Inspire Medical Systems, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Inspire develops and sells its FDA-approved neurostimulation system for moderate-to-severe obstructive sleep apnea (OSA), primarily to U.S. hospitals and ambulatory surgery centers.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $69.4 million | $40.4 million | Up 71.9% |
| Gross profit / margin | $59.4 million / 85.6% | $34.4 million / 85.2% | Margin up 0.4 percentage points |
| Research and development | $11.9 million | $8.2 million | Up 45.6% |
| Selling, general and administrative | $63.6 million | $41.9 million | Up 51.7% |
| Operating loss | $16.1 million | $15.7 million | Loss increased $0.4 million |
| Net loss / loss per share | $16.7 million / $0.61 | $16.2 million / $0.60 | Loss increased $0.5 million |
| Cash used in operating activities | $12.7 million | $10.4 million | Use increased $2.3 million |
U.S. revenue was $66.4 million, up 75.9%; revenue outside the U.S. was $3.0 million, up 14.4%. Gross margin improved with higher sales volume and manufacturing efficiencies. SG&A growth reflected increased personnel costs and marketing, including new national television advertising and expansion of the Advisor Care Program. Advertising expense was $15.5 million, compared with $9.0 million a year earlier.
Financial position and liquidity
- At March 31, 2022, cash and cash equivalents were $203.3 million, long-term investments were $9.8 million, and reported cash, cash equivalents and available-for-sale securities totaled $213.1 million.
- Working capital was $219.3 million. Total assets were $289.7 million; total liabilities were $64.7 million; stockholders’ equity was $225.1 million.
- Cash and cash equivalents declined $11.2 million during the quarter. Investing activities used $1.5 million; financing activities provided $3.0 million, primarily from stock option exercises.
- Notes payable totaled $25.0 million on the balance sheet, including $12.3 million current and $12.8 million non-current; the company reported $24.5 million outstanding under its credit facility. Principal payments began in April 2022; scheduled maturity is March 2024. No borrowing capacity remained available, and the company reported covenant compliance.
- Management said existing cash and investments, together with operating cash flows, were expected to fund operations and planned capital expenditures for at least 12 months. The company had an accumulated deficit of $296.1 million.
Material changes, outlook and risks
- Revenue growth was attributed to deeper penetration in existing territories, expansion into new territories, and increased physician and patient awareness. The company added 17 U.S. sales territories and had 174 at quarter-end; 733 U.S. medical centers were implanting Inspire therapy.
- Management expects R&D and SG&A spending to remain significant or increase, including investment in Inspire Cloud, next-generation systems, commercial infrastructure, headcount and advertising. No specific revenue or earnings guidance was provided in the supplied filing text.
- COVID-19 resurgences disrupted access to clinicians and patients and continued to adversely affect revenue, although surgical volumes generally returned to pre-pandemic levels by quarter-end. The company reported minor supply disruptions but no significant supply or inventory issues; it maintains higher inventory, increasing exposure to obsolescence.
- Key risks include dependence on the Inspire system, market acceptance and reimbursement, competition, single-source suppliers, inventory forecasting, product quality and liability, and the effects of COVID-19 and macroeconomic conditions. The company noted seasonality, including typically weaker first-quarter U.S. demand as insurance deductibles reset.
- In November 2021, CMS announced 2022 Medicare rates: approximately $30,063 for hospital reimbursement and $24,828 for ASC reimbursement, each 2% above 2021. Management said commercial coverage policies covered approximately 260 million U.S. lives as of May 3, 2022; coverage and reimbursement remain important to adoption.
- After quarter-end, on April 27, 2022, Inspire invested $10.0 million for a minority interest in EnsoData, Inc., intended to support its digital health platform.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2022.
Important facts for investors to verify
- Whether strong U.S.-led revenue growth continues and translates into improved operating leverage as commercial and marketing expenses rise.
- Cash burn, planned investment levels, and the effect of scheduled credit-facility principal repayments beginning in April 2022.
- Whether COVID-related procedure disruptions, supply constraints, inflation, or inventory obsolescence affect sales or gross margin.
- Progress in reimbursement coverage, international commercialization, and adoption of the Inspire system, including the expected contribution of the EnsoData investment.
- The extent to which the Philips Respironics CPAP recall contributes to patient inquiries and procedures; management described this effect as anecdotal and not quantifiable.