01—Abstract
Summary
Summary of the 10-K filed August 17, 2021. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. (NYSE: RMD) reported its 10-K for the fiscal year ended June 30, 2021.
The company describes itself as a global leader in digital health and cloud-connected medical devices, operating two segments: Sleep and Respiratory Care, and Software as a Service (SaaS). Net revenue rose to $3,196.8 milliona from $2,957.0 million, an increase of $239.8 million or 8% (6% on a constant currency basis). Gross margin was 57.5% versus 58.1% a year earlier, and net income fell to $474.5 million, or $3.24 per diluted share, from $621.7 million, or $4.27.
The filing states that unrecognized tax benefits reduced diluted EPS by $1.70b for the year. The decline in earnings is driven mainly by the Australian Taxation Office (ATO) transfer pricing dispute. The company recorded $395.3 million of gross unrecognized tax benefits, including $47.5 million of accrued interest and penalties, and reports $248.7 million of net unrecognized tax benefits after $146.6 million of tax credits and deductions.
Management says it is in advanced settlement discussions and believes it is more likely than not to succeed if the matter goes to litigation. Income tax expense rose to $409.2 millionc, and the effective tax rate increased to 46.3% from 15.2%. Excluding the unrecognized tax benefit, the effective rate was 18.2%.
Operating cash flow was $736.7 milliond, cash and equivalents were $295.3 million, and total debt was $658.0 million at June 30, 2021. The company paid dividends of $226.7 million and made no share repurchases during the year. Management notes that COVID-19-related ventilator demand was immaterial in the year and is not expected to be material in fiscal 2022, while sleep device demand was affected by reduced new patient flow.
02—Key points
Key Highlights
- Net revenue of $3,196.8 million, up 8% (6% constant currency), with Sleep and Respiratory Care at $2,823.2 million and SaaS at $373.6 million.
- Net income declined to $474.5 million ($3.24 diluted EPS) from $621.7 million ($4.27), largely due to the ATO tax matter.
- Unrecognized tax benefits of $395.3 million gross ($248.7 million net) related to the Australian Taxation Office audit reduced diluted EPS by $1.70.
- Gross margin of 57.5% compared with 58.1% in fiscal 2020, reflecting product mix, lower average selling prices and geographic mix.
- Operating cash flow of $736.7 million; cash and cash equivalents of $295.3 million; total debt of $658.0 million at June 30, 2021.
- Research and development spending of $225.3 million, or 7.0% of net revenue, including a controlled launch of AirSense 11 with a broader launch planned for fiscal 2022.
- No share repurchases in fiscal 2021; dividends paid totaled $226.7 million and 12.9 million shares remained available under the repurchase authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, ResMed kept $0.15.
- Revenue$3.20B100.0%
- Cost of revenue−$1.36B42.5%
- Gross profit$1.84B57.5%
- Operating costs−$935.4M29.3%
- Operating income$903.7M28.3%
- Interest, other & tax−$429.2M13.4%
- Net income$474.5M14.8%
Where FY2021 revenue went
$3.20B- Cost of revenue: $1.36B, 42% of revenue
- SG&A: $670.4M, 21% of revenue
- Net income: $474.5M, 15% of revenue
- Interest, other & tax: $429.2M, 13% of revenue
- R&D: $225.3M, 7.0% of revenue
- Other operating costs: $39.8M, 1.2% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed August 17, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $3.20B$2.96B | +8.1% |
| Cost of Revenue | $1.36B$1.24B | +9.6% |
| Gross Profit | $1.84B$1.72B | +7.1% |
| R&D Expenses | $225.28M$201.95M | +11.6% |
| SG&A Expenses | $670.39M$676.69M | −0.9% |
| Operating Expenses | $935.42M$908.13M | +3.0% |
| Operating Income | $903.68M$809.66M | +11.6% |
| Interest Expense | $23.99M$40.38M | −40.6% |
| Net Income | $474.50M$621.67M | −23.7% |
| EPS (Basic) | $3.27$4.31 | −24.1% |
| EPS (Diluted) | $3.24$4.27 | −24.1% |
| Shares Outstanding (Basic) | 145.31M144.34M | +0.7% |
| Shares Outstanding (Diluted) | 146.45M145.65M | +0.5% |
05—Questions
Frequently Asked Questions
What drove the decline in net income for fiscal 2021?
Net income fell to $474.5 million from $621.7 million. The filing attributes the decline mainly to an increase in unrecognized tax benefits tied to the Australian Taxation Office audit, which lifted income tax expense to $409.2 million and increased the effective tax rate to 46.3% from 15.2%.
What is the status of the Australian Taxation Office dispute?
The ATO audit covers 2009 to 2018 and centers on a transfer pricing dispute over income from Singapore operations. The ATO issued amended assessments for 2009 to 2013 seeking $266.0 million. The company is in advanced discussions to settle the entire audit period and believes it is more likely than not to prevail in litigation, but it has recorded $395.3 million of gross unrecognized tax benefits.
How did the two business segments perform?
Sleep and Respiratory Care net revenue rose 8% to $2,823.2 million, driven by higher device and mask unit sales and recovery of core sleep patient flow. SaaS net revenue rose 5% to $373.6 million, mainly from continued growth in resupply service offerings.
How is COVID-19 affecting the business according to the filing?
Demand for ventilators and masks was immaterial incrementally in fiscal 2021, and the company does not expect material COVID-19-generated ventilator demand in fiscal 2022. Diagnostic pathways for sleep apnea were disrupted, reducing demand from new patients, though re-supply of masks from the installed base was not significantly affected.
What is the company's liquidity and debt position?
At June 30, 2021, cash and cash equivalents were $295.3 million and total debt was $658.0 million, down from $1.2 billion a year earlier. The company had $1.6 billion available under its revolving credit facility and said cash from operations and borrowings should fund operations for the next 12 months and beyond.
06—Continue