Inspire Medical Systems, Inc. Q1 FY2025 earnings call

• Surpassed 100,000 patients who have received Inspire therapy. • Appointed Dr. Paul Hoff and Dr. Ruchir Patel as Vice President and Senior Medical Directors. • Began the full launch of the Inspire V system in the U.S. this month, with the system incorporating sensing into the neuro-stimulator for a stable environment. • In the first quarter, continued to expand the limited market release of the Inspire V system and solidified inventory levels. • Hosted over 300 physicians at Inspire programs, trained over 100 advanced practice providers, and plan to increase investments in medical education programs. • Continued efforts to expand utilization of digital scheduling with implanting centers.

In the first quarter, Inspire Medical Systems generated total revenue of $201.3 million, a 23% increase compared to the first quarter of 2024. U.S. revenue was $193.6 million, representing a 24% increase from the prior year period, while revenue outside the U.S. was $7.7 million, a 6% decrease year-over-year. Gross margin for the quarter was 84.7%, stable with the prior year period.

• Reiterated full year 2025 revenue guidance of $940 million to $955 million, representing 17% to 19% growth year-over-year. • Increased full year diluted net income guidance to $2.2 to $2.3 per share. • Anticipates the second quarter will be a transition quarter with revenue growing mid to high single-digits sequentially as it works through the launch process of the Inspire V system. • Reiterated full year gross margin guidance of 84% to 86%. • Expects reported tax rate in 2025 to be roughly 10%, primarily related to state and local taxes. • Full year diluted shares outstanding expected to be approximately 31 million.

• Transitioning to the full launch of the Inspire V system may result in inventory destocking and patient warehousing, potentially affecting short-term revenue. • Reimbursement policies and their impact on procedure profitability could pose challenges. • Capacity constraints related to the number of ENT surgeons and advanced practice providers could limit broader adoption if not addressed.

Q: Please go ahead on the Q2 revenue guidance and destock and patient warehousing mentioned.

A: Tim Herbert stated that as awareness of the Inspire V technology and pending launch grew, patient warehousing occurred, and the second quarter would be a transition period with centers working through contracts, new physician programmer, and Inspire IV inventory, but they expect to make up the impact throughout the year as they continue to launch and grow utilization of Inspire V.

Q: Hi, good afternoon, guys. Thanks so much for taking the question. Congrats on a really strong start to the year. Just if I could follow-up on the cadence commentary for the year. I guess, how much confidence do you have in as far as how much Inspire IV inventories in the marketplace right now?

A: Tim Herbert said they have close knowledge of the inventory on the field, with most centers having only a couple of units on the shelf, and high volume centers having more but also being core trial centers that can work through inventory quickly in the second quarter.

Q: Great. I'll add my congratulations on a nice quarter. Sorry to keep on this, but maybe just a follow-up on the question there. And is the way we should be thinking about this, you had very good procedure volume growth in sales in first quarter. There's some lower number of procedures in second quarter, call it, the $10 million to $15 million that's getting -- that's lower than The Street, but maybe not quite as much as that because you're eating into existing inventory. And then, we'll get that restocking in third and into fourth quarter.

A: Tim Herbert said the front of the funnel remains very strong with patient flow, and while there is a transition with Inspire V launch, they will still do implants with Inspire IV in the second quarter but expect a shift until Inspire V inventory comes in, with demand remaining strong going into the second half of the year.

Q: Hi, good afternoon. Thank you for taking the questions and congrats on a nice quarter and the full launch of Gen 5 this month. I wanted to ask maybe just one more on Gen 5. The level of confidence that you have to kind of take that next step from a launch standpoint really just around manufacturing, reimbursement and device performance.

A: Tim Herbert said the device is fully approved, they have full confidence in product performance, they ramped up manufacturing to support full launch, have good inventory levels, and are seeing positive response from healthcare providers, especially surgeons, who like the reduced OR time from not having to implant the pressure sensing lead.

Q: Hi. Thanks for taking the questions. Nice first quarter here. Maybe you can frame for us the reiterated revenue range for the year. One, when you originally provided that guidance, what was assumed, or were you assuming any transition situation that would require kind of inventory work down?

A: Tim Herbert said they knew they were going to do an Inspire V launch during the year and work through inventory, so not a lot of change in overall annual planning, but the full launch right now is clarifying the revenue mix and timing.

Q: Thanks for taking the question guys. From your initial rollout of Inspire V in the limited launch, I assume the majority of these surgeons were sleep specialists. But I'm curious if you're able to target any of those generalist ENTs that you think could eventually be the driver of a broadening surgeon pool.

A: Tim Herbert said they involved both academic and general practice ENTs in the limited launch, and they expect a seamless transition with the full launch, as the training programs will go swiftly and ENTs who have performed Inspire V implant have responded favorably.

Q: Great. Thanks for taking the questions and congrats on the start to the year here. Wanted to ask about OpEx so far and what's implied in the guide. If you look at the past couple of quarters, you've grown OpEx well below half of that of what the top-line is. And if you continue that for the rest of the year, you're getting somewhere ahead of what the EPS guidance for 2025 at this point. So I'm just curious on what your assumptions are in the implied guide on EPS this year and whether or not we should be thinking out about some incremental step-up or acceleration and spend behind the Inspire V launch.

A: Rick Buchholz said they will continue to invest in operating expenses to drive top-line, slightly increase DTC, spend more in patient marketing with Inspire V launch, R&D will continue mid-teens, and stock-based compensation will increase, leading to mid single-digits operating margin on an annual basis.

Q: Good afternoon. Thanks for taking my question. Just one on the Inspire V launch and CPT code 64568. It's been a few months of the limited market release now. I was wondering, if you could just give us some commentary on how physicians are responding to the lower professional fee that comes with the 64568 code? And are you seeing any increased procedures in the data offset that?

A: Tim Herbert said they will track reimbursement levels closely, have confidence in 64568 reimbursement, and the excitement around Inspire V not having to put in the pressure sensing lead outweighs the lower fee, with feedback from physicians being very excited about the reduced OR time and simplicity of the procedure.

Q: Great. Thank you so much and congratulations. Just a couple of quick ones for me. So what was the impact of pausing in inventory dynamics in Q1? On Q2, any color on EPS versus prior consensus at $0.41? And then, I have a follow-up.

A: Rick Buchholz said they talked about mid to high single-digits sequential revenue growth in Q2, expect to be profitable in Q2 and improve profitability sequentially, and there were no significant one-time items affecting Q1 inventory dynamics.

Q: Thanks. Tim, you talked about some early data on Inspire V being presented at some of the upcoming meetings. Curious what you expect that to show.

A: Tim Herbert said they expect to talk about outcomes beyond reduced OR time, including improved stability from the accelerometer and new algorithms in the device, which they believe can further improve patient outcomes.

Q: Hi guys. Thanks for taking the question. Hey Tim, just a multipart question. So when do you expect to complete the transition to Inspire V? Last call it was Q4. And so, my question is, why won't these factors that you mentioned impact also Q3 given the full launch won't complete until Q4? And second, Tim, our checks also suggest that, just linking the Inspire V CPT code to the ICD 10 code for sleep apnea can also slow things down. What are you seeing on that as well?

A: Tim Herbert said they are focusing on training high quartile centers first, but they will continue to work towards full transition by the end of the year, and they have already addressed the ICD code connection with CMS, with 80% of covered lives already having policies covering 64568.

Q: Thanks and congrats on the quarter here. Maybe just a question on capacity into the second half. Specifically, you mentioned Tim, there you're adding ENT general surgeons and obviously we have a little bit of backlog that's pushed into the second half. Just wondering, where that ENT capacity sits today and is it enough to handle this bolus of volumes in the second half? And the quick follow-up there would just be, if you can give us any update on SleepSync and how that's evolving your front end of the funnel?

A: Tim Herbert said Inspire V is a shorter procedure allowing existing surgeons to do more cases, they are reaching out to reluctant surgeons, and training new ENTs, and SleepSync helps sleep physicians manage more patients longitudinally, with the new physician programmer leveraging SleepSync to provide data directly into the patient management system.

Q: Great. Thanks guys. Good afternoon. Maybe two parter. Of the 1,500 centers, Tim, what was the sort of incoming where delays were or are taking place? I'm just curious, was it a couple of hundred centers that heard about five? Was it much more pervasive than that and across most of the centers? Any details would be appreciated. And then, this is sort of a follow-up to a prior question, but I just want to make sure I've got it clear. So the prior plan was to have, I think on the last call, all the centers trained by the end of 2025. I think you were citing like full conversion by the end of 2025. Are you now talking about full conversion by, call it, end of 2Q? And if so, what gives you the confidence and at the end of the day that you're still able to put patient safety and patient priority first?

A: Tim Herbert said it's more qualitative with awareness growing across centers, and they are focused on training high quartile centers first but will work towards full transition by the end of the year, with confidence in patient safety and priority due to strong outreach and patient flow.

Q: Hi. Good evening. Thanks for taking the questions. Just wanted to switch gears a little bit to the marketing strategy for Inspire V. It sounds like you're going to be stepping up the D2C spend a little bit, ahead of the launch, which makes sense. And really just curious like how you're thinking about changing the external messaging to potential patients, if you're going to be focusing on specifically some of the improvements to the procedure, or if that's like too in the weeds for general consumption. Maybe just like a little bit more about how you're thinking about that.

A: Tim Herbert said they will do a multifaceted marketing program, including reaching back to previous patients, using the website to provide information, and individual communications to let patients know about Inspire V, focusing on both procedure improvements and general patient awareness.

Q: Afternoon. Thank you. Two quick ones. How many Inspire V implants to date worldwide, if you said it, I missed it. I'm just curious for the evidence-based, the size of it ahead of launch. And then, with all of the sequential phasing discussion, I'm interested if you're willing to put a finer point on 3Q. I hear the 2Q guidance. If I look at the last two years, 3Q has been up low single-digits versus 2Q. 2Q sounds suppressed. Should we compare our 3Q to 1Q and do it that way, or what kind of progression growth wise would you expect? And I'm really getting to like how loaded the guide is into 4Q.

A: Tim Herbert said they haven't released the number of Inspire V implants yet but will present initial data at upcoming meetings, and Rick Buchholz said they expect Q4 to be stronger than historical levels, with Q3 expected to show growth as they continue to launch and grow utilization of Inspire V.

Q: Hi, guys. This is Brett on for Mike. Thanks for taking the question and congrats on a good quarter. The inventory days, obviously, we've spoken about this at length on this call, but it increased by almost a full quarter's worth of inventory. So just want to see that how you're thinking about the progression of gross margin over the course of the year as this Inspire V mix increases?

A: Rick Buchholz said they reiterated gross margin guidance of 84% to 86%, and Inspire V is accretive to gross margin, with them continuing to manufacture Inspire IV internationally until Inspire V is approved outside the U.S. and components being shared between Inspire IV and V.

Q: Understood. That's helpful. And if I get one follow-up just on the O-U.S. side, I don't know if we touched on it too much, but obviously you said a tough comp and it was down sequentially. So, was there any FX that was impacting that?

A: Rick Buchholz said there was no real FX impact in the first quarter, but there is some in the second quarter.