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01/10 16:00
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary presents mixed signals: strong cash flow and a solid cash position are positive, but reduced revenue and net income guidance, coupled with increased marketing costs, are concerning. The Q&A reveals management's lack of detailed guidance for 2026 and unclear responses to key questions. Despite positive trends with Inspire V, the overall sentiment leans negative due to lower guidance and uncertainties around growth drivers and competitive pressures.
Revenue Third quarter revenue totaled $224.5 million, a 10% increase compared to the prior year period. U.S. revenue was $214.4 million, an increase of 9% from the prior year period, while revenue outside the U.S. was $10.1 million, a 37% increase year-over-year. The increase was attributed to increased sales volume and a favorable sales mix of Inspire V.
Gross Margin Gross margin in the quarter was 85.8%, compared to 84.1% in the prior year period. The increase was primarily due to increased sales volume and a higher sales mix of Inspire V, which is more cost-effective to manufacture.
Operating Expenses Total operating expenses for the quarter were $183.1 million, an increase of 17% compared to $156.5 million in the third quarter of 2024. The increase was primarily due to higher patient marketing expenses and general corporate costs, partially offset by a reduction in R&D expenses year-over-year.
Operating Income Operating income for the quarter totaled $9.6 million, compared to $14.3 million in the prior year period. The decrease was due to higher operating expenses, including legal fees related to a civil investigative demand and patent infringement lawsuits.
Net Income Net income for the quarter was $9.9 million, compared to $18.5 million in the prior year period. This represented diluted net income per share of $0.34, compared to $0.60 in the third quarter of 2024. The decline was attributed to increased operating expenses.
Adjusted EBITDA Adjusted EBITDA for the quarter totaled $44 million, compared to $44.5 million in the prior year period. The adjusted EBITDA margin was 20%, compared to 22% in the third quarter of 2024. The slight decline was due to increased operating expenses.
Operating Cash Flow Operating cash flow totaled $68.5 million for the third quarter, bringing the year-to-date total to $64.5 million. The strong cash flow performance was attributed to effective cost management and revenue growth.
Cash and Investments The company ended the quarter with $411 million in cash and investments, reflecting a strong cash position that supports growth strategies.
Inspire V System: The Inspire V system demonstrated significant performance improvement, including a 20% reduction in surgical times and clinically relevant reduction in disease severity. It also showed an 87% inspiratory overlap with patient breathing, optimizing therapy.
Clinical Studies: Studies showed Inspire's ability to improve long-term cardiovascular comorbidities and reduce risks such as myocardial infarction and stroke compared to CPAP or no treatment.
U.S. Market Expansion: Physician training for Inspire V is over 98% complete, with contracting over 90% complete and SleepSync onboarding at 75%. Over 75% of centers are now implanting Inspire V.
Reimbursement Updates: CMS finalized a 2026 physician fee schedule with an 11% increase for CPT code 64568. Medicare hospital reimbursement is proposed to increase by 4% and ASC reimbursement by 5% starting January 1, 2026.
Revenue Growth: Third quarter revenue reached $224.5 million, a 10% increase year-over-year. Full-year revenue guidance is $900-$910 million, representing 12%-13% growth.
Cost Management: Gross margin improved to 85.8% due to increased sales volume and a favorable sales mix of Inspire V. Operating income was $9.6 million, and earnings per share guidance increased to $0.90-$1.
Patient Marketing: New ad campaigns, including celebrity partnerships, were launched to increase awareness and adoption of Inspire therapy.
GLP-1 Impact: GLP-1 drugs are increasing patient interest in sleep health, expanding the patient pool for Inspire therapy. These drugs help higher BMI patients lose weight, making them eligible for Inspire therapy.
Legal and Regulatory Risks: The company faces legal challenges, including a civil investigative demand from the Department of Justice and patent infringement lawsuits with a competitor. These legal issues could result in financial liabilities and distract management from core operations.
Operational Costs: Operating expenses increased by 17% year-over-year, driven by higher patient marketing expenses and general corporate costs. This rise in costs could pressure margins and profitability if not managed effectively.
Revenue Growth Challenges: While revenue grew by 10% year-over-year, the growth rate has slowed compared to prior periods. This deceleration could signal challenges in sustaining high growth rates in the future.
Market Competition: The company faces competitive pressures, as evidenced by ongoing patent infringement lawsuits. Increased competition could impact market share and pricing power.
Economic and Reimbursement Risks: The company is awaiting final approval for reimbursement changes from CMS, which could impact future revenue. Additionally, economic uncertainties could affect patient spending and insurance coverage.
Taxation Risks: The company expects a higher-than-anticipated tax rate of 25% for 2025, which could impact net income and financial planning.
Revenue Guidance for 2025: Reaffirmed revenue guidance range of $900 million to $910 million, representing an increase of 12% to 13% compared to full year 2024 revenue.
Gross Margin Guidance for 2025: Expected to be in the range of 84% to 86% for the full year.
Earnings Per Share (EPS) Guidance for 2025: Increased guidance for diluted net income per share to $0.90 to $1, up from the previous range of $0.40 to $0.50 per share.
Reimbursement Updates for 2026: CMS finalized the 2026 physician fee schedule at approximately $660, an 11% increase for CPT code 64568. Proposed increases in Medicare hospital reimbursement to $32,000 (up 4%) and ASC reimbursement to $28,000 (up 5%) for CPT code 64568, effective January 1, 2026.
Market Trends and Patient Pool Expansion: GLP-1s are driving increased interest in sleep health and bringing more patients into clinics. Higher BMI patients losing weight with GLP-1s are becoming eligible for Inspire therapy, expanding the patient pool.
Operational Strategy for Growth: Focus on training advanced practice providers, certifying additional surgeons, and driving adoption of SleepSync and digital tools to increase provider capacity and support long-term growth.
Future Profitability Outlook: Actions are underway to accelerate adoption of Inspire V for the remainder of 2025 and position the company for strong profitable growth beyond 2025.
Share Repurchase: We completed $50 million of share repurchase in the third quarter, bringing the year-to-date total to $125 million.
The earnings call summary presents mixed signals: strong cash flow and a solid cash position are positive, but reduced revenue and net income guidance, coupled with increased marketing costs, are concerning. The Q&A reveals management's lack of detailed guidance for 2026 and unclear responses to key questions. Despite positive trends with Inspire V, the overall sentiment leans negative due to lower guidance and uncertainties around growth drivers and competitive pressures.
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