Inspire Medical Systems’s (NYSE:INSP) Q4: Beats On Revenue

Medical technology company Inspire Medical Systems (NYSE:INSP) reported Q4 CY2024 results topping the market’s revenue expectations, with sales up 24.5% year on year to $239.7 million. The company expects the full year’s revenue to be around $947.5 million, close to analysts’ estimates. Its GAAP profit of $1.15 per share was 54% above analysts’ consensus estimates.

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"We are thrilled with our strong performance in the fourth quarter, growing revenue 25% year-over-year, delivering nearly $32 million in operating income and increasing diluted net income per share 135% year-over-year," said Tim Herbert, Chairman and Chief Executive Officer of Inspire Medical Systems.

Company Overview

Founded in 2007, Inspire Medical Systems (NYSE:INSP) develops and markets products for obstructive sleep apnea (OSA), with its flagship product being a neurostimulation system designed to improve breathing during sleep.

Medical Devices & Supplies - Specialty

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies, although specialty devices are more niche. The capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Inspire Medical Systems’s 57.8% annualized revenue growth over the last five years was incredible. Its growth surpassed the average healthcare company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Inspire Medical Systems’s annualized revenue growth of 40.3% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.

We can better understand the company’s revenue dynamics by analyzing its number of U.S. medical centers, which reached 1,435 in the latest quarter. Over the last two years, Inspire Medical Systems’s U.S. medical centers averaged 28.4% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from higher demand per center.

This quarter, Inspire Medical Systems reported robust year-on-year revenue growth of 24.5%, and its $239.7 million of revenue topped Wall Street estimates by 0.9%.

Looking ahead, sell-side analysts expect revenue to grow 18% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and suggests the market is factoring in success for its products and services.

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Operating Margin

Although Inspire Medical Systems was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 6.8% over the last five years.

On the plus side, Inspire Medical Systems’s operating margin rose by 53.2 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 16.2 percentage points on a two-year basis. These data points are very encouraging and shows momentum is on its side.

In Q4, Inspire Medical Systems generated an operating profit margin of 13.3%, up 8.5 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Inspire Medical Systems’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

In Q4, Inspire Medical Systems reported EPS at $1.15, up from $0.49 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Inspire Medical Systems’s full-year EPS of $1.73 to grow 12.7%.

Key Takeaways from Inspire Medical Systems’s Q4 Results

It was great to see Inspire Medical Systems beat analysts’ revenue and EPS expectations this quarter. We were also excited its full-year EPS guidance outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 2% to $184.51 immediately after reporting.

Inspire Medical Systems had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.