Medtronic's Q3 2025: Contradictions Emerge in Revenue Guidance, Inventory Transitions, and Inspire V Launch

Date of Call: November 3, 2025

Financials Results

• Revenue: $224.5M in Q3, up 10% YOY; full‑year guidance reaffirmed $900–$910M (12%–13% vs 2024)
• EPS: $0.34 diluted EPS in Q3, down from $0.60 in Q3 2024; adjusted EPS $0.38 vs $0.60 prior year; full‑year guidance raised to $0.90–$1.00 (from $0.40–$0.50)
• Gross Margin: 85.8% in Q3, compared to 84.1% in Q3 2024; full‑year guidance 84%–86%
• Operating Margin: Adjusted EBITDA margin 20% in Q3 vs 22% in Q3 2024; operating income $9.6M vs $14.3M prior year

Guidance:

• Reaffirming 2025 revenue guidance $900–$910M (12%–13% growth vs 2024).
• Full‑year gross margin expected 84%–86%.
• Now expect full‑year diluted net income $0.90–$1.00 per share (raised from $0.40–$0.50).
• Reported tax rate ~25%; likely large one‑time Q4 deferred tax benefit from valuation allowance release.
• Full‑year diluted shares ~30M; ended Q3 with 336 U.S. territories and 268 field clinical reps; continuing territory optimization.
• Formal 2026 revenue guidance to be provided in January (early indication: ~10%–11% growth).

Business Commentary:

* Revenue and Earnings Growth: - Inspire Medical Systems reported third quarter revenue totaling $224.5 million, which represents a 10% increase compared to the prior year period. - The company increased its earnings per share guidance to $0.90-$1, up from $0.40-$0.50 previously. - The growth was driven by strong revenue performance, cost discipline, and increased investments in patient marketing.

• Inspire 5 Launch and Transition:
• Over 75% of Inspire's centers are now implanting the Inspire 5 system, with physician training being over 98% complete.
• This transition was supported by a 90% completion rate in contracting for these centers.

• The success was attributed to the positive clinical feedback and simplified procedure with the Inspire 5 system.

• Patient and Market Expansion with GLP-1s:

• A survey of sleep physicians indicated that about half now prescribe and manage GLP-1s, with patients trying GLP-1s before surgery.
• This trend opens the door to alternatives beyond CPAP, potentially increasing Inspire therapy access.

• Growth in GLP-1 usage is expected to increase patient flow and eligibility for Inspire therapy.

• Operational Efficiency and Cost Management:

• Operating expenses increased by 17% to $183.1 million in Q3, primarily due to increased patient marketing and general corporate costs.
• Inspire succeeded in reducing R&D expenses year over year while maintaining investments in other areas.
• This shift in expenses supports the company's growth strategy without compromising innovation and patient marketing efforts.

Sentiment Analysis:

Overall Tone: Positive

• Management: “we are very pleased with the strong revenue performance and cost discipline,” reiterated full‑year revenue guidance of $900–$910M, and raised full‑year EPS to $0.90–$1. Strong clinical and early commercial feedback on Inspire 5 described as “excited and energized.”

Q&A:

• Question from Travis Steed (Bank of America Securities): Hey, everybody. Congrats on the progress of Inspire 5. Just curious how you’re thinking about some of the puts and takes on 2026 at this stage and anything to call out in terms of cadence, first half, second half, and 2026.
  Response: Early, prudent view: no formal guidance yet; early indication of ~10%–11% growth for 2026 driven by Inspire 5 momentum; formal guidance to be provided in January.

• Question from Adam Maeder (Piper Sandler): For the month of October, as well as visibility into November/December, helpful to understand dynamics reconciling implied Q4 guidance; and clarification on bridging ~75% of accounts implanting Gen5 to 100% — SleepSync the biggest gating item? Do accounts implant only Gen5 or mix with Gen4?
  Response: Majority of field inventory is now Inspire 5 and most centers should complete transition by year‑end, though some will continue limited Inspire 4 for economic/site‑of‑service reasons; SleepSync onboarding and local economics are remaining gating items.

• Question from Robbie Marcus (JPMorgan): R&D and OpEx came in below street expectations; what exactly are you pulling back on and how sustainable is the expense control?
  Response: Not a pullback but re‑prioritization: investing in manufacturing stability, a second line, and digital (SleepSync); R&D will remain steady and focused on Inspire 6 and digital tools, and cost discipline is intentional and sustainable.

• Question from Danielle Antalffy (UBS): How are you ramping lower- to mid-volume centers and what are you doing in the field to increase regular usage?
  Response: New dedicated team re‑engaging ENTs using Inspire 5 as a catalyst (easier implant without chest pressure lead); initiative will contribute in 2025 and be a meaningful driver in 2026.

• Question from David Rescott (Baird): On growth into 2026, is it more utilization or new center adds driving growth; should we expect center deactivations or net adds?
  Response: Both: Inspire 5 is driving utilization gains at converted centers and enabling net new centers and surgeon recruitment; we have not seen meaningful transition away from Inspire and implant volumes have generally tracked sales.

• Question from Jon Block (Stifel): The 10%–11% early indication for 2026 refines prior thinking — what drove the change from the prior 12%–13% view?
  Response: More experience and prudence—additional visibility on inventory transition, GLP‑1 dynamics and competitive activity led to a conservative early estimate; final guidance in January.

• Question from Larry Biegelsen (Wells Fargo): How are you thinking about market growth with a new competitor entering and what are you seeing from that competitor so far?
  Response: Very early days; competitor currently has minimal presence while working through reimbursement and coverage; company will monitor but not seeing a material headwind today.

• Question from Anthony Petrone (Mizuho Financial Group): How much did GLP‑1s factor into the 10%–11% early view and will GLP‑1 use lead to conversions from CPAP to Inspire over time?
  Response: GLP‑1s are increasing clinic traffic and diagnosis rates; physicians frequently start GLP‑1s with CPAP and will refer non‑compliant patients for alternatives—GLP‑1s can expand the eligible pool and work in concert with Inspire.

• Question from Shagun Singh (RBC): Consensus sits at ~14% for 2026 versus your 10%–11% early indication—are there additional factors to bridge the gap (e.g., reimbursement upside)?
  Response: Gap reflects prudence around inventory transition, GLP‑1 trialing and early competitive dynamics; positives such as recent physician fee increases and Inspire 5 momentum could narrow the gap but final view awaits January guidance.

• Question from Danielle Markowitz (subbing for Vijay Kumar / Evercore ISI): About 75% of centers ready to transition to Inspire 5 but some continue with Inspire 4 for economic reasons—are centers pushing back on physician reimbursement and will the finalized 2026 physician fee schedule help? Also, was DTC spend back to normal in Q3?
  Response: The economic issue is primarily site‑of‑service/hospital reimbursement (not physician fee); some centers use Inspire 4 due to favorable economics; finalized 2026 physician fee increase helps; DTC spend returned toward normal in Q3 and will be modestly higher going forward.

• Question from Michael Circoni (Jefferies): Last quarter you cited ~20% same‑store sales growth at converted accounts; how has that progressed as more accounts adopt Inspire 5 and any interplay with physician fee levels?
  Response: There remains a clear correlation: centers converted to Inspire 5 show accelerated volume growth, though the prior ~20% figure should not be expected uniformly across all centers.

• Question from Chris Pasquale (Nephron Research): On territory realignment — did you reduce centers or just increase accounts per rep; and OpEx cadence given near‑term elevated spending vs longer‑term operating leverage?
  Response: Territory optimization increases efficiency (aiming toward 1:1 territory manager to field clinical rep) while supporting similar center counts; OpEx is elevated near term due to DTC and investments but management expects operating leverage and improving margins over time.

Contradiction Point 1

Revenue Growth Expectations

It involves changes in financial forecasts, specifically regarding revenue growth expectations, which are critical indicators for investors.

What factors are you considering for 2026 currently, and what should be highlighted regarding the cadence, first half, second half, and 2026? - Travis Steed (Bank of America Securities)

2025Q3: We're focused on finishing the fourth quarter strong. We’re early in our 2026 planning process. While we’re not providing specific guidance at this time, we want to reiterate the underlying trends we’re currently seeing. - Tim Herbert(CEO)

Can you clarify the revised guidance and rank the headwinds by impact on 2025 growth? Will 2026 revenue growth exceed 12-13% from FY25? - Adam Carl Maeder (Piper Sandler & Co., Research Division)

2025Q2: We expect that our 2025 revenue will increase 12% to 13% year-over-year, down from our prior target range of 15% to 17%. - Timothy P. Herbert(CEO)

Contradiction Point 2

Inventory Management and Product Transition

It involves the company's management of inventory and product transitions, which are crucial for maintaining revenue and market share.

Can you share insights into the business trends for October and the outlook for November and December? - Adam Maeder (Piper Sandler)

2025Q3: The key is really the trends we see with Inspire 5. We’re working through the Inspire 4 inventory transition, and most of the inventory is already Inspire 5. - Tim Herbert(CEO)

Have you seen an uptick in Medicare billing since July 1? - Michael Anthony Sarcone (Jefferies LLC, Research Division)

2025Q2: We expect that the closure rate of the Inspire IV saleable inventory by the end of the year might be closer to 45% compared to 70% as we expected earlier. - Timothy P. Herbert(CEO)

Contradiction Point 3

Revenue Guidance and Inventory Transition

It involves differing statements on the impact of an inventory transition on revenue guidance, which is crucial for investor expectations.

How are you considering 2026 trade-offs and phasing between first and second halves? - Travis Steed (Bank of America Securities)

2025Q3: We’re focused on finishing the fourth quarter strong. We’re early in our 2026 planning process. While we’re not providing specific guidance at this time, we want to reiterate the underlying trends we’re currently seeing. - Tim Herbert(CEO)

Can you explain the reiterated revenue guidance for the year and the assumptions behind it, particularly regarding inventory dynamics? - Richard Newitter (Truist)

2025Q1: We knew we would work through Inspire IV inventory as part of the annual planning. The transition to Inspire V shifted the timing of revenue, but we are reiterating our full year guidance. - Tim Herbert(CEO)

Contradiction Point 4

Inspire V Launch and Market Positioning

It highlights differing views on the market reception and strategic positioning of the Inspire V product launch, which is vital for market perception and competitive strategy.

How are you assessing market growth with a new competitor entering the market? - Larry Biegelsen (Wells Fargo)

2025Q3: It’s very early days for the new competitor. They’re just getting started and will need to work through reimbursements. We’re monitoring that and will provide greater detail when we get full guidance in January. - Tim Herbert(CEO)

What is the confidence in Inspire V's manufacturing, reimbursement, and device performance? - Adam Maeder (Piper Sandler)

2025Q1: The limited market release is progressing well in terms of physician training to date and eliminating the pressure-sensing lead. We are excited to fully launch in April and expect to complete this transition in Q2. - Tim Herbert(CEO)

Contradiction Point 5

Revenue Growth and 2026 Guidance

It involves the expected revenue growth and guidance for 2026, which are critical for investor expectations and strategic planning.

How are you planning for 2026, and what’s the expected timeline for the first half, second half, and the full year? - Travis Steed (Bank of America Securities)

2025Q3: We expect to provide formal 2026 revenue guidance in January after completing our year-end results and planning. - Tim Herbert(CEO)

Is international growth accretive to full-year performance? What are your assumptions for interest income in the 2025 P&L? - David Rescott (Baird)

2024Q4: We expect to return to historic norms prior to 2025 and the Inspire 5 launch. We’re excited about the growth we’re seeing with Inspire 5 and the operational improvements. - Tim Herbert(CEO)