Executive Summary / Key Takeaways

• ResMed (NYSE:RMD) delivered a robust Q1 FY2026, with 9% reported revenue growth (8% constant currency) and significant gross margin expansion, driven by operational efficiencies and strong demand for its sleep and breathing health solutions.
• The company's core investment thesis is underpinned by its market-leading digital health ecosystem, which integrates cloud-connected devices, advanced masks, and AI-powered software to enhance patient adherence and streamline care pathways.
• Strategic investments in manufacturing expansion, new product innovation (e.g., fabric masks, AI-enabled features), and tuck-in acquisitions are expanding its addressable market and strengthening its competitive moat.
• ResMed is actively leveraging macro trends like GLP-1 medication awareness and consumer wearables for sleep apnea detection to expand its diagnostic funnel and drive new patient flow.
• With a strong balance sheet, robust free cash flow, and clear guidance for continued gross margin and operating profit growth, ResMed is well-positioned for sustained long-term value creation despite ongoing competitive and regulatory dynamics.

The Foundation of Health Technology: ResMed's Enduring Mission

ResMed Inc. (NYSE:RMD) stands as a global leader in health technology, dedicated to improving the lives of millions by pioneering solutions for sleep-disordered breathing and other chronic respiratory conditions. Founded in 1989, ResMed has evolved from a medical device manufacturer into a comprehensive digital health ecosystem provider, encompassing sleep health, breathing health, and home healthcare technology. The company's overarching "ResMed 2030 strategy" is clear: grow its core sleep and breathing health business, expand into adjacent areas like respiratory insufficiencies and insomnia, and leverage its digital health leadership to drive better outcomes for patients, providers, and payers. This strategy addresses a vast and underpenetrated market, with an estimated 2.3 billion people worldwide needing solutions for sleep apnea, insomnia, or respiratory insufficiency.

ResMed's market positioning is built on a foundation of innovation, operational excellence, and a deep understanding of patient needs. The company's historical journey, marked by strategic acquisitions like Brightree in 2016 and more recently Somnoware, Ectosense (NightOwl), and VirtuOx, has consistently aimed at streamlining the patient journey from symptom recognition to diagnosis and long-term therapy adherence. This integrated approach, combined with a robust global supply chain and manufacturing footprint, has enabled ResMed to navigate significant market disruptions, including the COVID-19 crisis and a competitor's multi-year exit from the U.S. device market.

Technological Edge: Redefining Sleep and Breathing Care

ResMed's competitive advantage is deeply rooted in its differentiated technology, which spans hardware, software, and advanced analytics. The company's core offerings, such as the AirSense 11 platform, represent the market-leading sleep health device, continuously rolling out to more countries globally. This platform, alongside the AirSense 10 range, provides cloud-connected therapy solutions that are designed to be smaller, quieter, more comfortable, and more intelligent.

A significant technological differentiator lies in ResMed's mask innovation. The company is actively "changing the basis of competition in masks away from liquid silicon rubber (LSR) to fabrics." This is exemplified by the recent launch of two "world firsts" in full-face fabric masks: the AirTouch F30i Comfort and AirTouch F30i Clear. The AirTouch F30i Comfort, a premium offering, features a fabric-wrapped frame and a fabric-based oronasal patient interface, while the F30i Clear provides a traditional silicon frame with the innovative fabric oronasal interface. These fabric-based masks offer enhanced comfort, mobility, and interchangeability, aiming to help more patients initiate and sustain CPAP therapy. The strategic intent behind this innovation is to improve patient adherence, which directly translates to better health outcomes, lower healthcare costs, and increased resupply volumes for ResMed and its partners.

Beyond hardware, ResMed's digital health ecosystem is a critical technological moat. Its cloud-based platforms, AirView for physicians and home care providers, and the myAir app for patients, are central to remote monitoring, therapy management, and patient engagement. The company is aggressively integrating Machine Learning (ML), Artificial Intelligence (AI), and Generative AI (GenAI) across its digital products. The personal sleep health digital assistant, Dawn, launched in Australia and subsequently in the U.S. market in Q1 FY2026, provides personalized 24/7 support to myAir users, acting as a "digital sleep health concierge." This connectivity is crucial for increasing long-term adherence, leading to better patient outcomes, lower total cost of care for payers, and improved resupply volumes. Additionally, the Comfort Match feature, an AI-enabled comfort setting technology in beta in Australia, suggests personalized therapy settings to maximize adherence.

In R&D, AI is being leveraged to "amplify and personalize care," identifying patterns, surfacing insights, and enabling personalized interventions. For instance, AI is used to write test scripts, diagnose test failures, and develop human head-shaped variance models for virtual mask fitting studies, significantly reducing development time and investment. The company's API calls per second increased over 40% year-over-year in Q1 FY2026, with over 3 billion total API calls in the quarter, highlighting the robust interoperability and engagement within its digital health ecosystem. These technological advancements directly contribute to ResMed's competitive moat by enhancing product efficacy, improving patient experience, and creating efficiencies across the care continuum, ultimately driving higher market share and sustainable revenue growth.

Operational Excellence and Robust Financial Performance

ResMed's commitment to operational excellence is evident in its consistent financial performance. For the first quarter of fiscal year 2026, the company reported net revenue of $1.34 billion, a 9% increase year-over-year (8% on a constant currency basis). The Sleep and Breathing Health segment, which constitutes over 75% of quarterly revenue, saw net revenue of $1.17 billion, growing 10% (8% constant currency). This growth was fueled by an 8% increase in device sales and a 12% increase in masks and other sales in the U.S., Canada, and Latin America. Europe, Asia, and other markets also contributed, with device sales up 7% (constant currency).

Gross margin for Q1 FY2026 expanded by 280 basis points year-over-year to 61.5% (62% non-GAAP), primarily driven by component cost improvements and manufacturing and logistics efficiencies. This reflects a "science-based approach" to supply chain optimization, with management confident in a "pipeline of opportunities" for sustained gross margin improvements. Operating profit surged 19% in Q1 FY2026, with the operating margin improving to 36.1% of revenue from 33.2% in the prior year. This strong bottom-line performance was achieved despite increased investments in Research and Development (R&D) and Selling, General, and Administrative (SG&A) expenses, which were 6.5% and 19.4% of net revenue, respectively, in Q1 FY2026.

The Residential Care Software (RCS) segment generated $166.1 million in net revenue, a 6% increase (5% constant currency), driven by strong performance from the MEDIFOX DAN and MatrixCare home health businesses. However, this was partially offset by weaker performance in the Senior Living and Long-Term Care business vertical. Management is implementing a portfolio management strategy to reaccelerate RCS growth to mid-to-high single digits in the latter half of FY2026, targeting sustainable high single-digit growth with double-digit operating profit growth within 12 months.

ResMed's financial health is further underscored by its robust cash flow generation. Cash provided by operating activities for Q1 FY2026 was $457 million, reflecting strong operating results and disciplined working capital management.

The company ended the quarter with a strong liquidity position, holding $1.4 billion in cash and cash equivalents and $715 million in net cash. This financial strength enables ResMed to pursue strategic investments and return capital to shareholders, as evidenced by the $0.60 per share quarterly dividend and $150 million in share repurchases during Q1 FY2026.

Competitive Landscape and Strategic Positioning

ResMed operates in a dynamic and competitive landscape, facing both direct and indirect rivals. Its primary direct competitors include Koninklijke Philips N.V. , Fisher & Paykel Healthcare Corporation Limited , and Inogen Inc. . ResMed's strategic positioning emphasizes its specialized digital health ecosystem and patient-centric approach, which often provides an edge in areas like patient adherence and remote monitoring efficiency.

Compared to Philips (PHG), which offers a broader healthcare technology portfolio, ResMed's focused expertise in respiratory disorders and user-friendly digital interfaces (e.g., AirView, myAir) provides a stronger market position in patient-centric tools. While Philips excels in enterprise-scale solutions, ResMed's software usability and integration for home medical equipment offer greater efficiency in patient data management.

Against Fisher & Paykel Healthcare (FPH), a specialist in respiratory and acute care products, ResMed's integrated hardware and cloud-based software solutions differentiate it in data-driven patient management. ResMed's end-to-end ecosystem, combining devices with analytics, offers significantly greater efficiency in remote monitoring compared to FPH's more hardware-centric approach.

In comparison to Inogen Inc. (INGN), which focuses on portable oxygen therapy, ResMed's broader scope in ventilation and diagnostic products, coupled with its software platforms, provides a holistic care approach. ResMed's technological integration and innovation speed for software-driven features give it an advantage, particularly in data analytics for patient monitoring.

Indirect competition arises from alternative non-invasive therapies, telemedicine platforms, and consumer wearables. ResMed is strategically embracing these trends, recognizing that consumer tech companies like Samsung (SSNLF) and Apple (AAPL), with their sleep apnea detection capabilities in smartwatches, are driving increased awareness and bringing more potential patients into the healthcare system. ResMed is actively creating the infrastructure for "demand generation, demand capture, and demand conversion" to guide these patients towards appropriate diagnosis and treatment. The company's CME programs, targeting high-volume GLP-1 prescribers, are also a strategic response to the growing awareness generated by new pharmaceutical classes. Real-world data shows that patients with both GLP-1 and PAP prescriptions are more than 10% more likely to start PAP therapy and exhibit higher long-term adherence.

ResMed's competitive advantages are further bolstered by high barriers to entry in its industries, including stringent regulatory approvals, specialized R&D expertise, and established global distribution networks. These factors help defend its market position and support sustained profitability.

Outlook, Guidance, and Risk Assessment

ResMed's outlook for fiscal year 2026 reflects continued confidence in its strategic direction and operational capabilities. The company anticipates gross margin to be in the range of 61% to 63%, driven by ongoing cost optimization initiatives and manufacturing efficiencies. SG&A expenses are projected to be between 19% and 20% of revenue, while R&D investments are expected to remain in the 6% to 7% range, underscoring a balance between growth investments and profitability. The effective tax rate for FY2026 is estimated at 21% to 23%, primarily due to global minimum tax legislation, though partially offset by refundable investment credits in Singapore.

Management expects to accelerate growth in the Residential Care Software segment, targeting mid-to-high single-digit growth in the second half of FY2026 and sustainable high single-digit growth with double-digit operating profit growth within 12 months. This will be achieved through strategic portfolio management, focusing investments on high-growth SaaS platforms.

Key strategic initiatives supporting this outlook include the establishment of a third distribution center in Indianapolis, Indiana, by 2027, aiming to deliver products to 90% of U.S. customers within two days. The expansion of U.S. manufacturing capacity in Calabasas, California, is also set to increase the production of "Made in America" products.

Despite this positive outlook, ResMed faces several risks. The company is involved in ongoing patent infringement litigation with New York University, Cleveland Medical Devices Inc., and Fractus, S.A., with outcomes that are currently difficult to estimate. Macroeconomic conditions, including inflationary pressures, could impact operating results if not offset by price increases. Furthermore, the evolving regulatory landscape, particularly regarding CMS's competitive bidding program, introduces uncertainty, although ResMed has a strong track record of constructive engagement with policymakers and advocates for policies that protect patient access and fair reimbursement.

Conclusion

ResMed Inc. presents a compelling investment thesis, firmly anchored in its leadership within the expanding sleep and breathing health market. The company's consistent financial performance, marked by robust revenue growth and impressive gross margin expansion, is a direct reflection of its strategic vision and operational discipline. ResMed's technological prowess, particularly its integrated digital health ecosystem and innovative mask designs, provides a significant competitive advantage, driving patient adherence and creating a sustainable growth trajectory.

Looking ahead, ResMed's strategic initiatives, including targeted acquisitions, manufacturing expansion, and a focused approach to its Residential Care Software business, are poised to capitalize on the vast addressable market and emerging macro trends. The company's strong balance sheet and commitment to returning capital to shareholders further enhance its investment appeal. While regulatory and competitive challenges persist, ResMed's proven resilience and proactive engagement position it to thrive, making it a strong contender for investors seeking long-term growth in the healthcare technology sector.