ResMed (RMD) Q4 2025: Gross Margin Expands 230bps as Digital Sleep Ecosystem Drives Operating Leverage
Gross margin expansion and disciplined investment defined ResMed’s Q4, with digital health programs and AI integration underpinning operational leverage. Robust device and mask growth, especially in the Americas and international markets, signals strong patient demand and share gains. Management’s guidance for further margin improvement and aggressive capital return sets a confident tone for fiscal 2026, but competitive bidding and evolving therapy pathways remain watchpoints.
Summary
- Margin Expansion Outpaces Input Cost Relief: Operational improvements and logistics normalization drove material gross margin gains.
- Digital Ecosystem Integration Accelerates: AI, wearables, and software acquisitions deepen ResMed’s funnel and adherence capabilities.
- Capital Return Steps Up: Increased buybacks and a higher dividend highlight management’s confidence and free cash flow strength.
Performance Analysis
ResMed delivered a robust Q4, marked by 10% year-over-year revenue growth and a 230 basis point increase in gross margin. Device and mask sales grew across all geographies, with the US, Canada, and Latin America posting 9% sales growth and Europe/Asia/rest of world matching that pace in constant currency. Masks and other sales outperformed, up 12% in the Americas and 7% internationally, highlighting both resupply strength and new patient setups. The residential care software segment, now reported separately, posted 9% growth, reflecting traction in MediFox Dan and HME verticals.
Gross margin improvement was driven by procurement, manufacturing, and logistics efficiencies, as well as favorable currency effects. Notably, about half of the sequential margin gain came from FX, with the remainder reflecting sustainable operational enhancements such as component cost reductions and a return to pre-pandemic freight ratios. Operating profit rose 19%, and free cash flow hit $1.7 billion for the year, supporting increased capital returns. R&D and SG&A investments rose in absolute terms but declined as a percentage of revenue, underscoring improved operating leverage.
- Masks and Interfaces Lead Share Gains: Innovative products like AirTouch N30i and AirFit F40 contributed to above-market growth in the Americas.
- Software and Diagnostic Acquisitions Build Funnel: VirtuOx and Ectosense expand ResMed’s home sleep apnea testing and digital workflow reach.
- Cash Flow Enables Capital Allocation Flexibility: Strong liquidity supports R&D, tuck-in M&A, and stepped-up buybacks and dividends.
Management’s guidance for 61-63% gross margin in FY26 signals confidence in continued execution. The quarter’s results reinforce ResMed’s positioning as a digital-first leader in sleep and respiratory care, with both organic and inorganic growth levers firing.
Executive Commentary
"ResMed has demonstrated a very strong track record of improving and driving gross margin expansion and a pipeline of opportunities to deliver further operating and leverage across our business. In the fourth quarter, we achieved 230 basis points of gross margin expansion year over year, and well over 100 basis points sequentially quarter over quarter. And we have more runway left."
Mick, Chief Executive Officer
"Gross margin of .4% in the June quarter increased by 230 basis points year over year and by 150 basis points sequentially. These increases were primarily driven by procurement, manufacturing and logistics efficiencies, as well as favourable foreign currency movements...We remain focused on making sustained long-term gross margin improvements."
Brett, Chief Financial Officer
Strategic Positioning
1. Digital Health Ecosystem and AI Integration
ResMed’s strategy is centered on building a global digital health ecosystem, integrating devices, software, and AI to personalize care and drive adherence. The MyAir platform, with new AI-powered features like the Dawn digital assistant and smart coaching, is being rolled out globally, offering 24-7 support and behavioral interventions. The acquisition of VirtuOx, Ectosense (Nite Owl), and Somnoware strengthens ResMed’s ability to manage the entire patient journey—from screening and diagnosis to ongoing therapy and resupply—enabling a seamless, cloud-connected experience for patients and providers.
2. Operating Leverage and Supply Chain Optimization
Gross margin gains reflect a shift from reactive, crisis-driven operations to a science-based, scalable supply chain. ResMed’s new Calabasas, California manufacturing site will double US production capacity, leveraging local technology expertise. Freight costs have normalized, and procurement initiatives continue to drive input cost reductions. These operational improvements are expected to provide a sustainable tailwind to margins, with further gains anticipated as product mix shifts toward newer platforms like AirSense 11 and advanced patient interfaces.
3. Demand Generation and Brand Investment
ResMed is investing in direct-to-consumer marketing and physician education to expand the addressable market and accelerate diagnosis rates. Multi-market campaigns and partnerships, such as the “Tackle Your Sleep” initiative, are building brand awareness and driving patient funnel growth. Continuing medical education (CME) programs have seen strong uptake among primary care physicians, with 75% of course graduates intending to change their clinical practices—an early indicator of increased diagnosis and prescription rates.
4. Capital Allocation and Shareholder Returns
Free cash flow strength underpins a stepped-up capital return strategy. The board approved a 13% dividend increase and a substantial acceleration in buybacks, targeting $150 million in share repurchases per quarter in FY26. Management emphasized ongoing investment in R&D and tuck-in M&A, maintaining flexibility to pursue strategic opportunities while returning capital to shareholders.
5. Navigating Regulatory and Competitive Dynamics
ResMed is proactively engaging with US policymakers as CMS resumes competitive bidding for medical equipment reimbursement. While management views the current environment as more benign than previous cycles, they remain focused on advocating for fair reimbursement and patient access. The company’s diversified channel strategy and software capabilities help insulate against potential disruptions, but regulatory developments remain a key watchpoint.
Key Considerations
ResMed’s Q4 showcased an organization executing on multiple fronts—digital transformation, operational efficiency, and market expansion—while maintaining a disciplined approach to capital allocation and risk management.
Key Considerations:
- Margin Sustainability: Operational improvements are expected to persist, but currency and input costs could reintroduce volatility.
- Digital and AI Differentiation: Integration of AI and digital platforms is becoming a core competitive advantage as patient engagement and adherence become more central to payer and provider decisions.
- Patient Funnel Expansion: Early returns from brand campaigns and CME programs suggest upside in diagnosis rates, but market conversion remains gradual.
- Capital Return Discipline: Aggressive buybacks and increased dividends signal confidence, but ongoing R&D and M&A investment will be critical for long-term growth.
- Regulatory and Competitive Bidding Risk: CMS reimbursement programs introduce uncertainty for US channel partners; ResMed’s diversified approach mitigates but does not eliminate this risk.
Risks
ResMed faces ongoing regulatory risk from US competitive bidding, which could pressure margins or disrupt channel economics if reimbursement rates shift unfavorably. Currency fluctuations, input cost inflation, and the pace of adoption for digital and AI-driven care pathways also present uncertainties. Intensifying competition in diagnostics, wearables, and alternative therapies (including GLP-1 drugs and nerve stimulation) could alter patient flows and market share dynamics.
Forward Outlook
For Q1 FY26, ResMed guided to:
- Gross margin in the 61-63% range, with the expectation of exiting the year at the higher end.
- SG&A as a percentage of revenue at 19-20%, and R&D at 6-7%.
For full-year 2026, management raised the dividend and plans to repurchase approximately 1.5% of outstanding shares. Drivers for margin improvement include procurement, manufacturing, logistics, and continued product mix shift. Management highlighted:
- Ongoing cost optimization and logistics efficiency as key levers for margin expansion.
- Continued rollout of new products and AI-enabled digital health solutions to drive growth and operating leverage.
Takeaways
ResMed’s Q4 2025 results confirm the company’s ability to execute on both operational and strategic fronts, with margin expansion, digital integration, and disciplined capital allocation supporting long-term value creation.
- Margin Expansion Is Durable: Operational improvements and normalization of supply chain costs are driving sustainable margin gains, with further upside from digital and AI investments.
- Strategic Acquisitions Deepen Patient Funnel: Recent software and diagnostic tuck-ins position ResMed to capture more value across the care continuum and accelerate patient conversion.
- Watch Regulatory and Therapy Mix Shifts: Competitive bidding, GLP-1 adoption, and alternative therapies warrant close monitoring as they could impact channel economics and growth rates.
Conclusion
ResMed enters FY26 with strong operational momentum, a clear digital strategy, and ample financial flexibility. While margin gains and capital returns signal confidence, investors should closely track regulatory developments and the evolving therapy landscape for sleep and respiratory care.
Industry Read-Through
ResMed’s results highlight the growing importance of digital health and AI in driving adherence, operational leverage, and patient funnel expansion across the medtech sector. The normalization of supply chain costs and logistics is a positive signal for other device manufacturers. Accelerating investment in direct-to-consumer marketing and physician education is likely to become a more prominent lever for patient acquisition industry-wide. Regulatory risk from reimbursement programs remains a sector-wide watchpoint, particularly for companies with significant US exposure and channel dependencies.