ResMed (RMD) Q2 2026: Gross Margin Expands 310 bps, Underpinning Strategic Flexibility

2026-01-29 | By EarningsIQ Research

ResMed's 310 basis point gross margin expansion in Q2 signals deep operational leverage and positions the company for continued investment and capital returns. Mask and accessory momentum, strategic SG&A allocations, and resilient device demand underpin a durable growth profile as new patient funnel drivers emerge. Management’s focus on digital ecosystem expansion and data-driven channel engagement sets up a differentiated long-term runway, even as competitive and regulatory variables persist.

Summary

• Margin Expansion Drives Strategic Headroom: Supply chain gains and disciplined cost management deliver robust profit leverage.
• Patient Funnel Broadens as GLP-1s and Wearables Fuel Demand: Motivated new patient cohorts support durable device and mask growth.
• Capital Allocation Accelerates: Increased share repurchases and targeted R&D signal confidence in long-term opportunity.

Performance Analysis

ResMed delivered strong top-line growth, with revenue up 11% headline and 9% in constant currency, propelled by high single-digit global device sales and double-digit growth in masks, accessories, and other revenues. US, Canada, and Latin America led regional performance, with 11% growth, while Europe, Asia, and rest of world contributed steady mid-single-digit expansion. The Virtuox, home sleep apnea testing, acquisition provided an incremental lift to US mask and accessories, but even excluding this, core mask growth remained in double digits, reflecting broad-based demand and successful new product launches like the F30i Comfort and F30i Clear fabric masks.

Gross margin expanded by 310 basis points year-over-year, reaching 62.3%, driven by component cost improvements and manufacturing/logistics efficiencies. Operating profit rose 19%, with operating margin at 36.3%, up from 34% a year ago. SG&A and R&D investment increased, reflecting both acquisition integration and stepped-up marketing, but management maintained expense ratios within guided ranges. Cash flow from operations remained robust at $340 million, supporting both dividend payouts and an accelerated share repurchase program. The company ended the quarter with a net cash position and ample liquidity.

• Mask and Accessory Outperformance: US masks/accessories grew 16%, with double-digit growth even excluding Virtuox, underscoring both resupply and new patient traction.
• Software Growth Resilient: Residential care software (RCS) rose 5% in constant currency, with Medifox Dahn, German care software, offsetting senior living headwinds.
• Operating Leverage Materializes: Gross margin gains and disciplined SG&A/R&D spending translated to mid-teens EPS growth, reinforcing the scalability of the model.

ResMed’s balanced performance across devices, masks, and software, alongside margin improvement, provides a stable foundation for continued investment in innovation and patient funnel expansion.

Executive Commentary

Strategic Positioning

1. Patient Funnel Expansion and Channel Diversification

ResMed’s multi-front funnel strategy is bearing fruit, as the company leverages both external and internal forces to drive patient flow. GLP-1, glucagon-like peptide-1, therapies and consumer wearables are motivating new patient cohorts to seek diagnosis and treatment, with claims data showing 10–11% higher CPAP start rates and improved long-term adherence among GLP-1 users. The company’s direct-to-consumer (DTC) campaigns, including Singles Day in China and holiday promotions, have further broadened reach and engagement.

2. Digital Ecosystem and Software Integration

ResMed continues to invest in its digital health ecosystem, integrating cloud-connected devices, software platforms like Bright Tree, US home medical equipment workflow, and Medifox Dahn, German care software, to streamline the patient journey. Recent acquisitions (Virtuox, Ectosense’s Night Owl, Somnaware) enhance home sleep apnea testing and provider tools, supporting higher funnel conversion and adherence. The MyAir platform, now with 11 million users, and the launch of AI-enabled features like Comfort Match, FDA-cleared comfort recommender, are differentiating the therapy experience.

3. Operational Excellence and US Manufacturing Scale-Up

Operational discipline remains central, with margin gains driven by supply chain optimization and ongoing manufacturing expansion. The new Indiana distribution center, on track for 2027, will enable 90% of US customers to receive products within two days, while the Calabasas, California plant expansion doubles US manufacturing capacity. These investments position ResMed as the only “made-in-America” CPAP, APAP, bi-level, and mask provider, supporting both resilience and speed to market.

4. Capital Allocation and Shareholder Returns

ResMed is ramping capital return, increasing share repurchases to over $600 million for fiscal 2026 and maintaining a $0.60 per share quarterly dividend. With a net cash balance and $1.5 billion in revolver capacity, the company retains flexibility for both organic investment (6–7% of revenue to R&D, 19–20% to SG&A) and further tuck-in M&A.

5. Regulatory and Competitive Positioning

Regulatory tailwinds are providing near-term stability, as CPAP/APAP/bi-level products were excluded from the latest CMS competitive bidding program and retain global tariff relief. While Philips’ US device reentry remains uncertain, ResMed is already competing successfully against them in over 100 ex-US markets, with management expressing confidence in maintaining share and competitive differentiation.

Key Considerations

ResMed’s Q2 underscores a business model that is increasingly diversified, leveraging both hardware and software, recurring resupply, and new patient funnel sources. The company’s ability to convert margin gains into both reinvestment and capital returns is a key differentiator in a sector facing cost and regulatory volatility.

Key Considerations:

• Margin Expansion as Strategic Lever: Sustained gross margin improvement provides headroom for both innovation and shareholder returns.
• Patient Adherence and Resupply Durability: GLP-1 and wearable-fueled cohorts are not only entering the funnel but demonstrating higher therapy adherence and resupply rates over three years.
• Digital and DTC Investment ROI: Expansion into digital tools and targeted DTC campaigns are showing measurable impact on patient flow and engagement, with rigorous ROI analysis guiding spend.
• Competitive Resilience: Ongoing investment in US manufacturing and digital ecosystem fortifies the company against both supply chain shocks and the eventual return of legacy competitors.

Risks

ResMed faces persistent risks from regulatory shifts, especially in reimbursement and global tax policy, as well as the unknown timing and impact of Philips’ US reentry. SG&A growth outpacing revenue, even if temporary due to acquisitions and promotions, warrants ongoing scrutiny. Market and channel lumpiness, particularly outside the US, could periodically pressure segment growth and mask the underlying trend.

Forward Outlook

For Q3 2026, ResMed guided to:

• Gross margin in the 62% to 63% range
• SG&A as a percentage of revenue at 19% to 20%
• R&D expenses as a percentage of revenue at 6% to 7%
• Effective tax rate of 21% to 23%

For full-year 2026, management maintained guidance on margin and expense ratios, and reiterated the >$600 million share repurchase target. Management highlighted:

• Continued investment in digital and DTC funnel expansion
• Ongoing supply chain and manufacturing optimization for margin improvement

Takeaways

• Gross Margin Expansion Unlocks Strategic Options: Operational gains are translating into both reinvestment and increased capital returns, supporting long-term growth and resilience.
• Patient Funnel Innovation Drives Durable Growth: New patient sources from GLP-1s and wearables are expanding the addressable market and supporting higher adherence and resupply rates.
• Watch for Competitive and Regulatory Shifts: The pace of Philips’ US return and any changes in reimbursement or tariff policy remain key external variables to monitor.

Conclusion

ResMed’s Q2 demonstrates a business executing across multiple fronts, converting operational excellence and digital innovation into both near-term financial outperformance and a robust long-term runway. Margin expansion, patient funnel broadening, and disciplined capital allocation provide a compelling setup, even as competitive and regulatory risks persist.

Industry Read-Through

ResMed’s margin trajectory and patient funnel expansion highlight the growing importance of digital engagement, channel diversification, and operational discipline in medtech. The successful integration of GLP-1 and wearable-driven demand sets a precedent for other chronic disease management players. Margin improvement through supply chain and manufacturing innovation provides a blueprint for peers in respiratory and broader device sectors. Persistent regulatory and competitive uncertainty—especially around CMS bidding and the Philips recall aftermath—remains an industry-wide watchpoint.

RMD Healthcare Medical Devices Digital Health Sleep Apnea Gross Margin Patient Funnel Capital Allocation