What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-11 compared with 2022-08-12 · 101 added, 136 removed, 261 unchanged (48% of the section changed)

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It is provided as a supplement to, and should be read in conjunction with the selected financial data and consolidated financial statements and notes included in this report.

We are a global leader in the development, manufacturing, distribution and marketing of medical devices and cloud-based software applications that diagnose, treat and manage respiratory disorders, including SDB, COPD, neuromuscular disease and other chronic diseases.

We are a global leader in the development, manufacturing, distribution and marketing of medical devices and cloud-based software applications that diagnose, treat and manage respiratory disorders, including sleep disordered breathing (“SDB”), chronic obstructive pulmonary disease, neuromuscular disease and other chronic diseases.

SDB includes obstructive sleep apnea and other respiratory disorders that occur during sleep.

Our products and solutions are designed to improve patient quality of life, reduce the impact of chronic disease and lower healthcare costs as global healthcare systems continue to drive a shift in care from hospitals to the home and lower cost settings.

Our cloud-based digital health applications, along with our devices, are designed to provide connected care to improve patient outcomes and efficiencies for our customers.

Our cloud-based digital software health applications, along with our devices, are designed to provide connected care to improve patient outcomes and efficiencies for our customers.

Since the development of continuous positive airway pressure therapy, we have expanded our business by developing or acquiring a number of products and solutions for a broader range of respiratory disorders including technologies to be applied in medical and consumer products, ventilation devices, diagnostic products, mask systems for use in the hospital and home, headgear and other accessories, dental devices, and cloud-based software informatics solutions to manage patient outcomes and customer and provider business processes.

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During fiscal year 2023, we invested $287.6 million on research and development activities, which represents 6.8% of net revenues with a continued focus on the development and commercialization of new, innovative products and solutions that improve patient outcomes, create efficiencies for our customers and help physicians and providers better manage chronic disease and lower healthcare costs.

During fiscal year 2022 we continued the launch of AirSense 11, which introduces new features such as a touch screen, algorithms for patients new to therapy and digital enhancements and over-the-air update capabilities.

Due to multiple acquisitions, including Brightree in April 2016, HEALTHCAREfirst in July 2018 and MatrixCare in November 2018, and our pending acquisition of MEDIFOX DAN which is expected to close during fiscal year 2023 subject to regulatory clearances, our operations now include out-of-hospital software platforms designed to support the professionals and caregivers who help people stay healthy in the home or care setting of their choice.

These platforms comprise our SaaS business.

These products, our cloud-based remote monitoring and therapy management system, and a robust product pipeline, should continue to provide us with a strong platform for future growth.

During fiscal year 2023 we continued the launch of AirSense 11, which introduces new features such as a touch screen, algorithms for patients new to therapy and digital enhancements and over-the-air update capabilities as well as continued our global offering of devices including Card-to-Cloud ("C2C") versions of our prior model AirSense 10 and AirCurve 10 products that do not incorporate a communications module.

Due to multiple acquisitions, including Brightree in 2016, HEALTHCAREfirst and MatrixCare in 2018, and MEDIFOX DAN in November 2022, our operations now include out-of-hospital software platforms designed to support the professionals and caregivers who help people stay healthy in the home or care setting of their choice.

These platforms comprise our SaaS business and along with our cloud-based remote monitoring and therapy management system, and a robust product pipeline, should continue to provide us with a strong platform for future growth.

We have determined that we have two operating segments, which are the sleep and respiratory disorders sector of the medical device industry (“Sleep and Respiratory Care”) and the supply of business management software as a service to out-of-hospital health providers (“SaaS”).

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Our net income for the year ended June 30, 2023 was $897.6 million or $6.09 per diluted share compared to net income of $779.4 million or $5.30 per diluted share for the year ended June 30, 2022.

Unrecognized tax benefits as described at Note 13 – Income Taxes impacted our diluted earnings per share by $1.70 for the year ended June 30, 2021.

Total operating cash flow for fiscal year 2023 was $693.3 million and at June 30, 2023, our cash and cash equivalents totaled $227.9 million.

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dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

For discussion related to the results of operations and changes in financial condition for the fiscal year ended June 30, 2021 compared to fiscal year June 30, 2020, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the Year Ended June 30, 2021, which was filed with the United States Securities and Exchange Commission on August 16, 2021.

Key Trends and Economic Factors Affecting Our Business

Supply Chain Disruptions

The COVID-19 pandemic has continued to impact the global supply chain, primarily through a lack of availability of raw materials and electronic components.

The lack of raw materials and electronic components is also impacting companies outside of our direct industry, which is resulting in a competitive supply environment causing higher costs, requiring us to commit to minimum purchase obligations as well as make upfront payments to our suppliers.

Additionally, we have observed a reduction in both inbound and outbound transportation capacity as a result of port closures and delays associated with the pandemic, which is causing longer lead times in receiving raw materials into and distributing finished goods out of our manufacturing facilities, in addition to increased freight costs.

These highly competitive and constrained supply chain conditions are increasing our cost of sales, which has and may continue to decrease our gross margin.

Given the ongoing uncertainty regarding the duration and extent of the COVID-19 pandemic, we are uncertain as to the duration and extent of constraint on our supply chain.

Competitor Recall

An ongoing product recall by one of our competitors, Philips, has resulted in increased demand for our sleep and respiratory care devices.

The supply chain disruptions outlined above have constrained and restricted our ability to meet this increased demand and we expect these constraints will continue into the fiscal year ending June 30, 2023.

Although there is still substantial uncertainty associated with the COVID-19 pandemic, we believe the global demand for ventilators and other respiratory support devices used to treat COVID-19 patients has largely been met.

We did not observe material incremental demand for our ventilator devices and masks associated with the pandemic during the twelve months ended June 30, 2022.

In most markets, diagnostic pathways for sleep apnea treatment, including physician practices, home medical equipment (“HME”) distributors, and sleep clinics have largely recovered towards pre-pandemic levels as vaccines and boosters roll out globally.

Likewise, we have continued to observe stabilizing patient flow in our out-of-hospital care settings within our SaaS business.

Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees.

We have endeavored and continue to follow recommended actions of government and health authorities to protect our employees worldwide as we progressively reopen our offices around the world.

The pandemic has not negatively impacted our liquidity position.

Impact on Our Business

As a result of these trends, we were not able to meet all the demand available in the market during the twelve months ended June 30, 2022.

We are being allocated components from our suppliers, particularly semiconductor chips, and we are thus being forced to allocate our outbound products to our customers.

We have established an allocation process with clear

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

guiding principles that give priority to the production and delivery of devices to meet the needs of the highest acuity patients first.

For discussion related to the results of operations and changes in financial condition for the fiscal year ended June 30, 2022 compared to fiscal year June 30, 2021, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended June 30, 2022, which was filed with the United States Securities and Exchange Commission on August 12, 2022.

Fiscal Year Ended June 30, 2023 Compared to Fiscal Year Ended June 30, 2022

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Masks and other 1,039,026 911,387 14

Total Sleep and Respiratory Care $ 1,981,807 $ 1,705,113 16

Software as a Service 400,829 373,590 7

Total $ 2,382,636 $ 2,078,703 15

Total U.S., Canada and Latin America $ 2,483,387 $ 1,981,807 25

Combined Europe, Asia and other markets

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Masks and other 415,289 399,003 4 12

Total Sleep and Respiratory Care $ 1,195,491 $ 1,118,122 7 11

Total Combined Europe, Asia and other markets $ 1,241,630 $ 1,195,491 4 11

Global revenue

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Excluding the impact of currency movements, total net revenue from our Sleep and Respiratory Care business for the year ended June 30, 2023 increased by 20% compared to the year ended June 30, 2022.

The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks, including recovery of core sleep patient flow that was previously impacted by the pandemic and increased demand following a recent product recall by one of our competitors, partially offset by decreased COVID-19 related demand for our ventilators.

Net revenue from our Sleep and Respiratory Care business in the United States, Canada and Latin America for the year ended June 30, 2022 increased to $1,981.8 million from $1,705.1 million for the year ended June 30, 2021, an increase of $276.7 million or 16%.

The increase was primarily due to an increase in unit sales of our devices and masks, including recovery of core sleep patient flow that was previously impacted by the pandemic and increased demand following a recent product recall by one of our competitors, partially offset by decreased COVID-19 related demand for our ventilators.

Net revenue from our Sleep and Respiratory Care business in combined Europe, Asia and other markets increased for the year ended June 30, 2022 to $1,195.5 million from $1,118.1 million for the year ended June 30, 2021, an increase of $77.4 million or 7% (an increase of 11% on a constant currency basis).

The constant currency increase in sales in combined Europe, Asia and other markets predominantly reflects an increase in unit sales of our devices and masks, including

The increase in net revenue associated with devices was primarily attributable to increased demand, reduced competitive supply, increases in average selling prices, and incremental sales of the C2C devices.

The increase in masks was primarily due to an increase in unit sales .

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

recovery of core sleep patient flow that was previously impacted by the pandemic, partially offset by decreased COVID-19-related demand for our ventilators.

Net revenue from devices for the year ended June 30, 2022 increased to $1,866.9 million from $1,610.0 million for the year ended June 30, 2021, an increase of $256.9 million or 16%, including an increase of 24% in the United States, Canada and Latin America and an increase of 7% in combined Europe, Asia and other markets (a 10% increase on a constant currency basis).

Net revenue from our Sleep and Respiratory Care business in the United States, Canada and Latin America for the year ended June 30, 2023 increased to $2,483.4 million from $1,981.8 million for the year ended June 30, 2022, an increase of $501.6 million or 25%.

The increase in net revenue associated with our devices was primarily attributable to increased demand, reduced competitive supply, and incremental sales of the C2C devices.

The increase in masks was primarily due to an increase in unit sales .

Net revenue from our Sleep and Respiratory Care business in combined Europe, Asia and other markets increased for the year ended June 30, 2023 to $1,241.6 million from $1,195.5 million for the year ended June 30, 2022, an increase of $46.1 million or 4% (an 11% increase on a constant currency basis).

The constant currency increase in device sales in combined Europe, Asia and other was primarily attributable to increased demand as well as reduced competitive supply.

The increase in masks was primarily due to an increase in unit sales.

Net revenue from devices for the year ended June 30, 2023 increased to $2,270.7 million from $1,866.9 million for the year ended June 30, 2022, an increase of $403.8 million or 22%, including an increase of 35% in the United States, Canada and Latin America and an increase of 4% in combined Europe, Asia and other markets (an 11% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the year ended June 30, 2023 increased by 25%.

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Net revenue from our SaaS business for the year ended June 30, 2023 was $498.0 million, compared to $400.8 million for the year ended June 30, 2022, an increase of $97.1 million or 24%.

The increase was predominantly due to continued growth in our HME and Home Health and Hospice verticals, in addition to stabilizing patient flow in our Facilities vertical.

The increase was predominantly due to our recent acquisition of MEDIFOX DAN, which was acquired on November 21, 2022.

Excluding the MEDIFOX DAN acquisition, SaaS revenue increased 8% and was driven by continued growth in the HME vertical within our SaaS business.

Gross Profit and Gross Margin.

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Gross margin, which is gross profit as a percentage of net revenue, was 55.8% for the year ended June 30, 2023, compared with the 56.6% for the year ended June 30, 2022.

The decrease in gross margin was due primarily to higher logistics and manufacturing costs, partially offset by favorable changes in product mix as we sold an increased proportion of higher acuity devices, in addition to higher average selling prices.

The decrease in gross margin was due primarily to unfavorable product mix, higher component and manufacturing costs, higher warehouse related costs, and unfavorable foreign currency movements, partially offset by increases in average selling prices and a decrease in the amortization of acquired intangible assets.

Operating Expenses

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as a % of net revenue 6.8 % 7.1 %

Amortization of acquired intangible assets 31,078 31,078 Nil Nil Nil

Amortization of acquired intangible assets 42,020 31,078 10,942 35 % 34 %

Selling, General and Administrative Expenses

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dollar, which decreased our expenses by approximately $27.9 million.

Excluding the impact of foreign currency movements, selling, general and administrative expenses for the year ended June 30, 2022 increased by 12% compared to the year ended June 30, 2021.

As a percentage of net revenue, selling, general and administrative expenses for the year ended June 30, 2022 improved to 20.7% compared to 21.0% for the year ended June 30, 2021.

The constant currency increase in selling, general and administrative expenses was primarily due to increases in employee-related costs for the year ended June 30, 2022 compared to the year ended June 30, 2021.

Research and Development Expenses

Research and development expenses increased for the year ended June 30, 2022 to $253.6 million from $225.3 million for the year ended June 30, 2021, an increase of $28.3 million or 13%.

Research and development expenses were favorably

Excluding the impact of foreign currency movements, selling, general and administrative expenses for the year ended June 30, 2023 increased by 22% compared to

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

impacted by the movement of international currencies against the U.S.

the year ended June 30, 2022.

As a percentage of net revenue, selling, general and administrative expenses for the year ended June 30, 2023 increased to 20.7% compared to 20.6% for the year ended June 30, 2022.

The constant currency increase in selling, general and administrative expenses for the year ended June 30, 2023 compared to the year ended June 30, 2022 was primarily due to increases in employee-related costs, increases in travel and entertainment expenses, and additional expenses associated with the consolidation of recent acquisitions.

Research and Development Expenses

Research and development expenses increased for the year ended June 30, 2023 to $287.6 million from $253.6 million for the year ended June 30, 2022, an increase of $34.1 million or 13%.

Research and development expenses were favorably impacted by the movement of international currencies against the U.S.

dollar, which decreased our expenses by approximately $6.5 million, as reported in U.S.

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As a percentage of net revenue, research and development expenses were 6.8% for the year ended June 30, 2023 compared to 7.1% for the year ended June 30, 2022.

The constant currency increase in research and development expenses was primarily due to increased investment in our digital health technologies and SaaS solutions.

The constant currency increase in research and development expenses was primarily due to increased investment in our digital health technologies and SaaS solutions as well as additional expenses associated with the consolidation of recent acquisitions.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets was consistent at $31.1 million for the years ended the year ended June 30, 2022 and June 30, 2021.

Amortization of acquired intangible assets for the year ended June 30, 2023 was $42.0 million compared to $31.1 million for the year ended the year ended June 30, 2022.

The increase in amortization expense was primarily attributable to our acquisition of MEDIFOX DAN.

Restructuring Expenses

In November 2020, we closed our Portable Oxygen Concentrator business, which was part of the Sleep and Respiratory Care segment.

During the year ended June 30, 2021, we recognized restructuring expenses of $13.9 million primarily related to inventory write-downs of $5.2 million, accelerated amortization of acquired intangible assets of $5.1 million, asset impairments of $2.3 million, employee-related costs of $0.7 million and contract cancellation costs of $0.6 million.

Of the total expense recognized during the year ended June 30, 2021, the inventory write-down of $5.2 million is presented within cost of sales and the remaining $8.7 million in restructuring costs is separately disclosed as restructuring expenses on the consolidated statements of income.

We do not expect to incur additional expenses in connection with this activity in the future.

During the year ended June 30, 2023, we incurred restructuring expenses of $9.2 million associated with the reorganization and rationalization of our operations.

We recorded the full amount of $9.2 million during the year ended June 30, 2023, of which $6.7 million related to our Sleep and Respiratory Care segment and $2.5 million related to our SaaS segment.

The restructuring expenses consisted primarily of severance to employees.

Total Other Income (Loss), Net

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Gain (loss) on equity investments 9,922 (12,202) 22,124

Gain on insurance recoveries 20,227 — 20,227

Other, net (5,712) 3,197 (8,909)

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Total other income (loss), net for the year ended June 30, 2023 was a loss of $30.2 million, compared to a loss of $39.8 million for the year ended June 30, 2022.

The increase in loss was primarily due to losses associated with our investments in marketable and non-marketable equity securities, which were a loss of $12.2 million for the year ended June 30, 2022 compared to a gain of $14.5 million for the year ended June 30, 2021.

This was partially offset by lower losses attributable to equity method investments for the year ended June 30, 2022 of $8.5 million compared to $11.2 million for the year ended June 30, 2021.

Additionally, interest expense, net, decreased to $22.3 million for the year ended June 30, 2022 compared to $23.6 million for the year ended June 30, 2021.

Our effective income tax rate decreased to 18.8% for the year ended June 30, 2022 from 46.3% for the year ended June 30, 2021.

Our effective rate of 18.8% for the year ended June 30, 2022 differs from the statutory rate of 21.0% primarily due to research credits, foreign operations and windfall tax benefits related to the vesting or settlement of employee share-based awards.

The decrease in our effective tax rate for the year ended June 30, 2022 was primarily related to the decrease in unrecognized tax benefits recorded in connection with the Australian Tax Office ("ATO") transfer pricing dispute, outlined below.

Excluding the impact of the unrecognized tax benefit, our effective income tax rate for the year ended June 30, 2021 was 18.2%.

The increase in our effective tax rate, excluding the impact of the unrecognized tax benefit for the year ended June 30, 2021, was due to a change in the geographic mix of earnings for the year ended June 30, 2022.

Interest expense, net, increased to $47.4 million for the year ended June 30, 2023 compared to $22.3 million for the year ended June 30, 2022 due to higher debt levels associated with the acquisition of MEDIFOX DAN, which was funded by our Revolving Credit Facility.

Increases in interest expense, net, were partially offset by gains associated with our investments in marketable and non-marketable equity securities, which were a gain of $9.9 million for the year ended June 30, 2023 compared to a loss of $12.2 million or the year ended June 30, 2022.

In addition, we recognized recoveries from business interruption insurance for $20.2 million for the year ended June 30, 2023.

We recorded lower losses attributable to equity method investments for the year ended June 30, 2023 of $7.3 million compared to $8.5 million for the year ended June 30, 2022.

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

On September 19, 2021, we concluded the settlement agreement with the ATO in relation to the previously disclosed transfer pricing dispute for the tax years 2009 through 2018 (“ATO settlement”).

The ATO settlement fully resolved the dispute for all prior years, with no admission of liability and provides clarity in relation to certain future taxation principles.

The final net impact of the ATO settlement was $238.7 million, which represents a gross amount of $381.7 million, including interest and penalties of $48.1 million, and adjustments for credits and deductions of $143.0 million.

As a result of the ATO settlement and due to movements in foreign currencies, we recorded a benefit of $14.1 million within other comprehensive income, and a $4.1 million reduction of tax credits, which was recorded to income tax expense.

As a result of the ATO settlement, we reversed our previously recorded uncertain tax position.

On September 28, 2021, we remitted final payment to the ATO of $284.8 million, consisting of the agreed settlement amount of $381.7 million less prior remittances made to the ATO of $96.9 million.

Our effective income tax rate decreased to 18.5% for the year ended June 30, 2023 from 18.8% for the year ended June 30, 2022.

Our effective rate of 18.5% for the year ended June 30, 2023 differs from the statutory rate of 21.0% primarily due to research credits, foreign operations and windfall tax benefits related to the vesting or settlement of employee share-based awards.

The decrease in our effective tax rate for the year ended June 30, 2023 was primarily due to a shift in the geographic mix of earnings and an increase in research credits.

Our Singapore operations operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2030.

As a result of the U.S.

Tax Act, we treated all non-U.S.

Tax Cuts and Jobs Act of 2017, we treated all non-U.S.

historical earnings as taxable during the year ended June 30, 2018.

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Net Income and Earnings per Share

As a result of the factors above, our net income for the year ended June 30, 2022 was $779.4 million compared to net income of $474.5 million for the year ended June 30, 2021.

As a result of the factors discussed above, our net income for the year ended June 30, 2023 was $897.6 million compared to net income of $779.4 million for the year ended June 30, 2022.

Our earnings per diluted share for the year ended June 30, 2023 was $6.09 compared to $5.30 for the year ended June 30, 2022, an increase of 15%.

Unrecognized tax benefits as described at Note 13 – Income Taxes reduced our diluted earnings per share for the year ended June 30, 2021 by $1.70 per share.

Summary of Non-GAAP Financial Measures

In addition to financial information prepared in accordance with GAAP, our management uses certain non-GAAP financial measures, such as non-GAAP revenue, non-GAAP cost of sales, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP net income, and non-GAAP diluted earnings per share, in evaluating the performance of our business.

In addition to financial information prepared in accordance with GAAP, our management uses certain non-GAAP financial measures, such as non-GAAP cost of sales, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP net income, and non-GAAP diluted earnings per share, in evaluating the performance of our business.

We believe that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide investors better insight when evaluating our performance from core operations and can provide more consistent financial reporting across periods.

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Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.

The measure “non-GAAP cost of sales” is equal to GAAP cost of sales less amortization of acquired intangible assets relating to cost of sales and restructuring expense associated with inventory write-downs following the closure of the portable oxygen concentrator business.

The measure “non-GAAP cost of sales” is equal to GAAP cost of sales less amortization of acquired intangible assets relating to cost of sales.

The measure “non-GAAP gross profit” is the difference between GAAP net revenue and non-GAAP cost of sales, and “non-GAAP gross margin” is the ratio of non-GAAP gross profit to GAAP net revenue.

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

These non-GAAP measures are reconciled to their most directly comparable GAAP financial measures below (in thousands, except percentages):

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(30,396) (39,650)

Restructuring - cost of sales

Non-GAAP cost of sales $ 1,836,935 $ 1,514,166

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Non-GAAP gross margin 56.5 % 57.7 %

The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired intangibles, acquisition-related expenses and restructuring expense associated with the closure of the portable oxygen concentrator business.

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired intangibles, restructuring expenses and acquisition-related expenses.

Non-GAAP income from operations is reconciled with GAAP income from operations below (in thousands):

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Amortization of acquired intangibles - operating expenses 42,020 31,078

Restructuring expenses 9,177 —

Acquisition-related expenses 10,949 1,864

Restructuring - cost of sales — 5,232

Restructuring - operating expenses — 8,673

Non-GAAP income from operations $ 1,224,413 $ 1,072,878

The measure “non-GAAP net income” is equal to GAAP net income once adjusted for amortization of acquired intangibles (net of tax), acquisition-related expenses, reserve for disputed tax positions, restructuring expenses (net of tax) and (gain) loss on equity investments.

The measure “non-GAAP net income” is equal to GAAP net income once adjusted for amortization of acquired intangibles, restructuring expenses, acquisition-related expenses, gain on insurance recoveries, (gain) loss on equity investments, reserve for disputed tax positions, and associated tax effects.

The measure “non-GAAP diluted earnings per share” is the ratio of non-GAAP net income to diluted shares outstanding.

These non-GAAP measures are reconciled to their most directly comparable GAAP financial measures below (in thousands, except for per share amounts):

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Year Ended June 30,

GAAP net income $ 897,556 $ 779,437

Amortization of acquired intangibles - cost of sales, net of tax 30,095 34,642

Amortization of acquired intangibles - operating expenses, net of tax 23,589 23,857

Amortization of acquired intangibles - cost of sales 30,396 39,650

Amortization of acquired intangibles - operating expenses 42,020 31,078

Restructuring expenses 9,177 —

Acquisition-related expenses 10,949 1,864

Reserve for disputed tax positions 4,111 248,773

Restructuring - cost of sales, net of tax — 4,663

Restructuring - operating expenses, net of tax — 7,730

Gain on insurance recoveries (20,227) —

(Gain) loss on equity investments — 11,675

Reserve for disputed tax positions — 4,111

Income tax effect on non-GAAP adjustments (20,114) (17,044)

Non-GAAP net income $ 949,757 $ 850,771

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Our primary uses of cash have been for research and development activities, selling and marketing activities, capital expenditures, strategic acquisitions and investments, dividend payments and repayment of debt obligations.

We expect that cash provided by operating activities may fluctuate in future periods as a result of several factors, including fluctuations in our operating results, which include impacts from the COVID-19 pandemic, supply chain disruptions, working capital requirements and capital deployment decisions.

Our future capital requirements will depend on many factors including our growth rate in net revenue, third-party reimbursement of our products for our customers, the timing and extent of spending to support research development efforts, the expansion of selling, general and administrative activities, the timing of introductions of new products, the expenditures associated with possible future acquisitions, investments or other business combination transactions, including our pending acquisition of MEDIFOX DAN, and impacts from the COVID-19 pandemic.

We expect that cash provided by operating activities may fluctuate in future periods as a result of several factors, including fluctuations in our operating results, which include supply chain disruptions, working capital requirements and capital deployment decisions.

As we assess inorganic growth strategies, we may need to supplement our internally generated cash flow with outside sources.

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As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow generation as well as our ability to access the market considering those earning levels.

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

As of June 30, 2023 and June 30, 2022, we had cash and cash equivalents of $227.9 million and $273.7 million, respectively.

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Our cash and cash equivalent balances are held at highly rated financial institutions.

As of June 30, 2022, we had $1.4 billion available for draw down under the revolving credit facility and a combined total of $1.7 billion in cash and available liquidity under the revolving credit facility.

As of June 30, 2023, we had $745.0 million available for draw down under the revolving credit facility and a combined total of $972.9 million in cash and available liquidity under the revolving credit facility.

We repatriated $445.0 million and $100.0 million to the United States during the years ended June 30, 2023 and 2022, respectively, from earnings generated in each of those years.

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historical earnings as taxable, which resulted in additional tax expense of $126.9 million which was payable over the proceeding eight years.

the additional tax expense associated with the U.S.

Tax Act was reduced to $94.2 million during the current year as a result of the ATO Settlement discussed in Note 13 – Income Taxes of the Notes to the Consolidated Financial Statements (Part II, Item 8).

Therefore, future repatriation of

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

cash held by our non-U.S.

Therefore, future repatriation of cash held by our non-U.S.

subsidiaries will generally not be subject to U.S.

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On June 29, 2022, we entered into a second amended and restated credit agreement (as amended from time to time, the “Revolving Credit Agreement”).

The Revolving Credit Agreement, among other things, provided a senior unsecured revolving credit facility of $1,500.0 million, with an uncommitted option to increase the revolving credit facility by an additional amount equal to the greater of $1,000.0 million and 1.00 times the EBITDA for the trailing twelve-month measurement period.

The Revolving Credit Agreement, among other things, provided a senior unsecured revolving credit facility of $1,500.0 million, with an uncommitted option to increase the revolving credit facility by an additional amount equal to the greater of $1,000.0 million or 1.0 times the EBITDA for the trailing twelve-month measurement period.

Additionally, on June 29, 2022, ResMed Pty Limited entered into a Second Amendment to the Syndicated Facility Agreement (the “Term Credit Agreement”).

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The Revolving Credit Agreement and Term Credit Agreement each terminate on Jun 29, 2027, when all unpaid principal and interest under the loans must be repaid.

As of June 30, 2022, we had $1.4 billion available for draw down under the revolving credit facility.

As of June 30, 2023, we had $745.0 million available for draw down under the revolving credit facility.

On July 10, 2019, we entered into a Note Purchase Agreement with the purchasers to that agreement, in connection with the issuance and sale of $250.0 million principal amount of our 3.24% senior notes due July 10, 2026, and $250.0 million principal amount of our 3.45% senior notes due July 10, 2029 (“Senior Notes”).

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Net cash used in investing activities (1,159,845) (229,918)

Net cash used in financing activities (128,363) (764,632)

Net cash (used in) / provided by financing activities 422,874 (128,363)

Effect of exchange rate changes on cash (2,147) (14,434)

Net decrease in cash and cash equivalents $ (45,819) $ (21,568)

Operating Activities

Cash provided by operating activities was $351.1 million for the twelve months ended June 30, 2022, compared to cash provided of $736.7 million for the twelve months ended June 30, 2021.

The $385.6 million decrease in cash flow from operations was primarily due to the payment of our tax settlement with the ATO of $284.8 million and greater purchases and prepayments of inventory to secure adequate components for the increasing sales demand, partly offset by an increase in operating profit and other net changes in working capital balances compared to the twelve months ended June 30, 2021.

Investing Activities

Cash used in investing activities was $229.9 million for the twelve months ended June 30, 2022, compared to cash used of $158.5 million for the twelve months ended June 30, 2021.

The $71.5 million increase in cash flow used in investing activities was primarily due to an increase in purchases of property, plant and equipment and an increase in payments on maturity of foreign currency contracts compared to the twelve months ended June 30, 2021.

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Operating Activities

Cash provided by operating activities was $693.3 million for the year ended June 30, 2023, compared to cash provided of $351.1 million for the year ended June 30, 2022.

The $342.2 million increase in cash flow from operations was primarily due to the payment of our tax settlement with the ATO of $284.8 million during the year ended June 30, 2022 and an increase in operating profit for the year ended June 30, 2023.

Investing Activities

Cash used in investing activities was $1,159.8 million for the year ended June 30, 2023, compared to cash used of $229.9 million for the year ended June 30, 2022.

The $929.9 million increase in cash flow used in investing activities was primarily due to the cash used to acquire MEDIFOX DAN.

Financing Activities

Cash used in financing activities was $128.4 million for the twelve months ended June 30, 2022, compared to cash used of $764.6 million for the twelve months ended June 30, 2021.

The $636.3 million decrease in cash flow used in financing activities was primarily due to borrowing activity under our Revolving Credit Agreement.

During the twelve months ended June 30, 2022, we paid cash dividends of $1.68 per common share totaling $245.3 million.

Cash provided by in financing activities was $422.9 million for the year ended June 30, 2023, compared to cash used of $128.4 million for the year ended June 30, 2022.

The $551.2 million increase in cash flow provided by financing activities was primarily due to the borrowing activity under our Revolving Credit Agreement in order to finance our acquisition of MEDIFOX DAN.

During the year ended June 30, 2023, we paid cash dividends of $1.76 per common share totaling $258.3 million.

On August 3, 2023, our board of directors declared a cash dividend of $0.48 per common share, to be paid on September 21, 2023, to shareholders of record as of the close of business on August 17, 2023.

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Purchase obligations 1,390,640 1,034,859 345,033 10,013 735 — —

MEDIFOX DAN acquisition consideration 994,245 994,245 — — — — —

Total $ 3,335,242 $ 1,149,905 $ 452,623 $ 112,731 $ 1,249,072 $ 25,303 $ 345,608

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Refer to Note 15 - Legal Actions, Contingencies and Commitments of the Notes to the Consolidated Financial Statements (Part II, Item 8) for details of our contingent obligations under recourse provisions.

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Segment Information

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On an ongoing basis we evaluate our estimates, including those related to allowance for doubtful accounts, inventory reserves, warranty obligations, goodwill, potentially impaired assets, intangible assets, income taxes and contingencies.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

We state these accounting policies in the notes to the financial statements and at relevant sections in this discussion and analysis.

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We assess our income tax positions and record tax benefits for all years subject to audit based upon management’s evaluation of the facts, circumstances and information available at the reporting date.

If we determine that it is not more likely than not that we would be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income tax expense in the period such determination is made.

If we determine that it

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

is not more likely than not that we would be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income tax expense in the period such determination is made.

Alternatively, if we determine that it is more likely than not that the net deferred tax assets would be realized, any previously provided valuation allowance is reversed.

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While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes.

Based on our regular

PART II Item 7

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

assessment, we may adjust the income tax provision and deferred taxes in the period in which the facts that give rise to a revision become known.

Based on our regular assessment, we may adjust the income tax provision and deferred taxes in the period in which the facts that give rise to a revision become known.

On September 19, 2021, we concluded the settlement agreement with the Australian Taxation Office (“ATO”) in relation to the previously disclosed transfer pricing dispute for the tax years 2009 through 2018 (“ATO settlement”).

The ATO settlement fully resolved the dispute for all prior years, with no admission of liability and provides clarity in relation to certain future taxation principles.

The final net impact of the ATO settlement was recorded during the years ended June 30, 2021 and 2022 in the amount of $238.7 million, which represents a gross amount of $381.7 million, including interest and penalties of $48.1 million, and adjustments for credits and deductions of $143.0 million.

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For products in our Sleep and Respiratory Care business, we transfer control and recognize a sale when products are shipped to the customer in accordance with the contractual shipping terms.

For our SaaS business, revenue associated with professional services are recognized as they are provided.

For our SaaS business, revenue associated with cloud-hosted services are recognized as they are provided.

We defer the recognition of a portion of the consideration received when performance obligations are not yet satisfied.

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rebates, discounts, free goods) and returns offered to our customers and their customers.

When we give customers the right to return eligible products and receive credit, returns are estimated based on an analysis of historical experience.

However, returns of products, excluding warranty-related returns, are infrequent and insignificant.

When we give customers the right to return eligible products and receive credit, returns are estimated based on an analysis of our historical experience.

However, returns of products, excluding warranty-related returns, have historically been infrequent and insignificant.

We adjust the estimate of revenue at the earlier of when the most likely amount of consideration can be estimated, the amount expected to be received changes, or when the consideration becomes fixed.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

We offer our Sleep and Respiratory Care customers cash or product rebates based on volume or sales targets measured over quarterly or annual periods.

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Rebates measured over a quarterly period are updated based on actual sales results and, therefore, no estimation is required to determine the reduction to revenue.

For rebates measured over annual periods, we update our estimates on a quarterly basis based on actual sales results and updated forecasts for the remaining rebate periods.

For rebates measured over annual periods, we update our estimates each quarter based on actual sales results and updated forecasts for the remaining rebate periods.

We participate in programs where we issue credits to our Sleep and Respiratory Care distributors when they are required to sell our products below negotiated list prices if we have preexisting contracts with the distributors' customers.

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We also offer discounts to both our Sleep and Respiratory Care as well as our SaaS customers as part of normal business practice and these are deducted from revenue when the sale occurs.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

When Sleep and Respiratory Care or SaaS contracts have multiple performance obligations, we generally use an observable price to determine the stand-alone selling price by reference to pricing and discounting practices for the specific product or service when sold separately to similar customers.

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An allocation is not required for many of our Sleep and Respiratory Care contracts that have a single performance obligation, which is the shipment of our therapy-based equipment.

(4) Business Combinations.

The MEDIFOX DAN acquisition was accounted for using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations.

The acquisition method of accounting involved the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

This allocation process involves the use of estimates and assumptions made in connection with determining the fair value of assets acquired and liabilities assumed including cash flows expected to be derived from the use of the asset, the timing of such cash flows, the remaining useful life of assets and applicable discount rates.

We have finalized our allocation of consideration to net tangible and intangible assets acquired as of June 30, 2023.

In the event that actual results vary from the estimates or assumptions used in the valuation or allocation process, we may be required to record an impairment charge or an increase in depreciation or amortization in future periods, or both.

Refer to Note 17, Business Combinations, to the accompanying consolidated financial statements for additional information about accounting for the MEDIFOX DAN acquisition.

Recently Issued Accounting Pronouncements

See Note 3 – New Accounting Pronouncements of the Notes to Consolidated Financial Statements (Part II, Item 8) for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis