ResMed’s Q4 Earnings Call: Gross Margin and Core Growth Signals Don’t Match

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Date of Call: Aug 6, 2026

Financials Results

• Revenue: $1.5B for Q4, up 9% headline, 8% constant currency
• EPS: $2.95 non-GAAP per diluted share, up 16% YOY
• Gross Margin: 62.3% in Q4, up 90 basis points YOY
• Operating Margin: 35.2% in Q4, down 10 basis points YOY

Guidance:

• FY27 revenue growth (core, constant currency): 5% to 7% (includes ~$75M Astral headwind).
• FY27 reported revenue range: $5.75B to $5.85B (includes ~50 bps FX headwind).
• FY27 non-GAAP EPS range: $12.00 to $12.25, up ~7% to 10% reported YOY.
• Core EPS growth (ex-ACQs/divestitures): 12% to 14% YOY.
• FY27 gross margin: low double-digit expansion expected.
• FY27 operating margin: slight increase expected.
• Q1 FY27: typical seasonality (slight YOY contraction in gross margin; OPEX flat with Q4).

Business Commentary:

Revenue Growth and Margin Expansion:

• ResMed reported 9% growth in headline revenue for Q4, or 8% growth on a constant currency basis, with 16% growth in non-GAAP earnings per share.
• Gross margin expanded by 90 basis points year over year, contributing to the strong bottom-line results.
• The growth was driven by supply chain efficiency initiatives and strong demand across sleep and life support devices.

Operational and Strategic Focus:

• For fiscal year 2027, ResMed's priorities include continued operational excellence, active portfolio management, and leveraging strong free cash flow for business reinvestment and shareholder returns.
• The company aims to optimize the sleep health pathway and capitalize on increasing awareness of sleep health, driven by consumer wearables and GLP-1 medications.

Portfolio Management and M&A Activity:

• ResMed acquired Noctrix to expand its sleep health portfolio, focusing on treating restless legs syndrome, and divested its MatrixCare business to sharpen focus on core growth areas.
• The strategic decisions are part of ResMed's active portfolio management to enhance focus on sleep, breathing health, and digital home-based healthcare.

GLP-1 Impact and Sleep Health Awareness:

• Analysis shows patients with both PAP and GLP-1 scripts are 11% more likely to start PAP therapy, with increased adherence and resupply rates.
• The growing awareness of sleep health, supported by GLP-1s and wearables, presents a significant opportunity for ResMed to drive earlier sleep health interventions.

Astral Field Safety Notice Impact:

• A $42 million provision was taken for the Astral field safety notice, affecting fiscal year 2027 with a $75 million revenue headwind.
• The recall and suspension of Astral sales are part of ResMed's commitment to patient safety and quality, prioritizing patient needs amid the field action.

Sentiment Analysis:

Overall Tone: Positive

• Mick Farrell: 'During the fourth quarter, we delivered another set of strong results... a strong bottom line result with 16% growth in non-gap earnings per share. We closed out another great fiscal year for ResMed...' Aaron: 'We had a strong financial performance in Q4... ResMed has a tremendous market opportunity. We have the leading market position. We have an incredibly strong balance sheet and a solid track record of successful execution over decades. We are committed to keep delivering...'

Q&A:

• Question from Steve Williams (Jordan): Could you help us understand the components causing the sequential gross margin decline and the benefit from recent price increases?
  Response: Sequential GM down 50 bps due to increased inflation in components/freight and FX headwind; GM up 90 bps YOY from supply chain productivity. Very modest price increases are being implemented globally to address inflation.

• Question from David Lanatin (Goldman Sachs): What would push the FY27 revenue guide (5-7%) towards the top end?
  Response: The guide includes a ~$75M Astral headwind; underlying core growth is >6-8%. Top end driven by momentum in core sleep devices (8% growth Q4), masks (double-digit growth), and RCS returning to high single-digit growth post-MatrixCare divestiture.

• Question from Yong Li (Jefferies): Can you discuss M&A strategy, including deal size, ROI metrics, and valuations?
  Response: Targeting tuck-in acquisitions ($100M-$500M range) aligned with core strategy (e.g., Noctrix, Virtuox, Snap Technologies). Focus on strategic fit, growth opportunity, and ROI over WAC; will monitor accountability post-acquisition.

• Question from Dan Hearn (MST): Did you discuss OPEX within FY27 guidance, given the material Q4 R&D increase?
  Response: Guidance focuses on revenue and EPS; OPEX may fluctuate between R&D/SG&A quarterly but committed to reinvesting for growth and delivering world-class shareholder returns (core EPS growth 12-14% embedded).

• Question from Jordan Bernstein (Steeple): Can you break down the 5-7% organic revenue growth into price vs. volume, and discuss device/masks trends?
  Response: Growth predominantly from volume (patient funnel, repack, resupply, software). Market growth rate for devices is mid-single digits, masks high single digits; Q4 beat both. Price contribution is very modest, with low double-digit GM expansion and slight price increases.

• Question from Craig Wong-Pan (RBC): Why will gross margin decline in Q1 but improve for the full year?
  Response: Q1 inflation outpacing productivity; full-year GM improvement from pipeline initiatives (e.g., distribution network optimization benefits in Q2-Q4) and modest price increases phasing in.

• Question from Leanne Harrison (Bank of America): What expenses are expected for the Astral field safety process in FY27 beyond the $42M Q4 charge?
  Response: The $42M Q4 charge is the total estimated cost for the field action. FY27 includes a $75M revenue headwind (~$0.15 EPS impact) from suspending new Astral sales; no further material charges specified in guidance.

• Question from Brett Fishpin (KeyBank Capital Markets): How does the 130 bps Astral headwind relate to EPS guidance?
  Response: The $75M Astral revenue headwind translates to ~$0.15 EPS headwind, embedded in the 12-14% core EPS growth guide. Excluding this, core EPS growth would be higher.

• Question from Leanne Harrison (Bank of America): How are oral GLP-1s behaving compared to injectables in driving patients into the funnel?
  Response: Early data shows oral GLP-1s have lower adherence and weight loss vs. injectables, but both are tailwinds. Patients on both are more likely to start PAP therapy (~11% higher) and have higher resupply rates.

• Question from Brandon Vasquez (William Blair): Why was Americas devices growth lower in the back half vs. international, and what's the outlook for FY27?
  Response: Americas devices growth steady; FY27 expects mid-single-digit growth with opportunities to meet/beat. International growth aided by launches in China, Asia Pacific, but Americas remains the focus with strong demand generation.

• Question from Baron Joe: Given the AirSense 11 is ~5 years old, should we expect a new platform soon (AirSense 12) or an extended release?
  Response: No comment on future product pipeline. The AirSense 11 remains the best-selling platform with ongoing global launches (e.g., China). R&D is focused on next-gen devices, masks, and software across the portfolio.

Contradiction Point 1

Gross Margin Drivers and Expectations

Inconsistent explanation for sequential gross margin decline and full-year outlook, impacting understanding of near-term pressures and long-term financial health.

Could you discuss the company's financial performance and guidance for the upcoming quarter? - Craig Wong-Pan (RBC)

2026Q4: Gross margin declined ~50 bps sequentially due to increased inflation in electronic components and freight costs, plus a 20 bps FX headwind... Full-year improvement is expected from a robust pipeline of productivity initiatives... - Mick Farrell(CEO) and Aaron(CFO)

What factors are causing the Q1 gross margin decline but a full-year improvement? - Craig Wong-Pan (RBC)

2026Q4: The Q1 decline is due to inflation outpacing productivity in the first quarter. The full-year low double-digit gross margin expansion is supported by... distribution network optimization (benefits to be realized in Q2-Q4)... - Aaron Foley(CFO)

Contradiction Point 2

Core Growth and Revenue Guidance

Contradiction in the stated range for underlying core growth, affecting interpretation of growth drivers and revenue forecast precision.

David Lanatin (Goldman Sachs) - David Lanatin (Goldman Sachs)

2026Q4: Excluding this, underlying core growth is >6–8%. - Mick Farrell(CEO) and Aaron(CFO)

What factors could drive the FY27 revenue guidance to the upper end of the 5–7% range? - Davin Thillainathan (Goldman Sachs)

2026Q4: The underlying core growth of the business... is in the range of 6% to 8%. - Aaron Foley(CFO)

Contradiction Point 3

M&A Strategy and Deal Metrics

Inconsistency in the stated primary focus for evaluating tuck-in acquisitions, raising questions about strategic priorities and deal evaluation criteria.

Yong Li (Jefferies) asks about the company's performance in the latest quarter? - Yong Li (Jefferies)

2026Q4: Targeting tuck-in acquisitions of $100–$500M, focusing on strategic fits like Noctrix... strategic fit, growth opportunity, and ROI... - Mick Farrell(CEO) and Aaron(CFO)

Could you elaborate on the company's M&A strategy, including target deal sizes, ROI expectations, and valuation approaches? - Matt Taylor (Jefferies)

2026Q4: The company will consider multiple metrics beyond strategic fit, including return on investment over WACC and ensuring accountability post-acquisition. - Aaron Foley(CFO)

Contradiction Point 4

Gross Margin Outlook

Contradiction in long-term gross margin accretion expectations, casting doubt on the company's ability to sustain margin improvements despite inflationary pressures.

Steve Williams (Jordan) - Steve Williams (Jordan)

2026Q4: Gross margin declined ~50 bps sequentially due to increased inflation... Despite this, it was up 90 bps year-over-year due to strong supply chain productivity. - Mick Farrell and Aaron

What are the factors behind the sequential gross margin decline and the impact of recent price increases? - David Bailey (Morgan Stanley)

2026Q3: Long-term gross margin accretion (double-digit basis points annually) through 2030 is still expected despite potential cost inflation. - Michael Farrell (CEO) and Brett Sandercock (CFO)

Contradiction Point 5

Noctrix Acquisition Profitability and Integration

Contradiction in the characterization of Noctrix's current profitability and margin profile, impacting assessment of acquisition rationale and integration challenges.

Yong Li (Jefferies) - Yong Li (Jefferies)

2026Q4: Targeting tuck-in acquisitions... Evaluations emphasize strategic fit, growth opportunity, and ROI... (e.g., ROI over WAC), with a disciplined approach to post-acquisition accountability. - Mick Farrell and Aaron

Could you elaborate on the company's M&A strategy, including typical deal sizes, ROI expectations, and valuation approaches? - Steven Wheen (Jarden Australia)

2026Q3: Noctrix is growing faster than ResMed and has higher gross margins. - Michael Farrell (CEO) and Brett Sandercock (CFO)

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