Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

April 28, 2023

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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, 2023
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 24, 2023 there were 146,930,660 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
   
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
   
 


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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,
2023
June 30,
2022
Assets
Current assets:
Cash and cash equivalents $ 227,894  $ 273,710 
Accounts receivable, net of allowances of $24,852 and $23,259 at March 31, 2023 and June 30, 2022, respectively
686,264  575,950 
Inventories (note 3) 1,011,269  743,910 
Prepaid expenses and other current assets (note 3) 412,388  337,908 
Total current assets 2,337,815  1,931,478 
Non-current assets:
Property, plant and equipment, net (note 3) 528,778  498,181 
Operating lease right-of-use assets 127,508  132,314 
Goodwill (note 4) 2,783,624  1,936,442 
Other intangible assets, net (note 3) 569,678  345,944 
Deferred income taxes 95,603  79,746 
Prepaid taxes and other non-current assets 270,873  171,748 
Total non-current assets 4,376,064  3,164,375 
Total assets $ 6,713,879  $ 5,095,853 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 161,896  $ 159,245 
Accrued expenses 347,354  344,722 
Operating lease liabilities, current 23,129  21,856 
Deferred revenue 141,043  108,667 
Income taxes payable (note 6) 78,368  44,893 
Short-term debt, net (note 8) 9,901  9,916 
Total current liabilities 761,691  689,299 
Non-current liabilities:
Deferred revenue 108,875  95,455 
Deferred income taxes 113,015  9,714 
Operating lease liabilities, non-current 115,090  120,453 
Other long-term liabilities 69,553  5,974 
Long-term debt, net (note 8) 1,575,963  765,325 
Long-term income taxes payable (note 6) 37,183  48,882 
Total non-current liabilities 2,019,679  1,045,803 
Total liabilities 2,781,370  1,735,102 
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; 188,760,643 issued and 146,924,409 outstanding at March 31, 2023 and 188,246,955 issued and 146,410,721 outstanding at June 30, 2022
588  586 
Additional paid-in capital 1,728,997  1,682,432 
Retained earnings 4,088,057  3,613,736 
Treasury stock, at cost, 41,836,234 shares at March 31, 2023 and June 30, 2022
(1,623,256) (1,623,256)
Accumulated other comprehensive loss (261,877) (312,747)
Total stockholders’ equity 3,932,509  3,360,751 
Total liabilities and stockholders’ equity $ 6,713,879  $ 5,095,853 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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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,
  2023 2022 2023 2022
Net revenue - Sleep and Respiratory Care products $ 980,116  $ 763,358  $ 2,741,541  $ 2,365,697 
Net revenue - Software as a Service 136,782  101,142  359,395  297,693 
Net revenue 1,116,898  864,500  3,100,936  2,663,390 
 
Cost of sales - Sleep and Respiratory Care products 443,925  324,618  1,214,072  1,017,494 
Cost of sales - Software as a Service 46,899  37,703  126,588  110,820 
Cost of sales (exclusive of amortization shown separately below) 490,824  362,321  1,340,660  1,128,314 
 
Amortization of acquired intangible assets - Sleep and Respiratory Care products 1,367  1,071  3,939  3,043 
Amortization of acquired intangible assets - Software as a Service 6,955  9,911  18,062  30,228 
Amortization of acquired intangible assets 8,322  10,982  22,001  33,271 
Total cost of sales 499,146  373,303  1,362,661  1,161,585 
Gross profit 617,752  491,197  1,738,275  1,501,805 
 
Selling, general, and administrative 228,457  182,401  633,317  544,483 
Research and development 76,436  66,801  209,498  189,258 
Amortization of acquired intangible assets 12,188  7,730  29,701  23,175 
Acquisition related expenses     9,157   
Total operating expenses 317,081  256,932  881,673  756,916 
Income from operations 300,671  234,265  856,602  744,889 
Other income (loss), net:
Interest (expense) income, net (14,964) (5,462) (32,436) (16,770)
Loss attributable to equity method investments (note 5) (183) (2,627) (5,037) (5,927)
Gain (loss) on equity investments (note 5) 6,418  (1,735) 11,506  (527)
Other, net (2,564) 1,878  (5,773) 729 
Total other income (loss), net (11,293) (7,946) (31,740) (22,495)
Income before income taxes 289,378  226,319  824,862  722,394 
Income taxes 56,878  47,307  156,970  138,018 
Net income $ 232,500  $ 179,012  $ 667,892  $ 584,376 
Basic earnings per share (note 9) $ 1.58  $ 1.22  $ 4.55  $ 4.00 
Diluted earnings per share (note 9) $ 1.58  $ 1.22  $ 4.53  $ 3.97 
Dividend declared per share $ 0.44  $ 0.42  $ 1.32  $ 1.26 
Basic shares outstanding (000's) 146,914  146,240  146,681  145,969 
Diluted shares outstanding (000's) 147,395  146,962  147,400  147,034 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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Table of Contents
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,
  2023 2022 2023 2022
Net income $ 232,500  $ 179,012  $ 667,892  $ 584,376 
Other comprehensive income (loss), net of taxes:
Unrealized losses on designated hedging instruments (12,496)   (32,699)  
Foreign currency translation (loss) gain adjustments 20,787  (1,046) 83,569  (30,654)
Comprehensive income $ 240,791  $ 177,966  $ 718,762  $ 553,722 
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, 2022
188,247  $ 586  $ 1,682,432  (41,836) $ (1,623,256) $ 3,613,736  $ (312,747) $ 3,360,751 
Common stock issued on exercise of options
45  —  2,610  —  —  —  —  2,610 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 3  —  (59) —  —  —  —  (59)
Stock-based compensation costs —  —  16,919  —  —  —  —  16,919 
Other comprehensive income —  —  —  —  —  —  (93,381) (93,381)
Net income —  —  —  —  —  210,478  —  210,478 
Dividends declared ($0.44 per common share)
—  —  —  —  —  (64,431) —  (64,431)
Balance, September 30, 2022
188,295  $ 586  $ 1,701,902  (41,836) $ (1,623,256) $ 3,759,783  $ (406,128) $ 3,432,887 
Common stock issued on exercise of options 77  —  5,120  —  —  —  —  5,120 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 265  1  (29,655) —  —  —  —  (29,654)
Common stock issued on employee stock purchase plan 100  1  16,935  —  —  —  —  16,936 
Stock-based compensation costs —  —  16,464  —  —  —  —  16,464 
Other comprehensive income —  —  —  —  —  —  135,960  135,960 
Net income —  —  —  —  —  224,914  —  224,914 
Dividends declared ($0.44 per common share)
—  —  —  —  —  (64,500) —  (64,500)
Balance, December 31, 2022
188,737  $ 588  $ 1,710,766  (41,836) $ (1,623,256) $ 3,920,197  $ (270,168) $ 3,738,127 
Common stock issued on exercise of options 18  —  983  —  —  —  —  983 
Common stock issued on vesting of restricted stock units, net of shares withheld for tax 6  —  (584) —  —  —  —  (584)
Stock-based compensation costs —  —  17,832  —  —  —  —  17,832 
Other comprehensive income —  —  —  —  —  —  8,291  8,291 
Net income —  —  —  —  —  232,500  —  232,500 
Dividends declared ($0.44 per common share)
—  —  —  —  —  (64,640) —  (64,640)
Balance, March 31, 2023 188,761  $ 588  $ 1,728,997  (41,836) $ (1,623,256) $ 4,088,057  $ (261,877) $ 3,932,509 
See the accompanying notes to the unaudited condensed consolidated financial statements.

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Table of Contents
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, 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 (loss) —  —  —  —  —  —  (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 (loss) —  —  —  —  —  —  (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 (loss) —  —  —  —  —  —  (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 Cash Flows (Unaudited)
(In US$ and in thousands)
  Nine Months Ended
March 31,
  2023 2022
Cash flows from operating activities:
Net income $ 667,892  $ 584,376 
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 118,396  122,198 
Amortization of right-of-use assets 23,967  26,636 
Stock-based compensation costs 51,215  49,265 
Loss attributable to equity method investments (note 5) 5,037  5,927 
(Gain) loss on equity investments (note 5) (11,506) 527 
Changes in operating assets and liabilities:
Accounts receivable (88,452) 98,158 
Inventories (255,091) (209,476)
Prepaid expenses, net deferred income taxes and other current assets (86,607) (127,977)
Accounts payable, accrued expenses, income taxes payable and other 31,012  (277,973)
Net cash provided by operating activities
455,863  271,661 
Cash flows from investing activities:
Purchases of property, plant and equipment (85,223) (106,192)
Patent registration and acquisition costs (10,043) (17,449)
Business acquisitions, net of cash acquired (note 12) (1,011,225) (35,915)
Purchases of investments (note 5) (29,729) (16,614)
Proceeds from exits of investments (note 5) 3,937  6,802 
(Payments) / proceeds on maturity of foreign currency contracts 18,961  (5,309)
Net cash used in investing activities (1,113,322) (174,677)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 25,649  26,269 
Taxes paid related to net share settlement of equity awards (30,297) (52,278)
Payments of business combination contingent consideration (316)  
Proceeds from borrowings, net of borrowing costs 1,070,000  160,000 
Repayment of borrowings (260,000) (136,000)
Dividends paid (193,571) (183,853)
Net cash (used in) / provided by financing activities
611,465  (185,862)
Effect of exchange rate changes on cash 178  (4,631)
Net decrease in cash and cash equivalents (45,816) (93,509)
Cash and cash equivalents at beginning of period 273,710  295,278 
Cash and cash equivalents at end of period $ 227,894  $ 201,769 
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds $ 145,566  $ 432,268 
Interest paid $ 32,436  $ 16,770 
Fair value of assets acquired, excluding cash $ 359,730  $ 8,986 
Liabilities assumed (148,132) (2,492)
Goodwill on acquisition 803,357  33,499 
Previously held equity interest   (4,078)
Deferred payments
(874)  
Fair value of contingent consideration
(2,856) $  
Cash paid for acquisitions $ 1,011,225  $ 35,915 
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
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 and Germany 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, 2023.
The condensed consolidated financial statements for the three and nine months ended March 31, 2023 and March 31, 2022 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, 2022.
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 care 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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PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
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,
2023 2022 2023 2022
U.S., Canada and Latin America
Devices $ 372,071  $ 250,768  $ 1,057,141  $ 771,475 
Masks and other 257,070  224,665  765,364  681,803 
Total U.S., Canada and Latin America
$ 629,141  $ 475,433  $ 1,822,505  $ 1,453,278 
Combined Europe, Asia and other markets
Devices $ 235,818  $ 182,307  $ 611,123  $ 608,268 
Masks and other 115,157  105,618  307,913  304,151 
Total Combined Europe, Asia and other markets
$ 350,975  $ 287,925  $ 919,036  $ 912,419 
Global revenue
Total Devices
$ 607,889  $ 433,075  $ 1,668,264  $ 1,379,743 
Total Masks and other
372,227  330,283  1,073,277  985,954 
Total Sleep and Respiratory Care $ 980,116  $ 763,358  $ 2,741,541  $ 2,365,697 
Software as a Service 136,782  101,142  359,395  297,693 
Total $ 1,116,898  $ 864,500  $ 3,100,936  $ 2,663,390 
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 cloud-hosted 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,
2023
June 30,
2022
Balance sheet caption
Contract assets
Accounts receivable, net $ 686,264  $ 575,950  Accounts receivable, net
Unbilled revenue, current 25,904  25,692  Prepaid expenses and other current assets
Unbilled revenue, non-current 9,700  8,840  Prepaid taxes and other non-current assets
 
Contract liabilities
Deferred revenue, current (141,043) (108,667) Deferred revenue (current liabilities)
Deferred revenue, non-current (108,875) (95,455) 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 with changes in marketing incentives (e.g. rebates, discounts, free goods) and returns offered to our customers and their
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PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
customers. When we give customers the right to return eligible products and receive credit, returns are estimated based on an analysis of our historical experience. However, returns of products, excluding warranty-related returns, have historically been 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 each quarter 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 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. Operating lease revenue was $22.1 million and $66.2 million for the three and nine months ended March 31, 2023 and $19.8 million and $69.4 million for the three and nine months ended March 31, 2022.
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.
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PART I – FINANCIAL INFORMATION Item 1
RESMED INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
(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 fiscal year ended June 30, 2022. 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, acquisition related expenses, 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.
Additionally, effective in the first quarter of fiscal year 2023, we updated the extent of allocation and method of attribution of certain shared costs that are principally managed at the corporate level as part of our evaluation of segment operating performance. As a result, certain shared administrative costs, including shared IT, legal and other administrative functions, which were previously included in segment operating results, are now reported in Corporate costs within our reconciliation of segment operating profit to income before income taxes. The financial information presented herein reflects the impact of the preceding reporting change for all periods presented.
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,
2023 2022 2023 2022
Net revenue by segment
Total Sleep and Respiratory Care $ 980,116  $ 763,358  $ 2,741,541  $ 2,365,697 
Software as a Service 136,782  101,142  359,395  297,693 
Total $ 1,116,898  $ 864,500  $ 3,100,936  $ 2,663,390 
Depreciation and amortization by segment
Sleep and Respiratory Care $ 21,201  $ 21,008  $ 59,501  $ 58,372 
Software as a Service 2,375  1,863  6,385  5,421 
Amortization of acquired intangible assets and corporate assets 20,780  19,435  52,510  58,405 
Total $ 44,356  $ 42,306  $ 118,396  $ 122,198 
Net operating profit by segment
Sleep and Respiratory Care $ 390,697  $ 315,055  $ 1,116,724  $ 976,520 
Software as a Service 32,201  23,649  85,782  67,892 
Total $ 422,898  $ 338,704  $ 1,202,506  $ 1,044,412 
Reconciling items
Corporate costs $ 101,717  $ 85,727  $ 285,045  $ 243,077 
Amortization of acquired intangible assets 20,510  18,712  51,702  56,446 
Acquisition related expenses
    9,157   
Interest expense (income), net 14,964  5,462  32,436  16,770 
Loss attributable to equity method investments 183  2,627  5,037  5,927 
(Gain) loss on equity investments (6,418) 1,735  (11,506) 527 
Other, net 2,564  (1,878) 5,773  (