ResMed (RMD) Q3 2026 earnings review
Record Margins Drive Earnings Beat as Resupply Shines
ResMed delivered a robust Q3 2026, combining stable 11% top-line growth with an accelerating bottom line. Non-GAAP EPS surged 21% YoY to $2.86, fueled by a massive 290 bps expansion in gross margin to 62.8%. The core Sleep and Breathing Health business is firing on all cylinders, led by an accelerating 15% growth in Masks and accessories. While the operational efficiency story is exceptional, pockets of weakness remain: the Residential Care Software segment is decelerating, and SG&A expenses are structurally outpacing revenue growth. Regardless, with $554M in operating cash flow this quarter, ResMed's capital return engine remains fully funded and highly active.
🐂 Bull Case
Gross margin has been expanding for five consecutive quarters. The 290 bps YoY improvement to 62.8% proves that manufacturing, component, and logistics efficiencies are structural, dropping straight to the bottom line.
Masks and other accessories grew 15% YoY (12% constant currency). This high-margin recurring revenue stream provides a highly stable growth floor, insulating the company from hardware upgrade cycles.
🐻 Bear Case
Operating expenses are growing faster than sales. Reported SG&A grew 16% YoY (11% constant currency), driven by marketing investments and recent acquisitions, squeezing potential operating leverage.
Residential Care Software (SaaS) grew just 4% in constant currency. As management attempts to reposition this portfolio, it remains a persistent drag on overall top-line growth.
⚖️ Verdict: 🟢
Bullish. The 290 bps margin expansion and 21% EPS growth drastically outweigh the SG&A and SaaS concerns. ResMed is executing flawlessly on its core manufacturing and resupply economics.
Key Themes
Margin Expansion is Accelerating
The margin story is unequivocally accelerating. Non-GAAP gross margin expanded by 290 bps YoY to 62.8%. This is a continuation of a massive operational overhaul, driven by manufacturing efficiencies, normalized sea-to-air freight ratios, and favorable component costs. This sustained execution shields ResMed from pricing pressures and supercharges operating income.
Masks Outpacing Devices
Global mask revenue is accelerating, jumping 15% YoY compared to a stable 9% growth in devices. The launch of the AirTouch F30i Comfort full-face mask is driving significant adoption. Because masks carry structurally higher margins than CPAP machines, this mix shift is a vital secondary driver of the company's gross margin outperformance.
SG&A Expense De-leveraging
A reversing trend in operating leverage is our primary concern. Constant currency SG&A expenses grew 11%, visibly outpacing the 8% constant currency revenue growth. Management attributes this to VirtuOx integration costs, employee headcount, and technology investments, but sustained expense growth above revenue growth limits long-term EPS potential.
Residential Care Software is Decelerating
The SaaS segment continues to lag the broader business, growing just 4% in constant currency (down from 5% in the prior quarter). While management previously indicated this segment is undergoing 'portfolio repositioning' to focus on higher-margin recurring revenue platforms, the protracted deceleration remains a frustrating anchor on overall growth.
Unexplained Portfolio Review Costs
ResMed recorded $5.9M in 'acquisition and portfolio review related expenses' during the quarter. While relatively small, the explicit call-out of 'evaluation of strategic transactions' and 'diligence' indicates management is actively looking at M&A or divestitures. This requires monitoring for potential integration risks or strategic shifts.
Macro Tailwinds Reversing Freight Pressure
On a macro level, the global supply chain normalization is a massive tailwind. The reversing of COVID-era sea-to-air freight ratios back to historical norms has structurally lowered the cost of goods sold. When combined with stabilizing electronic component pricing, ResMed has successfully recaptured the pricing power it lost during the supply chain crisis.
AI Integration and the Digital Funnel
ResMed's digital health ecosystem continues to differentiate it from competitors. With over 3 billion API calls per quarter, the integration of AI tools like the 'Comfort Match' settings recommender and 'Dawn' personal assistant inside the myAir app are critical for driving long-term patient adherence, which directly translates into highly predictable mask resupply revenue.
Other KPIs
A highly stable and robust result, easily covering the $399M in Net Income. This confirms high earnings quality and excellent working capital management. Receivables and inventory remain perfectly in-line with revenue growth, indicating no channel stuffing or collection issues.
Shareholder returns are accelerating. ResMed repurchased $175M in shares (up from $75M a year ago) and paid $87M in dividends. The aggressive buyback activity at current valuations signals immense management confidence in forward cash flow generation.
Accelerating to 14% reported growth (6% CC), indicating strong international demand for the AirSense 11 platform and potentially capturing market share in regions where competitors are struggling to maintain footing.
Guidance
While forward guidance wasn't explicitly updated in the Q3 release, Q3's 62.8% gross margin puts the company at the very high end of its previously stated FY26 targets. Given the 290 bps YoY expansion, ResMed is demonstrating a highly stable, if not accelerating, path to permanent margin dominance.
Decelerating leverage. The company's Q3 Non-GAAP SG&A landed at 19.5% of revenue, squarely in the middle of its previously stated range. Management must carefully balance growth investments against the risk of SG&A permanently inflating the cost structure.
Key Questions
Portfolio Review Details
You recorded nearly $6M in acquisition and portfolio review costs this quarter. Are you actively looking at major M&A to bolster the diagnostic funnel, or is this related to potential divestitures within the lagging Residential Care Software segment?
SG&A Trajectory
Constant currency SG&A outpaced revenue growth by 300 basis points this quarter (11% vs 8%). How much of this is temporary integration costs for VirtuOx versus permanent structural additions to your marketing and employee base?
Mask Growth Sustainability
Mask revenue grew a stellar 15% globally. How much of this was driven by initial channel stocking for the new AirTouch F30i Comfort mask versus sustainable, recurring resupply volume?