Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

April 29, 2022

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________________________________________________________________________
FORM 10-Q
______________________________________________________________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to _______
Commission File Number: 001-15317
______________________________________________________________________________________________
ResMed Inc.
(Exact name of registrant as specified in its charter)
______________________________________________________________________________________________
Delaware
(State or other jurisdiction of incorporation or organization)
98-0152841
(I.R.S. Employer Identification No.)
9001 Spectrum Center Blvd.
San Diego, CA 92123
United States of America
(Address of principal executive offices, including zip code)
(858) 836-5000
(Registrant’s telephone number, including area code)
______________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.004 per share RMD New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large Accelerated Filer x Accelerated Filer o
Non-Accelerated Filer o Smaller Reporting Company o
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At April 25, 2022 there were 146,284,655 shares of Common Stock ($0.004 par value) outstanding. This number excludes 41,836,234 shares held by the registrant as treasury shares.


Table of Contents
RESMED INC. AND SUBSIDIARIES
INDEX
Part I
   
Item 1
   
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
   
 


2

Table of Contents
PART I – FINANCIAL INFORMATION Item 1
Item 1. Financial Statements
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In US$ and in thousands, except share and per share data)
  March 31,
2022
June 30,
2021
Assets
Current assets:
Cash and cash equivalents $ 201,769  $ 295,278 
Accounts receivable, net of allowances of $24,411 and $32,138 at March 31, 2022 and June 30, 2021, respectively
508,580  614,292 
Inventories (note 3) 664,943  457,033 
Prepaid taxes 108,898  72,409 
Prepaid expenses and other current assets 220,110  135,745 
Total current assets 1,704,300  1,574,757 
Non-current assets:
Property, plant and equipment, net (note 3) 513,250  463,490 
Operating lease right-of-use assets 141,173  128,575 
Goodwill (note 4) 1,946,317  1,927,901 
Other intangible assets, net (note 3) 355,984  392,582 
Deferred income taxes 74,840  79,904 
Prepaid taxes and other non-current assets 169,400  160,916 
Total non-current assets 3,200,964  3,153,368 
Total assets $ 4,905,264  $ 4,728,125 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 149,797  $ 138,008 
Accrued expenses 326,276  320,599 
Operating lease liabilities, current 24,130  23,585 
Deferred revenue 112,449  109,611 
Income taxes payable (note 6) 42,646  307,963 
Short-term debt, net (note 8) 11,967  12,000 
Total current liabilities 667,265  911,766 
Non-current liabilities:
Deferred revenue 94,094  91,496 
Deferred income taxes 10,711  11,319 
Operating lease liabilities, non-current 127,254  114,779 
Other long-term liabilities 5,103  6,802 
Long-term debt, net (note 8) 668,735  643,351 
Long-term income taxes payable (note 6) 53,298  62,933 
Total non-current liabilities 959,195  930,680 
Total liabilities 1,626,460  1,842,446 
Commitments and contingencies (note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued
   
Common stock, $0.004 par value, 350,000,000 shares authorized; 188,102,293 issued and 146,266,059 outstanding at March 31, 2022 and 187,484,592 issued and 145,648,358 outstanding at June 30, 2021
585  583 
Additional paid-in capital 1,645,453  1,622,199 
Retained earnings 3,480,163  3,079,640 
Treasury stock, at cost, 41,836,234 shares at March 31, 2022 and June 30, 2021
(1,623,256) (1,623,256)
Accumulated other comprehensive loss (224,141) (193,487)
Total stockholders’ equity 3,278,804  2,885,679 
Total liabilities and stockholders’ equity $ 4,905,264  $ 4,728,125 
See the accompanying notes to the unaudited condensed consolidated financial statements.

3

Table of Contents
PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In US$ and in thousands, except per share data)
  Three Months Ended
March 31,
Nine Months Ended
March 31,
  2022 2021 2022 2021
Net revenue - Sleep and Respiratory Care products $ 763,358  $ 674,931  $ 2,365,697  $ 2,042,909 
Net revenue - Software as a Service 101,142  93,836  297,693  277,813 
Net revenue 864,500  768,767  2,663,390  2,320,722 
 
Cost of sales - Sleep and Respiratory Care products 324,618  270,351  1,017,494  833,203 
Cost of sales - Software as a Service 37,703  40,234  110,820  105,050 
Cost of sales (exclusive of amortization shown separately below) 362,321  310,585  1,128,314  938,253 
 
Amortization of acquired intangible assets - Sleep and Respiratory Care products 1,071  900  3,043  3,995 
Amortization of acquired intangible assets - Software as a Service 9,911  10,024  30,228  30,071 
Amortization of acquired intangible assets 10,982  10,924  33,271  34,066 
Total cost of sales 373,303  321,509  1,161,585  972,319 
Gross profit 491,197  447,258  1,501,805  1,348,403 
 
Selling, general, and administrative 182,401  160,446  544,483  488,904 
Research and development 66,801  55,941  189,258  165,409 
Amortization of acquired intangible assets 7,730  7,445  23,175  23,377 
Restructuring expenses (note 11)       8,673 
Total operating expenses 256,932  223,832  756,916  686,363 
Income from operations 234,265  223,426  744,889  662,040 
Other income (loss), net:
Interest (expense) income, net (5,462) (5,823) (16,770) (18,341)
Loss attributable to equity method investments (note 5) (2,627) (4,969) (5,927) (9,895)
Gain (loss) on equity investments (note 5) (1,735) 4,666  (527) 9,442 
Other, net 1,878  705  729  1,205 
Total other income (loss), net (7,946) (5,421) (22,495) (17,589)
Income before income taxes 226,319  218,005  722,394  644,451 
Income taxes 47,307  296,486  138,018  365,046 
Net income (loss) $ 179,012  $ (78,481) $ 584,376  $ 279,405 
Basic earnings (loss) per share (note 9) $ 1.22  $ (0.54) $ 4.00  $ 1.92 
Diluted earnings (loss) per share (note 9) $ 1.22  $ (0.54) $ 3.97  $ 1.91 
Dividend declared per share $ 0.42  $ 0.39  $ 1.26  $ 1.17 
Basic shares outstanding (000's) 146,240  145,513  145,969  145,217 
Diluted shares outstanding (000's) 146,962  145,513  147,034  146,394 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In US$ and in thousands)
  Three Months Ended
March 31,
Nine Months Ended
March 31,
  2022 2021 2022 2021
Net income (loss) $ 179,012  $ (78,481) $ 584,376  $ 279,405 
Other comprehensive income (loss):
Foreign currency translation (loss) gain adjustments (1,046) (32,822) (30,654) 88,009 
Comprehensive income (loss) $ 177,966  $ (111,303) $ 553,722  $ 367,414 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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PART I – FINANCIAL INFORMATION Item 1
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Condensed Consolidated Statements of Changes in Equity (Unaudited)
(In US$ and in thousands)
  Common Stock
Additional
Paid-in
Capital
Treasury Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
  Shares Amount Shares Amount
Balance, June 30, 2021
187,485  $ 583  $ 1,622,199  (41,836) $ (1,623,256) $ 3,079,640  $ (193,487) $ 2,885,679 
Common stock issued on exercise of options
61  —  4,354  —  —  —  —  4,354 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 1  —  (195) —  —  —  —  (195)
Stock-based compensation costs —  —  17,303  —  —  —  —  17,303 
Other comprehensive income —  —  —  —  —  —  (23,516) (23,516)
Net income —  —  —  —  —  203,613  —  203,613 
Dividends declared ($0.42 per common share)
—  —  —  —  —  (61,189) —  (61,189)
Balance, September 30, 2021 187,547  $ 583  $ 1,643,661  (41,836) $ (1,623,256) $ 3,222,064  $ (217,003) $ 3,026,049 
Common stock issued on exercise of options 39  —  2,378  —  —  —  —  2,378 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 361  2  (49,832) —  —  —  —  (49,830)
Common stock issued on employee stock purchase plan 101  —  16,723  —  —  —  —  16,723 
Stock-based compensation costs —  —  16,101  —  —  —  —  16,101 
Other comprehensive income —  —  —  —  —  —  (6,092) (6,092)
Net income —  —  —  —  —  201,751  —  201,751 
Dividends declared ($0.42 per common share)
—  —  —  —  —  (61,245) —  (61,245)
Balance, December 31, 2021
188,048  $ 585  $ 1,629,031  (41,836) $ (1,623,256) $ 3,362,570  $ (223,095) $ 3,145,835 
Common stock issued on exercise of options 49  —  2,814  —  —  —  —  2,814 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 5    (2,253) —  —  —  —  (2,253)
Stock-based compensation costs —  —  15,861  —  —  —  —  15,861 
Other comprehensive income —  —  —  —  —  —  (1,046) (1,046)
Net income —  —  —  —  —  179,012  —  179,012 
Dividends declared ($0.42 per common share)
—  —  —  —  —  (61,419) —  (61,419)
Balance, March 31, 2022 188,102  $ 585  $ 1,645,453  (41,836) $ (1,623,256) $ 3,480,163  $ (224,141) $ 3,278,804 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(In US$ and in thousands)
  Common Stock
Additional
Paid-in
Capital
Treasury Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
  Shares Amount Shares Amount
Balance, June 30, 2020
186,723  $ 580  $ 1,570,694  (41,836) $ (1,623,256) $ 2,832,991  $ (283,982) $ 2,497,027 
Common stock issued on exercise of options
18  —  1,026  —  —  —  —  1,026 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 3  —  227  —  —  —  —  227 
Stock-based compensation costs —  —  16,071  —  —  —  —  16,071 
Other comprehensive income (loss) —  —  —  —  —  —  43,791  43,791 
Cumulative effect adjustment from adoption of the credit loss standard, net of tax —  —  —  —  —  (1,143) —  (1,143)
Net income —  —  —  —  —  178,372  —  178,372 
Dividends declared ($0.39 per common share)
—  —  —  —  —  (56,511) —  (56,511)
Balance, September 30, 2020 186,744  $ 580  $ 1,588,018  (41,836) $ (1,623,256) $ 2,953,709  $ (240,191) $ 2,678,860 
Common stock issued on exercise of options 29  —  1,857  —  —  —  —  1,857 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 451  2  (46,734) —  —  —  —  (46,732)
Common stock issued on employee stock purchase plan 116  —  15,729  —  —  —  —  15,729 
Stock-based compensation costs —  —  15,370  —  —  —  —  15,370 
Other comprehensive income —  —  —  —  —  —  77,040  77,040 
Net income —  —  —  —  —  179,514  —  179,514 
Dividends declared ($0.39 per common share)
—  —  —  —  —  (56,654) —  (56,654)
Balance, December 31, 2020
187,340  $ 582  $ 1,574,240  (41,836) $ (1,623,256) $ 3,076,569  $ (163,151) $ 2,864,984 
Common stock issued on exercise of options 1  —  139  —  —  —  —  139 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 12    (3,431) —  —  —  —  (3,431)
Common stock issued on employee stock purchase plan   —  6  —  —  —  —  6 
Stock-based compensation costs —  —  15,591  —  —  —  —  15,591 
Other comprehensive income —  —  —  —  —  —  (32,822) (32,822)
Net income (loss) —  —  —  —  —  (78,481) —  (78,481)
Dividends declared ($0.39 per common share)
—  —  —  —  —  (56,752) —  (56,752)
Balance, March 31, 2021 187,353  $ 582  $ 1,586,545  (41,836) $ (1,623,256) $ 2,941,336  $ (195,973) $ 2,709,234 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In US$ and in thousands)
  Nine Months Ended
March 31,
  2022 2021
Cash flows from operating activities:
Net income $ 584,376  $ 279,405 
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 122,198  120,034 
Amortization of right-of-use assets 26,636  25,805 
Stock-based compensation costs 49,265  47,032 
Loss attributable to equity method investments (note 5) 5,927  9,895 
(Gain) loss on equity investments (note 5) 527  (9,442)
Restructuring expenses (note 11)   8,673 
Changes in operating assets and liabilities:
Accounts receivable 98,158  (39,899)
Inventories (209,476) (48,393)
Prepaid expenses, net deferred income taxes and other current assets (127,977) (41,036)
Accounts payable, accrued expenses, income taxes payable and other (277,973) 158,119 
Net cash provided by operating activities 271,661  510,193 
Cash flows from investing activities:
Purchases of property, plant and equipment (106,192) (74,805)
Patent registration and acquisition costs (17,449) (11,149)
Business acquisitions, net of cash acquired (35,915) (30,704)
Purchases of investments (note 5) (16,614) (20,038)
Proceeds from sale of investment 6,802   
(Payments) / proceeds on maturity of foreign currency contracts (5,309) 26,306 
Net cash used in investing activities (174,677) (110,390)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 26,269  18,759 
Taxes paid related to net share settlement of equity awards (52,278) (49,938)
Payments of business combination contingent consideration   (3,500)
Proceeds from borrowings, net of borrowing costs 160,000  90,000 
Repayment of borrowings (136,000) (536,000)
Dividends paid (183,853) (169,917)
Net cash used in financing activities (185,862) (650,596)
Effect of exchange rate changes on cash (4,631) 18,272 
Net decrease in cash and cash equivalents (93,509) (232,521)
Cash and cash equivalents at beginning of period 295,278  463,156 
Cash and cash equivalents at end of period $ 201,769  $ 230,635 
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds $ 432,268  $ 180,307 
Interest paid $ 16,770  $ 18,644 
Fair value of assets acquired, excluding cash $ 8,986  $ 15,992 
Liabilities assumed (2,492) (3,309)
Goodwill on acquisition 33,499  24,202 
Previously held equity interest (4,078)  
Deferred payments
  (1,681)
Cash paid for acquisitions $ 35,915  $ 35,204 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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PART I – FINANCIAL INFORMATION Item 1
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Notes to the Condensed Consolidated Financial Statements
(Unaudited)
(1)    Summary of Significant Accounting Policies
Organization and Basis of Presentation
ResMed Inc. (referred to herein as “we”, “us”, “our” or the “Company”) is a Delaware corporation formed in March 1994 as a holding company for the ResMed Group. Through our subsidiaries, we design, manufacture and market equipment for the diagnosis and treatment of sleep-disordered breathing and other respiratory disorders, including obstructive sleep apnea. Our manufacturing operations are located in Australia, Singapore, Malaysia, France, China and the United States. Major distribution and sales sites are located in the United States, Germany, France, the United Kingdom, Switzerland, Australia, Japan, China, Finland, Norway and Sweden. We also operate a Software as a Service (“SaaS”) business in the United States that includes 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and the rules of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to present fairly the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022.
The condensed consolidated financial statements for the three and nine months ended March 31, 2022 and March 31, 2021 are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K (our “Form 10-K”) for the year ended June 30, 2021.
Revenue Recognition
In accordance with Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, we account for a contract with a customer when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. 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”). Our Sleep and Respiratory Care revenue relates primarily to the sale of our products that are therapy-based equipment. Some contracts include additional performance obligations such as the provision of extended warranties and provision of data for patient monitoring. Our SaaS revenue relates to the provision of software access with ongoing support and maintenance services as well as professional services such as training and consulting.
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Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Disaggregation of revenue
The following table summarizes our net revenue disaggregated by segment, product and region (in thousands):
Three Months Ended
March 31,
Nine Months Ended
March 31,
2022 2021 2022 2021
U.S., Canada and Latin America
Devices $ 250,768  $ 192,897  $ 771,475  $ 595,287 
Masks and other 224,665  209,984  681,803  637,507 
Total Sleep and Respiratory Care $ 475,433  $ 402,881  $ 1,453,278  $ 1,232,794 
Software as a Service 101,142  93,836  297,693  277,813 
Total $ 576,575  $ 496,717  $ 1,750,971  $ 1,510,607 
Combined Europe, Asia and other markets
Devices $ 182,307  $ 172,838  $ 608,268  $ 536,856 
Masks and other 105,618  99,212  304,151  273,259 
Total Sleep and Respiratory Care $ 287,925  $ 272,050  $ 912,419  $ 810,115 
Global revenue
Devices $ 433,075  $ 365,735  $ 1,379,743  $ 1,132,143 
Masks and other 330,283  309,196  985,954  910,766 
Total Sleep and Respiratory Care $ 763,358  $ 674,931  $ 2,365,697  $ 2,042,909 
Software as a Service 101,142  93,836  297,693  277,813 
Total $ 864,500  $ 768,767  $ 2,663,390  $ 2,320,722 
Performance obligations and contract balances
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied; generally, this occurs with the transfer of risk and/or control of our products at a point in time. For products in our Sleep and Respiratory Care business, we transfer control and recognize a sale when products are shipped to the customer in accordance with the contractual shipping terms. For our SaaS business, revenue associated with professional services are recognized as they are provided. We defer the recognition of a portion of the consideration received when performance obligations are not yet satisfied. Consideration received from customers in advance of revenue recognition is classified as deferred revenue. Performance obligations resulting in deferred revenue in our Sleep and Respiratory Care business relate primarily to extended warranties on our devices and the provision of data for patient monitoring. Performance obligations resulting in deferred revenue in our SaaS business relate primarily to the provision of software access with maintenance and support over an agreed term and material rights associated with future discounts upon renewal of some SaaS contracts. Generally, deferred revenue will be recognized over a period of one year to five years. Our contracts do not contain significant financing components.
The following table summarizes our contract balances (in thousands):
  March 31,
2022
June 30,
2021
Balance sheet caption
Contract assets
Accounts receivable, net $ 508,580  $ 614,292  Accounts receivable, net
Unbilled revenue, current 25,653  10,893  Prepaid expenses and other current assets
Unbilled revenue, non-current 7,018  6,214  Prepaid taxes and other non-current assets
 
Contract liabilities
Deferred revenue, current (112,449) (109,611) Deferred revenue (current liabilities)
Deferred revenue, non-current (94,094) (91,496) Deferred revenue (non-current liabilities)
Transaction price determination
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. In our Sleep and Respiratory Care segment, the amount of consideration received and revenue recognized varies
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Notes to the Condensed Consolidated Financial Statements
(Unaudited)
with changes in marketing incentives (e.g. rebates, discounts, free goods) and returns offered to our customers and their customers. When we give customers the right to return eligible products and receive credit, returns are estimated based on an analysis of historical experience. However, returns of products, excluding warranty-related returns, are infrequent and insignificant. We adjust the estimate of revenue at the earlier of when the most likely amount of consideration can be estimated, the amount expected to be received changes, or when the consideration becomes fixed.
We offer our Sleep and Respiratory Care customers cash or product rebates based on volume or sales targets measured over quarterly or annual periods. We estimate rebates based on each customer’s expected achievement of its targets. In accounting for these rebate programs, we reduce revenue ratably as sales occur over the rebate period by the expected value of the rebates to be returned to the customer. Rebates measured over a quarterly period are updated based on actual sales results and, therefore, no estimation is required to determine the reduction to revenue. For rebates measured over annual periods, we update our estimates on a quarterly basis based on actual sales results and updated forecasts for the remaining rebate periods.
We participate in programs where we issue credits to our Sleep and Respiratory Care distributors when they are required to sell our products below negotiated list prices if we have preexisting contracts with the distributors' customers. We reduce revenue for future credits at the time of sale to the distributor, which we estimate based on historical experience using the expected value method.
We also offer discounts to both our Sleep and Respiratory Care as well as our SaaS customers as part of normal business practice and these are deducted from revenue when the sale occurs.
When Sleep and Respiratory Care or SaaS contracts have multiple performance obligations, we generally use an observable price to determine the stand-alone selling price by reference to pricing and discounting practices for the specific product or service when sold separately to similar customers. Revenue is then allocated proportionately, based on the determined stand-alone selling price, to each performance obligation. An allocation is not required for many of our Sleep and Respiratory Care contracts that have a single performance obligation, which is the shipment of our therapy-based equipment.
Accounting and practical expedient elections
We have elected to account for shipping and handling activities associated with our Sleep and Respiratory Care segment as a fulfillment cost within cost of sales, and record shipping and handling costs collected from customers in net revenue. We have also elected for all taxes assessed by government authorities that are imposed on and concurrent with revenue-producing transactions, such as sales and value added taxes, to be excluded from revenue and presented on a net basis. We have elected two practical expedients including the “right to invoice” practical expedient, which is relevant for some of our SaaS contracts as it allows us to recognize revenue in the amount of the invoice when it corresponds directly with the value of performance completed to date. The second practical expedient adopted permits relief from considering a significant financing component when the payment for the good or service is expected to be one year or less.
Lease Revenue
We lease Sleep and Respiratory Care medical devices to customers primarily as a means to comply with local health insurer requirements in certain foreign geographies. Device rental contracts include sales-type and operating leases, and contract terms vary by customer and include options to terminate or extend the contract. When lease contracts also include the sale of masks and accessories, we allocate contract consideration to those items on a relative standalone price basis and recognize revenue when control transfers to the customer.
The components of lease revenue were as follows (in thousands):
Three Months Ended
March 31,
Nine Months Ended
March 31,
2022 2021 2022 2021
Sales-type lease revenue $ 946  $ 2,031  $ 6,598  $ 5,854 
Operating lease revenue 19,797  22,746  69,380  72,551 
Total lease revenue $ 20,743  $ 24,777  $ 75,978  $ 78,405 
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Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Provision for Warranty
We provide for the estimated cost of product warranties on our Sleep and Respiratory Care products at the time the related revenue is recognized. We determine the amount of this provision by using a financial model, which takes into consideration actual historical expenses and potential risks associated with our different products. We use this financial model to calculate the future probable expenses related to warranty and the required level of the warranty provision. Although we engage in product improvement programs and processes, our warranty obligation is affected by product failure rates and costs incurred to correct those product failures. Should actual product failure rates or estimated costs to repair those product failures differ from our estimates, we would be required to revise our estimated warranty provision.
Recently adopted accounting pronouncements
ASU No. 2021-08 “Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”
In October 2021, the FASB issued ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The guidance is effective for us beginning in the first quarter of the year ending June 30, 2024 and early adoption is permitted. We elected to early adopt this standard in the second quarter of our fiscal year ending June 30, 2022. We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements.
(2)    Segment Information
We have quantitatively and qualitatively determined that we operate in two operating segments, which are the Sleep and Respiratory Care segment and the SaaS segment.
We evaluate the performance of our segments based on net revenues and income from operations. The accounting policies of the segments are the same as those described in note 2 of our consolidated financial statements included in our Form 10-K for the year ended June 30, 2021. Segment net revenues and segment income from operations do not include inter-segment profits and revenue is allocated to a geographic area based on where the products are shipped to or where the services are performed.
Certain items are maintained at the corporate level and are not allocated to the segments. The non-allocated items include corporate headquarters costs, stock-based compensation, amortization expense from acquired intangibles, net interest expense (income), loss attributable to equity method investments, gains and losses on equity investments, and other, net. We neither discretely allocate assets to our operating segments, nor does our Chief Operating Decision Maker evaluate the operating segments using discrete asset information.
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Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The table below presents a reconciliation of net revenues and net operating profit by reportable segments (in thousands):
Three Months Ended
March 31,
Nine Months Ended
March 31,
2022 2021 2022 2021
Net revenue by segment
Total Sleep and Respiratory Care $ 763,358  $ 674,931  $ 2,365,697  $ 2,042,909 
Software as a Service 101,142  93,836  297,693  277,813 
Total $ 864,500  $ 768,767  $ 2,663,390  $ 2,320,722 
Depreciation and amortization by segment
Sleep and Respiratory Care $ 21,008  $ 13,589  $ 58,372  $ 39,979 
Software as a Service 1,863  1,491  5,421  3,599 
Amortization of acquired intangible assets and corporate assets 19,435  24,908  58,405  76,456 
Total $ 42,306  $ 39,988  $ 122,198  $ 120,034 
Net operating profit by segment
Sleep and Respiratory Care $ 267,808  $ 253,693  $ 847,589  $ 763,534 
Software as a Service 23,649  23,052  68,668  70,929 
Total $ 291,457  $ 276,745  $ 916,257  $ 834,463 
Reconciling items
Corporate costs $ 38,480  $ 34,950  $ 114,922  $ 106,307 
Amortization of acquired intangible assets 18,712  18,369  56,446  57,443 
Restructuring expenses       8,673 
Interest expense (income), net 5,462  5,823  16,770  18,341 
Loss attributable to equity method investments 2,627  4,969