Inspire Medical Systems Q1 2025 Earnings Report

Inspire Medical Systems EPS Results

• Actual EPS: $0.10
• Consensus EPS: -$0.23
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: -$0.34

Inspire Medical Systems Revenue Results

• Actual Revenue: $201.32 million
• Expected Revenue: $194.89 million
• Beat/Miss: Beat by +$6.42 million
• YoY Revenue Growth: +22.70%

Inspire Medical Systems Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Monday, May 5, 2025
• Conference Call Time: 5:00PM ET

Inspire Medical Systems (NYSE:INSP), a medical technology company, focuses on the development and commercialization of minimally invasive solutions for patients with obstructive sleep apnea (OSA) in the United States and internationally. The company offers Inspire system, a neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA. It also develops a novel, closed-loop solution that continuously monitors a patient's breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway. The company was incorporated in 2007 and is headquartered in Golden Valley, Minnesota.

Inspire Medical Systems Q1 2025 Earnings Call Transcript

Key Takeaways

• Inspire surpassed 100,000 patients treated and appointed Dr. Paul Hoff and Dr. Rahir Patel to guide medical education, training and technology development.
• Full U.S. launch of the next-generation Inspire V system begins this month, featuring closed-loop hypoglossal nerve stimulation with built-in accelerometer sensing and a path to future therapy enhancements.
• Q1 revenue rose 23% year-over-year to $201.3 million, generating net income of $3 million (EPS $0.10) and a 16% adjusted EBITDA margin versus a loss in Q1 2024.
• Full-year 2025 guidance reiterated at $940 million–$955 million revenue (+17%–19%) with EPS raised to $2.20–$2.30, as Q2 serves as a transition quarter ahead of a strong second half.
• New CPT code 64568 now covers 80% of 300 million lives (including commercial payers, Medicare and VA), supporting expanded market access alongside stepped-up patient marketing and digital scheduling initiatives.

Presentation

[Operator]

Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Inspire Medical Systems First Quarter twenty twenty five Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there'll be a question and answer session.

[Operator]

To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I will now hand the call over to your first speaker, Eskie Yaja, the Vice President of Investor Relations at INSPIRE.

[Operator]

You may begin the conference.

[Ezgi Yagci, Vice President of Investor Relations at Inspire Medical Systems]

Thank you, Delam, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer and Rick Buchholz, Chief Financial Officer. Earlier today, we released financial results for the three months ended 03/31/2025. A copy of the press release is available on our website. On this call, management will make forward looking statements within the meaning of the federal securities laws.

[Ezgi Yagci, Vice President of Investor Relations at Inspire Medical Systems]

All forward looking statements, without limitation, those relating to our operations, financial results and financial condition, investments in our business, full year 2025 financial and operational outlook, and changes in market access are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. Please see our filings with the Securities and Exchange Commission, including our Form 10 Q, which we filed with the SEC earlier this afternoon, for a description of these risks and uncertainties. INSPIRE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward looking statements, whether because of new information, future events, or otherwise.

[Ezgi Yagci, Vice President of Investor Relations at Inspire Medical Systems]

This conference call contains time sensitive information and speaks only as of the live broadcast today, 05/05/2025. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thank you, Asghi, and thanks everyone for joining our business update call for the first quarter of twenty twenty five. We achieved many important milestones to start the year. As our patients remain our top focus, we are proud to announce that since the inception of INSPIRE, we have surpassed 100,000 patients who have received Inspire therapy. Even with this key milestone, there is so much more in front of us as we remain lightly penetrated in our target market and we are just getting started. We also recently announced the appointment of Doctor.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Paul Hoff and Doctor. Rahir Patel as Vice Presidents and Senior Medical Directors. Doctor. Hoff and Doctor. Patel are both highly experienced in treating sleep apnea patients, including with Inspire therapy.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Doctor. Hoff brings a focus from the ENT surgeon's perspective, while Doctor. Patel will leverage his expertise in sleep medicine. They will play key roles in guiding Inspire's medical education, training, and technology development activities. In addition to their focus on these newly appointed physicians, both Doctor.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Hopp and Doctor. Patel will maintain their clinical practices independent from Inspire. In the first quarter, we continued to expand the limited market release of the Inspire V system in The U. S. And with this gained meaningful experience with Inspire V while concurrently solidifying our inventory levels.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

As such, we are incredibly excited to announce that we are ready and we will begin the full launch of the Inspire five system in The U. S. This month. The Inspire five system kick starts the next generation of therapy with the release of this new platform. Incorporating sensing into the neurostimulator provides a stable sensing environment which is key to our differentiated closed loop hypoglossal nerve stimulation system.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

The added technical capabilities of the device provide the basis for future therapy enhancements including sleep detection and broader therapy indications. From a financial perspective, we had a strong first quarter generating revenue of $201,300,000 representing a 23% increase compared to the first quarter of twenty twenty four. Net income for the first quarter was $3,000,000 representing diluted net income of $0.10 per share as compared to a net loss of $10,000,000 representing a net loss of $0.34 per share in the first quarter of twenty twenty four. Looking forward to the balance of 2025, we are reiterating our full year 2025 revenue guidance of $940,000,000 to $955,000,000 representing 17% to 19% growth year over year. Regarding profitability, we are increasing our full share diluted net income guidance to be in the range of $2.2 to $2.3 per share.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

As we initiate the full launch of the Inspire five system, we anticipate the second quarter will be a transition quarter as we work through the steps necessary to launch this system. For centers, this process includes a contract amendment, implementation of the new physician programmer, and working through their Inspire four inventory. Our experience to date with the Inspire five system has been very positive and well received by healthcare providers, especially with ENT surgeons. Since the start of the limited market release last year, we have continued to add additional centers and increase the number of patients receiving the new device. This led to an increased general awareness of the pending INSPIRE V launch.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And late in the first quarter and continuing into the second quarter, we started to see evidence of patients waiting for the new device. Combining this with centers working through the launch process, we expect the second quarter to be a transition quarter and for revenue to grow mid to high single digits sequentially. As the full launch of INSPIRE five system progresses, we expect a strong second half of twenty twenty five and as such we are reiterating a full year revenue guidance and raising our EPS guidance. Detailed performance data in the INSPIRE-five system is being closely tracked and initial data will be presented at the upcoming sleep conference. Regarding reimbursement of the Inspire five system, on our last call we detailed the transition to CPT code 64568.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

We are happy to announce that this code has been incorporated into policies covering approximately 80% of our over 300,000,000 covered lives. This includes commercial payers, Medicare and the VA system. We expect to submit for regulatory approval of the Inspire five system in Europe and in Asia this year and will continue to provide the Inspire IV System during the review processes. We also plan to initiate a focused patient marketing and education program to announce the full launch of the Inspire five system. Prior to launching Inspire five, we had deliberately pulled back on patient marketing but expect to step this up in the second quarter and throughout the rest of 2025.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

This will focus on the education and awareness of the Inspire five system and aim to increase patients visiting our website and inquiring about making contact with a health care provider. To further support this, during the early part of the year, we continued our efforts to expand utilization of digital scheduling with implanting centers. As a reminder, digital scheduling is an online tool used by our AdvisorCare program to submit appointment requests to qualified health care providers on behalf of prospective patients. Digital scheduling significantly streamlines a patient's request to schedule that important first appointment. With respect to our market development activities, we continue to advance our medical education programs.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

In the first quarter, we hosted over 300 physicians and Inspire programs, including 120 soon to be graduating ENT physicians, over 110 sleep fellows, and introduced Inspire therapy to 90 new ENT residents. We remain committed to our mission to educate the next generation of sleep and ENT leaders. In addition, this year we trained over 100 advanced practice providers, bringing the total inception to date to over 400 APTs trained. We plan to increase the investments we are making in our medical education programs, including ongoing resident, fellowship and ACP training, participating in cardiology and primary care conferences, and a continuing medical education program to support the awareness and adoption of Inspire therapy in cardiology and primary care. In summary, we remain focused on the patient to continue the growth and adoption of Inspire therapy.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

We will execute our growth strategy of driving high quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies included adding advanced practice providers, certifying additional surgeons qualified in implant inspired therapy, and driving the adoption of SleepSync and our digital tools, all of which are embedded strategies in our commercial team's objective to increase provider capacity. Looking ahead, we remain excited about our future and are confident that we have the appropriate strategy in place to drive long term stakeholder value. With that, I'd like to turn the call over to Rick for his reviews of our financials.

[Rick Buchholz, CFO at Inspire Medical Systems]

Thank you, Tim, and good afternoon, everyone. Total revenue for the quarter was $201,300,000 a 23% increase from the $164,000,000 generated in the first quarter of twenty twenty four. US revenue in the quarter was $193,600,000 an increase of 24% from the 155,800,000 in the prior year period. Revenue outside The US was $7,700,000 which was a 6% decrease year over year. As a reminder, European revenue in the first quarter of twenty twenty four benefited from the pent up demand created by the supply shortage resulting from the EU MDR approval delay in the fourth quarter of twenty twenty three and as we transition from polyurethane to silicone based leads.

[Rick Buchholz, CFO at Inspire Medical Systems]

Gross margin in the quarter was 84.7%, which was stable with the prior year period. Total operating expenses for the quarter were 172,100,000.0 an increase of 11% as compared to $154,500,000 in the first quarter of twenty twenty four. This planned increase was primarily due to the expansion of our sales organization and increased general corporate costs, partially offset by a reduction in R and D and patient marketing expenses year over year. Interest and dividend income totaled $5,100,000 in the quarter compared to $5,900,000 in the prior year period. Operating loss for the quarter totaled $1,500,000 compared to $15,200,000 in the prior year period.

[Rick Buchholz, CFO at Inspire Medical Systems]

Net income for the quarter was $3,000,000 or a 1% net income margin compared to a net loss of $10,000,000 or a 6 percent net loss in the prior year period. This represented diluted net income per share of $0.10 compared to a net loss of $0.34 in the first quarter of twenty twenty four. Adjusted EBITDA totaled $33,200,000 or a 16 percent adjusted EBITDA margin in the first quarter compared to $11,900,000 and 7%, respectively, in the first quarter of twenty twenty four. The weighted average number of diluted shares outstanding in the quarter was 30,500,000. We ended the quarter with four fourteen million dollars in cash and investment balances.

[Rick Buchholz, CFO at Inspire Medical Systems]

The reduction in our cash position is attributed to $75,000,000 of share repurchases and cash used in operating activities, including building Inspire V inventory balances. This strong cash position allows us to remain focused on executing our growth strategies. Moving on to 2025 guidance. We continue to expect full year revenue to be in the range of $940,000,000 to $955,000,000 representing an increase of 17% to 19% compared to full year 2024 revenue. As Tim noted, we are initiating the full launch of Inspire V this month.

[Rick Buchholz, CFO at Inspire Medical Systems]

As such, the second quarter will be a transition quarter and we may see some inventory destocking of Inspire V and patient warehousing for Inspire five. Therefore, we expect to grow revenue sequentially from Q1 to Q2 by mid to high single digits. We continue to expect full year gross margin to be in the range of 84% to 86%. We now expect diluted net income for the full year 2025 will be $2.2 to $2.3 per share, an increase from our previous range of $2.1 to $2.2 per share. We ended the quarter with three forty three U.

[Rick Buchholz, CFO at Inspire Medical Systems]

S. Territories and two forty five U. S. Field clinical representatives. We continue to expect our reported tax rate in 2025 to be roughly 10%, primarily related to state and local taxes.

[Rick Buchholz, CFO at Inspire Medical Systems]

We expect the full year diluted shares outstanding to be approximately 31,000,000. As previously noted, our products are currently sourced and assembled primarily in The US and our exposure to recently implemented tariff policies is de minimis. In conclusion, our strong performance and business momentum provide us with confidence in our outlook for 2025. With that, our prepared remarks are concluded. Dulham, you may now open the line for questions.

[Operator]

Thank you, sir. As a reminder, to ask a question, you will need to press 11 on your telephone. To withdraw your question, please press 11 again. We ask that you please keep your questions to no more than one question and one follow-up. And if time permits, we'll be more than happy to take more questions.

[Operator]

Please standby while we compile the Q and A roster. I show our first question comes from the line of Travis Steed from Bank of America Securities. Please go ahead.

[Travis Steed, Managing Director - Equity Research at Bank of America]

Hey, thanks for taking the question. And first, congrats on profitability this quarter, but actually wanted to focus on the Q2 revenue guidance and the destock and the patient warehousing that you mentioned, I think it's in the 10 ks as well or 10 Q. First of all, maybe just like what happened kind of versus expectations there? Is the impact in the quarter basically the kind of 12,000,000,000 delta between your 2Q guidance and the Street number? How do you rate the full year guidance?

[Travis Steed, Managing Director - Equity Research at Bank of America]

Do you expect that to kind of be made up in Q3 and Q4 to be able to rate at the full year guidance?

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Yes. Hi, Travis. I think as we started to expand the Inspire V limited market release, word got out and the awareness of the technology and the pending launch became more prevalent and we started to see more of the patient warehousing. We knew as we were going to launch INSPIRE-five, there would be a transition period with centers working through the contracts, working through getting the new physician programmer, as well as working through their INSPIRE-four inventory. So that's why we expect with the number of patients waiting for therapy with the five until such time as it's available, that we would see the second quarter affected and that's why we will still see a good step up in Q2, but as we mentioned in the mid to high single digits.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And yes, we do plan to make that up throughout the year as we continue the launch and grow the utilization of Inspire five.

[Travis Steed, Managing Director - Equity Research at Bank of America]

Great. Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thanks, Travis.

[Operator]

Thank you. And I show our next question comes from the line of Danielle Antalffy from UBS. Please go ahead.

[Danielle Antalffy, Analyst at UBS Group]

Hey, 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 four inventories in the marketplace right now?

[Danielle Antalffy, Analyst at UBS Group]

And I guess sort of that number you're putting out there for Q2 and that you can sort of make up for some of that in Q3 and Q4. Just curious about what level of visibility you guys have into that and how confident can we be? Because obviously, half loaded guidance can sometimes make people a little nervous. So just wondering if you could give a little bit more color. Thanks so much.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Absolutely, Danielle. Thank you very much. We a close knowledge of the inventory out in the field. The majority of centers only have a couple of units on the shelf. Those centers that are the high volume centers will have a higher number of Inspire, but they also do they tend to be the quartile one centers that do a significant number of implants on a monthly basis.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

So they'll be able to work through the majority of that inventory in a short period of time in the second quarter. And once they work through that Inspire four inventory, there's a replacement with Inspire five inventory. So we do have confidence in this back half of the year as we continue to ramp and expand the full launch of five. But we do have can closely monitor existing for inventory and that's why we have confidence that the majority of the units and the inventory burn downs will be accomplished in the second quarter.

[Danielle Antalffy, Analyst at UBS Group]

Thank you.

[Operator]

Thank you. And I show our next question comes from the line of Robbie Marcus from JPM. Please go ahead.

[Robert Marcus, Analyst at JPMorgan Chase]

Oh, 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 10,000,000 to $15,000,000 that's getting a that's lower than the Street, but maybe not quite as much as that because you're eating into existing inventory.

[Robert Marcus, Analyst at JPMorgan Chase]

And then we'll get that restocking in third and into fourth quarter. And I guess the question I really have is, how should we think about the balance of restocking? And how should we think about the sizing of the pent up demand? And is the system ready? Is it a big amount of patients that are being warehoused that give you the confidence in the back half of the year and it's just you're seeing some bleed down of inventory and some delay of procedures and that's why you're not raising guidance for the year?

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thanks, Robbie. Great question. Getting into detail, the first thing that's always strong with the patient outcomes and our awareness programs, the patient follow-up always remains strong. And we continue to add centers, continue to grow the utilization, and we continue to help patients make that first connection. So the front of the funnel remains very, very strong and that's what gives us confidence going forward.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

We do know that we have to work the process of activating these centers and we do have to burn down the Inspire four inventory. But the key is to continue to grow the number of implants. And you kind of hinted at that in your question that, yes, we're going to still do implants with INSPIRE IV in the second quarter, but you're going to see a little bit of a shift until the INSPIRE V inventory comes in and replaces that. So while we are doing the full launch this month, there is a little bit of a transition process for centers to get up and running with five. But the strength that we have is the demand with the patient flow remains very, very strong.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And that's what's really encouraging to us as we lean forward and have confidence going into the second half of the year.

[Robert Marcus, Analyst at JPMorgan Chase]

Great. Thanks a lot, Tim.

[Operator]

Thank you. And I show our next question comes from the line of Adam Mader from Piper Sandler. Please go ahead.

[Adam Maeder, Senior Research Analyst at Piper Sandler Companies]

Hi, good afternoon. Thank you for taking the questions and congrats on a nice quarter and the full launch of Gen five this month. I wanted to ask maybe just one more on Gen five, 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. Presumably, you're pleased with the progress you made in each of those different areas. But there has been some speculation around why the rollout hasn't gone faster.

[Adam Maeder, Senior Research Analyst at Piper Sandler Companies]

So just wanted to give you the opportunity to add a little bit more color there with what you're seeing and the progress that you're making in those different areas. Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Okay. Sure, Adam. Thanks very much. Well, first off, the device fully approved. And so we submitted to the FDA the full data set that we had, the full qualification.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And so it's been under tight review and we're very confident in the performance of the device. We have done the work in Singapore. As you recall, we have done significant number of centers and implants in our limited market release. So full confidence in the product moving forward. The challenge that we had is wrapping up the manufacturing facility to have standard processes such that we could have the throughput and the starting inventory to support the full launch.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And we do a significant number of implants on a monthly basis more so than we did obviously when we did Inspire four back in 2018. So we needed a strong inventory level to do the full launch and we now have stable manufacturing. We do have good inventory levels. We've always had confidence in the Inspire five technology and we're really liking the response that we're seeing from the health care providers, specifically the Inspire five experienced surgeons who no longer have to implant the pressure sensing lead, which we all know has been the most uncomfortable step of the process for Inspire implantings with the ENT surgeons. So we just needed to make sure that we were ready, that we had all the key elements in order.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And so from a technology to a product to the approval to the reimbursement, as we mentioned, and the support with the policies with the new code 64568, and finally with the proper inventory levels, we're ready to throw the switch and be able to move into full launch.

[Adam Maeder, Senior Research Analyst at Piper Sandler Companies]

Thanks, Tim.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thanks, Adam.

[Operator]

Thank you. And I show our next question comes from the line of Richard Newitter from Truist. Please go ahead.

[Richard Newitter, Managing Director at Truist Securities]

Hi, thanks for taking the questions. Nice first quarter here.

[Richard Newitter, Managing Director at Truist Securities]

Maybe you can frame for

[Richard Newitter, Managing Director at Truist Securities]

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? And then B, can you talk to the bottom and top ends of your range right now? We're just trying to figure out what kind of cushion is built in and how much you ate into what normally is a cushion provided guidance range. So can just talk to what gets you to the upper end, what gets you to the lower end with respect to the various components of capacity, INSPIRE V, and enabling increased capacity, and kind of some of the dynamics now that you're introducing with the 2Q revenue push out.

[Richard Newitter, Managing Director at Truist Securities]

Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Got you, Rich. Well, the key is from a full year, we haven't changed and we still have confidence in that full year. And we knew we were going to do an Inspire five launch during the year sometime and we would be working through the inventory. So not a lot of change there. And really what's clarifying here is our ability to do the full launch right now.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And with our limited release, we saw a little bit more of the patient awareness and wanting to wait for the new device. And I think that's become evident really most recently late Q1 and into the second quarter that we started to see that and that kind of shifts the mix of or the timing of the revenue and where Inspire five comes in. So not a lot of changes in our overall annual planning, but again, we knew we were going to work through the Inspire four inventory. It's just a timing issue as we do the full launch in the second quarter and hand off to Rick for additional comments.

[Rick Buchholz, CFO at Inspire Medical Systems]

Yeah. We did say at the beginning of the year that we did expect our full year revenue to be a little more heavily back end weighted. And given the Q2 launch dynamics as we talked about, we are expecting some utilization improvements in the second half, and we expect Q4 to be a little bit stronger than our historical levels.

[Operator]

Thank you. And I show our next question comes from the line of Kalyn Titchmarsh from Morgan Stanley. Please go ahead.

[Kallum Titchmarsh, Analyst at Morgan Stanley]

Thanks for taking the question guys. From your initial rollout of INSPIRE five 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. Just maybe talk us through how you plan on onboarding these generalist ENTs as you enter the full market launch in May and how that may differ from your strategy with the bulk of active implanters today? Thanks a lot.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

No, absolutely. Thank you. I think the key is when we do new launches like this, when we do clinical studies, when we do research, obviously we partner with a lot of our key physicians at the academic centers. But in our limited market launch, in that it is a commercial launch, albeit limited. We do want to involve the commercial centers and the general practice ENTs to get a good balance when we do that limited launch.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

So it is a balance between the two groups, both academic as well as the general ENTs, and that gives us confidence to move forward with the full launch of INSPIRE V. So we have had the ability to talk with both groups and have confidence with our training programs. So as we introduce five broadly, in The US that the training programs will go very swiftly. The ENTs that have performed INSPIRE V implant have responded very favorably, and we expect a pretty seamless transition moving forward.

[Kallum Titchmarsh, Analyst at Morgan Stanley]

Thanks, Deb.

[Rick Buchholz, CFO at Inspire Medical Systems]

Thank you.

[Operator]

Thank you. And I show our next question comes from the line of David Rescott from Baird. Please go ahead.

[David Rescott, Senior Research Analyst at Baird]

Great. Thanks for taking the questions and congrats on the start to the year here. I wanted to ask about OpEx so far and what's implied in the guide.

[David Rescott, Senior Research Analyst at Baird]

If you look at the past couple

[David Rescott, Senior Research Analyst at Baird]

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 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 five launch? Thank you.

[Rick Buchholz, CFO at Inspire Medical Systems]

Yeah, thanks for the question. We're going to continue to invest in our operating expenses to drive top line. And we continue to expect that revenue on an annual basis will outpace OpEx growth, but really we are going to continue to slightly increase our DTC on a year over year basis. We are going to spend more in patient marketing with the Inspire V launch, as Tim mentioned. R and D is going to continue to run at mid teens.

[Rick Buchholz, CFO at Inspire Medical Systems]

That does fluctuate a little bit. And then stock based compensation on an annual basis, too, is going to continue to increase. And with that, that net net is really going to get us to mid single digits from an operating margin standpoint on an annual basis.

[Operator]

Thank you. And I show our next question comes from the line of Michael Cercone from Jefferies. Please go ahead.

[Michael Sarcone, Analyst at Jefferies]

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.

[Michael Sarcone, Analyst at Jefferies]

And are you seeing any increased procedures in the data offset that? Would love to hear what the experience has been so far. Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Absolutely. Thanks, Michael. I think we're going to track that very closely going forward. We have confidence in the reimbursement levels with 64,005 and 68 and $200 reduction with Medicare across the board. I think a lot of the limited life centers were academic, so they're not as effective.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

But equally balanced is the commercial centers with, as we talked about, general ENTs from a couple of questions earlier on, that they're comfortable with the procedure. I think a lot of excitement around Inspire five not putting in the pressure sensing lead will far outweigh the extra work it takes to do that part of the procedure and not getting paid for the work that they don't do. I think it's been quite balanced so far and the feedback from the physicians is very excited to not have to deal with the pressure sensing lead, with the reduced OR time, and just with the ability for them to plan their time consistently without having to implant that pressure sensing lead. So we're going to continue to monitor this as we go through the year to make sure that the physicians are comfortable with sixty four thousand five and sixty eight and the reimbursement levels. The other key to it though is we're going to track their acceptance of Inspire V and we really accept strong acceptance from the surgeons with the simplicity of the procedure compared to Inspire IV.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And also remember, there's an increased payment to ambulatory surgical centers with the new code as well. So I think the payers have all been very accepting going to 64568. I think the surgeons will be accepting doing the more simpler procedure with the reduced time, with the reimbursement level that's available. And we'll continue to monitor that closely and continue to provide feedback throughout the year.

[Michael Sarcone, Analyst at Jefferies]

Great. Thanks, Tim.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thank you.

[Operator]

Thank you.

[Operator]

And I show our next question comes from the line of Shagun Singh from RBC. Please go ahead.

[Shagun Singh, Senior Equity Analyst at RBC Capital Markets]

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.

[Rick Buchholz, CFO at Inspire Medical Systems]

Yes. Hey, Shagun. Regarding Q2, we talked about mid to high single digit sequential revenue growth. And so with that, we are going to spend more in patient marketing with the Inspire five launch, but we do expect to be profitable in Q2 and then to improve that profitability sequentially throughout the year. So maybe a little bit lower in Q2, but lower than current consensus, but we're going to grow that sequentially.

[Ezgi Yagci, Vice President of Investor Relations at Inspire Medical Systems]

But you should also expect sequential EPS growth Q2 versus Q1.

[Shagun Singh, Senior Equity Analyst at RBC Capital Markets]

Got it. And what was the impact of pausing an inventory dynamic in Q1?

[Ezgi Yagci, Vice President of Investor Relations at Inspire Medical Systems]

We didn't I mean, it would have been really difficult to tell. There weren't really a lot of one time items, and as we said, the patient warehousing didn't manifest until later in Q1. So it would be really difficult to quantify that. Nothing to call out.

[Shagun Singh, Senior Equity Analyst at RBC Capital Markets]

Got it. And then just as a follow-up, I was wondering if you can comment on procedure profitability. It seems like we've gotten mixed feedback on that. And I'm just wondering, why don't you think that could be a barrier to broader adoption? Thank you for taking the questions.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Yeah, absolutely. Thank you. I think as we work with surgeons and work to help streamline their practices and how they introduce their Inspire systems, we can improve their profitability by streamlining their processes. We mentioned earlier that we have trained 100 APPs, advanced practice providers, that can really help streamline patient flow through centers and is a much more efficient way for patients and for physicians to build their practices. And this is pretty common across the higher volume centers where they can build efficiencies by having the surgeons spend more time in the Operating Room to do more procedures and with reduced OR time to be able to further build on the profitability.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

I think in the academic centers and some centers that don't do the same level of procedures, it's more difficult and maybe that's where some of the feedback comes from. But in the high productive accounts, the ones that do that greatest number of implants, they understand throughput. They know how to leverage APPs. They have strong partnerships with sleep physicians to manage the patients longitudinally and have really built efficiencies into the practice to be profitable.

[Operator]

Thank you.

[Operator]

You.

[Operator]

Our next question comes from the line of Chris Pasquale from Nephron Research. Please go ahead.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

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. Most of the focus has been on the increased convenience of this form factor. But I think you've also said that you think the accelerometer could actually do a better job with respiratory gating.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

So do you expect that to manifest in any tangible outcome improvements?

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Yeah, I think that's kind of the key to it. Yes, everybody's excited because they want to hear numbers about reduced OR time. The safety performance, what kind of have you seen any adverse events? Is all procedures completed successfully? And the feedback has been very strong on all of those fronts.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

But from a patient outcome standpoint that Chris, we always talk about how that's such a high priority for us. We believe the accelerometer does provide a more stable sensing environment and the data that we provided to the FDA as part of our approval process did show an improved stability. And in Singapore, we actually did a little bit more of a detailed clinical study to capture that data and to capture the utilization or the patient adherence to therapy. And I'm not sure that AHI data will be available, but that is something we are also tracking. As well as we'll continue to attract feedback from all The US centers as part of the limited launch.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

So yes, when we're coming up by June, we will want to talk about outcomes more so beyond just what real people always talk about with reduced OR time. And we'll talk about surgical times as well. But to us, it really is a focus on those critical patient outcomes. We believe that with the improved sensing and we have new algorithms in the device, we think can further improve our already strong patient outcomes.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Great.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Thanks.

[Rick Buchholz, CFO at Inspire Medical Systems]

Thank you.

[Operator]

Thank you. I show our next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

[Lawrence Biegelsen, Senior Medical Device Equity Research Analyst at Wells Fargo]

Hey, 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.

[Lawrence Biegelsen, Senior Medical Device Equity Research Analyst at Wells Fargo]

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 just linking the INSPIRE-five CPT code to the ICD-ten code for sleep apnea can also slow things down. What are you seeing on that as well? Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Gotcha. We talked last call that, yes, we would complete the transition by the end of the year. When we stated that, of course, we didn't have the full launch date announced at that time either. So now that we're doing the full launch date, we're going to do everything we can to really pull the individual centers forward. We don't expect to have too much carryover into third quarter, as Rick mentioned, that we expect to have a stronger Q4 than normal.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And again, we're reiterating full year guidance. So we're going to work hard. Field and the physicians are excited for INSPIRE V. The contracting, as you recall, is quite simple because it's just a one page or multi page. It's a small contract amendment just to change from four to five, so that should be pretty simplistic.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And the new physician programmer, which was launched last year, most centers are ready to take on the new physician programmer. So the transition should not be that difficult. We're going to work very hard in the second quarter, but we'll track that as we get into Q3. And Rick talked about the cadence for the second half of the year. As far as the linking to the ICD-nine diagnostic code.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

We're already working with CMS to get that done. And as we mentioned before, we already have 80% of our 300,000,000 covered lives. Does include Medicare, that does include commercial payers, does include the VA. And we have overcome that connection that you're talking about because we address that right up front.

[Lawrence Biegelsen, Senior Medical Device Equity Research Analyst at Wells Fargo]

Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thank you.

[Operator]

Thank you. And I show our next question comes from the line of Anthony Petrone from Mizuho Financial Group. Please go ahead.

[Anthony Petrone, Managing Director at Mizuho Financial Group]

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?

[Anthony Petrone, Managing Director at Mizuho Financial Group]

And the quick follow-up there would just be if you can give us any update on sleep sync and how that's evolving your front end of the funnel. Thanks.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Absolutely. Thank you. Talking about capacity first, there's several elements that are in play there. Number one, the Inspire five device is a shorter procedure allowing existing surgeons to do additional cases in any given day. Number two, we believe that once they start doing the SPAR-five and they're comfortable, that they no longer have to put in the pressure sensing lead.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Again, remember, think of ENT putting a sensor into the chest wall. That will give additional confidence to schedule more cases as well, thereby increasing capacity. Two, we believe there are a number of ENT surgeons that just were reluctant to do the Inspire procedure solely because of that pressure sensing lead. So as we move through the year, we're going to be reaching out to those surgeons to make sure that they understand Inspire five is now available to be able to make this an important part of their practice going forward. Number three, we talked about our medical education and the significant number of new ENTs graduating and coming out and excited about including INSPIRE into their new practice as they go forward.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

For we're going to continue to add new centers as we work through the year, especially those centers coming on training directly into INSPIRE five. So it's really going to continue to be a strong focus to build this capacity because it continues to be the limiting factor for us from beginning of the call. Of the earlier questions talked about the number of patients still coming into the pipeline is overwhelming by the capacity that we have to serve these patients. So really going to be a key focus element to it. Your second part of your question is very strong.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

When we start talking about sleep sync, As we increase the number of patients treated, sleep sync provides an opportunity for the sleep physicians to manage a greater number of patients on a longitudinal basis. The majority of the high volume centers already have sleep sync as part of their practice and they can leverage that to streamline patient flow and how they manage their patients. What's key to inspire five is inspire five the new physician programmer leverages sleep sync and logs into sleep sync to be able to provide data directly into that cloud based patient management system. So those centers that are on SleepSync have an easy transition in. And as Rick mentioned on our R and D investments going forward, we're going to continue to invest heavily in our digital tools and a lot of that is all about sleep sync to really help the patient be part of their own care with app.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

But really to also be able to help patient monitoring and help physicians be able to track how well their patients are doing with Inspire therapy. So a pretty intense question and hopefully I got the right answers out to you there.

[Anthony Petrone, Managing Director at Mizuho Financial Group]

All good. Thank you.

[Anthony Petrone, Managing Director at Mizuho Financial Group]

Talk soon.

[Operator]

Thank you. And I show our next question comes from the line of Jon Block from Stifel. Please go ahead.

[Jonathan Block, Managing Director at Stifel Financial Corp]

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 hundred centers that heard about five?

[Jonathan Block, Managing Director at Stifel Financial Corp]

Was it much more pervasive than that and across most of the centers? Any details would be appreciated. And 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 twenty twenty five. I think you were citing like full conversion by the end of 'twenty five.

[Jonathan Block, Managing Director at Stifel Financial Corp]

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? Thanks.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Got it. Thanks, John. I think from your first part of the question, it's more of a qualitative feel for patients delaying to get to Inspire V more than it is having specific quantities around that. And of the 1,500 centers, let's talk about the high volume centers, becomes Word gets out as the limited market release centers do cases and communicate that with their partners and with other centers and people become aware of it. Yes, people listen to our earnings calls, they do read your note and the others' notes on Inspire V and the pending launch.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

I think that just continued to grow the awareness. And so qualitatively, we're really starting to hear a little bit more about that across the board without putting specific numbers to it. And going back to the previous question that you talked about in part two is, I mean, we're continuing to focus on the training of all the centers and this month we're going do the full launch to make Inspire V available. That's not committing that we're going to have every center trained by the second quarter. But certainly we're going to focus on the high quartile centers first to make sure that they're up and running with five, but we're going to make sure that we have full transition by the end of the year.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

And being that we're able to do the strong launch or the full launch right here in the May timeframe certainly gives us the opportunity to pull that full penetration up quite a bit. So we'll keep tracking that and we'll continue to report back to you on that.

[Operator]

Thank you. And I show our next question comes from the line of Brett Fishman from KeyBanc Capital Markets. Please go ahead.

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

Hey, good evening. Thanks for taking the questions. Just wanted to switch gears a little bit to the marketing strategy for Inspire five. It sounds like you're going to be stepping up the DTC 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.

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

You know, if you're going

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

be focusing on specifically some of the improvements to the procedure, or if that's too in the weeds for general consumption. Maybe just a little bit more about how you're thinking about that. Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Yeah, I think we'll do a little bit of both. We'll continue with our own outreach programs that are very strong and be able to get patients awareness and to get them to the website. Our website will talk about Inspire five and we'll have to provide the necessary information to the patient so they understand the therapy going in. And so when they are able to make that appointment with their health care provider, that they're coming in with knowledge of five, coming in with confidence in the therapy and understanding of the process overall. We will be doing individual communications with patients who have come to our website in the past, left our contact information, and if there is new information coming out, to please let them know about the new information.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

So we will go back and reach back to all the patients that have previously come to INSPIRE. That's a significant number of patients that have visited inspire over the years and let them know that yes inspire five is now available it is in the full launch aspects of it so it's going to be a multiple faceted marketing program to be able to get the word out even further.

[Operator]

Thank you. And I show our next question comes from the line of Michael Pollark from Wolfe Research. Please go ahead.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Afternoon, thank you. Two quick ones. How many Inspire five implants to date worldwide? If you said it, I missed it. I'm just curious for the evidence base, the size of it ahead of launch.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

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?

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Or what kind of progression growth wise would you expect? And I'm really getting to how loaded the guide is into 4Q. Thank you.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Sure, Mike. Let me tackle the first one and we'll give Rick that second one. First, we haven't really put out how many Inspire fives we've done, but we did early work prior to approval. We submitted that data to the FDA and that's where we're able to collect devices or collect data with Inspire four patients and using external five to use those patients as their own comparisons. We have evidence going in that gave us confidence with the therapy.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Then, of course, with the qualification data, we have significant evidence from that standpoint. And now, of course, post approval with a lot of commercial implants, both Singapore and through the limited release. And we'll be pulling a lot of that information together and you'll see some of that come out during the upcoming sleep meeting in Seattle in June.

[Rick Buchholz, CFO at Inspire Medical Systems]

Yeah, the second half of

[Rick Buchholz, CFO at Inspire Medical Systems]

the year, Mike, Q4 is historically our strongest quarter. And I did talk a little bit earlier with my earlier responses that we expect even Q4 to be even stronger this year given the Q2 launch of Dynamics and how we expect utilization improvements to occur in the second half of the year.

[Operator]

Thank you. And I show our last question comes from the line of Mike Kratky from Leerink Partners. Please go ahead.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Hey guys, this is Brett on for Mike. Thanks for taking the question and congrats on a good quarter. Thank you. So 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 five mix increases.

[Rick Buchholz, CFO at Inspire Medical Systems]

Yes, we reiterated our gross margin guidance of 84% to 86%. We did increase that this year compared to a year ago. And we have stated that without a price change that our gross margin is accretive with Inspire V. And we're going to continue to manufacture Inspire V throughout 2025 because we're going to continue to sell it internationally as we await approval, and we want to make sure we have sufficient Inspire four inventory on hand until Inspire five is approved outside The US. And also keep in mind that a lot of the components for Inspire five can be used or for Inspire four can be used for Inspire five as well.

[Rick Buchholz, CFO at Inspire Medical Systems]

So we're going to continue to build sufficient inventory and we're excited about the launch and we're in a good spot for that this month.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Understood. That's helpful. And if I get one follow-up just on the OUS 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?

[Rick Buchholz, CFO at Inspire Medical Systems]

No real FX in the first quarter, but we are seeing some in the second quarter.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Okay. Thanks,

[Brett Gasaway, VP - Equity Research at Leerink Partners]

guys.

[Operator]

Thank you. This concludes the Q and A session for the conference. I'd now like to turn the call back to Tim for any closing remarks.

[Tim Herbert, Chairman, President & CEO at Inspire Medical Systems]

Thank you all for joining the call today. As always, I'm grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to patients remains unmatched and is the most important element to our success. I wish to thank all of our employees as well as the healthcare teams for their continued efforts as we remain focused on further expanding our business in The US, Europe and in Asia. For all of you on the call, we appreciate your continued interest and support of Inspire and look forward to providing you with further updates in the months ahead.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Executives

• Ezgi Yagci, Vice President of Investor Relations
• Tim Herbert, Chairman, President & CEO
• Rick Buchholz, CFO

Analysts

• Travis Steed, Managing Director - Equity Research at Bank of America
• Danielle Antalffy, Analyst at UBS Group
• Robert Marcus, Analyst at JPMorgan Chase
• Adam Maeder, Senior Research Analyst at Piper Sandler Companies
• Richard Newitter, Managing Director at Truist Securities
• Kallum Titchmarsh, Analyst at Morgan Stanley
• David Rescott, Senior Research Analyst at Baird
• Michael Sarcone, Analyst at Jefferies
• Shagun Singh, Senior Equity Analyst at RBC Capital Markets
• Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC
• Lawrence Biegelsen, Senior Medical Device Equity Research Analyst at Wells Fargo
• Anthony Petrone, Managing Director at Mizuho Financial Group
• Jonathan Block, Managing Director at Stifel Financial Corp
• Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets
• Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC
• Brett Gasaway, VP - Equity Research at Leerink Partners