Inspire Medical Systems (INSP) Q3 2025: Inspire 5 Drives 180bps Margin Expansion as Adoption Hits 75%

November 3, 2025 | By EarningsIQ Research

Inspire Medical’s Q3 underscored the operational impact of Inspire 5, with broad-based clinical validation and margin gains offsetting transitional headwinds. The company’s disciplined cost management and focused territory realignment signal a shift toward higher operating leverage, but 2026 growth expectations reset below consensus as adoption and inventory transitions continue to weigh on the outlook.

Summary

• Inspire 5 Adoption Accelerates: Over 75% of centers now implanting Inspire 5, driving efficiency and margin gains.
• Cost Discipline Supports EPS Upside: Operating leverage and expense control boost full-year earnings guidance.
• 2026 Growth Tempered: Early guidance signals 10% to 11% growth, below consensus, as transition and competitive factors persist.

Performance Analysis

Inspire Medical’s Q3 results reflected a business in active transition, with Inspire 5, the company’s next-generation hypoglossal nerve stimulator, rapidly gaining share in the implant base. U.S. revenue growth of 9% was supported by a 37% international surge, though total operating expenses rose 17% year over year, mainly from stepped-up patient marketing and general corporate costs. Notably, gross margin expanded 180 basis points to 85.8%, attributed to the higher mix and manufacturing efficiency of Inspire 5 devices.

Despite legal fees and ongoing investments in marketing, operating income and EPS outpaced internal expectations, prompting a substantial raise in full-year EPS guidance. Share repurchases continued, with $50 million deployed in Q3, reflecting confidence in the balance sheet and future cash flows. Adjusted EBITDA margin held at 20%, down slightly from the prior year, as expense growth outpaced revenue but was partially offset by manufacturing and operational gains.

• Inspire 5 Mix Shift: Higher Inspire 5 volumes drove gross margin expansion and improved procedural efficiency.
• Expense Growth Moderation: R&D and OpEx increases were targeted, with territory realignment and digital tool investments balancing marketing spend.
• International Momentum: Non-U.S. revenue accelerated, though Inspire 4 inventory remains necessary for regulatory transitions abroad.

With most centers now transitioned to Inspire 5 and new marketing campaigns underway, the company is positioned to drive both utilization and new center activation into 2026, but growth cadence will be influenced by inventory normalization and evolving reimbursement dynamics.

Executive Commentary

Strategic Positioning

1. Inspire 5 Platform as Growth Catalyst

Inspire 5, the company’s latest closed-loop stimulation system, is central to both clinical differentiation and operational leverage. Clinical data from the U.S. and Singapore show not only improved patient outcomes but also a 20% reduction in surgical time and an 87% inspiratory overlap, validating the platform’s value proposition. The simplified procedure has been a key lever in re-engaging lower-volume centers and accelerating adoption among ENT surgeons previously deterred by Inspire 4’s more complex implant requirements.

2. Commercial Execution and Territory Optimization

The company is actively consolidating territories and realigning field resources to drive efficiency. The shift toward a one-to-one ratio of territory managers to field clinical reps, with continued hiring and promotions, is intended to support both higher-volume centers and the activation of new accounts. This operational model is designed to enable more procedures per day, particularly as high-volume centers demonstrate the potential for 30% to 40% increases in surgical throughput with Inspire 5.

3. Reimbursement and Market Access Tailwinds

Recent CMS decisions to increase physician and hospital reimbursement for CPT code 64568 will become effective in 2026, closing the economic gap between Inspire 4 and Inspire 5 and encouraging broader adoption. Over 90% of covered lives now have access to Inspire 5 under the new codes, creating a long-term tailwind for both utilization and center expansion. However, some centers will continue to use Inspire 4 for economic reasons until the full reimbursement transition is complete, especially internationally.

4. GLP-1 Dynamics and Patient Funnel Expansion

GLP-1, a class of weight-loss drugs, is expanding the top of the funnel for sleep apnea diagnosis as more patients seek insurance coverage, but also introduces a trial period before surgical therapy. Inspire’s survey of 200 sleep physicians confirms that most prescribe GLP-1s alongside CPAP, not as a substitute, and expect higher patient volumes as a result. This dynamic is expected to increase the pool of patients eligible for Inspire therapy, particularly as weight loss enables access for higher BMI patients.

5. Inventory and Manufacturing Transition

The transition from Inspire 4 to Inspire 5 inventory is nearing completion in the U.S., though finished goods inventory remains elevated due to regulatory lag in Europe and Asia. The company is winding down Inspire 4 manufacturing but will maintain supply for select domestic and international centers until Inspire 5 is fully approved abroad. This inventory strategy is designed to ensure uninterrupted access while supporting the global rollout of Inspire 5.

Key Considerations

This quarter’s results highlight the company’s ability to execute a complex product and commercial transition while maintaining margin discipline and clinical momentum. However, the growth reset for 2026 and ongoing inventory normalization suggest a more measured near-term trajectory.

Key Considerations:

• Inspire 5 Adoption Pace: Over 75% of centers implanting Inspire 5, but residual Inspire 4 use will persist into 2026, especially internationally.
• Operational Efficiency Gains: Territory realignment and digital tool adoption are expected to drive higher case volumes per account, particularly at high-performing centers.
• Reimbursement Changes: 2026 reimbursement increases provide a structural tailwind, but short-term economic considerations still drive mixed adoption at some sites.
• GLP-1 and Patient Flow: The GLP-1 trend is expanding diagnosis rates and eligibility, but also introduces a lag as patients trial non-surgical therapies.
• Inventory Overhang: Elevated finished goods inventory includes both Inspire 4 and 5, with full normalization dependent on regulatory progress abroad and continued U.S. transition.

Risks

Risks remain around the pace of Inspire 5 adoption, the impact of new competitors entering the hypoglossal nerve stimulation market, and the durability of GLP-1-driven patient flow. Inventory normalization and reimbursement transitions may create short-term volatility in revenue recognition and margin, while expense discipline must be maintained to preserve operating leverage as growth moderates. Regulatory delays abroad and potential shifts in referral patterns also warrant close monitoring.

Forward Outlook

For Q4 2025, Inspire Medical guided to:

• Continued revenue growth in line with full-year guidance of $900 to $910 million (12% to 13% YoY).
• Gross margin in the 84% to 86% range.

For full-year 2025, management raised EPS guidance to $0.90 to $1.00 and expects:

• Operating margin improvement driven by Inspire 5 mix and expense discipline.

Looking to 2026, management provided an early indication of 10% to 11% revenue growth, below prior consensus, citing continued Inspire 5 transition, GLP-1 trialing, and emerging competition. Formal guidance will be provided in January.

Takeaways

Inspire’s transition to Inspire 5 is unlocking material clinical and operational benefits, but the company is signaling a more measured growth cadence for 2026 as the adoption curve and inventory dynamics play out.

• Margin Expansion: Inspire 5 mix and manufacturing efficiency are driving gross margin gains, with further leverage expected as adoption increases.
• Growth Reset: Early 2026 growth guidance of 10% to 11% reflects prudent planning amid transition and competitive uncertainty, well below consensus expectations.
• Watch for Full Inspire 5 Transition and International Progress: Investors should monitor the pace of Inspire 5 adoption, inventory normalization, and regulatory milestones abroad for signs of upside or incremental risk.

Conclusion

Inspire Medical is executing a disciplined transition to Inspire 5, achieving efficiency gains and clinical validation, but is resetting growth expectations as adoption, inventory, and market dynamics evolve. The next phase will hinge on full Inspire 5 penetration, international rollout, and the company’s ability to sustain operating leverage as growth moderates.

Industry Read-Through

The rapid clinical acceptance of Inspire 5 and the operational leverage achieved through procedural simplification offer a playbook for medtech peers navigating next-generation product launches. The interplay between GLP-1-driven diagnosis expansion and surgical therapy adoption will be a key trend across sleep and metabolic health markets. Reimbursement tailwinds and territory realignment strategies signal a broader industry focus on efficiency and value-based care. Competitors and adjacent device makers should watch for evolving referral patterns and the impact of digital tools on provider capacity and patient throughput.

INSP Healthcare Medical Devices Sleep Apnea Margin Expansion Product Launch Reimbursement GLP-1