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ResMed delivered a strong Q4 FY2025 beat with robust margin expansion, digital health momentum, and increased capital returns, positioning RMD for continued growth despite higher tax rates and integration risks.

# ResMed Delivers Robust Q4 FY2025 Beat: Margin Expansion and Digital Health Drive Strong Outlook

---

## Executive Summary

- **ResMed Inc. (RMD) delivered a standout Q4 FY2025**, with revenue of **$1.348B (+10% YoY, +9% constant currency)** and full-year revenue of **$5.146B (+10% YoY)**, both exceeding consensus expectations. **GAAP diluted EPS surged to $2.58 (+30% YoY)**, and non-GAAP EPS reached **$2.55 (+23% YoY)**, reflecting broad-based strength across devices and masks, as well as procurement and FX tailwinds.
- **Earnings quality was high**, with gross margins expanding by 230 basis points YoY to **60.8% (GAAP)** and **61.4% (non-GAAP)**, driven by operational efficiencies and disciplined cost management. SG&A and R&D expenses grew in absolute terms but were contained as a percentage of revenue, supporting robust operating leverage.
- **Management’s tone was bullish**, highlighting sustained global demand, digital health innovation (notably AI/GenAI integration), and the strategic VirtuOx acquisition. Guidance for FY2026 points to further gross margin expansion (**61–63%**), a higher effective tax rate (**21–23%**), and increased capital returns (dividend raised to **$0.60/share** and an expanded buyback program).
- **Risks include a rising effective tax rate (to 21.9% in Q4 from 18.7%)**, ongoing regulatory and supply chain challenges, and potential FX volatility. However, these are balanced by significant opportunities in digital health and operational leverage from recent acquisitions.
- **Catalyst watch:** Near-term, expect positive market reaction to the earnings beat, margin expansion, and capital return enhancements. Key upcoming catalysts include the integration of VirtuOx and further digital health product rollouts.

---

## Performance Snapshot

| Metric         | Reported      | Consensus | Surprise | YoY Change |
|----------------|--------------|-----------|----------|------------|
| Revenue        | $1.348B      | $1.31B    | +$38M    | +10%       |
| EPS (GAAP)     | $2.58        | $2.20     | +$0.38   | +30%       |
| EPS (Non-GAAP) | $2.55        | $2.20     | +$0.35   | +23%       |
| Gross Margin   | 60.8% (GAAP) | 58.5%     | +230bps  | +230bps    |
| Op. Income     | $454.5M      | $410M     | +$44.5M  | +19%       |
| Op. Cash Flow  | $539M        | $500M     | +$39M    | +8%        |

**Key KPIs:**  
- Device and mask volume growth: double-digit YoY  
- VirtuOx acquisition annual run rate: ~$45M

---

## Earnings Quality

ResMed’s Q4 FY2025 results reflect **high-quality earnings**. Revenue growth was broad-based, with both devices and masks contributing meaningfully. **Gross margin expansion (up 230bps YoY)** was achieved through procurement efficiencies, favorable FX, and improved cost of goods sold management. While SG&A and R&D expenses increased, they were well-contained as a percentage of revenue (SG&A at **19.7%**), supporting operating leverage. The company’s strong operating cash flow (**$539M**) and disciplined expense management underpin the sustainability of these results.

---

## Management Commentary & Guidance

Management struck a **confident and bullish tone** on the earnings call, emphasizing continued global demand, the integration of digital health and AI/GenAI capabilities, and the strategic value of the VirtuOx acquisition. Guidance for FY2026 includes:
- **Gross margin:** 61–63%
- **Adjusted effective tax rate:** 21–23%
- **Capital returns:** Dividend increased to $0.60/share; expanded share repurchase program

Management’s outlook is **realistic and slightly above Street expectations**, with a focus on sustainable margin improvement and operational leverage.

---

## Key Risks

- **Rising effective tax rate** (Q4: 21.9% vs. 18.7% prior)
- **Regulatory and reimbursement risks** in key markets
- **Supply chain constraints** and potential FX volatility
- **Integration risk** from recent acquisitions (e.g., VirtuOx)

---

## Expected Market Reaction

Given the **strong revenue and EPS beats, margin expansion, and positive forward guidance**, the market is expected to react **positively**. The increase in dividend and share buybacks should further support investor sentiment, even as higher tax rates and supply chain risks remain in focus.

---

## Final Takeaway

**ResMed’s Q4 FY2025 was a strong quarter**, marked by sustainable margin expansion, robust top-line growth, and disciplined cost control. The market may be **underappreciating the durability of margin gains** and the upside from digital health integration, while **overemphasizing tax and supply chain risks**. 

**Upcoming catalysts:**  
1. Progress on VirtuOx integration and digital health product launches  
2. Further updates on capital allocation and margin trajectory in FY2026

ResMed remains well-positioned for continued growth and margin improvement, with a clear strategy to leverage digital health and operational efficiencies for long-term shareholder value.

ResMed (RMD): Margin Expansion & Digital Health Drive Beat

ResMed’s accelerating digital health adoption and expanding margins are driving robust revenue growth and recurring earnings upside, positioning RMD for continued outperformance.

# ResMed Inc.: Digital Health Momentum and Margin Expansion Set the Stage for a Robust Quarter

## Executive Summary: Bullish Outlook Anchored by Digital Growth and Margin Gains

We maintain a **Bullish** stance on ResMed Inc. (NYSE: RMD) heading into the upcoming quarter, driven by sustained high-single-digit revenue growth and expanding margins. **Q3 FY25 revenue reached $1.29B (+8% YoY)**, with **gross margin up 140 bps YoY to 59.3%** and **net margin improving to 28.26%**. The **Residential Care Software segment’s +10% YoY organic growth** is a key differentiator, supporting recurring revenue and business resilience. The market may be underestimating the impact of ResMed’s accelerating digital integration, which is poised to enhance customer retention and drive incremental EPS upside.

## Recent Trends Signal What’s Next: Revenue and Margin Expansion Continue

ResMed’s last two quarters underscore a clear trajectory of operational improvement and top-line growth. **Q3 FY25 revenue of $1.29B (+8% YoY)** follows a similarly strong Q2, while **gross margin expanded to 59.3%** (up 140 bps YoY). **Net margin improved from 26.88% in Q2 to 28.26% in Q3**, reflecting disciplined cost control and tariff relief. Adjusted EPS of **$2.37 in Q3** beat consensus, sustaining a pattern of outperformance.

### Recent Performance Overview

| Metric            | Q4 FY24      | Q1 FY25      | Q2 FY25      | Q3 FY25         |
|-------------------|--------------|--------------|--------------|-----------------|
| Total Revenue     | $1.22B       | $1.25B       | ~$1.28B*     | $1.29B (+8% YoY)|
| Gross Margin      | 57.7%        | 58.1%        | N/A          | 59.3% (+140 bps YoY) |
| Net Margin        | 25.9%        | 26.2%        | 26.88%       | 28.26%          |
| Adjusted EPS      | $2.28        | $2.31        | $2.43        | $2.37           |

*Q2 figure represents consensus estimates.

**Trend:** The table highlights a steady climb in revenue, margin expansion, and consistent EPS beats, setting a constructive backdrop for the next quarter.

## Management’s Forward Tone and Positioning: Cautious Optimism with Digital Focus

Management’s recent commentary has shifted to a **“cautiously optimistic”** tone, emphasizing operational discipline and digital transformation. In the Q3 FY25 call, leadership stated, **“We’re seeing exceptional net margin and robust financial management,”** and confirmed, **“tariff exemption for core products confirmed.”** This marks a notable pivot from the more defensive language of prior quarters, where cost headwinds and supply chain risks were front and center. The current tone signals confidence in both cost containment and top-line drivers, particularly as digital health initiatives scale.

## KPI Trends & Upcoming Quarter Drivers: Digital Health and Margin Leverage

The most relevant KPIs for the upcoming quarter are:

- **Gross Margin:** Up to **59.3% in Q3 FY25** (+140 bps YoY), reflecting improved manufacturing and logistics.
- **Adjusted EPS:** **$2.37 in Q3**, beating consensus and indicating strong operational leverage.
- **Residential Care Software Growth:** **+10% YoY organic growth**, highlighting the shift to recurring, higher-margin revenue.

### KPI Movement Table

| KPI                        | Q3 FY24   | Q2 FY25   | Q3 FY25   | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Gross Margin (%)           | 57.9%     | N/A       | 59.3%     | +140 bps   | +X bps     |
| Adjusted EPS ($)           | $2.15     | $2.43     | $2.37     | +10%       | -2.5%      |
| Residential Care Software  | +8%       | +9%       | +10%      | +2 pts     | +1 pt      |

**Implication:** Sustained margin improvement and digital segment growth are likely to drive further EPS upside, while recurring revenue streams enhance earnings visibility.

## Missed by the Street: Digital Integration as a Recurring Revenue Catalyst

A subtle but critical insight from recent filings is management’s focus on **“enhancing out-of-hospital monitoring”** and digital integration within clinical data flows. This pivot, referenced in the Q3 call, is likely to **increase customer stickiness and recurring revenue**—a factor not fully reflected in consensus models. If digital adoption accelerates, EPS could see incremental upside beyond current expectations.

## Scenarios for the Upcoming Quarter: Bull, Base, and Bear Cases

### Scenario Table

| Scenario   | Revenue Growth | EPS Range      | Operating Margin | Key Assumptions                                              |
|------------|---------------|----------------|------------------|--------------------------------------------------------------|
| Bull       | +9–10%        | $2.45–$2.55    | >29%             | Strong digital health uptake, lower input costs, FX tailwinds|
| Base       | +7–8%         | $2.35–$2.45    | 28–29%           | Ongoing operational efficiency, stable FX, steady demand     |
| Bear       | +1–2%         | $2.10–$2.25    | <28%             | Competitive pressure, FX headwinds, input cost inflation     |

**Most Likely Scenario:** The **Base case** is most probable, given current evidence of operational efficiency, digital momentum, and stable demand, with upside risk if digital integration accelerates faster than expected.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter    | Revenue ($B) | Gross Margin (%) | Net Margin (%) | Adjusted EPS ($) |
|------------|--------------|------------------|----------------|------------------|
| Q4 FY24    | 1.22         | 57.7             | 25.9           | 2.28             |
| Q1 FY25    | 1.25         | 58.1             | 26.2           | 2.31             |
| Q2 FY25    | ~1.28*       | N/A              | 26.88          | 2.43             |
| Q3 FY25    | 1.29         | 59.3             | 28.26          | 2.37             |

### KPI Movement (YoY and QoQ)

| KPI                        | Q3 FY24   | Q2 FY25   | Q3 FY25   | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Gross Margin (%)           | 57.9%     | N/A       | 59.3%     | +140 bps   | +X bps     |
| Adjusted EPS ($)           | $2.15     | $2.43     | $2.37     | +10%       | -2.5%      |
| Residential Care Software  | +8%       | +9%       | +10%      | +2 pts     | +1 pt      |

### Key Management Quotes

1. **“We’re seeing exceptional net margin and robust financial management.”**  
   – Q3 FY25 Earnings Call  
   *Signals confidence in cost control and profitability.*

2. **“Tariff exemption for core products confirmed.”**  
   – Q3 FY25 Earnings Call  
   *Reduces cost risk and supports margin expansion.*

3. **“Enhancing out-of-hospital monitoring is a strategic priority.”**  
   – Q3 FY25 Earnings Call  
   *Points to digital integration as a future growth lever.*

4. **“Residential Care Software delivered double-digit organic growth.”**  
   – Q3 FY25 Earnings Call  
   *Highlights the strength of recurring revenue streams.*

5. **“We are proactively managing FX and input cost headwinds.”**  
   – Q3 FY25 Earnings Call  
   *Acknowledges external risks but signals mitigation efforts.*

6. **“We expect operational efficiencies to continue supporting margin improvement.”**  
   – Q3 FY25 Earnings Call  
   *Guides toward further margin gains next quarter.*

7. **“Competitive dynamics remain in focus, but our innovation pipeline is robust.”**  
   – Q3 FY25 Earnings Call  
   *Addresses market share risks while emphasizing product leadership.*

---

**Conclusion:**  
ResMed’s digital health momentum, margin expansion, and disciplined execution position the company for another strong quarter. The market may be underestimating the earnings impact of digital integration and recurring revenue growth, supporting our Bullish outlook.

ResMed (RMD): Digital Growth Fuels Margin Upside