April 24, 2007
A voluntary product recall of 300,000 of ResMed’s S8 flow generators worldwide will impact company revenue the respiratory product manufacturer announced on Monday. Its revenue and pro forma income results for the quarter ended March 31, 2007, were up, but the estimated recall cost of $59.7 million “significantly impacts” the quarter’s earnings, company CEO Peter Farrell, PhD, stated in ResMed’s third quarter 2007 earnings press release.
"On a more positive note, we are excited by the launch this week at Medtrade of two new flow generators, the full scale release of C-Series Tango and the VPAP Malibu as well as three new mask offerings: the Swift II, the Quattro full face mask and the Liberty, a full face mask incorporating our nasal pillow technologies,” Dr. Farrell said. “These new product introductions will provide physicians with a complete selection of sleep therapy solutions for their patients."
The voluntary recall of the S-8 was due to potentially faulty power supply connectors provided by one of ResMed’s long-term suppliers. The company had only observed the problem with the connectors in seven of approximately 300,000 early production S8 devices, Dr. Farrell said, and were working with the Food and Drug Administration on the details of the recall. S8 devices produced after May 2006 are unaffected.
“[The recall] reflects ResMed’s absolute commitment to both quality and our patients,” Dr. Farrell stated. “We are confident our decision is in the best interests of our distribution partners and the many patients who rely on our devices to control their sleep disordered breathing.”
Outside of the product recall costs, ResMed’s financials seemed healthy. Pro forma measures (which exclude the impact of voluntary product recall expenses as well as stock-based compensation costs, restructuring expenses, and amortization of acquired intangible assets) were positive. For the current quarter, pro forma income from operations and pro forma net income were $44.3 million and $31.1 million, an increase of 5% and 3% respectively. Revenue for the quarter was $183 million, a 13% increase over the quarter ended March 31, 2006.
In addition, gross margin with the estimated cost of the recall figured in, was 29.6% for the quarter ended March 31, 2007. However, when the product recall costs were excluded, gross margin was 62.3% for the quarter ended March 31, 2007, which is consistent with the year ago figure of 62.2%.
The press release and a recording of the conference call announcing the third quarter results can be read and listened to on ResMed’s Web site at www.resmed.com.
The Medtrade Spring conference, where ResMed will unveil its latest sleep disordered breathing products, takes place from April 25 through 26 in Las Vegas.