Year-over-year growth in revenue, gross margin, and operating profit

Well-positioned for future growth through further penetration of untreated sleep apnea and expanding portfolio in respiratory care and software as a service

Revenue increased 8% to $651.1 million; up 9% on a constant currency basis

Gross Margin expanded 70bps to 58.9%

Net operating profit increased 8%; non-GAAP operating profit up 15%

GAAP diluted earnings per share of $0.86; non-GAAP diluted earnings per share of $1.00

Revenue

Gross margin

Selling, general and administrative expenses

Research and development expenses

Income from operations

Non-GAAP income from operations

Net income

Non-GAAP net income

Diluted earnings per share

Non-GAAP diluted earnings per share

Revenue

Gross margin

Selling, general and administrative expenses

Research and development expenses

Income from operations

Non-GAAP income from operations

Net income

Non-GAAP net income

Diluted earnings per share

Non-GAAP diluted earnings per share

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 U.S. GAAP.

Revenue in the U.S., Canada, and Latin America, excluding Software as a Service, grew by 9 percent compared to the prior year period, driven by strong sales across our mask and device product portfolios.

Revenue in combined Europe, Asia and other markets grew by 1 percent on a constant currency basis compared to the same period of the prior year. Mask sales were strong across these markets. As expected, device sales in France and Japan were impacted as customers completed their connected device upgrade programs. Device sales outside France and Japan grew well.

Software as a Service revenue increased by 63 percent, compared to the prior year period, due to continued growth in our Brightree service offerings and incremental contribution from the acquisition of MatrixCare, which closed in the second quarter and HEALTHCAREfirst, which closed in the first quarter.

Gross margin expanded by 70 basis points over the prior year period, primarily due to benefits from manufacturing and procurement efficiencies, product mix changes and higher margin contribution from MatrixCare, partially offset by declines in average selling prices.

Selling, general and administrative expenses increased by 6 percent compared to the prior year period, or by 8 percent on a constant currency basis. Excluding the impact of recent acquisitions, selling, general and administrative expenses increased by 4 percent on a constant currency basis. SG&A expenses improved to 24.8 percent of revenue in the quarter, compared with 25.2 percent in the same period of the prior year.

Income from operations increased by 8 percent and non-GAAP income from operations increased by 15 percent compared to the prior year period.

Net income increased by 1,208 percent, predominantly attributable to the one-time transition tax recognized in the prior year quarter, and non-GAAP net income remained stable compared to the prior year period. Non-GAAP measures adjust for amortization of acquired intangibles, MatrixCare deferred revenue, acquisition-related expenses, and the impact of U.S. tax reform.

GAAP diluted earnings per share increased by 1,129 percent, predominantly attributable to the one-time transition tax recognized in the prior year quarter, and non-GAAP diluted earnings per share remained stable compared with the same period of the prior year.

Cash flow from operations for the quarter was $129.5 million, compared to net income in the current quarter of $124.6 million. During the quarter we paid $52.8 million in dividends.

Completed the acquisition of MatrixCare, a leader in software solutions for more than 15,000 providers across skilled nursing, life plan communities, senior living and private duty, for consideration of $750.0 million.

Commenced the previously announced joint venture with Verily, combining ResMed’s expertise in sleep apnea and Verily’s advanced health data analytics technologies, to study the health and financial impacts of undiagnosed and untreated sleep apnea, and to develop software solutions that enable healthcare providers to more efficiently identify, diagnose, treat and manage individuals with sleep apnea and other breathing-related sleep disorders.

Announced the acquisition of Propeller Health, a digital therapeutics company providing connected health solutions for people living with chronic obstructive pulmonary disease (COPD) and asthma, for $225.0 million. The transaction closed on January 7, 2019.

Through Brightree, acquired Apacheta Corporation, a cloud-based software as a service provider offering mobile applications that empower companies to automate and streamline processes in route sales, field marketing, pick-up and delivery, transportation, and field services.

Named one of America’s top 100 corporate citizens for the third straight year by Forbes and JUST Capital. ResMed ranked #18 out of 890 large publicly traded U.S. companies, and #1 out of 32 “Health Care Equipment & Services” companies.

Net revenue

Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative

Research and development

Amortization of acquired intangible assets ⁽¹⁾

Acquisition related expenses ⁽¹⁾

Total operating expenses

Income from operations ⁽¹⁾

Other income (expenses), net:

Interest income (expense), net

Other, net

Total other income (expenses), net

Income before income taxes

Income taxes

Loss attributable to equity method investments

Net income

Basic earnings per share

Diluted earnings per share

Non-GAAP diluted earnings per share ⁽¹⁾

Basic shares outstanding

Diluted shares outstanding

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

ASSETS

Current assets:

Cash and cash equivalents

Accounts receivable, net

Inventories

Prepayments and other current assets

Total current assets

Non-current assets:

Property, plant and equipment, net

Goodwill and other intangibles, net

Deferred income taxes and other non-current assets

Total non-current assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Current liabilities:

Accounts payable

Accrued expenses

Deferred revenue

Income taxes payable

Short-term debt

Total current liabilities

Non-current liabilities:

Deferred revenue

Deferred income taxes

Other long term liabilities

Long-term debt

Long-term income taxes payable

Total non-current liabilities

Total liabilities

STOCKHOLDERS’ EQUITY:

Common stock

Additional paid-in capital

Retained earnings

Treasury stock

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

Cash flows from operating activities:

Net income

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

Depreciation and amortization

Loss attributable to equity method investments

Stock-based compensation costs

Impairment of equity investments

Changes in fair value of business combination contingent consideration

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

Accounts receivable, net

Inventories, net

Prepaid expenses, net deferred income taxes and other current assets

Accounts payable, accrued expenses and other

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property, plant and equipment

Patent registration costs

Business acquisitions, net of cash acquired

Purchases of cost-method investments

Purchases of equity-method investments

Proceeds / (Payments) on maturity of foreign currency contracts

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock, net

Taxes paid related to net share settlement of equity awards

Purchases of treasury stock

Payment of business combination contingent consideration

Proceeds from borrowings, net of borrowing costs

Repayment of borrowings

Dividends paid

Net cash (used in) / provided by financing activities

Effect of exchange rate changes on cash

Net increase / (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

GAAP income from operations

Amortization of acquired intangible assets ^(A)

Deferred revenue fair value adjustment ^(A)

Acquisition related expenses ^(A)

Non-GAAP income from operations

GAAP net income

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

Deferred revenue fair value adjustment ^(A)

Acquisition related expenses ^(A)

U.S. tax reform transition impact ^(A)

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

Non-GAAP net income ^(A)

Diluted shares outstanding

GAAP diluted earnings per share

Non-GAAP diluted earnings per share ^(A)

ResMed adjusts for the impact of the amortization of acquired intangibles, deferred revenue fair value adjustment, acquisition-related expenses, and the impact of U.S. tax reform on income tax expense from their evaluation of ongoing operations, and believes that investors benefit from adjusting these items to facilitate a more meaningful evaluation of current operating performance.

U.S., Canada and Latin America

Devices

Masks

Total Sleep and Respiratory Care

Software as a Service

Total

Combined Europe, Asia and other markets

Devices

Masks

Total Sleep and Respiratory Care

Global revenue

Devices

Masks

Total Sleep and Respiratory Care

Software as a Service

Total

U.S., Canada and Latin America

Devices

Masks

Total Sleep and Respiratory Care

Software as a Service

Total

Combined Europe, Asia and other markets

Devices

Masks

Total Sleep and Respiratory Care

Global revenue

Devices

Masks

Total Sleep and Respiratory Care

Software as a Service

Total

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 U.S. GAAP.