our supply chain resulting from ongoing COVID-19 impacts.


Accounts receivable at September 30, 2020 were $464.9 million, a decrease of
$9.8 million or 2% compared to the June 30, 2020, balance of $474.6 million.
Accounts receivable days outstanding of 57 days at September 30, 2020, were
lower the days outstanding of 65 days at June 30, 2020. Our allowance for
doubtful accounts as a percentage of total accounts receivable at September 30,
2020, was 6.0%, compared to 5.7% at June 30, 2020.

As of September 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 ended September 30, 2020, we generated cash of
$144.0 million from operations compared to $162.4 million for the three months
ended September 30, 2019. The decrease in cash generated from operations during
the three months ended September 30, 2020, as compared to the three months ended
September 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 ended September 30, 2020, had the effect
of increasing our cash and cash equivalents by $11.6 million, as reported in
U.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 ended September 30, 2020 and
2019. In addition, during the three months ended September 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 ended September 30, 2020 and 2019,
amounted to $13.5 million and $22.7 million, respectively. The capital
expenditures for the three months ended September 30, 2020, primarily reflected
investment in production tooling, leasehold improvements, equipment and
machinery, and computer hardware and software. At September 30, 2020, our
balance sheet reflects net property, plant and equipment of $424.8 million
compared to $417.3 million at June 30, 2020.

Contractual Obligations


Details of contractual obligations at September 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

$ 29,961$ 27,164$ 584,789



Details of other commercial commitments at September 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


On April 17, 2018, we entered into an amended and restated credit agreement (as
amended from time to time, the "Revolving Credit Agreement"), as borrower, with
lenders MUFG 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.

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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 $800.0 million, with an uncommitted option to increase the revolving credit facility by an additional $300.0 million.


Additionally, on April 17, 2018, ResMed Limited entered into a Syndicated
Facility Agreement (the "Term Credit Agreement"), as borrower, with lenders MUFG
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,
provides ResMed Limited a senior unsecured term credit facility of
$200.0 million.

On November 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 indirect U.S. subsidiaries, and ResMed Limited's obligations
under the Term Credit Agreement are guaranteed by us and certain of our direct
and indirect U.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 on
April 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). On September 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 of September 30, 2020, we had $1.2 billion available for
draw down under the revolving credit facility.

Senior Notes


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").
Our obligations under the Note Purchase Agreement and the Senior Notes are
unconditionally and irrevocably guaranteed by certain of our direct and indirect
U.S. subsidiaries, including ResMed 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 and Lewis Computer Services, LLC, MatrixCare Holdings
Inc., MatrixCare, Inc., Reciprocal Labs Corporation and ResMed SaaS Inc., under
a Subsidiary Guaranty Agreement dated as of July 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.

On September 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 through September 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 ended
September 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

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                          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 September 30, 2020, 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 with U.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 June 30, 2020.

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 September 30, 2020, we are not involved in any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

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PART I - FINANCIAL INFORMATION Item 3

                          RESMED INC. AND SUBSIDIARIES

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