ResMed (RMD) Q2 2026 earnings review
Margins Expansion Fuels Earnings Beat; SaaS Remains the Weak Link
ResMed delivered a robust Q2 with revenue accelerating to 11% growth ($1.42B), defying fears of GLP-1 headwinds. The real story is the operational efficiency: Non-GAAP Gross Margin expanded 310 basis points YoY to 62.3%, driven by reduced freight costs and manufacturing leverage. This flowed directly to the bottom line, with Non-GAAP EPS up 16% to $2.81. While the core Sleep device and Mask businesses are accelerating, the Residential Care Software (SaaS) segment remains a drag, decelerating to 5% constant currency growth. Management maintained confident FY26 margin guidance (61-63%) and committed to ~$150M in quarterly buybacks.
🐂 Bull Case
Gross margins have climbed sequentially for four consecutive quarters, hitting 62.3% (Non-GAAP). Supply chain normalization and a mix shift toward high-margin masks (+14% CC) suggest the 61-63% full-year target is conservative.
Masks and accessories grew 14% (constant currency), significantly outpacing device growth (7%). This recurring revenue stream is higher margin and proves the 'resupply' engine remains intact regardless of new patient starts.
🐻 Bear Case
Residential Care Software (SaaS) growth slowed to 5% in constant currency, down from high-single digits in FY25. Management cites 'portfolio repositioning' and weakness in skilled nursing, but this segment is currently dragging on overall top-line acceleration.
Operating Cash Flow ($340M) came in significantly lower than Net Income ($393M) for the quarter. A $106M outflow in 'Prepayments and other current assets' and rising Accounts Receivable indicate working capital is currently consuming cash rather than generating it.
⚖️ Verdict: 🟢
Bullish. The core sleep business is accelerating, and the margin expansion story is tangible and powerful. The software slowdown is a concern but is mathematically outweighed by the strength in the high-margin mask portfolio.
Key Themes
Gross Margin Expansion
Accelerating. ResMed achieved a massive 310 bps improvement in Non-GAAP Gross Margin YoY (59.2% to 62.3%). Drivers include lower freight costs (sea/air ratio normalized), manufacturing efficiencies, and a favorable product mix shifting toward masks. Management reaffirmed FY26 guidance of 61-63%, implying this level is sustainable.
Mask Portfolio & Resupply
Accelerating. The 'Masks and other' segment grew 16% reported (14% constant currency), significantly outpacing the 11% reported growth in Devices. The launch of the fabric-based AirTouch F30i and AI-driven sizing tools (Comfort Match) are driving higher resupply rates and average selling prices.
Residential Care Software (SaaS) Slowdown
Decelerating. Revenue grew only 5% in constant currency, a clear step down from the 9-10% range seen in FY25. Management attributes this to 'strategic portfolio repositioning' away from lower-margin services and weakness in the skilled nursing facility market. While Medifox Dan (Germany) remains strong, the broader US SaaS portfolio is underperforming expectations.
Cash Flow Conversion Mismatch
Reversing. For the first time in recent quarters, Operating Cash Flow ($340M) lagged significantly behind Net Income ($393M). This was driven by a $106M increase in 'Prepayments and other current assets' and a $73M increase in Accounts Receivable. This suggests working capital intensity is increasing, potentially linked to the rollout of new products or inventory builds for new facilities.
Tax Rate Headwinds
Stable (High). The effective tax rate climbed to 22.3% in Q1 and remains a headwind compared to historical sub-20% levels, due to the implementation of Global Minimum Tax (Pillar Two). Management guided FY26 tax rate to 21-23%, which puts a permanent damper on EPS leverage relative to Operating Income growth.
International Device Growth Lag
Decelerating. While US/Can/LatAm revenue surged 11%, the 'Europe, Asia, and other' segment grew only 6% in constant currency. Management noted softer mask growth in these regions in Q1 (4%), and while Q2 overall international numbers improved slightly, the divergence between the robust Americas market and the rest of the world persists.
Other KPIs
Accelerating. Up 18% YoY, outpacing revenue growth of 11%. This demonstrates strong operating leverage, as SG&A expenses only grew 15% (12% CC) and R&D grew 12% (10% CC). The company is successfully disciplined on costs while funding AI and product innovation.
Stable. The company paid $88M in dividends ($0.60/share) and repurchased 704,000 shares for $175M. This aligns with the previously announced plan to buy back ~$150M per quarter, signaling management sees the stock as undervalued despite recent appreciation.
Guidance
Stable. Reaffirmed. With Q2 coming in at 62.3% (Non-GAAP), the company is performing near the top end of this range. Implies continued strength in H2.
Stable. Q2 actual was 19.6%. Management is maintaining discipline despite heavy investment in demand generation and digital health initiatives.
Stable (High). Reaffirmed. The step-up from FY24 levels (approx 19%) is now the baseline due to global tax law changes.
Key Questions
SaaS Growth Re-acceleration
Residential Care Software growth has decelerated to 5% CC. What is the specific timeline for the 'portfolio repositioning' to conclude, and when can investors expect this segment to return to high-single-digit growth?
Cash Flow Divergence
Operating Cash Flow was significantly below Net Income this quarter ($340M vs $393M), with large outflows in prepaids. Was this a one-time timing issue related to tax or inventory, and should we expect conversion to normalize in Q3?
Device Demand Sustainability
Device growth in the Americas is strong (+8-11% range recently), but International lags (+6% CC). Are you seeing saturation in specific European markets, or is this purely macro-driven?