Inspire Medical (INSP) Q2 Revenue Up 11%

Inspire Medical Systems (INSP -41.67%), a medical device company specializing in neurostimulation systems for obstructive sleep apnea (OSA), reported its earnings for the second quarter of fiscal 2025 on August 4, 2025. The biggest news was GAAP revenue of $217.1 million, surpassing analyst estimates of $214.3 million, and non-GAAP earnings per share (EPS) of $0.45, which more than doubled consensus expectations of $0.20. However, management lowered its full-year 2025 outlook for both revenue and earnings, reflecting a slower-than-anticipated rollout of the next-generation Inspire V device and increased operating costs. Overall, the quarter featured solid sales growth and positive adjusted earnings but highlighted operational friction that will affect the remainder of the year.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company Overview and Strategic Focus

Inspire Medical Systems designs neurostimulation systems that treat moderate to severe OSA in patients who are unable to tolerate continuous positive airway pressure (CPAP) devices. Its core product is the Inspire therapy system, an implantable device that uses electrical stimulation to keep a patient’s airway open during sleep. The system is a minimally invasive alternative to traditional surgical treatments and is currently the only FDA-approved neurostimulation device of its kind for OSA.

The company’s strategy centers on continued innovation, expanding access through regulatory approvals, and strengthening its relationships with ear, nose, and throat (ENT) physicians and sleep medicine specialists. Success factors include broad reimbursement coverage, clinical evidence supporting the therapy’s efficacy, and ongoing new product development—most recently the Inspire V system, which offers procedural and technical improvements over prior versions.

Quarter in Detail: Financial and Operational Highlights

GAAP revenue rose 11%, beating expectations and marked by growth both in the U.S. and internationally. U.S. revenue increased 10%, while international revenue grew 23%, albeit from a lower base. GAAP gross margin was 84.0%, down 0.8 percentage points due to a $2.1 million charge tied to excess inventory of components for the discontinued Inspire IV product.

Adjusted EBITDA—a measure of earnings before interest, taxes, depreciation, and amortization, adjusted to exclude one-time charges—climbed 14.0% over the prior year. The company recorded adjusted net income of $13.3 million, a 36% increase. However, one-time expenditures weighed on other profit metrics. These included $11.2 million in accelerated stock-based compensation for retirement-eligible employees, $1.7 million in litigation costs, and a $4.0 million non-cash impairment on a strategic investment. As a result, GAAP net loss was $3.6 million, down from net income of $9.8 million in Q2 2024.

The period also saw a meaningful increase in inventory, which rose from $80.1 million as of December 31, 2024, to $121.6 million as of June 30, 2025. This jump reflects the company’s preparation for the Inspire V launch. Cash and investments were $410.7 million as of June 30, 2025, down from $516.5 million as of December 31, 2024, as the company funded inventory build-up and invested in operating expenses.

The highlight for the product portfolio was the U.S. launch of the Inspire V system. Inspire V is a next-generation neurostimulation device for OSA, designed to offer a simplified surgical procedure and more advanced patient monitoring. Feedback from surgeons and patients has been described as positive, but the complete shift from Inspire IV to Inspire V is progressing more slowly than anticipated, impacting the timeline for a full transition in 2025. The company continues to manufacture Inspire IV for non-U.S. markets while it seeks international regulatory approvals for Inspire V.

The reimbursement landscape remained favorable, supported by a new procedural code (CPT 64568) that now covers about 80% of over 300 million insured individuals in the U.S. With the new code, Medicare physician professional fees saw a $200 reduction, but this was described as being offset by greater procedural efficiency and increases in payments to ambulatory surgical centers. No dividend was declared or raised.

Execution Challenges and Business Context

The company lowered its full-year 2025 guidance, with expected total revenue now in the $900–910 million range, compared with prior guidance of $940–955 million, as stated in its updated FY2025 outlook. Forecasted diluted net income per share (GAAP) for FY2025 is now $0.40–$0.50, down markedly from the prior outlook of $2.20–$2.30. Gross margin expectations remain steady at 84–86% for the full year.

This change in guidance is due to a combination of internal factors. The commercial conversion to Inspire V has been slower than planned, as hospitals and clinics worked to deplete existing Inspire IV inventory before adopting the new device. This has changed the expected timing of revenue and led to inventory headwinds. The company recorded a one-time $2.1 million charge for excess Inspire IV components as part of this transition.

Operating expenses rose to $185.7 million, up 15%. Increased spending was driven by expansion in the U.S. sales organization, patient marketing expenses, and higher general corporate costs.

International growth accelerated (up 23%) but remains a small portion of overall sales. The majority of revenue—over 95%—still comes from the U.S. segment. Despite international expansion efforts, the company will continue to rely on further penetration and utilization growth within the U.S. for the near future.

There were no changes or interruptions in key regulatory approvals or insurance reimbursement policies this quarter. The company maintains an exclusive position as the only FDA-approved device of its kind for OSA in the United States. Management continues to invest in research and development, including future product features and improved algorithms for enhanced therapy results.

Looking Ahead: Guidance and Areas to Watch

Management lowered its financial outlook for FY2025. Revenue is now expected to be in the $900–910 million range, growing 12–13% over FY2024. Adjusted EPS is projected to be between $0.40 and $0.50 for FY2025. These changes reflect delays in the Inspire V rollout and temporary disruptions linked to inventory adjustments and operational headwinds. Management describes these headwinds as short term, with actions underway to address them, but the timing of a return to stronger growth remains linked to a successful Inspire V transition and ongoing commercial execution.

No new or updated guidance was offered for other forward-looking financial metrics beyond revenue, gross margin, and adjusted EPS. Investors may want to focus on how quickly the company completes the Inspire V transition in the U.S, as well as timelines for international approvals. Key operational points include management of inventory levels, the pace of new center activations, patient and physician adoption rates, and any early clinical data related to Inspire V outcomes. INSP does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.