INSP Stock Falls Despite Q4 Earnings Beat, Gross Margin Expands

Core Insights - Inspire Medical Systems, Inc. (INSP) reported fourth-quarter 2025 adjusted earnings per share (EPS) of $1.65, reflecting a 43.5% year-over-year increase and surpassing the Zacks Consensus Estimate by 139.1% [1] Revenue Performance - INSP's revenues for the fourth quarter reached $269.1 million, marking a 10.5% year-over-year growth, aligning with the Zacks Consensus Estimate [2] - Revenue growth was attributed to expansion at existing centers and the addition of new centers [2] - As of December 31, 2025, INSP operated 295 U.S. sales territories and employed 275 field clinical representatives, compared to 335 territories and 230 representatives at the end of 2024 [2] Margin Analysis - Gross profit for the fourth quarter increased by 14.4% year over year to $233 million, with gross margin expanding by 160 basis points to 86.6% [3] - Selling, general and administrative expenses rose by 14.4% year over year to $161.9 million, while research and development expenses decreased by 17.8% to $24.9 million [3] - Operating profit totaled $46.1 million, down 44.6% from the previous year, but operating margin improved by nearly 380 basis points to 17.1% [4] Financial Position - At the end of the fourth quarter, Inspire Medical had cash and cash equivalents and short-term investments totaling $404.6 million, up from $322.6 million at the end of the third quarter [5] - Cumulative net cash provided by operating activities was $117 million, compared to $130.2 million a year ago [5] Outlook - Inspire Medical revised its revenue guidance for 2026 to a range of $950 million to $1 billion, representing a growth of 4-10% from 2025 levels, down from a previous estimate of $1,003 million to $1,013 million [6] - The adjusted EPS outlook for 2026 is projected to be between $1.85 and $2.35, with the Zacks Consensus Estimate at $1.72 [6] Market Reaction - Following the lowered revenue outlook for 2026, INSP's shares fell by 8.7% in after-hours trading [10] - Over the past six months, INSP's shares have declined by 21.9%, while the industry has seen a 33.2% decline, and the S&P 500 Index has gained 9.6% [10] Product Development - The transition to the Inspire V model is expected to be completed by late 2026, with over 90% of centers having already implanted the device [8] - The recent FDA approval for 3 Tesla MRI compatibility is anticipated to further boost demand for Inspire therapy [8] - Inspire Medical is also working on establishing a new CPT code for Inspire V, which may take at least two years to implement [11]