Form: 8-K

Current report filing

January 22, 2018

Exhibit 99.1

 

LOGO   
  
  
  
  
For investors    For media
Agnes Lee    Jayme Rubenstein
O: 858-836-5971    O: 858-836-6798
investorrelations@resmed.com    news@resmed.com

ResMed Inc. Announces Results for the Second Quarter of Fiscal Year 2018

Revenue increased 13% to $601.3 million; up 11% on a constant currency basis

GAAP-diluted earnings per share of $0.07 impacted by one-time tax charges;

non-GAAP-diluted earnings per share of $1.00

Operating cash flow of $132.6 million in the second quarter

SAN DIEGO, January 22, 2018 – ResMed Inc. (NYSE: RMD, ASX: RMD) today announced results for its quarter ended December 31, 2017. Revenue for the quarter was $601.3 million, a 13 percent increase compared to the same period of the prior year.

“We had a strong quarter with double-digit revenue and operating profit growth” said Mick Farrell, ResMed’s chief executive officer. “Our masks have performed well around the world, device sales are solid, and our cloud-based software continues to grow rapidly. Our operating excellence initiatives are achieving leverage in the business with more runway ahead.”

Farrell concluded, “We recently announced our first ResMed branded portable oxygen concentrator, called Mobi, which will launch in the current quarter. Mobi exemplifies patient-centered innovation and our commitment to pioneer products and create value with services and solutions that improve patients’ quality of life, reduce the impact of chronic disease and save healthcare costs globally.”

Analysis of second quarter results

Second quarter revenue in United States, Canada and Latin America, excluding Brightree, was $329.2 million, a 12 percent increase over the same period of the prior year. Brightree revenue for the second quarter was $38.7 million, an increase of 14 percent compared to the same period of the prior year. Revenue in Europe, Asia and other markets was $233.4 million, an increase of 8 percent on a constant currency basis, compared to the same period of the prior year.

Gross margin in the second quarter was 58.2 percent, lower than the prior year’s quarter gross margin of 58.3 percent mainly due to declines in average selling prices, which were partially offset by manufacturing and procurement efficiencies.


Income from operations for the quarter was $146.0 million, a 51 percent increase compared with the quarter ended December 31, 2016. Non-GAAP income from operations for the quarter was $157.3 million, a 20 percent increase compared to the same period of the prior year.

Selling, general and administrative expenses were $151.8 million, a 9 percent increase over the same period in the prior year, or a 6 percent increase on a constant currency basis. SG&A expenses improved to 25.2 percent of revenue in the quarter, compared with 26.3 percent reported in the quarter ended December 31, 2016.

Research and development expenses were $40.6 million, or 6.8 percent of revenue. R&D expenses increased by 6 percent compared with the same period last year, or a 4 percent increase on a constant currency basis.

Amortization of acquired intangible assets was $11.3 million during the quarter, which is consistent with the same period last year. Stock-based compensation costs incurred during the quarter of $12.0 million consisted of expenses associated with employee equity grants and our employee stock purchase plan.

Net income for the quarter was $9.5 million, an 88 percent decrease compared to the same period of the prior year. Non-GAAP net income was $143.8 million, a 39 percent increase compared to the prior year.

Non-GAAP measures adjust for amortization of acquired intangibles, impact of U.S. tax reform on income tax expense, restructuring expenses, litigation settlement expenses, acquisition related expenses and the Astral battery field safety notification expenses.

GAAP diluted earnings per share for the quarter decreased by 87 percent to $0.07. Non-GAAP diluted earnings per share of $1.00 were 37 percent higher compared with the same period of the prior year.

Cash flow from operations for the quarter was $132.6 million compared to net income in the current quarter of $9.5 million. During the quarter we paid $49.9 million in dividends.

Impact of U.S. tax reform on income tax expense

On December 22, 2017 “H.R.1”, originally known as the Tax Cuts and Jobs Act, was enacted into law (“U.S. tax reform”). ASC 740 Income Taxes requires companies to recognize the effect of any tax laws during the period in which they are enacted. Accordingly, the company performed preliminary calculations and based on these, recognized additional income tax expense of $126.6 million for the three and six months ended December 31, 2017.

The U.S. tax reform significantly revises the U.S. corporate income tax by, among other things, imposing a one-time transition tax on unremitted foreign earnings, lowering the corporate income tax rate from 35 percent to 21 percent and implementing a territorial tax system in regard to foreign earnings. The one-time transition tax on unremitted foreign earnings results in additional income tax expense of $119.9 million, of which $10.5 million has been recorded as income taxes payable and $109.4 million has been recorded as long-term income taxes payable. The lower corporate tax rate results in a reduction of net deferred tax assets and an increase in income tax expense of $6.7 million.

Share repurchase program

During the quarter, the company repurchased 100,000 shares at a cost of $8.5 million, as part of its ongoing capital management program.


Dividend program

The ResMed board of directors today declared a quarterly cash dividend of $0.35 per share. The dividend will have a record date of February 8, 2018, payable on March 15, 2018. The dividend will be paid in U.S. currency to holders of ResMed’s common stock trading on the New York Stock Exchange. Holders of Chess Depositary Instruments trading on the Australian Securities Exchange will receive an equivalent amount in Australian currency, based on the exchange rate on the record date, and reflecting the 10:1 ratio between CDIs and NYSE shares. The ex-dividend date will be February 7, 2018 for common stock holders and for CDI holders. ResMed has received a waiver from the ASX’s settlement operating rules, which will allow ResMed to defer processing conversions between its common stock and CDI registers from February 7, 2018 through February 8, 2018, inclusive.

Webcast details

ResMed will discuss its second quarter fiscal year 2018 results today on its webcast at 1:30 p.m. U.S. Pacific Time. The live webcast of the call can be accessed on ResMed’s investor relations website at investor.resmed.com. Please go to this section of the website and click on the icon for the “Q2 2018 earnings webcast” to register and listen to the live webcast. A replay of the earnings webcast will be available on ResMed’s investor relations website approximately two hours after the live webcast. In addition, a telephone replay of the conference call will be available approximately two hours after the webcast by dialing 800-585-8367 (U.S.) and +1 416-621-4642 (outside U.S.) and enter the passcode 2385139. The telephone replay will be available until February 5, 2018.

About ResMed

ResMed (NYSE: RMD, ASX: RMD), a world-leading connected health company with more than 4 million cloud-connected devices for daily remote patient monitoring, changes lives with every breath. Its award-winning devices and software solutions help treat and manage sleep apnea, chronic obstructive pulmonary disease and other respiratory conditions. Its 6,000-member team strives to improve patients’ quality of life, reduce the impact of chronic disease and save healthcare costs in more than 120 countries.

Safe harbor statement

Statements contained in this release that are not historical facts are “forward-looking” statements as contemplated by the Private Securities Litigation Reform Act of 1995. These forward-looking statements – including statements regarding ResMed’s projections of future revenue or earnings, expenses, new product development, new product launches and new markets for its products, litigation, and tax outlook – are subject to risks and uncertainties, which could cause actual results to materially differ from those projected or implied in the forward-looking statements. Additional risks and uncertainties are discussed in ResMed’s periodic reports on file with the U.S. Securities & Exchange Commission. ResMed does not undertake to update its forward-looking statements.

 

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RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)

 

     Three Months Ended
December 31,
    Six Months Ended
December 31,
 
     2017     2016     2017     2016  

Net revenue

   $ 601,273     $ 530,397     $ 1,124,932     $ 995,846  

Cost of sales

     251,481       221,326       469,535       412,522  

Astral field safety notification expenses (1)

     —         —         —         5,070  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     349,792       309,071       655,397       578,254  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Selling, general and administrative

     151,816       139,307       295,666       268,158  

Research and development

     40,643       38,190       78,058       72,637  

Restructuring expenses (1)

     —         4,413       —         4,413  

Litigation settlement expenses (1)

     —         8,500       —         8,500  

Acquisition related expenses (1)

     —         10,076       —         10,076  

Amortization of acquired intangible assets (1)

     11,317       11,690       23,099       23,431  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     203,776       212,176       396,823       387,215  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations (1)

     146,016       96,895       258,574       191,039  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses), net:

        

Interest income (expense), net

     (2,791     (2,437     (5,706     (4,929

Other, net

     (1,460     1,749       (2,618     3,021  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expenses), net

     (4,251     (688     (8,324     (1,908
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     141,765       96,207       250,250       189,131  

Income taxes (1)

     132,238       19,464       154,599       36,282  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (1)

   $ 9,527     $ 76,743     $ 95,651     $ 152,849  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 0.07     $ 0.54     $ 0.67     $ 1.08  

Diluted earnings per share

   $ 0.07     $ 0.54     $ 0.67     $ 1.08  

Non-GAAP diluted earnings per share (1)

   $ 1.00     $ 0.73     $ 1.66     $ 1.34  

Basic shares outstanding

     142,715       141,310       142,511       141,048  

Diluted shares outstanding

     143,855       142,097       143,757       141,982  

 

(1) See the reconciliation of non-GAAP financial measures in the table at the end of the press release.

 

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RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited - In thousands)

 

     December 31,
2017
    June 30,
2017
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 858,899     $ 821,935  

Accounts receivable, net

     482,934       450,530  

Inventories

     296,062       268,319  

Prepayments and other current assets

     116,454       103,219  
  

 

 

   

 

 

 

Total current assets

     1,754,349       1,644,003  
  

 

 

   

 

 

 

Property, plant and equipment, net

     401,537       394,241  

Goodwill

     1,075,315       1,064,874  

Other intangibles, net

     240,027       261,800  

Deferred income taxes and other non-current assets

     92,772       103,569  
  

 

 

   

 

 

 

Total non-current assets

     1,809,651       1,824,484  
  

 

 

   

 

 

 

Total assets

   $ 3,564,000     $ 3,468,487  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

    

Current liabilities:

    

Accounts payable

     78,351       92,763  

Accrued expenses

     189,368       186,295  

Deferred revenue

     53,284       51,918  

Income taxes payable

     16,276       29,150  

Short-term debt

     1,019,132       —    
  

 

 

   

 

 

 

Total current liabilities

     1,356,411       360,126  
  

 

 

   

 

 

 

Non-current liabilities:

    

Deferred revenue

     63,289       53,235  

Deferred income taxes

     13,141       13,822  

Other long term liabilities

     2,217       2,427  

Long-term debt

     —         1,078,611  

Long-term income taxes payable

     109,414       —    
  

 

 

   

 

 

 

Total non-current liabilities

     188,061       1,148,095  
  

 

 

   

 

 

 

Total liabilities

     1,544,472       1,508,221  
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY:

    

Common stock

     572       569  

Additional paid-in capital

     1,409,993       1,379,130  

Retained earnings

     2,312,335       2,316,237  

Treasury stock

     (1,555,152     (1,546,611

Accumulated other comprehensive income

     (148,220     (189,059
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 2,019,528     $ 1,960,266  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 3,564,000     $ 3,468,487  
  

 

 

   

 

 

 

 

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RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited - In thousands)

 

    

Six Months Ended

December 31,

 
     2017     2016  

Cash flows from operating activities:

    

Net income

   $ 95,651     $ 152,849  

Adjustment to reconcile net income to cash provided by operating activities:

    

Depreciation and amortization

     58,945       55,504  

Stock-based compensation costs

     23,958       22,802  

Impairment of cost-method investments

     2,254       206  

Changes in fair value of business combination contingent consideration

     —         10,076  

Changes in operating assets and liabilities, net of effect of acquisitions:

    

Accounts receivable, net

     (26,145     (7,080

Inventories, net

     (20,760     (36,104

Prepaid expenses, net deferred income taxes and other current assets

     (2,858     (15,197

Accounts payable, accrued expenses and other

     95,489       23,086  
  

 

 

   

 

 

 

Net cash provided by operating activities

     226,534       206,142  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (32,000     (29,247

Patent registration costs

     (4,624     (4,603

Business acquisitions, net of cash acquired

     —         (3,184

Investments in cost-method investments

     (3,725     (3,867

Proceeds / (Payments) on maturity of foreign currency contracts

     (3,330     8,209  
  

 

 

   

 

 

 

Net cash used in investing activities

     (43,679     (32,692
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock, net

     6,587       9,816  

Purchases of treasury stock

     (8,541     —    

Proceeds from borrowings, net of borrowing costs

     50,000       75,000  

Repayment of borrowings

     (110,000     (80,000

Dividends paid

     (99,553     (92,865
  

 

 

   

 

 

 

Net cash (used in) / provided by financing activities

     (161,507     (88,049
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     15,616       (28,689
  

 

 

   

 

 

 

Net increase / (decrease) in cash and cash equivalents

     36,964       56,712  

Cash and cash equivalents at beginning of period

     821,935       731,434  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 858,899     $ 788,146  
  

 

 

   

 

 

 

 

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Reconciliation of Non-GAAP Financial Measures (Unaudited)

(In US$ thousands, except share and per share data)

The measure, “non-GAAP income from operations” is reconciled with GAAP income from operations below:

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2017      2016      2017      2016  

GAAP income from operations

   $ 146,016      $ 96,895      $ 258,574      $ 191,039  

Amortization of acquired intangible assets (A)

     11,317        11,690        23,099        23,431  

Restructuring expenses (A)

     —          4,413        —          4,413  

Litigation settlement expenses (A)

     —          8,500        —          8,500  

Acquisition related expenses (A)

     —          10,076        —          10,076  

Astral battery field safety notification expenses (A)

     —          —          —          5,070  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP income from operations

   $ 157,333      $ 131,574      $ 281,673      $ 242,529  
  

 

 

    

 

 

    

 

 

    

 

 

 

The measures “non-GAAP net income” and “non-GAAP diluted earnings per share” are reconciled with GAAP net income and GAAP diluted earnings per share in the table below:

 

     Three Months Ended
December 31,
     Six Months Ended
December 31,
 
     2017      2016      2017      2016  

GAAP net income

   $ 9,527      $ 76,743      $ 95,651      $ 152,849  

Amortization of acquired intangible assets, net of tax (A)

     7,697        7,968        15,710        15,975  

U.S. tax reform transition impact (A)

     119,880        —          119,880        —    

U.S. tax reform impact on deferred taxes (A)

     6,723        —          6,723        —    

Restructuring expenses, net of tax (A)

     —          3,085        —          3,085  

Litigation settlement expenses, net of tax (A)

     —          5,392        —          5,392  

Acquisition related expenses (A)

     —          10,076        —          10,076  

Astral battery field safety notification expenses (A)

     —          —          —          3,549  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income (A)

   $ 143,827      $ 103,264      $ 237,964      $ 190,926  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     143,855        142,097        143,757        141,982  
  

 

 

    

 

 

    

 

 

    

 

 

 

GAAP diluted earnings per share

   $ 0.07      $ 0.54      $ 0.67      $ 1.08  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP diluted earnings per share (A)

   $ 1.00      $ 0.73      $ 1.66      $ 1.34  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(A) ResMed adjusts for the impact of the amortization of acquired intangibles, impact of U.S. tax reform, restructuring expenses, litigation settlement expenses, acquisition related expenses and the Astral battery field safety notification expenses, from their evaluation of ongoing operations and believes investors benefit from adjusting these items to facilitate a more meaningful evaluation of current operating performance.

ResMed believes that non-GAAP diluted earnings per share is an additional measure of performance investors can use to compare operating results between reporting periods. ResMed uses non-GAAP information internally in planning, forecasting, and evaluating the results of operations in the current period and in comparing it to past periods. ResMed believes this information provides investors better insight in evaluating ResMed’s performance from core operations and provides consistent financial reporting. Our use of non-GAAP measures is intended to supplement, and not to replace, our presentation of net income and other GAAP measures. Like all non-GAAP measures, non-GAAP earnings are subject to inherent limitations because they do not include all the expenses that must be included under GAAP.

 

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