Inspire Medical Q1 Earnings Beat, Gross Margin Up

Inspire Medical Systems, Inc. INSP delivered a loss per share of 34 cents in first-quarter 2024, narrower than the year-ago period's loss of 53 cents per share. The metric was also narrower than the Zacks Consensus Estimate of a loss of 63 cents per share.

Revenues in Detail

Inspire Medical registered revenues of $164 million in the first quarter, up 28.2% year over year. The figure beat the Zacks Consensus Estimate by 1.5%.

Per management, the top-line growth was driven by increased market penetration in existing centers, expansion into new territories and increased physician and patient awareness of the Inspire therapy. The top line also benefited from strength in U.S. revenues and revenues outside the United States.

Segment Details

Inspire Medical's operations consist of two geographic regions — the United States and All other countries.

For the quarter under review, U.S. revenues of $155.8 million reflected an increase of 25% from the year-ago quarter on a reported basis. Per management, this upside reflects an increased position in patient awareness, increased market penetration in existing centers and expansion into new implanting centers in the United States and new U.S. sales territories.

During the reported quarter, Inspire Medical activated 66 new U.S. centers, thus bringing the total to 1,246 U.S. medical centers providing Inspire therapy. The company also created 11 new U.S. sales territories in the quarter, bringing the total to 298 U.S. sales territories.

Revenues from outside the United States totaled $8.2 million, up 141% year over year on a reported basis. This was primarily driven by a strong rebound in Europe, especially in Germany, since receiving derogation late in the fourth quarter.

Margin Analysis

In the first quarter, Inspire Medical's gross profit increased 28.9% to $139.3 million. The gross margin expanded 46 basis points to 84.9%.

Selling, general and administrative expenses jumped 23.2% to $125.6 million. Research and development expenses increased 13.1% year over year to $28.9 million. Operating expenses of $154.5 million increased 21.1% year over year.

Operating loss totaled $15.2 million, narrower than the prior-year quarter's operating loss of $19.5 million.

Financial Position

Inspire Medical exited first-quarter 2024 with cash and cash equivalents and short-term investments of $441.4 million compared with $460.4 million at 2023-end.

Net cash provided by operating activities at the end of first-quarter 2024 was $8.9 million against net cash used in operating activities of $1.3 million a year ago.

Outlook

Inspire Medical has revised its outlook for 2024. It has also initiated its earnings per share EPS guidance for the same period.

The company now projects revenues in the range of $783 million-$793 million (representing growth of 25-27% from 2023 levels), up from the previous outlook of $775 million-$785 million (reflecting growth of 24-26% from 2023 levels). The Zacks Consensus Estimate is pegged at $782.9 million.

Inspire Medical reiterated its plans to open 52-56 new U.S. medical centers providing Inspire therapy and add 12-14 new U.S. sales territories during each quarter of 2024.

The company expects its EPS for 2024 between 10 and 20 cents.

Our Take

Inspire Medical exited the first quarter of 2024 with better-than-expected results. The robust improvement of the top and bottom lines was impressive. Strength in year-over-year U.S. revenues and revenues from outside the United States was promising. The gross margin expansion, despite rising product costs, also looks promising.

The activation of new U.S. centers and the creation of new U.S. sales territories during the reported quarter also look encouraging. Management's expectations of activating more U.S. medical centers and adding new U.S. sales territories during each quarter of 2024 also raise our optimism about the stock.

On the earnings call, Inspire Medical's management confirmed that the SURMOUNT-OSA trial results reinforced its view that GLP-1s will be complementary to INSP's market opportunity and may provide a mechanism for potential patients to reduce their weight and qualify for Inspire therapy. A few other notable developments during the quarter include the commercial launches of Inspire Medical's silicon-based leads and Bluetooth patient remote, the ongoing investments in the SleepSync digital platform and the FDA approval of its new physician programmer (which connects directly with the SleepSync platform). These also look promising for the stock.

However, rising operating costs continued to generate operating loss, raising apprehension.

Zacks Rank and Other Key Picks

Inspire Medical currently sports a Zacks Rank #1 (Strong Buy).

A few other-ranked stocks in the broader medical space that have announced quarterly results are Align Technology, Inc. ALGN, ResMed Inc. RMD and Boston Scientific Corporation BSX.

Align Technology, carrying a Zacks Rank of 2 (Buy), reported first-quarter 2024 adjusted EPS of $2.14, beating the Zacks Consensus Estimate by 8.1%. Revenues of $997.4 million outpaced the consensus mark by 2.6%.

Align Technology has a long-term estimated growth rate of 6.9%. ALGN's earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 5.9%.

ResMed reported third-quarter fiscal 2024 adjusted EPS of $2.13, beating the Zacks Consensus Estimate by 10.9%. Revenues of $1.19 billion surpassed the Zacks Consensus Estimate by 1.9%. It currently sports a Zacks Rank #1.

ResMed has a long-term estimated growth rate of 10.7%. RMD's earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 2.8%.

Boston Scientific reported first-quarter 2024 adjusted EPS of 56 cents, beating the Zacks Consensus Estimate by 9.8%. Revenues of $3.86 billion surpassed the Zacks Consensus Estimate by 4.9%. It currently carries a Zacks Rank #2.

Boston Scientific has a long-term estimated growth rate of 12.5%. BSX's earnings surpassed estimates in all the trailing four quarters, the average surprise being 7.5%.

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