ResMed Inc.

The Business

ResMed makes the devices and masks that treat obstructive sleep apnoea, a condition affecting hundreds of millions of people worldwide, of whom fewer than 20% are diagnosed and treated. The core Sleep and Breathing Health segment, roughly 88% of revenue, sells hardware once and then earns recurring, high-margin revenue from mask replacement for years afterward: a razor-and-blades model. A smaller software arm supports care coordination. Philips' absence, following an FDA consent decree tied to a product recall, has been the single biggest driver of ResMed's recent share gains.

Recent Performance

Revenue grew 9.9% in FY26 to $5,653 million, on top of 9.8% growth the year before, so this is not a one-off spike against an easy base. Gross margin expanded from 59.4% to 61.1% over the same period and EBITDA margin edged up to 36.9%. Much of that margin gain reflects Philips' continued absence rather than purely internal efficiency gains, a distinction that matters for how durable the current profitability actually is.

Outlook

Underlying growth should settle into the high single digits as the divested MatrixCare software business drops out of the base, meaning headline growth figures over the next year will understate the pace of the continuing device and mask business. EBITDA margin is expected to peak in the near term before compressing gradually over the following two to three years, as Philips re-enters the market and competitive spending rises. That compression should be read as margin normalisation from an unusually favourable competitive window, not deterioration in the underlying business.

Key Risks

Three risks dominate the outlook. Philips' eventual full return could compress gross margin and erode share meaningfully as the incumbent rebuilds prescriber relationships and reintroduces competitive pricing. GLP-1 obesity drugs could structurally reduce demand among the roughly 40% of sleep apnoea patients whose condition is weight-driven, though emerging clinical evidence suggests the two treatments may prove complementary rather than substitutive. A global minimum tax regime and the scheduled expiry of Singapore tax concessions add a further structural headwind to the effective tax rate that consensus earnings estimates appear to underweight.

What to Watch

The thesis-defining event is real-world CPAP demand data through early 2027, which will confirm whether GLP-1 adoption is denting new patient starts or coinciding with them.

• Q1-Q2 2027 GLP-1 real-world CPAP demand data — resolves the single largest swing factor in the outlook.
• Ongoing FDA Philips consent decree update — any change in timing shifts competitive intensity assumptions materially.
• Late 2026 FY27 tax guidance — confirmation of a higher effective tax rate would validate more conservative earnings estimates.

Latest Developments

ResMed divested its MatrixCare software business at approximately 2.2 times revenue, sharpening the portfolio back toward its core device and mask franchise. The proceeds strengthen an already net-cash balance sheet and remove a lower-margin, non-core asset from the group.

Company Description

ResMed's core division, Sleep and Breathing Health, designs and manufactures CPAP and related devices along with the masks and accessories patients replace regularly, contributing roughly 88% of group revenue. This segment carries the razor-and-blades economics that define the business: a device sold once, followed by years of recurring mask revenue. A smaller software and care-coordination business supports clinicians and home medical equipment providers. Following the MatrixCare divestiture, the group is now more tightly focused on its core sleep and respiratory device franchise than at any point in recent years.

Where the Growth Is

Mask and resupply revenue, part of the Sleep and Breathing Health segment, contributes about 37% of group revenue and is growing 12% in constant currency, driven by an installed base exceeding 35 million patients and rising engagement through the myAir digital app. This is the highest-margin, most predictable part of the business, and its growth compounds directly with the installed device base rather than depending on new patient volumes alone.

Competitive Position

ResMed holds an estimated 60% share of the global CPAP device market, a position built during Philips' multi-year absence but underpinned by something more durable: a connected ecosystem of over 35 million patients on its AirView clinical platform. That scale creates real switching costs for clinicians and home medical equipment providers, who would need to retrain staff and migrate patient data to move to a competing system. Manufacturing scale in Singapore adds a further 200 to 300 basis points of gross margin advantage over smaller rivals. The main threat to this position is not a new entrant but the return of the incumbent it displaced: Philips, once its consent decree lifts, brings back an established brand and prescriber relationships built over decades.

Management & Capital Discipline

Over the past several years, management has divested MatrixCare at a healthy multiple, acquired Noctrix to expand into adjacent restless-legs-syndrome treatment, grown the dividend steadily, and run an active buyback programme, all funded from internally generated cash without touching the balance sheet's net cash position. Execution against stated growth and margin targets has been consistent. One thing worth flagging plainly: management has attributed recent margin gains largely to manufacturing and procurement efficiencies, without fully acknowledging that a substantial share of that improvement reflects Philips simply not being in the market to compete on price.

Financial Position

ResMed carries net cash on its balance sheet rather than net debt, with a fully undrawn revolving credit facility providing additional headroom. Annual free cash flow of roughly $1.6 to $1.8 billion comfortably covers a 23% dividend payout ratio, capital expenditure of under 3% of revenue, and ongoing buybacks. This is a business that could absorb a genuine downturn, whether from Philips' return or a demand shock, without any threat to its financial footing.