01—Abstract
Summary
Summary of the 10-K filed August 4, 2017. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. reported net revenue of $2,066.7 milliona for the fiscal year ended June 30, 2017, up 12% from $1,838.7 million in fiscal 2016.
Gross profit rose to $1,201.7 millionb, or 58.1% of net revenue, and income from operations was $425.8 million. Net income declined to $342.3 million from $352.4 million, and diluted earnings per share fell to $2.40 from $2.49, a decrease of 4%. Revenue excluding Brightree, the business management software company acquired in April 2016, was $1,928.7 million, an increase of 7%.
Brightree contributed $138.1 millionc of revenue in fiscal 2017. Devices accounted for 56% of net revenue and masks and other accessories for 37%. Cash flow and balance sheet items reflect the acquisition activity.
Net cash provided by operating activities was $414.1 milliond, compared with $547.9 million in fiscal 2016, which the company attributed mainly to higher accounts receivable and income tax payments. Cash and cash equivalents were $821.9 million at June 30, 2017. Total debt was approximately $1.1 billion, with $1,080.0 million outstanding under the revolving credit facility, which was increased to $1.3 billion in January 2017.
The company temporarily suspended its share repurchase program due to recent acquisitions and expects to resume it during fiscal 2018. It also announced a quarterly dividend increase from $0.33 to $0.35 per share on August 1, 2017. The filing highlights regulatory and reimbursement pressures.
Medicare payment for CPAP devices in non-competitive bidding areas was reduced by approximately 60% in urban areas and approximately 56% in rural areas compared with 2015 rates. The 2.3% medical device excise tax was suspended for 2016 and 2017 and is scheduled to return on January 1, 2018 absent further Congressional action. The company also disclosed federal administrative subpoenas from the Office of Inspector General received in July and November 2016, ongoing patent litigation with Fisher & Paykel Healthcare, and a May 2015 SERVE-HF trial safety signal showing a statistically significant, 2.5% absolute increased risk of cardiovascular mortality for patients receiving ASV therapy in that trial.
02—Key points
Key Highlights
- Net revenue grew 12% to $2,066.7 million in fiscal 2017, with revenue excluding Brightree at $1,928.7 million, up 7%.
- Gross margin was 58.1% of net revenue, compared with 58.0% in fiscal 2016, driven by manufacturing and procurement efficiencies and the Brightree contribution.
- Net income fell to $342.3 million from $352.4 million, and diluted EPS declined to $2.40 from $2.49, a decrease of 4%.
- Operating cash flow fell to $414.1 million from $547.9 million, mainly due to higher accounts receivable and income tax payments.
- Total debt was approximately $1.1 billion, and the revolving credit facility was increased to $1.3 billion; the share repurchase program is temporarily suspended, with a resumption expected in fiscal 2018.
- Research and development spending was $144.5 million, approximately 7.0% of net revenues.
- Medicare CPAP payments in non-competitive bidding areas were reduced by approximately 60% in urban and 56% in rural areas versus 2015, and the medical device excise tax is scheduled to return on January 1, 2018 absent Congressional action.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, ResMed kept $0.17.
- Revenue$2.07B100.0%
- Cost of revenue−$865.0M41.9%
- Gross profit$1.20B58.1%
- Operating costs−$775.9M37.5%
- Operating income$425.8M20.6%
- Interest, other & tax−$83.5M4.0%
- Net income$342.3M16.6%
Where FY2017 revenue went
$2.07B- Cost of revenue: $865.0M, 42% of revenue
- SG&A: $554.0M, 27% of revenue
- Net income: $342.3M, 17% of revenue
- R&D: $144.5M, 7.0% of revenue
- Other operating costs: $77.5M, 3.8% of revenue
- Interest, other & tax: $83.5M, 4.0% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed August 4, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $2.07B$1.84B | +12.4% |
| Cost of Revenue | $864.99M$772.22M | +12.0% |
| Gross Profit | $1.20B$1.07B | +12.7% |
| R&D Expenses | $144.47M$118.65M | +21.8% |
| SG&A Expenses | $553.97M$488.06M | +13.5% |
| Operating Expenses | $775.95M$637.54M | +21.7% |
| Operating Income | $425.80M$428.95M | −0.7% |
| Interest Expense | $28.24M$11.21M | +152.0% |
| Net Income | $342.28M$352.41M | −2.9% |
| EPS (Basic) | $2.42$2.51 | −3.6% |
| EPS (Diluted) | $2.40$2.49 | −3.6% |
| Shares Outstanding (Basic) | 141.36M140.24M | +0.8% |
| Shares Outstanding (Diluted) | 142.45M141.67M | +0.6% |
05—Questions
Frequently Asked Questions
How did ResMed's revenue and profitability change in fiscal 2017?
Net revenue increased 12% to $2,066.7 million from $1,838.7 million. Gross profit rose to $1,201.7 million, but net income decreased to $342.3 million from $352.4 million, and diluted EPS fell to $2.40 from $2.49, a decrease of 4%. Selling, general and administrative expenses rose to $554.0 million, and amortization of acquired intangible assets increased to $46.6 million from $23.9 million.
What is ResMed's exposure to Medicare reimbursement changes?
The filing states that Medicare's competitive bidding program and the national rollout of new rates reduced Medicare payment for CPAP devices in non-competitive bidding areas by approximately 60% in urban areas and approximately 56% in rural areas compared with 2015 rates. The 21st Century Cures Act retroactively adjusted rates for items furnished between July 1 and December 31, 2016, with those payment adjustments expected to be completed by October 2017. The company states it cannot predict the full impact of the competitive bidding program on its business.
What is the status of ResMed's debt and capital return program?
Total debt was approximately $1.1 billion at June 30, 2017, including $1,080.0 million outstanding under the revolving credit facility, which bears interest at LIBOR plus 1.0% to 2.0% and matures on October 31, 2018. The company was in compliance with its debt covenants. Dividends paid were $186.3 million in fiscal 2017, and the quarterly dividend will rise to $0.35 per share from $0.33. The share repurchase program was temporarily suspended after recent acquisitions, and no shares were repurchased in fiscal 2017. The company expects to resume repurchases in fiscal 2018, with 13.6 million additional shares authorized.
What legal and regulatory matters does the filing disclose?
ResMed is cooperating with two federal administrative subpoenas from the Office of Inspector General of the Department of Health and Human Services, received in July 2016 and November 2016, relating to patient resupply software and other promotional programs. The company is also in patent litigation with Fisher & Paykel Healthcare in U.S., New Zealand, German and U.K. courts. In fiscal 2017 it recognized $8.5 million in litigation settlement expenses to resolve disputes with BMC Medical and 3B. The filing states that management does not expect these matters to have a material adverse effect on the consolidated financial statements taken as a whole.
What revenue mix and geographic exposure does ResMed report?
Devices accounted for approximately 56% of net revenues in fiscal 2017, and masks, diagnostic products and accessories accounted for approximately 37%. Sales in North and Latin America were 63% of net revenues, Europe was 26%, and Asia Pacific was 11%. The company manufactures substantially all of its products outside the United States, and sales outside North and Latin America were approximately 37% of net revenues in fiscal 2017. As of June 30, 2017, the company had approximately 6,080 employees or full-time consultants.
06—Continue