01—Abstract
Summary
Summary of the 10-K filed August 17, 2018. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. reported fiscal year 2018 (ended June 30, 2018) net revenue of $2,340.2 milliona, up 13% from $2,066.7 million in fiscal 2017 (10% on a constant currency basis).
Gross profit rose to $1,362.2 millionb, with gross margin of 58.2% versus 58.1% a year earlier. Net income fell to $315.6 million, or $2.19 per diluted share, from $342.3 million, or $2.40, primarily due to $138.0 million of additional income tax expense from the U.S. Tax Act, which includes a $126.9 million transition tax payable over eight years. Income from operations rose to $541.8 million from $425.8 million.
Operating cash flow was $505.0 millionc, and cash and cash equivalents ended the year at $188.7 million after $796.2 million of net debt repayment. The company describes itself as a global leader in medical devices and cloud-based software for sleep-disordered breathing, COPD and neuromuscular disease. Devices accounted for about 56% of fiscal 2018 net revenue and masks, diagnostic products and accessories for about 38%.
Research and development spending was $155.1 milliond, about 6.6% of net revenue. Total debt was $281.5 million at June 30, 2018, down from $1.08 billion a year earlier, following a new $800.0 million revolving credit agreement and a $200.0 million term credit agreement entered in April 2018.
Key risks flagged in the filing include an Australian Taxation Office assessment asserting $151.7 million in additional income tax and $38.4 million in accrued interest, with a further $75.9 million penalty claim, of which $75.9 million has already been paid; ongoing patent litigation with Fisher & Paykel Healthcare; U.S. government subpoenas from the Office of Inspector General; and Medicare competitive bidding changes that reduced CPAP reimbursement. Quarterly dividend was raised to $0.37 per share from $0.35, announced August 2, 2018.
02—Key points
Key Highlights
- Net revenue rose 13% to $2,340.2 million, with a 10% increase on a constant currency basis.
- Net income declined to $315.6 million ($2.19 per diluted share) from $342.3 million ($2.40), mainly due to $138.0 million of additional income tax expense from the U.S. Tax Act.
- Income from operations increased to $541.8 million from $425.8 million.
- Gross margin was 58.2% in fiscal 2018 compared with 58.1% in fiscal 2017.
- Net cash provided by operating activities was $505.0 million; total debt fell to $281.5 million from $1,078.6 million.
- Research and development expense was $155.1 million, about 6.6% of net revenue.
- Australian Taxation Office is asserting $151.7 million in additional income tax and $38.4 million in accrued interest; $75.9 million has been paid and the company disputes the assessment.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, ResMed kept $0.13.
- Revenue$2.34B100.0%
- Cost of revenue−$1.01B43.0%
- Gross profit$1.33B57.0%
- Operating costs−$793.1M33.9%
- Operating income$541.8M23.2%
- Interest, other & tax−$226.2M9.7%
- Net income$315.6M13.5%
Where FY2018 revenue went
$2.34B- Cost of revenue: $1.01B, 43% of revenue
- SG&A: $600.4M, 26% of revenue
- Net income: $315.6M, 13% of revenue
- R&D: $155.1M, 6.6% of revenue
- Other operating costs: $37.5M, 1.6% of revenue
- Interest, other & tax: $226.2M, 9.7% of revenue
Kept 13% as net incomeOther operating costs $37.5M · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 17, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.34B$2.07B | +13.2% |
| Cost of Revenue | $1.01B$864.99M | +16.2% |
| Gross Profit | $1.33B$1.20B | +11.1% |
| R&D Expenses | $155.15M$144.47M | +7.4% |
| SG&A Expenses | $600.37M$553.97M | +8.4% |
| Operating Expenses | $793.07M$775.95M | +2.2% |
| Operating Income | $541.83M$425.80M | +27.3% |
| Interest Expense | $28.36M$28.24M | +0.4% |
| Net Income | $315.59M$342.28M | −7.8% |
| EPS (Basic) | $2.21$2.42 | −8.7% |
| EPS (Diluted) | $2.19$2.40 | −8.7% |
| Shares Outstanding (Basic) | 142.76M141.36M | +1.0% |
| Shares Outstanding (Diluted) | 143.99M142.45M | +1.1% |
05—Questions
Frequently Asked Questions
Why did net income decline despite higher revenue and operating income?
Net income fell to $315.6 million from $342.3 million because income tax expense rose to $205.7 million from $76.5 million. The filing attributes the increase mainly to $138.0 million of additional tax from the U.S. Tax Act, including a $126.9 million transition tax payable over the next eight years.
How is the company's revenue split between products?
Devices accounted for approximately 56% of net revenues in fiscal 2018, and masks, diagnostic products and accessories accounted for approximately 38%. Devices revenue was $1,303.6 million and masks and other accessories revenue was $879.6 million. Software as a service accounted for about 7% of net revenue.
What is the status of the Australian tax dispute?
The ATO issued Notices of Amended Assessments for tax years 2009 to 2013 asserting $151.7 million in additional income tax and $38.4 million in accrued interest. The company paid $75.9 million in April 2018 under a payment arrangement and disputes the assessments. In June 2018 the ATO also claimed penalties of 50% of the additional tax. The company continues to believe it is more likely than not to succeed, and the ATO intends to audit tax years 2014 to 2017.
How much debt does the company carry and how is it structured?
Total debt was $281.5 million at June 30, 2018, versus $1,078.6 million a year earlier. In April 2018 the company entered an $800.0 million senior unsecured revolving credit agreement and a $200.0 million senior unsecured term credit agreement for ResMed Limited, both maturing April 17, 2023. The interest rate on outstanding borrowings was 3.0% at June 30, 2018.
What regulatory and litigation risks does the company face?
The company received three federal administrative subpoenas from the Office of Inspector General of HHS, the most recent in August 2018, and is cooperating with the requests. It is also in patent litigation with Fisher & Paykel Healthcare in the United States, New Zealand, Germany and Australia. Medicare competitive bidding rate changes cut CPAP reimbursement in non-competitive bidding areas by approximately 60% in urban areas and 56% in rural areas compared with 2015 rates.
06—Continue