ResMed Inc Earnings Call Shows Profitable Growth Momentum

Resmed Inc ((RMD)) has held its Q2 earnings call. Read on for the main highlights of the call.

ResMed Earnings Call Highlights Strong Growth, Expanding Margins and Shareholder Returns

ResMed’s latest earnings call struck a notably upbeat tone, underscoring broad-based strength across revenue, margins and cash generation. Management highlighted double‑digit top-line growth, significant gross margin expansion driven by supply-chain productivity, strong demand for devices and masks, and a disciplined capital return strategy. While acknowledging modest headwinds in SG&A, tax rate increases, certain software verticals and ex‑U.S. device lumpiness, executives consistently framed these as manageable within a story of continued execution, rising profitability and robust balance-sheet health.

Revenue Growth

ResMed reported group revenue of $1.42 billion, up 11% on a headline basis and 9% in constant currency versus the prior-year quarter, underscoring healthy underlying demand across its sleep and respiratory care portfolio. The growth was broad-based, with both devices and masks contributing, and reflects the company’s ability to capture ongoing structural demand for sleep apnea and related therapies even as certain geographies present tougher comparisons.

Earnings and Profitability

Profitability improved faster than revenue, with GAAP diluted EPS up 16% and net income rising 15% year over year. Operating profit increased 19%, and operating margin expanded to 36.3% of revenue from 34% a year ago, highlighting strong operating leverage. Management emphasized that this step-up in profitability reflects a combination of higher volumes, mix benefits and ongoing efficiency initiatives, reinforcing the story of a business scaling profitably rather than simply growing its top line.

Product and Category Performance

Product performance remained a key driver, with global device sales rising roughly 11% in constant currency and masks, accessories and other revenue up about 14% globally. In the U.S., masks and accessories grew an impressive ~16%, while Europe, Asia and the rest of the world delivered 8% constant-currency growth in masks and accessories. These trends highlight both the resilience of the installed base and the recurring nature of resupply, which investors often view as a more stable and higher-quality revenue stream.

Gross Margin Expansion and Supply Chain Gains

ResMed’s gross margin expanded meaningfully, with reported gross margin at 32.3% for the quarter, up 110 basis points year on year and 30 basis points sequentially. Management pointed specifically to supply chain–driven productivity as a key factor, noting that these efforts contributed roughly 310 basis points of year-over-year gross margin improvement. This operational discipline in procurement, logistics and manufacturing efficiency is emerging as a major contributor to the company’s ability to grow earnings faster than sales.

Cash Generation and Balance Sheet Strength

The business continued to generate strong cash, with $340 million in operating cash flow during the quarter. ResMed ended the period with $1.4 billion in cash, gross debt of $664 million and net cash of $753 million, plus roughly $1.5 billion available under its revolving credit facility. This balance-sheet strength gives the company ample flexibility to continue investing in growth, pursuing strategic acquisitions and returning capital to shareholders, while cushioning against potential macro or competitive shocks.

Capital Return to Shareholders

Capital returns featured prominently in the call. ResMed returned $263 million to shareholders in the quarter through dividends and completed $175 million in share repurchases, buying back approximately 704,000 shares. The board declared a quarterly dividend of $0.60 per share, and management increased the share repurchase program to more than $600 million for fiscal 2026. This signals confidence in the company’s long-term cash generation and valuation, and positions ResMed as an attractive total-return story for income and growth-focused investors alike.

R&D, Innovation and New Product Launches

ResMed maintained its commitment to innovation, keeping R&D spend at about 6.4% of revenue in the quarter and reiterating full-year guidance of 6%–7%. New product launches included the F30i Comfort and F30i Clear fabric masks, which aim to improve patient comfort and adherence. Early feedback on these fabric-based designs has been positive, and rollout is ongoing. Management framed these launches as part of a pipeline of incremental innovations that deepen the company’s moat in both hardware and patient experience.

AI and Digital Health Advances

The company emphasized progress in digital health and artificial intelligence, highlighting a limited beta launch of Comfort Match, an AI-enabled comfort setting recommender integrated into the myAir platform. Described as ResMed’s first FDA-cleared AI-enabled medical device, Comfort Match is designed to improve both short- and long-term adherence to therapy by personalizing settings. This move underscores ResMed’s push to differentiate through data, software and AI, potentially boosting outcomes and enhancing stickiness across its ecosystem.

Clinical Education and Provider Engagement

ResMed also leaned into clinical education as a growth lever. Its Continuing Medical Education programs have now been completed nearly 60,000 times, a 50% increase from the prior quarter. Importantly, 77% of surveyed providers said they intend to change their clinical practice based on this training. This suggests that the company’s educational efforts are not just a marketing tool but a practical mechanism to broaden diagnosis and treatment, potentially expanding the addressable market for sleep and respiratory therapies over time.

Real-World Evidence Supporting Demand Tailwind

Management cited real-world claims data covering about 1.95 million patients to highlight the interaction between GLP-1 weight-loss therapies and sleep apnea treatment. Patients with both a GLP‑1 and CPAP prescription were 10%–11% more likely to initiate CPAP, 3% more likely to have a resupply event at one year and roughly 6.2% more likely at three years. This suggests that GLP‑1 usage can complement, rather than cannibalize, CPAP therapy by driving higher initiation and long-term engagement, bolstering the bull case for sustained demand.

Manufacturing and Distribution Expansion

To support growth and improve service levels, ResMed is expanding its physical footprint. The company signed a lease and began construction on a new U.S. distribution center in Indiana, scheduled to open in calendar 2027, and expanded its Calabasas plant to double U.S. manufacturing capacity. These investments are targeted to allow ResMed to ship to about 90% of U.S. customers in fewer than two business days, strengthening its competitive position on reliability and speed while underpinning future volume growth.

RCS / Residential Care Software Headwinds

Within software, the Residential Care Software (RCS) business grew 5% in constant currency, but performance continues to be constrained by challenges in senior living and long-term care verticals. Management acknowledged that these segments face structural headwinds and remain a drag relative to the company’s core device and mask franchises. While growth is still positive, investors should recognize that the software portfolio is currently a more modest contributor and carries some cyclical and sector-specific risks.

SG&A Growth Outpacing Revenue

Operating expenses were a point of caution, with SG&A rising 15% on a headline basis and 12% in constant currency, outpacing revenue growth. SG&A as a percentage of revenue climbed to 19.6% from 18.8% in the prior year. Management attributed a portion of this increase to the VirtuOx acquisition as well as stepped-up promotional and marketing investments. While these outlays support future growth, they temper some of the operating leverage and will be an area to monitor as ResMed seeks to balance growth initiatives with margin discipline.

Effective Tax Rate Increase

ResMed’s effective tax rate rose to 21.1% from 18% a year ago, largely due to new global minimum tax legislation. Management now expects the fiscal 2026 tax rate to be in the 21%–23% range, which represents an ongoing headwind to net margins and EPS growth. While this is a non-operational factor, it does modestly cap the flow-through of operating gains to bottom-line results, an important consideration for earnings models and valuation.

One-Time Restructuring Charge

The quarter included a $6 million restructuring-related charge tied to global workforce planning, which the company treated as a non-GAAP adjustment. While small in the context of overall profitability, the charge reflects ongoing efforts to align the organization with strategic priorities and efficiency goals. Investors will be watching to ensure that such restructuring actions translate into sustained productivity improvements rather than recurring one-offs.

Working Capital Pressure

Despite strong operating performance, working capital swings weighed somewhat on cash flow conversion during the quarter. Management noted that increases in working capital partially offset earnings strength and reduced the conversion of operating profit into operating cash flow. This is a common side effect of growth and inventory positioning in medical devices but remains an area to watch, as sustained working capital drag could limit flexibility for capital returns or incremental investment.

Ex-U.S. Device Growth Moderation and Lumpy Comparables

Outside the U.S., device growth moderated to about 5% in constant currency across Europe, Asia and the rest of the world. Management pointed to lumpy comparables, such as elevated purchasing in Japan in the prior year, and to variability across markets. While not alarming given the tough comps, the softer ex‑U.S. growth contrasts with stronger domestic trends and underscores that international markets may deliver more uneven contributions quarter to quarter.

Dependence on External Demand Drivers and Competitive Uncertainty

Management acknowledged that part of ResMed’s growth story hinges on external demand drivers such as GLP‑1 medications, wearables and expanded education among primary care physicians to widen the diagnosis funnel. At the same time, there is lingering uncertainty around potential competitor re-entries, including from players previously constrained in the market. While executives expressed confidence in ResMed’s competitive position and innovation pipeline, they were clear that these exogenous factors introduce execution and competitive risk that investors should factor into their outlook.

Currency and One-Time Reporting Notes

Foreign exchange provided a tailwind in the quarter, adding roughly $25 million to revenue and about $0.04 to EPS. This highlights some sensitivity to currency movements, which can amplify or dampen reported results relative to underlying constant-currency performance. Management also flagged that there was an inconsistent gross margin guidance figure mentioned in the materials, suggesting some reporting nuance; investors are likely to focus more on the directional commitment to ongoing margin improvement rather than any single printed data point.

Forward-Looking Guidance and Strategic Outlook

Looking ahead to fiscal 2026 and beyond, ResMed laid out detailed financial and operational targets. The company now expects gross margin of 62%–63% (subject to currency), SG&A at roughly 19%–20% of revenue and R&D at 6%–7%, with an effective tax rate between 21% and 23%. Management plans more than $600 million of share repurchases in FY2026 alongside its ongoing dividend, reinforcing a strong capital return stance. In software, the RCS segment is expected to deliver mid‑single‑digit growth through the March and June quarters, with a goal of returning to sustainable high‑single‑digit revenue growth and double‑digit operating profit growth in fiscal 2027. The company is pursuing continued gross-margin productivity, noting a 310-basis-point year-over-year improvement in the latest quarter and setting an internal challenge to deliver annual margin gains through 2030, with restructuring actions treated as non-GAAP as they occur.

In summary, ResMed’s latest earnings call painted a picture of a company executing well on growth, profitability and capital deployment, while prudently acknowledging pockets of pressure and external risks. Double-digit revenue gains, expanding operating margins and strong cash flow underpin a confident outlook, bolstered by innovation in devices, masks and AI-enabled digital tools. Although higher SG&A, rising tax rates, softer software and ex‑U.S. device growth, and competitive uncertainties present watch-points, the overall narrative remains strongly positive for investors focused on durable earnings power and disciplined shareholder returns.