01—Abstract
Summary
Summary of the 10-K filed August 5, 2016. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. reported net revenue of $1,838.7 milliona for the fiscal year ended June 30, 2016, up 10% from $1,678.9 million in fiscal 2015 (13% on a constant currency basis).
Net income was $352.4 millionb, or $2.49 per diluted share, compared with $352.9 million, or $2.47 per diluted share, a year earlier. Gross margin declined to 58.0% from 60.2%, which the company attributed to unfavorable product and geographic mix and lower average selling prices. Operating expenses rose with the acquisitions of Brightree, Curative Medical and Inova Labs, and restructuring and amortization charges increased.
The balance sheet changed substantially during the year. Total assets rose to $3.26 billionc from $2.18 billion, driven by goodwill of $1.06 billion and other intangible assets of $299.8 million. Total debt was $1.175 billion at June 30, 2016, comprising $875.0 million under the revolving credit facility and $300.0 million under a one-year term loan, both used largely to fund the $802 million Brightree acquisition.
Operating cash flow was $547.9 milliond and cash and cash equivalents were $731.4 million, of which $690.5 million was held by non-U.S. subsidiaries. The company repurchased $102.1 million of stock, has temporarily suspended its buyback program, and raised its quarterly dividend to $0.33 per share from $0.30. The filing also highlights several risks.
ResMed disclosed an administrative subpoena from the Office of Inspector General received in July 2016, ongoing patent and antitrust litigation with BMC Medical and 3B Medical, and a cardiovascular safety signal from the SERVE-HF trial that led to revised labeling for ASV devices. Medicare competitive bidding continues to reduce reimbursement, with the filing citing an average reduction of approximately 47% in Round 2 for CPAP and respiratory devices.
02—Key points
Key Highlights
- Net revenue grew 10% to $1,838.7 million in fiscal 2016, with devices at $1,064.2 million and masks and other accessories at $745.6 million.
- Gross margin fell to 58.0% from 60.2%, reflecting unfavorable product mix, lower average selling prices and geographic mix.
- Diluted EPS was $2.49 versus $2.47 in fiscal 2015, while net income was roughly flat at $352.4 million.
- Total debt reached $1.175 billion at June 30, 2016, following the April 2016 Brightree acquisition for $802 million in total purchase consideration.
- Operating cash flow increased to $547.9 million from $383.2 million, helped by lower inventories and higher accounts payable.
- The quarterly dividend was raised to $0.33 per share from $0.30, and share repurchases were temporarily suspended after acquisitions.
- A July 2016 OIG administrative subpoena relates to patient resupply software offerings, and the company is cooperating with the investigation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, ResMed kept $0.19.
- Revenue$1.84B100.0%
- Cost of revenue−$772.2M42.0%
- Gross profit$1.07B58.0%
- Operating costs−$637.5M34.7%
- Operating income$429.0M23.3%
- Interest, other & tax−$76.5M4.2%
- Net income$352.4M19.2%
Where FY2016 revenue went
$1.84B- Cost of revenue: $772.2M, 42% of revenue
- SG&A: $488.1M, 27% of revenue
- Net income: $352.4M, 19% of revenue
- R&D: $118.7M, 6.5% of revenue
- Other operating costs: $30.8M, 1.7% of revenue
- Interest, other & tax: $76.5M, 4.2% of revenue
Kept 19% as net incomeOther operating costs $30.8M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed August 5, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.84B$1.68B | +9.5% |
| Cost of Revenue | $772.22M$667.52M | +15.7% |
| Gross Profit | $1.07B$1.01B | +5.4% |
| R&D Expenses | $118.65M$114.86M | +3.3% |
| SG&A Expenses | $488.06M$478.63M | +2.0% |
| Operating Expenses | $637.54M$602.16M | +5.9% |
| Operating Income | $428.95M$409.24M | +4.8% |
| Interest Expense | $11.21M$5.78M | +93.9% |
| Net Income | $352.41M$352.89M | −0.1% |
| EPS (Basic) | $2.51$2.51 | 0.0% |
| EPS (Diluted) | $2.49$2.47 | +0.8% |
| Shares Outstanding (Basic) | 140.24M140.47M | −0.2% |
| Shares Outstanding (Diluted) | 141.67M142.69M | −0.7% |
05—Questions
Frequently Asked Questions
How did ResMed's revenue and profitability perform in fiscal 2016?
Net revenue rose 10% to $1,838.7 million from $1,678.9 million. Net income was $352.4 million, or $2.49 per diluted share, versus $352.9 million, or $2.47, in fiscal 2015. Gross profit increased to $1,066.5 million, but gross margin declined to 58.0% from 60.2%.
What acquisitions did ResMed complete, and how were they financed?
ResMed acquired Brightree LLC on April 4, 2016 for a total purchase consideration of $802 million, along with Curative Medical Technology, Maribo Medico, Bennett Precision Tooling and Inova Labs. Brightree was funded through cash on hand, an increase in the revolving credit facility from $700 million to $1 billion, and a new $300 million one-year term loan.
What is ResMed's debt and liquidity position?
At June 30, 2016, total debt was $1,175.0 million, including $875.0 million on the revolving credit facility and $300.0 million on the term loan, both at a 2.0% interest rate. Cash and cash equivalents were $731.4 million, and the company stated it was in compliance with its debt covenants.
What regulatory and legal matters could affect ResMed?
The company received a federal administrative subpoena from the Office of Inspector General in July 2016 concerning patient resupply software. It is also litigating with BMC Medical and 3B Medical over patents and an antitrust claim, and it disclosed a SERVE-HF trial finding of a statistically significant, 2.5% absolute increased risk of cardiovascular mortality for patients receiving ASV therapy.
06—Continue