ResMed (RMD) Q1 2026: Gross Margin Expands 280bps as Portfolio Shift Targets High-Margin SaaS
ResMed’s Q1 2026 results spotlight a decisive pivot toward higher-margin SaaS and direct-to-consumer growth, underpinned by 280 basis points of gross margin expansion and robust device and mask demand in core geographies. Management’s operational discipline, innovation cadence, and targeted M&A signal a business increasingly focused on durable, high-return growth levers. The evolving manufacturing footprint, portfolio management in Residential Care Software (RCS), and digital engagement strategies set the stage for further profit leverage and global expansion.
Summary
- Margin Expansion: Supply chain and automation initiatives delivered substantial gross margin gains.
- Portfolio Realignment: RCS investment shifts to SaaS, deprioritizing low-growth, low-margin services.
- AI and DTC Acceleration: Digital health concierge and new mask launches aim to drive global patient funnel growth.
Performance Analysis
ResMed posted 9% revenue growth (8% constant currency), with broad-based strength across devices and masks in the US, Canada, Latin America, and continued momentum in Europe and Asia. Devices grew 8% in the Americas and 7% internationally, while mask and resupply sales surged 12% in the Americas and 4% internationally, reflecting both new patient setups and improved resupply execution. The Virtuox, home sleep apnea testing, acquisition contributed incremental revenue, signaling early traction in funnel expansion efforts.
Gross margin advanced 280 basis points year over year to 62%, driven by component cost reductions and logistics efficiencies. Operating margin reached 36.1%, up from 33.2% a year ago, reflecting operating leverage from disciplined SG&A and R&D investment. RCS delivered mid-single-digit growth, with Medifox and Brightree SaaS platforms offsetting headwinds in lower-margin services and senior living software. Cash from operations remained robust at $457 million, with continued capital return via $238 million in dividends and buybacks this quarter.
- Device and Mask Outperformance: US, Canada, and Latin America delivered high single-digit device growth and double-digit mask growth, outpacing market trends.
- RCS Growth Divergence: SaaS platforms outperformed, while services and senior living segments lagged, prompting a portfolio management response.
- Operating Leverage: Cost controls and supply chain initiatives drove both margin expansion and strong earnings growth.
The quarter’s results demonstrate ResMed’s ability to translate innovation and operational discipline into tangible financial gains, while setting up for further structural improvements through its evolving portfolio and manufacturing footprint.
Executive Commentary
"We are focused on continued strategic expansion of our mask portfolio with new product innovation... This increase focused on mask and accessory resupply is fully aligned with our ongoing investments to accelerate growth in our direct-to-consumer markets around the world."
Mick Farrell, Chief Executive Officer
"Gross margin was 62% in the September quarter and increased by 280 basis points year over year... Our supply chain team continues to make progress on our pipeline of gross margin expansion initiatives and we remain focused on making sustained long-term gross margin improvements."
Brett Sandercock, Chief Financial Officer
Strategic Positioning
1. Portfolio Management in RCS
ResMed is actively reallocating investment within its Residential Care Software (RCS) business, prioritizing high-margin, high-growth SaaS platforms (Medifox, Brightree, MatrixCare Home Health) while reducing exposure to low-growth, low-margin service businesses. This shift is designed to accelerate RCS growth back to high single digits and drive double-digit operating profit, with management citing integration into the global revenue team and targeted investments as key enablers.
2. Innovation in Masks and Digital Health
New product launches—such as the AirTouch F30i full-face fabric mask—represent a strategic push to differentiate in high-value, high-margin categories. The introduction of AI-enabled features like Dawn (personalized sleep assistant) and Comfort Match (AI-driven comfort setting optimization) on the MyAir platform supports patient adherence, engagement, and resupply, while expanding the digital health ecosystem and capturing more of the patient journey.
3. Supply Chain and US Manufacturing Expansion
ResMed’s manufacturing and distribution footprint is evolving, with the doubling of US manufacturing capacity (Calabasas) and a new Indianapolis distribution center slated for 2027. This will enable the company to reach 90% of US customers within two days, bolster network resilience, and support “Made in America” product strategies, providing flexibility amid regulatory and geopolitical uncertainty.
4. Demand Generation and Patient Funnel Optimization
Targeted demand generation—via CME programs for primary care physicians and direct-to-consumer awareness campaigns—is driving patient flow, with nearly 40,000 CME completions and 75% of providers indicating intent to change clinical practice. Tuck-in acquisitions (Virtuox, Night Owl) and digital concierge tools are aimed at reducing funnel leakage and capturing incremental therapy starts and resupply volume.
5. Capital Allocation and Balance Sheet Strength
ResMed’s strong free cash flow and net cash position ($715 million) provide flexibility for ongoing R&D, tuck-in M&A, and capital returns, including a $0.60 dividend and $150 million in quarterly share repurchases. Management reiterated commitment to disciplined investment in innovation and patient funnel expansion as well as continued shareholder returns.
Key Considerations
This quarter underscores ResMed’s transition to higher-margin, software-driven growth and operational leverage, while maintaining momentum in its core devices and masks business. Strategic focus is increasingly on capturing the full patient journey, from screening to adherence and resupply, with digital and AI tools serving as critical enablers.
Key Considerations:
- SaaS Platform Focus: RCS growth will hinge on successful portfolio management and sustained SaaS investment, with lower-margin services deprioritized.
- AI and Digital Engagement: Personalized digital tools (Dawn, Comfort Match) are positioned to drive adherence and resupply, but their global scaling and measurable impact remain a watchpoint.
- US Manufacturing Resilience: The US manufacturing and distribution buildout is both a regulatory hedge and a service-level differentiator, but execution risk exists as footprint expands.
- Patient Funnel Execution: Acquisitions and demand gen programs show early promise, yet the complexity of healthcare pathways and funnel leakage require ongoing attention.
Risks
Key risks include regulatory shifts (Section 232 tariffs, competitive bidding), execution on SaaS portfolio realignment, and the challenge of scaling digital health engagement globally. RCS headwinds in low-margin services could persist if portfolio management lags, while manufacturing expansion entails operational and capital deployment risks. Macro uncertainty and evolving reimbursement frameworks, especially in the US, remain external variables to monitor.
Forward Outlook
For Q2, ResMed guided to:
- Gross margin in the 61% to 63% range
- SG&A as a percentage of revenue at 19% to 20%
For full-year 2026, management maintained guidance:
- R&D expenses as a percentage of revenue at 6% to 7%
- Effective tax rate of 21% to 23%
Management highlighted ongoing supply chain optimization, SaaS portfolio focus, and continued capital return as priorities, while remaining vigilant on regulatory and macroeconomic developments.
- Portfolio management in RCS to drive margin and growth acceleration in the back half
- US manufacturing and distribution expansion to support resilience and service levels
Takeaways
ResMed’s Q1 2026 marks a step-change in profitability and strategic focus, with clear signals that software, digital engagement, and operational discipline will drive future value creation.
- Margin and Cash Flow Upside: Gross margin expansion and strong cash generation underscore operational leverage and prudent investment discipline.
- Strategic Realignment in RCS: SaaS prioritization is timely, but execution on portfolio management and innovation pace will be critical for sustained growth.
- Digital and DTC Growth Optionality: Success in scaling AI-enabled patient engagement and direct-to-consumer channels could unlock new growth vectors, but will require continued investment and agile execution.
Conclusion
ResMed’s Q1 2026 results reflect a business leaning into high-margin growth, digital enablement, and operational excellence. The company’s evolving portfolio, manufacturing resilience, and patient funnel investments position it to capture expanding global demand, but execution on SaaS and digital scaling will determine the next leg of value creation.
Industry Read-Through
ResMed’s gross margin gains and SaaS pivot highlight a broader medtech trend toward software-driven, recurring revenue models, with operational leverage and digital engagement as central themes. The company’s US manufacturing expansion and supply chain resilience efforts signal a wider industry response to regulatory risk and service-level differentiation. Competitors in sleep, respiratory, and broader home health should note the accelerating integration of AI, digital platforms, and direct-to-consumer strategies as critical levers for patient acquisition and retention in an increasingly data-driven, value-based care landscape.