Danny Aad
Technology & Biotechnology Specialist | StockScope
ResMed Inc. (ASX: RMD) has delivered another quarter of earnings growth, reporting US$1.415 billion in revenue and a 14% increase in adjusted diluted earnings per share for the three months ended 30 September 2026.
The global sleep health company benefited from continued demand for sleep apnoea devices, replacement masks and connected healthcare solutions, supporting revenue growth of 6% and improved gross margins.
However, free cash flow declined 10% to approximately US$374 million, despite stronger reported profits.
The result also included the completed divestment of MatrixCare, which contributed a non-recurring gain to statutory earnings and provided substantial cash proceeds during the quarter.
Meanwhile, ResMed returned more than US$1 billion to shareholders through dividends and share repurchases, substantially exceeding the free cash flow generated during the period.
The central question is whether ResMed can sustain its earnings growth, improve cash conversion and maintain disciplined capital allocation as it continues investing in sleep health technology.
ResMed's 29 October 2026 financial results confirmed continued growth across its core sleep health operations.
Revenue increased approximately 6% to US$1.415 billion for the three months ended 30 September 2026.
Core constant currency revenue growth reached approximately 7%.
The difference reflects the effect of foreign exchange movements and adjustments associated with the company's business portfolio.
Adjusted diluted earnings per share increased 14% to US$2.91.
Adjusted net income rose approximately 12% to US$418 million.
These results demonstrate that ResMed continues generating earnings growth from its established sleep health products and services.
However, earnings per share growth exceeded adjusted net income growth, reflecting the effect of the company's capital structure and share repurchases.
This distinction matters because share buy-backs can increase earnings per share by reducing the number of shares outstanding.
For shareholders, the key consideration is whether underlying operating earnings continue expanding independently of capital allocation effects.
ResMed's global sleep device revenue increased approximately 9% to US$716 million during the September quarter.
The result reflects continued demand for devices used in the treatment of sleep apnoea and related breathing conditions.
ResMed's established device portfolio provides a strong position within the global sleep health market.
Its equipment is supported by relationships with healthcare providers, home medical equipment suppliers and distribution partners.
The company's connected device ecosystem also creates opportunities to support ongoing patient treatment and monitoring.
However, sales growth remains influenced by healthcare purchasing patterns, reimbursement arrangements and competition.
Device demand can also vary with replacement cycles and the availability of new patients entering treatment.
For shareholders, sustained device revenue growth provides evidence of continuing demand for ResMed's core technology.
The important question is whether the company can maintain that momentum while managing manufacturing costs and competitive pricing pressures.
Revenue from masks and other accessories increased approximately 10% to US$540 million.
This category is particularly important because masks and related components typically require periodic replacement during ongoing therapy.
Unlike an initial device purchase, replacement accessories can generate recurring demand from existing patients.
This provides an opportunity for ResMed to maintain customer relationships beyond the original equipment sale.
The company's established distribution network and broad product portfolio support its ability to serve this market.
However, recurring replacement demand should not be interpreted as guaranteed revenue.
Patient adherence, reimbursement policies, replacement intervals and competition can affect purchasing patterns.
Nevertheless, the combination of devices and replacement accessories provides a business model with multiple potential revenue streams.
For shareholders, continued accessory growth remains one of ResMed's strongest indicators of sustained customer engagement and product demand.
ResMed's global sleep devices and masks generated approximately US$1.256 billion in combined quarterly revenue.
The category achieved growth of around 10%.
However, total Sleep and Breathing Health revenue increased approximately 8% to US$1.260 billion.
The difference partly reflects weakness in life support devices.
Revenue from that category declined approximately 84% to around US$4 million.
Although life support devices now represent a relatively small portion of the segment, the decline affected the overall reported growth rate.
This distinction is important because the performance of the main sleep product categories was stronger than the headline segment result.
For shareholders, the core sleep franchise remains the principal source of revenue growth.
However, changes in smaller product categories can still influence reported financial comparisons.
ResMed reported an adjusted gross margin of approximately 62.5% during the September quarter.
This represented an improvement of 50 basis points from the prior corresponding period.
The result reflects the company's continued focus on productivity, manufacturing efficiency and product mix.
Higher gross margins indicate that a greater proportion of revenue remains after accounting for the direct costs associated with delivering products and services.
For a medical device manufacturer, gross margin performance can be influenced by production efficiency, component costs, logistics and pricing.
ResMed's ability to improve gross margin while growing revenue is encouraging.
However, gross margin is only one component of overall profitability.
Research, development, selling and administrative expenses also influence operating earnings.
For shareholders, the key question is whether productivity gains can translate into sustained improvements in operating margins rather than being absorbed by higher expenditure elsewhere in the business.
Although ResMed improved adjusted gross margin, its adjusted operating margin declined from approximately 36.1% to 35.8%.
This represents a reduction of 30 basis points.
Statutory operating margin also declined from approximately 33.4% to 32.0%.
The results indicate that higher operating expenditure offset some of the improvement achieved at the gross profit level.
Research and development expenditure increased during the quarter.
Selling, general and administrative costs also rose.
The company continues investing in innovation, technology and commercial capabilities.
These initiatives may support future growth, but they also affect current profitability.
For shareholders, the margin divergence highlights the importance of evaluating the complete cost structure.
Stronger gross margins are positive, but sustainable earnings growth also requires disciplined operating expenditure.
ResMed increased its research and development expenditure to approximately US$103 million during the September quarter.
This compared with approximately US$89 million in the prior corresponding period.
The increase of around 15% reflects continued investment in product development and technology.
Research expenditure is important for maintaining competitiveness in medical devices and connected healthcare.
New products may improve patient comfort, treatment adherence and operational efficiency.
However, development programmes require spending before commercial returns become apparent.
The financial benefits depend on successful product launches, regulatory requirements and customer adoption.
Higher research expenditure may therefore reduce near-term operating margins even when revenue continues expanding.
For shareholders, the investment can be justified if it strengthens ResMed's long-term competitive position and supports profitable growth.
The company must demonstrate that additional expenditure ultimately delivers sufficient commercial returns.
ResMed's selling, general and administrative expenditure increased to approximately US$315 million.
This compared with around US$282 million in the prior corresponding quarter.
The increase represents approximately 12% year-on-year growth.
These expenses include costs associated with supporting the company's commercial operations, distribution capabilities and corporate activities.
Higher expenditure may reflect investment in sales infrastructure and support for a growing business.
However, operating expenses increasing faster than revenue can pressure margins.
This helps explain why ResMed's adjusted operating margin declined despite stronger gross profitability.
For shareholders, the important issue is whether the additional spending supports sustainable revenue growth and operational efficiency.
If operating costs continue rising faster than sales, adjusted earnings growth may become increasingly difficult to maintain.
ResMed reported statutory net income of approximately US$418 million for the September quarter.
This represented a year-on-year increase of around 20%.
However, the result benefited from a gain associated with the completed MatrixCare divestment.
The company reported an approximately US$61.8 million pre-tax gain related to the sale.
The after-tax benefit was approximately US$55 million.
This gain was excluded from the company's adjusted net income calculation.
Adjusted net income increased approximately 12% to US$418 million.
The difference between statutory and adjusted earnings is important when assessing recurring profitability.
Disposal gains can increase reported earnings but do not necessarily reflect stronger performance in ongoing operations.
For shareholders, adjusted profitability provides an additional perspective on the company's operating performance, although the adjustments themselves should be evaluated carefully.
ResMed completed the sale of MatrixCare during the September quarter.
The transaction generated approximately US$450.8 million in net cash proceeds.
The divestment represents a further simplification of the company's software portfolio.
ResMed continues operating its remaining Residential Care Software businesses while concentrating resources on its broader sleep and breathing health strategy.
The proceeds strengthened financial flexibility and supported capital allocation activities.
However, the sale should be distinguished from recurring operating cash generation.
The proceeds are classified within investing cash flows rather than operating cash flows.
Consequently, they do not form part of the company's reported quarterly free cash flow.
This distinction is particularly important because ResMed returned more than US$1 billion to shareholders during the same period.
For shareholders, the divestment provided an additional source of liquidity, but comparable asset-sale proceeds should not be assumed to recur in future quarters.
Residential Care Software revenue declined approximately 7% on a reported basis to US$155 million.
However, the comparison was affected by the MatrixCare divestment.
ResMed indicated that the remaining Brightree and MEDIFOX DAN businesses achieved approximately 8% revenue growth after excluding MatrixCare.
The continuing software operations also recorded approximately 5% core constant currency growth.
These measures demonstrate why reported revenue declines do not always indicate weaker underlying business performance.
A disposal can reduce the consolidated revenue base even when the remaining businesses continue growing.
ResMed's software portfolio provides services supporting healthcare administration and operational workflows.
However, growth will depend on customer demand, competition and continued investment.
For shareholders, the important consideration is whether the remaining software businesses can generate attractive margins and sustainable growth following the portfolio simplification.
ResMed generated approximately US$422 million in operating cash flow during the September quarter.
This compared with approximately US$457 million in the prior corresponding period.
The decline was around 8%.
The result contrasts with the company's increase in adjusted and statutory earnings.
However, the divergence was influenced by working capital movements.
Inventory consumed approximately US$71.8 million in cash, compared with approximately US$14.7 million a year earlier.
Prepayments and other operating assets also represented a cash outflow of approximately US$70 million, compared with a small positive movement in the prior corresponding period.
These movements reduced cash generated from operations.
However, working capital requirements can fluctuate with inventory management, supplier payments and business activity.
Consequently, lower operating cash flow does not automatically establish deterioration in earnings quality.
For shareholders, the important question is whether the working capital movements reverse or remain elevated over subsequent quarters.
ResMed reported quarterly free cash flow of approximately US$373.7 million.
This compared with approximately US$414.4 million in the prior corresponding period.
The decline was around 10%.
Capital expenditure increased to approximately US$48.7 million from US$43 million.
The combination of lower operating cash flow and higher capital expenditure reduced free cash generation.
Free cash flow is particularly important because it reflects the cash available after relevant operating and capital spending requirements.
It provides resources for debt reduction, dividends, share repurchases and further investment.
However, the measure should not be interpreted in isolation from business growth and working capital movements.
ResMed continues generating substantial cash, even after the year-on-year decline.
For shareholders, a recovery in free cash flow would strengthen confidence that earnings growth is translating into sustainable financial capacity.
ResMed returned approximately US$1.031 billion to shareholders during the September quarter.
This included approximately US$936.4 million in share repurchases.
The company also paid approximately US$95 million in dividends.
These distributions were substantially greater than the quarter's approximately US$374 million free cash flow.
In fact, shareholder distributions were approximately 2.8 times quarterly free cash flow.
However, the difference was supported partly by MatrixCare disposal proceeds and the company's existing financial resources.
The result should not be interpreted as evidence that ResMed's ordinary quarterly operations generated enough free cash flow to fund the entire distribution.
Share repurchases can provide benefits by reducing the number of shares outstanding.
They may also support earnings per share growth.
However, repurchases consume cash that could otherwise be used for investment, debt reduction or future dividends.
For shareholders, the important consideration is whether capital returns are sustainable and represent an efficient use of financial resources.
ResMed's substantial repurchase activity is relevant when interpreting its 14% increase in adjusted diluted earnings per share.
Adjusted net income increased approximately 12%, while adjusted diluted EPS grew faster.
A reduction in the weighted average share count can contribute to this difference.
Share repurchases may increase earnings per share even without an equivalent increase in total company earnings.
This does not mean the EPS improvement lacks economic value.
However, it is important to distinguish operating earnings growth from the effects of capital allocation.
The long-term benefit of buy-backs depends on the price paid, the reduction in shares outstanding and alternative uses of the capital.
For shareholders, the strongest outcome would involve sustained growth in underlying earnings alongside disciplined repurchases.
That combination would provide a more durable foundation for future earnings per share growth.
ResMed ended September with approximately US$1.011 billion in cash and cash equivalents.
This compared with approximately US$1.469 billion at 30 June 2026.
The reduction was around US$458 million.
The company also repaid approximately US$250 million in borrowings during the quarter.
These actions demonstrate active balance sheet management.
However, they also show that substantial shareholder distributions and debt repayments exceeded the period's recurring free cash generation.
The MatrixCare divestment provided an additional source of cash.
ResMed retained approximately US$410 million in interest-bearing debt at 30 September, including short-term and long-term borrowings.
The company's remaining cash position provides financial flexibility.
Nevertheless, continued capital returns must be considered alongside future investment requirements, working capital needs and financing obligations.
For shareholders, maintaining a strong balance sheet remains important as ResMed continues investing in its global operations.
ResMed's board declared a quarterly dividend of US$0.66 per common share on 29 October 2026.
The dividend is scheduled to trade ex-dividend on 11 November.
The record date is 12 November.
Payment is expected on 17 December 2026.
ResMed trades on the ASX through CHESS Depositary Interests.
Ten ASX CDIs represent one NYSE-listed common share.
Accordingly, the declared US$0.66 dividend is equivalent to US$0.066 per CDI before applicable currency conversion.
The Australian-dollar amount received by CDI holders will depend on the relevant exchange rate and payment arrangements.
The dividend provides another form of shareholder return alongside the company's repurchase programme.
However, future dividend growth will depend on earnings, available cash flow and board decisions.
For shareholders, the sustainability of distributions should be considered in the context of the company's ongoing investment and capital allocation priorities.
ResMed announced the United States launch of its AirTouch F40 CPAP mask during the quarter.
The product expands the company's range of mask options, including fabric-based solutions.
Product development is important because patient comfort and usability can influence adherence to sleep apnoea therapy.
A broader product portfolio may also help ResMed address different patient preferences and treatment requirements.
However, a product launch does not automatically guarantee significant revenue growth.
Commercial success depends on customer adoption, healthcare provider recommendations and distribution performance.
The company must also maintain competitive manufacturing costs and product reliability.
For shareholders, continued innovation supports the long-term strength of ResMed's sleep health franchise.
The commercial contribution of new products will become clearer through subsequent sales performance.
ResMed continues investing in connected devices, digital healthcare and sleep health technology.
Its established device ecosystem provides opportunities to support patient monitoring, treatment engagement and healthcare workflows.
Connected technology can potentially improve treatment adherence and provide information to healthcare providers.
The company also announced a partnership with Eight Sleep involving sleep health technology and insights for users in the United States and Australia.
Such partnerships may support broader engagement with sleep health consumers.
However, the financial contribution remains uncertain.
Digital health opportunities depend on customer adoption, regulatory requirements, data management and commercial execution.
For shareholders, technology investment may strengthen the company's competitive position.
Nevertheless, the benefits must eventually be demonstrated through improved outcomes, revenue growth or operational efficiency.
ResMed reaffirmed its FY27 revenue guidance of approximately US$5.75 billion to US$5.85 billion.
The company also maintained its expected core constant currency revenue growth range of 5% to 7%.
Adjusted diluted earnings per share guidance remains US$12.00 to US$12.25.
The unchanged outlook suggests management continues to expect growth consistent with its existing financial plan.
However, reaffirmed guidance does not necessarily indicate accelerating growth.
The company must continue delivering product demand, operational efficiency and disciplined expenditure to achieve its targets.
Foreign exchange movements and changes in healthcare market conditions could also affect reported results.
For shareholders, future quarterly performance will provide evidence of whether the company remains on track to deliver its full-year objectives.
ResMed's first-quarter performance demonstrates the importance of operating leverage.
The company increased revenue and improved gross margins.
However, higher research, development and administrative spending reduced adjusted operating margin.
This creates a key financial question for the remainder of FY27.
If revenue grows faster than operating expenditure, margins may stabilise or improve.
If expenses continue rising at a faster rate, profitability could remain under pressure despite strong product demand.
Product innovation and commercial investment may support future growth, but the returns must justify the additional spending.
For shareholders, operating margin trends will therefore be an important measure of financial discipline.
Sustained improvement would strengthen confidence that ResMed can convert revenue growth into higher underlying earnings.
What stands out to us is ResMed's ability to increase adjusted earnings while maintaining strong demand across its global sleep devices and mask portfolio.
The company's September-quarter revenue of US$1.415 billion and 14% increase in adjusted diluted earnings per share demonstrate the strength of its established healthcare distribution channels and recurring accessory demand.
We believe replacement masks, connected devices and relationships with healthcare providers create meaningful competitive advantages.
However, adjusted operating margin declined to 35.8% despite gross margin improvement, suggesting higher research, development and operating expenditure absorbed part of the productivity gains.
Free cash flow also declined 10% to US$374 million, reflecting working capital movements and increased capital expenditure.
The completed MatrixCare divestment provided substantial cash proceeds and contributed a non-recurring gain to statutory earnings.
ResMed subsequently returned more than US$1 billion through dividends and share repurchases, substantially exceeding quarterly free cash flow.
While its financial position remains strong, distributions of that scale depend on capital allocation decisions and should not be interpreted as a sustainable quarterly run rate.
Our assessment remains constructive because the core sleep health business continues generating substantial earnings and cash flow.
However, stronger confidence in the longer-term outlook would require continued organic revenue growth, stabilising operating margins and more consistent cash conversion.
The decisive question is whether ResMed can translate its recurring product demand and investment in innovation into sustainable cash-flow growth while maintaining disciplined shareholder returns.
ResMed has delivered another quarter of healthy revenue and adjusted earnings growth, supported by continued demand for sleep apnoea devices and replacement accessories.
Its September-quarter revenue of approximately US$1.415 billion and adjusted diluted earnings per share growth of 14% demonstrate the strength of the company's core operating franchise.
Gross margin improvement also provides evidence of productivity gains and effective manufacturing performance.
However, higher operating expenditure reduced adjusted operating margin.
Free cash flow declined approximately 10% despite stronger earnings, influenced by working capital movements and increased capital expenditure.
The completed MatrixCare divestment provided substantial cash proceeds and a non-recurring contribution to statutory net income.
It also supported a period of unusually large shareholder distributions.
ResMed returned approximately US$1.031 billion through dividends and share repurchases, substantially exceeding quarterly free cash flow.
Although the company retains significant financial resources, that level of capital return should not be assumed to represent a sustainable recurring quarterly pattern.
Meanwhile, the remaining software businesses and continued product development provide opportunities for further growth.
The AirTouch F40 launch, connected health initiatives and investment in research may strengthen ResMed's competitive position.
However, their financial benefits must be demonstrated through subsequent commercial performance.
Shareholders should monitor operating cash flow, free cash flow, adjusted operating margin and demand across the core sleep product categories.
Future capital allocation decisions will also be important in determining the balance between shareholder distributions, debt reduction and investment.
For shareholders, ResMed remains a substantial global medical technology company with established market positions, recurring accessory demand and strong earnings capacity.
Nevertheless, its longer-term investment case depends on maintaining organic growth, stabilising operating margins and improving cash conversion.
The decisive challenge is ensuring that its earnings growth translates into sustainable free cash flow capable of supporting innovation and shareholder returns without relying on recurring asset disposals or balance sheet reductions.
Danny Aad is an experienced technology executive with a distinguished career spanning more than three decades, including senior leadership positions as Chief Technology Officer (CTO) across the technology and biotechnology sectors. With extensive expertise in technology strategy, digital innovation and the evolving biotechnology landscape, Danny brings a wealth of industry knowledge and technical insight to his analysis of emerging technologies, corporate developments and investment opportunities.
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