Executive Summary / Key Takeaways

• Dominant Market Position & Digital Ecosystem: ResMed (RMD) is a global leader in sleep and breathing health, leveraging its extensive digital health ecosystem, cloud-connected devices, and advanced AI/ML technologies to drive patient adherence and operational efficiencies across its Sleep and Breathing Health and Residential Care Software segments.
• Robust Financial Performance: The company delivered strong fiscal year 2025 results, with 10% revenue growth, significant gross margin expansion to 59.4% (61.4% in Q4 FY25), and a 37% increase in diluted EPS, demonstrating effective operational execution and cost discipline.
• Strategic Tailwinds from Macro Trends: RMD is uniquely positioned to capitalize on the growing awareness of sleep apnea driven by GLP-1 medications (10.8% higher PAP initiation for combo users) and consumer wearables (Samsung/Apple Watch detection), expanding its patient funnel.
• Commitment to Innovation & Shareholder Returns: Ongoing R&D investments (6-7% of revenue) are fueling next-gen products like the AirTouch N30i mask and AI-driven solutions like "Dawn." The company is also boosting shareholder returns with a 13% dividend increase and expanded share buybacks for FY26.
• Resilient Against Headwinds: Despite global macroeconomic uncertainties, competitive dynamics, and regulatory shifts (e.g., competitive bidding), ResMed's strong balance sheet, tariff exemptions, and strategic adaptability position it for sustained long-term growth.

ResMed: A Deep Dive into the Future of Connected Care

ResMed Inc. (RMD) stands as a formidable force in the global healthcare landscape, a pioneer that transformed the treatment of obstructive sleep apnea (OSA) with the commercialization of continuous positive airway pressure (CPAP) in 1989. From its origins in Australia, the company has evolved into a global leader in digital health and cloud-connected medical devices, dedicated to improving the lives of millions suffering from sleep apnea, chronic obstructive pulmonary disease (COPD), and other chronic respiratory conditions. ResMed's overarching mission, articulated in its ResMed 2030 strategy, is to empower over 500 million people to reach their fullest potential through better sleep, breathing, and healthcare delivered in the comfort of their homes.

The market for sleep and breathing health solutions remains significantly underpenetrated. An estimated 936 million people worldwide, including 54 million Americans, are impacted by mild to severe OSA, yet less than 20% in the U.S. and under 10% in other markets are diagnosed or treated. This vast unmet need, coupled with the strong association between sleep apnea and serious comorbidities like hypertension, obesity, heart failure, and type 2 diabetes, underscores the critical importance of ResMed's work. Furthermore, 480 million people globally suffer from COPD, the world's third leading cause of death, highlighting another substantial area of focus for the company. The global healthcare system's ongoing shift from costly hospital-based care to more affordable and patient-preferred home settings provides a powerful tailwind for ResMed's integrated device and software solutions.

Technological Leadership: The Engine of ResMed's Moat

ResMed's competitive advantage is deeply rooted in its continuous technological innovation, transforming respiratory medicine into a truly "computerized positive airway pressure" (CPAP) experience. The company's core differentiated technology spans devices, masks, and a sophisticated digital health ecosystem.

At the heart of its device portfolio are the AirSense 11 and AirSense 10 platforms. The AirSense 11, considered the world's number one rated device, offers a touch screen, advanced algorithms for new patients, and over-the-air update capabilities, making therapy initiation and adherence easier. The AirSense 10, still a strong performer, complements this, ensuring broad market coverage. These devices are 100% cloud-connectable, feeding into ResMed's vast data repository of over 23 billion nights of respiratory medical data from more than 30 million devices. This data advantage provides unparalleled insights for product development and personalized care.

In patient interfaces, ResMed is pushing boundaries with innovations like the AirTouch N30i mask, launched in Q1 FY25. This "world first" mask features a unique fabric-wrapped frame and patient interface, designed for optimal comfort. This "extraordinarily advanced technology" is technically challenging to manufacture at scale but is expected to "permanently change the basis of competition in mask innovation." While it carries a higher production cost and a corresponding "price premium," management anticipates it will significantly increase first-time fit rates, reduce return rates, and boost therapy adherence, ultimately lowering overall healthcare system costs. The AirFit F40, ResMed's smallest oronasal mask, also performs strongly in the U.S. market, expanding globally due to its adaptive feel technology.

ResMed's digital health ecosystem is a critical differentiator. Its cloud-based patient management system, AirView, enables remote monitoring and device setting adjustments, streamlining workflows for physicians and providers. The myAir app, with over 10 million registered users, offers personalized therapy management, support, education, and troubleshooting, driving patient engagement and compliance. The integration of NightOwl, a fingertip-sized, cloud-connected home sleep apnea test, with the myAir platform further streamlines the diagnostic process, offering high sensitivity and specificity for at-home diagnosis.

The company's commitment to innovation is evident in its R&D investments, consistently at 6-7% of net revenues, translating to $300-350 million annually. This investment fuels advancements in AI and Generative AI (GenAI). "Dawn," ResMed's GenAI-driven digital assistant, launched in the U.S. market, has already achieved a 25% session initiation rate and a 40% reduction in direct-to-live human contact center queries, demonstrating its potential for efficient, personalized patient support. Other AI applications include "Smart Coaching" in myAir and the "ReSupply Attrition Predictor" in Brightree, which helps home medical equipment (HME) providers proactively manage at-risk patients. Internally, AI is being leveraged in R&D for verification, validation, test script writing, and even virtual mask fitting studies, significantly reducing development time and resources. These technological advancements are not merely features; they are foundational to ResMed's ability to expand its market, enhance patient outcomes, and drive profitable growth.

Competitive Landscape: A Specialist's Edge

ResMed operates in a highly competitive environment, facing both direct and indirect rivals. Its primary direct competitors include Philips , Medtronic , and Inspire Medical Systems .

ResMed's patient-centric software and home-based care focus provide a qualitative edge over Philips (PHG), whose broader health technology portfolio often includes more complex, hospital-integrated solutions. While Philips benefits from a larger, diversified scale, RMD's faster innovation cycles in patient-focused software and intuitive interfaces give it a unique value proposition in accessibility and patient-centric design, potentially leading to stronger market share in home care. Philips' recent product recalls and ongoing consent decree in the U.S. have also created opportunities for RMD and smaller players to gain market share.

Against Medtronic (MDT), a giant in diversified medical devices, ResMed's specialized focus on sleep and respiratory care allows it to lead in growth rates within these specific segments. RMD's devices and software prioritize ease of use and long-term patient compliance in home settings, contrasting with Medtronic's strength in advanced, hospital-oriented technologies.

Inspire Medical Systems (INSP) represents a different competitive vector, specializing in implantable devices for sleep apnea. RMD's non-invasive, cost-effective CPAP and dental solutions offer a stark contrast to Inspire's surgical approach, giving RMD an advantage in broader patient accessibility and lower upfront costs. While Inspire innovates in niche surgical therapies, RMD's comprehensive ecosystem for at-home care, including remote monitoring and patient engagement, provides a qualitatively superior patient experience for the vast majority of sleep apnea patients.

Indirect competitors include consumer tech giants like Apple (AAPL) and Samsung (SSNLF), whose wearables now offer sleep apnea detection. While these could be seen as a threat, ResMed views them as a "once-in-a-generation opportunity" to drive awareness and funnel more potential patients into the healthcare system. RMD's NightOwl, an FDA-cleared diagnostic, offers "very high sensitivity and specificity" compared to these consumer devices, positioning ResMed to capture and convert this newly aware population into therapy.

ResMed's competitive advantages, or moats, are built on its proprietary cloud-based software, strong brand recognition in respiratory care, and deep R&D expertise. These translate into enhanced patient loyalty, recurring revenue streams, and superior margins through data-driven insights and operational efficiencies. The company's long-standing tariff exemptions for medical devices manufactured in Australia and Singapore also provide a buffer against global trade uncertainties, a benefit not necessarily shared by all competitors.

Strategic Initiatives and Operational Excellence

ResMed's strategy for sustained growth is multifaceted, focusing on expanding its market, enhancing its offerings, and optimizing operations.

Expanding the Diagnostic Funnel: Recognizing the underdiagnosed nature of sleep apnea, ResMed is investing heavily in "digital sleep health concierge capabilities." This includes the nationwide rollout of NightOwl and the acquisition of VirtuOx in May 2025, a software-enabled independent diagnostic testing facility (IDTF). VirtuOx, with an annual revenue run rate of approximately $45 million, expands ResMed's ability to offer end-to-end solutions, from home-based diagnostics to patient monitoring, streamlining the path from symptom recognition to treatment. The launch of the AirSense 11 VPAP Tx in April 2025 also provides sleep labs with a powerful tool for precise titration across all ResMed therapy modes, freeing up capacity for complex cases.

Leveraging Macro Trends: ResMed is actively capitalizing on the tailwinds from GLP-1 medications and consumer wearables. Real-world data from nearly a million patients shows that individuals prescribed both a GLP-1 and PAP therapy are 10.8 percentage points more likely to initiate PAP therapy, and exhibit 3.2-5.3 percentage points higher ReSupply rates at 12 and 24 months, respectively. This indicates a highly motivated patient population. ResMed is targeting high-volume GLP-1 prescribers through Continuing Medical Education (CME) programs, with 75% of graduates intending to change their clinical practices related to sleep health.

Driving Patient Adherence and Resupply: The company's digital health ecosystem, including myAir, AirView, and Brightree, powers robust ReSupply programs. These initiatives are crucial for long-term therapy adherence, which not only improves patient outcomes but also lowers healthcare costs. ResMed is expanding its Snap technology to be compatible with all HME management platforms, not just Brightree, to maximize reach and efficiency in mask and accessory resupply.

Operational Efficiency and Manufacturing Expansion: ResMed is committed to operational excellence, driving gross margin expansion through procurement, manufacturing, and logistics efficiencies. The upcoming opening of a new manufacturing facility in Calabasas, California, in June 2025 will double its U.S. manufacturing footprint, serving as an R&D hub for motor technology and expanding silicone mask cushion production. This strategic move enhances supply chain resilience and allows for greater scale in U.S.-made products. The company also recently integrated its Residential Care Software (RCS) revenue and product functions into the broader ResMed organization, streamlining workflows and accelerating its 2030 operating model evolution.

Financial Performance and Outlook

ResMed delivered a very strong fiscal year 2025, underscoring the effectiveness of its strategy and operational discipline. Net revenue for FY25 increased 10% to $5.15 billion, up from $4.69 billion in FY24, with constant currency growth mirroring this trend. Both the Sleep and Breathing Health segment and the Residential Care Software segment contributed significantly, growing 10% and 10% respectively. Device sales increased 9% to $2.67 billion, while masks and other sales grew 11% to $1.84 billion.

Profitability saw substantial improvement. Gross profit for FY25 rose 15% to $3.05 billion, with the gross margin expanding to 59.4% from 56.7% in FY24. In Q4 FY25, gross margin reached 61.4%, a 230 basis point year-over-year increase and 150 basis points sequentially. This expansion was primarily driven by procurement, manufacturing, and logistics efficiencies, as well as favorable foreign currency movements. Selling, general, and administrative (SG&A) expenses increased 8% to $991 million, but improved as a percentage of net revenue to 19.3% from 19.6%. Research and development (R&D) expenses grew 8% to $331.3 million, representing 6.4% of net revenue, down from 6.6% in FY24, reflecting disciplined investment.

Net income for FY25 surged 37% to $1.40 billion, resulting in diluted earnings per share (EPS) of $9.51, also a 37% increase from FY24. The effective income tax rate decreased to 16.5% in FY25 from 19.3% in FY24, benefiting from IRS refunds, tax benefits from business cessation, and foreign operations.

ResMed maintains a robust liquidity position. As of June 30, 2025, the company held $1.21 billion in cash and cash equivalents, with a net cash position of $541 million.

Operating cash flow for FY25 was $1.75 billion, a 25% increase year-over-year, and free cash flow stood at $1.66 billion. The company has $1.5 billion available under its revolving credit facility, providing significant financial flexibility for future investments and capital returns.

Looking ahead to fiscal year 2026, ResMed's management has provided concrete guidance, anticipating continued strength:

• Gross Margin: Expected to be in the range of 61% to 63%, with a progressive improvement throughout the year, driven by ongoing cost optimization.
• SG&A Expenses as a Percentage of Revenue: Projected to be between 19% and 20%, reflecting disciplined investment in demand generation.
• R&D Expenses as a Percentage of Revenue: Expected to remain in the 6% to 7% range, sustaining its innovation engine.
• Effective Tax Rate: Estimated to be between 21% and 23%, primarily due to new tax legislation taking effect in certain jurisdictions.

In a strong signal of confidence, ResMed's Board of Directors declared a quarterly dividend of $0.60 per share for FY26, a 13% increase over the previous quarter. The company also plans to significantly increase its share repurchase activity to approximately $150 million per quarter, commencing in Q1 FY26, which would result in approximately 1.5% of outstanding shares being repurchased. These actions underscore management's commitment to returning capital to shareholders while continuing to invest in growth.

Risks and Challenges

Despite its strong position, ResMed faces several risks. Global macroeconomic conditions, including inflation, supply chain disruptions (e.g., semiconductor chips, magnets), and geopolitical tensions, could impact costs and demand. While ResMed benefits from long-standing tariff exemptions for its key manufacturing hubs in Australia and Singapore, broader trade policy changes could still create indirect challenges.

Regulatory shifts, such as the resumption of the Medicare Competitive Bidding Program and potential changes to VA disability ratings for sleep apnea, could affect reimbursement rates and patient access. The expiration of Medicare telehealth flexibilities at the end of 2025 also poses a risk to OSA diagnosis rates if not extended. The evolving regulatory landscape for AI and data privacy (e.g., QMSR, EU AI Act, CCPA, GDPR) requires continuous compliance efforts and investment. The acquisition of VirtuOx introduces new areas of direct healthcare oversight as a Medicare-enrolled IDTF, increasing compliance complexities.

Competition remains intense, with rivals continually developing new products and alternative therapies. While GLP-1s are seen as a tailwind, their long-term impact on PAP adherence and the potential for new, more effective pharmaceutical or surgical options could shift market dynamics. However, ResMed's strategic focus on combination therapy and expanding the diagnostic funnel aims to mitigate these competitive pressures.

Conclusion

ResMed (RMD) is a compelling investment opportunity, firmly entrenched as a leader in the expanding sleep and breathing health market. Its history of pioneering innovation, coupled with a robust digital health ecosystem and strategic investments in AI and next-generation products, provides a powerful competitive moat. The company's ability to consistently deliver strong financial results, marked by double-digit revenue growth, expanding gross margins, and impressive EPS gains in fiscal year 2025, demonstrates exceptional operational execution.

As ResMed moves into fiscal year 2026, its clear guidance, increased shareholder returns, and proactive approach to capitalizing on macro trends like GLP-1s and consumer wearables underscore a confident outlook. While competitive pressures and regulatory uncertainties persist, ResMed's technological leadership, resilient supply chain, and patient-centric strategy position it to not only meet but exceed its ambitious ResMed 2030 goals, driving sustained value for both patients and shareholders.