Inspire Medical Systems Inc (INSP) 2024 Q2 法說會逐字稿

Good afternoon. My name is Duluem and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems second quarter 2024 conference call. (Operator Instructions) I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.

Thank you, Duluem, 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 and six months ended June 30, 2024. 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 of forward-looking statements, including without limitation, those relating to our operations, financial results, and financial condition, investments in our business, full year 2024 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 this conference call contains time-sensitive information and speaks only as of the live broadcast today, August 6, 2024. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Thank you again, Ezgi, and thanks, everyone, for joining our business update call for the second quarter of 2024. We always start our earnings call by reiterating our commitment to delivering strong and consistent patient outcomes. Our mission is to put the patient first, and we now have over 75,000 patients treated with Inspire therapy to date.

With that let's review our results. In the second quarter, we generated revenue of $195.9 million, representing a 30% increase compared to the second quarter of 2023. Second quarter US revenue totaled $187.8 million, a 30% increase over the same period last year. This revenue growth reflects greater therapy adoption as a result of increased market penetration in existing centers as well as expansion into 81 new implanting centers in the United States and 12 new US sales territories.

We now have 1,316 active US centers and 310 sales territories. Outside of the US, revenue increased 27% to $8.1 million. We saw strength in Germany, Switzerland, the Netherlands, and Belgium as the derogation authorizations allowed us to continue to grow the adoption of Inspire therapy. With this strong start and confidence in our outlook for the remainder of the year, we are increasing our 2024 revenue guidance to $788 million to $798 million, which represents 26% to 28% growth over 2023 revenue of $625 million.

Net income for the second quarter was $9.8 million compared to a net loss of $12 million in the prior year period, representing net income per share of $0.32 compared to a net loss of $0.41 in the second quarter of 2023. Given the strong performance we have seen year to date, we are raising diluted net income guidance to $60 to $0.80 per share for the full year.

We'd like to highlight some very important business updates. First, we are excited to announce EU MDR certification in Europe, which includes full body MRI compatibility. This is a very significant milestone as approval requires a stringent review in operations, quality and regulatory compliance, and we are very proud of our team for this achievement. As a reminder, we obtained derogation in several European countries to help ensure patient access to therapy and product continuity.

With this EUMDRI. certification, we may now submit for approval of the Bluetooth to patient remote, the updated physician programmer, and the Inspire V neurostimulation system.

Second, we received country-wide reimbursement in France at levels consistent with other European countries. France is the second largest OSA market in Europe, our local team is already in place and we are ready to start reimbursed Inspire cases. And just last week, we received FDA approval for the Inspire V neurostimulation system. This is a significant accomplishment highlighting many years of development and evaluation, and we are incredibly proud of the hard work across the organization. We are focused on operational readiness and building sufficient inventory to support a soft launch in late 2024 and a full launch in 2025.

The Inspire V neurostimulation system incorporates respiratory sensing capabilities into the IPG, eliminating the need to implant the pressure sensing lead. This will provide benefits to the patient with one fewer component, to the physician with reduced surgical times, and to the company with reduced production costs and complexity.

Turning now to market access, we continue to make good progress with the PREDICTOR study and analysis. As a reminder, the initial focus with the PREDICTOR study is for patients with a lower BMI who may not have significant lateral wall collapse and therefore, may not require the drug-induced sleep endoscopy, or DISE. We expect to continue the analyses and move towards submission of the manuscript to a peer-reviewed publication this fall.

We have already discussed the results with payers and have had several payers update their policies to remove the DISE requirement. We will continue our discussions with other payers to further improve a patient's experience in obtaining Inspire therapy.

Staying on the market access front, we are pleased with the proposed 2025 national Medicare outpatient payment rates, which called for a 2% increase, bringing the hospital outpatient rate to $30,198 and a 3% increase, bringing the ASC rate to $25,620. The proposed physician fee schedule for 2025 calls for a roughly 2% reduction to the Medicare physician fee of $837,

however, we would expect the final rule to reflect a higher overall physician reimbursement rates. With respect to our market development activities, we continue to advance our medical aid education programs. And year to date, we have hosted over 150 advanced practice providers at Inspire training programs. The primary focus of this initiative is to improve capacity in both sleep and ENT clinics to meet the strong patient demand we continue to see for Inspire therapy.

Further, we continually increase our presence at primary care and cardiology conferences to drive increased awareness of Inspire therapy. Our direct-to-consumer program remains strong and provides a pathway for patients to connect with the proper health care providers.

In the second quarter, our direct-to-consumer spend declined modestly compared to the prior year period as we've found ways to be more targeted and efficient in our digital advertising, which has contributed to a significant increase in digital patient engagement at a lower cost. We continue to advance initiatives to improve the patient experience and one example is we now have over 200 centers using digital scheduling to book appointments.

With digital scheduling, we have observed a 60% increase in a patient's ability to schedule an appointment on their first attempt, greatly improving the patient's journey to receive Inspire therapy.

Switching to the recently released data from the SURMOUNT-OSA trial, the data further reinforces our view that GLP-1s will be complementary to our market opportunity and may provide a mechanism for patients to reduce their weight and qualify for Inspire therapy. As you know, Inspire therapy stimulates the hypoglossal nerves and is designed to treat tongue base collapse.

Patients with a higher BMI are more likely to experience lateral wall collapse of the airway, which is not effectively treated with hypoglossal nerve stimulation. This was further confirmed with our PREDICTOR results as discussed above. Based on the results of this SURMOUNT-OSA trial, we believe many patients who experience significant weight loss, including those who benefit from the use of GLP-1s are likely to experience a reduction in their lateral wall collapse, which would allow them to qualify for Inspire.

Please refer to our updated investor deck for third-party data on concurrent use of GLP-1 and Inspire therapy. According to the report, over 1,500 patients in the past two years received Inspire therapy while actively on GLP-1 therapy.

Finally, we have made great made great strides in profitability, which we expect to continue into 2025 and beyond. Given our strong balance sheet, financial performance, and long-term outlook, we believe shares of Inspire's stock represent a strong investment opportunity. And as such, today, we announced our board's approval of a $150 million share repurchase authorization, the first in the company's history. The program provides us with a flexible way to return value to our shareholders including supporting our stock when we see unwarranted volatility.

In summary, we remain focused on the patient to continue the growth and adoption of Inspire therapy. We will continue to execute our growth strategy of driving higher quality patient flow, increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include adding advanced practice providers, training and adding new implanters, increasing center independence, driving the adoption of sleep tech and our digital tools, all of which are embedded strategies in our commercial team's objective to increase provider capacity.

As we move into the second half of 2024, we remain excited about our future prospects 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 review of our financials.

Thank you, Tim, and good afternoon, everyone. Total revenue for the second quarter was $195.9 million, a 30% increase from the $151 million generated in the second quarter of 2023. US revenue in the second quarter was $187.8 million, an increase of 30% from the $144.7 million in the prior year period. Revenue outside the US was $8.1 million, which is a 27% increase year over year.

Gross margin in the second quarter was 84.8% compared to 83.9% in the prior year period. The increase was primarily driven by increased sales volumes and manufacturing efficiencies. Total operating expenses for the second quarter were $160.9 million, an increase of 12% as compared to $143.4 million in the second quarter of 2023. This planned increase was primarily due to the expansion of our sales organization and increased general corporate costs.

As Tim noted, our targeted DTC investments are yielding some savings interest and dividend income totaled $5.9 million in the second quarter compared to $4.9 million in the prior year period. This higher income was driven by higher interest rates on our cash and investment balances compared to a year ago.

Operating income for the second quarter totaled $5.1 million compared to an operating loss of $16.6 million in the prior year period. Net income in the second quarter was $9.8 million compared to a net loss of $12 million in the prior year period, representing net income per share of $0.32 compared to a net loss of $0.41 in the second quarter of 2023.

The weighted average number of diluted shares outstanding in the second quarter was 30.4 million. Excluding the impact of any share repurchases that we may effect over the remainder of 2024 we now expect the full year diluted shares outstanding to be approximately 30.5 million to 30.6 million. Our total cash and investments were $466 million at June 30. This strong cash position allows us to remain focused on executing our growth strategies. We continue to expect to generate positive cash flow for the full year 2024.

Moving on to 2024 guidance. With the strong trends we are seeing in our business, we now expect full year revenue to be in the range of $788 to $798 million, representing an increase of 26% to 28% compared to full year 2023 revenue. We continue to expect full year gross margin to be in the range of 83% to 85%. We also continue to expect to activate 52 to 56 new US centers and establish 12 to 14 new US sales territories during each remaining quarter in 2024. Given the strong momentum in our business and our improving operating leverage, we expect that diluted net income for the full year 2024 will be between $0.60 to $0.80 per share.

Lastly, given our strong financial performance and outlook, we are excited to announce a $150 million share repurchase authorization.

In conclusion, our strong performance and business momentum provide us with confidence in our outlook for the remainder of 2024. With that our prepared remarks are concluded. Duluem, you may now open the line for questions.

Thank you, sir. (Operator Instructions) Robbie Marcus, JPMorgan.

Great. Thanks for taking the questions and congrats on a fantastic quarter here. Tim, coming off a great quarter, so I wanted to trying to ask this in a positive way here. There's been one disappointing quarter, one good quarter, another disappointing quarter or really good quarter here with second quarter.

Help us understand if any of this was catch-up or recouped procedures from first quarter, and if not, how do we think about the go-forward on a fundamental basis? Is this the new normal? Do you think you fixed all of the compensation and sales force issues and that we're back to normal? Just give us a sense of sort of what you think the underlying and second quarter was and the go-forward?

Got you. Well, I want to back up a little bit. Remember, we have the challenges in the third quarter last year that did -- reflect a really strong Q4. And we talked about the impact that had on the Q1, which is a little bit of a residual going all the way back to the third quarter. We believe we had a strong Q1 that had us in the right momentum going forward.

And then we demonstrated that into Q2. And we do have the momentum with the team going forward. We certainly have the patient demand, which has always been there and really important to us. But when you look back at the prior authorization challenges, we have all that resolved that we've had some real positives on that front. Yeah, we have confidence on moving forward. And hence, we have significantly increased our revenue guide in both Q1 and Q2 to reflect the positivity we have going into the rest of the year.

Great. Down the P&L, Rick, the profitability was impressive here and you're raising the EPS guide for the year. You talked about better productivity on the digital advertising, but how do we think about where the rest of the savings coming from? You're clearly being more productive with the sales force and the expenses here off of the revenue. So just help us understand where it's coming from. And again, same thing, how sustainable are they into 2025 and beyond? Thanks.

Yes, Thanks, Robbie. We're really focused on continuing to drive the top line growth and growing therapy adoption, and we continue to make investments and what I would say is we continue to invest in our top line growth, but we are getting leverage, operating leverage from our business model. If you look at a couple of larger items, DTC a year ago in the second quarter was 17% of our revenue. In the second quarter, 12% of our revenue.

But we're taking a more targeted approach and we are seeing savings. And so we expect to continue to drive leverage off of DTC, as well as R&D was down from a year ago. And as a reminder, in the second quarter of 2023, we had an expense of about $3 million for prelaunch inventory with Inspire V in R&D. We did not have that in the second quarter of this year.

So we also did focus Inspire V shifting from development efforts to operational readiness. So between the combination of top line and some of those items in the OpEx, drove a $5 million of operating income, which we're very proud of and very proud of the overall team's effort in the second quarter.

Appreciate it. Thank you very much.

Thank you. Richard Newitter, Truist Securities.

Hi. Thanks for taking the questions and congrats on the quarter. Maybe just thinking about the back half here and with the updated guide, you know, should we really think about US utilization because I think there's some seasonality in the third quarter. Any help you can give us on the cadence, particularly around the US?

And I'm just wondering if you can give us any signal as to whether or not utilization should be increasing sequentially every quarter. By my calculation, you should be increasing on a year-over-year basis in the back half by mid-single digit utilization growth. But that also presupposes that you come in line with your new account adds and that exceeded handily in the second quarter. So maybe just kind of walk us through the puts and takes and bring it back to utilization cadence and grows sequentially in year over year? Thanks.

Sure. Going back to the consensus is kind of what you're indicating there too, Rich. Year to date, we have exceeded consensus by $12 million and we've raised our first half of the year guidance by $13 million. And we put forth guidance that we have a high degree of confidence in. As you know, historically, we do have seasonality in the first quarter and the composition of our full year revenue generally builds throughout the year. And so with that said, our aspiration is to increase utilization sequentially and year over year going forward.

Okay. That's pretty clear and helpful. Thank you. And then, I guess, just you exceeded on the number of new account openings, more center adds essentially in Q2. I guess, is 52 to 56 the right quarterly number? How should we think about that? I know in the past you've talked about -- you have a lot more new accounts that are in the base. They're all coming up the curve. Is this the right number for the quarterly new account in assumption? Just help me understand that you've been beating that handily for the last few quarters. Thanks.

Got it, Rich. And we've been very consistent. We haven't changed that guide for quite some time, and that does vary quarter to quarter because we do not open centers until they're ready to open and have patients in the pipeline ready to go. And so that's why this quarter we're in a good position with centers. There is always the high patient demand.

And there is a significant number of centers that I'd like to open up with Inspire therapy. And when they get through other training programs get through the contractual phase and they're ready to open and they have the patients ready to go, we do open them up. So that's why there's always been a little bit of fluctuation in that number. But we're going to hold guide where it is, and but we're going to continue to find avenues to further increase patients' abilities out to find a proper health care provider.

Thank you.

Thank you.

Thank you. Adam Maeder, Piper Sandler.

Hi Tim and Rick. Thank you for taking my questions and congrats on the progress. I wanted to start by asking about Inspire V and the rollout there and really just hoping to get some more granularity on the US commercial launch.

So the first question is when do you expect to start offering that product to customers? It seems like based on your prepared remarks, that's a Q4 event, but wanted to confirm how many accounts will you target initially, just maybe level set us on capacity and inventory levels as you get ready to launch? And then finally, just any color around pricing and margin with Gen V? And then I have a follow-up.

I think the key is a lot. It's nice to have the first milestone with the FDA approval that came last week and the FDA worked with us interactively to answer a lot of questions and very proud of the team for years in the development of the Inspire V products. But now we need to be ready to launch our Inspire V into the US market. The key is making sure that we have sufficient inventories, so once we do full launch that we're able that can have continuous supply of products. So we're going to really focus on that in the second half of the year.

The purpose of the soft launch is really just in a handful of centers to introduce it and to make sure though, with other operating norms with the physician program, and the remote, with SleepSync and digital tools. And so it'll just be a handful of centers that we'll use to help with that evaluation and then look to have a full launch into 2025. But very excited about having the approval with the FDA that really allows us to lean in hard on the operational readiness to be able to launch a full launch in 2025.

Let me hand off to Rick on pricing question.

Yeah. Thanks for your question, Adam. We're working through our pricing strategy prior to launch, and it's part of our operational readiness. But with that said, even with flat pricing, Inspire V is gross margin accretive.

Got it. Thanks for the color, guys. For the follow-up, I wanted to circle back to the guidance and just kind of unpack that a little bit more. So on the top line, $788 million to $798 million, I guess, could you just comment around the cadence for Q3 versus Q4? I have Q3 consensus on the top line at $197 million. Any reaction to that figure? And then what also just like to better understand how you're thinking about specifically the US business versus the OUS business as it relates to the guide? Thanks for taking my questions.

Sure. I'll take that given our updated guidance, consensus revenue estimates are reasonable for the rest of the year as they stand. And regarding the split between US and OUS, OUS for the full year we'll still represent between 3% to 4% of our worldwide revenue.

Thanks, Rick.

Thank you. Antony Petrone, Mizuho Group.

Thanks and congrats on a strong quarter here.

Maybe a couple on Inspire V. Another quick follow up on GLP-1. On Inspire V, maybe a little bit on the funnel. You've said in the past, Tim, that the funnel is still around six months. Inspire V is going to have a procedure time benefit in bringing the total procedure time down to a half hour from 60 minutes or so today. So where do you think the funnel could go once Inspire V is launched? And I'll have a quick follow-up.

I think you bring up a key point, and that's one of our opportunities to improve efficiencies with the ENT and to build capacity. We also mentioned advanced practice providers that can help offload some of the ENT office space opportunities. But we also have initiatives to help the ENT in the operating room. One of them was for patients that with the low BMI, not necessarily meaning they need to have a sleep endoscopy procedure. But secondly, with Inspire V and reducing the OR time that, as you hint that it allows the ENT to do more procedures in a given day, thereby increasing capacity, having an overall effect of reducing the time a patient has to wait from contacting a physician from to receiving therapy. So absolutely, you will have a positive effect on that overall timing.

And then a follow-up just on GLP-1. Still, the debate is out there. And you mentioned prepared comments that upper BMI, clearly, you know, category can come into the sweet spot for hypoglossal nerve. Are you seeing any evidence of that sort of out of the gate here? There are folks out there, obviously on GLP-1s for obesity specifically, there's already obviously a large comorbid population out there. Are you seeing actual quantitative evidence of this yet? And if not, how much of a factor do you think it could be in 2025? Thanks.

What we think is going to be significant for patients as we go forward, we're working through the GLP-1 investigation and trying to understand, and we knew that we had subjective feedback from our physicians that they're seeing patients on a GLP-1. So we went contracted with a third party to do an independent review of claims data.

And we actually have provided several other slides in our updated deck that you can find on our website. And I think that really kind of highlights the number of patients that have dual claims, meaning when they receive Inspire therapy, they're also actively on a GLP-1 therapy. And the number over the last two years was significant, up over 1,500 patients.

So we're already seeing evidence of that right now and we're going to make sure that we continue to communicate with our physicians to take advantage of these therapies. Because again, we believe these GLP-1s are complementary to Inspire and will help patients qualify for Inspire therapy.

I would just know, Antony, that data is not all encompassing. Its claims data from one provider. So 1,500 is a huge number but that may not be capturing all of the patients on GLP-1s receiving Inspire therapy today. But we thought it was helpful data release to share with you guys and it's in our favor.

Thank you.

Thank you.

Danielle Antalffy, UBS.

Good afternoon, guys. Thanks so much for taking the question. Congrats on a really good quarter here. It's just a question, Tim, for you on surgeon capacity and it came up a little bit with Inspire V, but I think there's more work to it, right.

And I guess maybe, give us some color here on where you guys think you are in this process of freeing up capacity at the ENT level and really just getting more mind share getting them to commit more of their time to doing Inspire therapy. I'm guessing, Inspire V alone is helpful but it's not the only things. Maybe talk a little bit more about some of the other initiatives there and how you guys are progressing against those? And I'll just leave it at that one question. Thanks so much.

Great, Danielle. And it's a great question. I think it's two-fold. It's taking care and building efficiencies from their office setting and seeing patients initially, but also improving their capacity in the operating room. And what we find is that there are advanced practice providers, APPs that can do a lot of that early work, helping patients understand what Inspire is about, what to expect to in the education part of it. And on the opposite -- and after surgery, helping them with the early titration and the programming of the device. So we can free up the ENT to really focus their time on being in the operating room, which is the probably the number one priority.

Number two in the operating room, it's about gaming experience, getting comfortable with the procedure and having confidence so they know they can reduce their own operating room time, they can confidently speak to patients and then we help them a little bit. Predictor and eliminating days for low BMI patients is one initiative we can really help them out to not require them to be in an operating room, but do sleep endoscopy.

And then of course, as you mentioned, Inspire V is going to reduce the overall OR time. This also culminates in with proper reimbursement as well. So when the doctors get comfortable that the reimbursement level for the amount of time they spend in the operating room is sufficient, then they can't commit more of their practice to Inspire. And I think that's what you're saying when you see a demand to open up 81 new centers in a quarter and grow the utilization quarter-over-quarter. That really is reflective of the increased physician awareness and desire to increase their capacity.

Thank you.

Thank you.

Thank you. Michael Sarcone, Jefferies.

Hey good afternoon and thanks for taking the question. Maybe for Rick, just to start on gross margin and OpEx control really nice progress there. Can you give us any help on how to think about trends in the back half of the year, particularly around both 3Q and 4Q?

Yes, sure. Thanks for your question, Michael. So now that we're providing earnings per share and we've also provided gross margin guidance of 83% to 85%. Second quarter revenue OpEx growth was 12%. Based on our earnings per share revised guidance of $0.68 per share and our revised revenue guidance that implies that our year-over-year OpEx growth will be 17% over 2023. So in 2023, our total OpEx is $568 million, and the growth in OpEx would be roughly around 17% or so year over year growth, and that will be a ratable increase over the next couple of quarters.

Great. Thanks, Rick. And maybe Tim, one for you on predictor. You had some positive commentary around some of these early conversations you've had with payers, some of whom have already updated their policies. Is it fair to read that as kind of what you've seen so far in terms of the data looks successful enough to convince some of these payers, and now it's really just a matter of time for waiting for the publication and then we could start to see some of the large payers follow suit?

Yes, I think that's exactly true. I think that our focus is going to remain on low BMI patients, primarily patients who have a BMI less than 32. Again, it's back with our discussion of our GLP-1s and lateral wall collapse in patients with a low BMI just don't have the lateral wall collapse and therefore, it's intuitive that they just won't need a sleep endoscopy. And that's how what the data supports in our discussions with some of the patients and they're open to those discussions, those discussions. But we've had other payers earlier removed requirement for DISE because remember, the FDA does not specify sleep endoscopy and only specifies patients have the proper anatomy.

And we're seeing some payers kind of a line around that. But we remain very active with a lot of the payers with all changes, including the increase in AHI, the increase in the BMI. Most recently, you may have saw UnitedHealthcare removed their requirement to trial oral appliances.

Now while we manage that with the prior authorization process, certainly, that's a benefit to patients, but they also improved and clarified the language around patients being able to refuse CPAP, not necessarily failing a trial of CPAP. So we continue to work with all the payers to maximize that clarity across all payers and improve the experience for patients.

Great. Thank you, Tim.

Thank you.

Thank you. Chris Pasquale, Nephron Research.

Thanks and congrats on the quarter, guys. The operating leverage in particular was great to see. And as I look at the ratio of new territory to center adds in the first half of last year, you added about one new territory for every four new centers, and that's kind of what you guided to historically.

It was one for every six here. So more efficient use of the sales force. Is that sustainable or did you not just not see as many good candidates in terms of new rep adds?

It is sustainable because what we've also done is increase the number of field clinical reps. So we have a larger support staff in each of the territories to help with case coverage as well as working through some of the titration and some of the training so we're just finding ways to leverage it and be more efficient. And I don't think long term, we're going to really significantly increase the ratio. But I think we're going to continue to focus on that.

Great. And then the GLP-1 data now?

Hey, Chris, this is Ezgi. Sorry. It's important to note that we actually did have 12 deactivations in the quarter and we reactivated one center. So I think the ratios that you're backing into maybe a little off.

And then the GLP-1 data in the back of the deck is very helpful.

The money slide for me is the last one where you show the before and after and it seems to support the conclusion that more patients are going to come into your target zone than dropout, once the dust has settled.

I guess, the question that it doesn't really speak to is whether there could be some disruption or an air pocket at some point as patients get on drug therapy and then wait to see where they're going to end up and whether it's going to resolve their apnea. How do you think about that risk?

And have those conversations started to change post the SURMOUNT-OSA results?

Yes, I think that the key is going to be for patients who are newly diagnosed and they want to go on a GLP-1. I think the sleep community and the sleep physicians have really talked about that. They're going to start them on CPAP and the GLP-1 at the same time because the sleep physician does not want to accept the liability of a patient going 9 to 12 months to lose weight and to see if they resolve their sleep apnea and that money slide that you're talking about the back of the deck did talk about the benefit of 9 to 12 months of being on therapy that have significant weight loss.

So I think that starting patients on the CPAP and GLP-1s at the same time is really going to help any air pocket. And then I think that when if patients are not successful or refuse CPAP, then they're going to be ready to come over to Inspire therapy. And you won't see an air gap from that standpoint.

The other practical stand standpoint is, as I mentioned earlier in the call, we're running about six months from the time of the call to the time a patient receives an implant. And within that, that window that capacity with ENT surgeons, we have sufficient patient population that we're working to take care of that I don't think you'll really see any kind of GLP-1 air gap even visible.

That's all. Thanks, Tim.

Thank you, Chris.

Thank you. Brett Fishbin, KeyBanc Capital Markets.

Hey, guys, thank you so much for taking my questions. A lot of good ones already asked, but I'll follow up on the Inspire V rollout with just one more question. I'm just curious, I mean we have like a general sense of the timing at some point in late 2024, that will start. But maybe if you can just talk a little bit more about what the limited market launch actually includes in terms of like engaging and training the initial accounts? And then maybe like directionally, how much of the installed base would actually be participating in the LMR? And then finally, like any key milestones that you would want to see to indicate that you're ready to move on to the full launch next year?

So I think we it's going to be very simple. Limited launch is going to be a few centers and we want to merger positive experience with the device with all of the externals, being with the programmers, the remote, and proving out the training and getting some experience with that. But it's not going to be an extensive limited launch. It's going to be just a few centers. And the key milestones is just having a positive experience with the device.

And then just a really quick follow up here. Obviously, like the number of new centers added this quarter was well above the guidance and what we would typically expect to see. But revenue guidance for the full year is coming up for $5 million, maybe not as much as you would expect to see apples-to-apples with the number of new centers.

So I'm just curious like one topic over the past year or two has been an increased number of secondary sites of service where you may be adding centers at face value, but not necessarily opening a ton of new capacity. So maybe if you could just touch on kind of like the balance between secondary sites of service that were in that 81 number versus new doctors?

Yes, on overall basis, Brett, we're still seeing significant growth in hospitals and ASCs being used kind of more frequently sometimes at a second site of service. At the end of the second quarter, about 24% of our overall centers are secondary sites of service.

Got it. Thank you so much.

Thank you. David Rescott, Baird.

Great. Thanks for taking my question. Congrats on the strong quarter here. I wanted to go back on some of your comments around utilization of new center adds. I think, I guess, depending on the way you slice it. It looks like utilization in Q3 last year was down sequentially. And I think if I heard you right, you're expecting utilization to increase sequentially in Q3 of this year. Is that right? And can you just help us think about if that is the case, why we should expect a sequential increase in utilization in Q3?

Yeah. I mean, we said that that's our goal. Aspiration is to increase utilization sequentially year over year, just like we did in the second quarter. And there are a lot of positive items we talked about in our prepared remarks about that gives us confidence for the rest of the year, not only in Europe, with country wide reimbursement in France and commercial payers continuing to adjust their policies for expanded indications.

Tim briefly touched on the reversal of the oral appliance therapy requirement and the continued progress we're making with our DTC programs. And so again, we put forth guidance that we have a high degree of confidence in and we want to increase utilization.

Okay. Great. So okay. So that's a medium worldwide number rather than something specific to the US. Is that correct?

No. US, we expect or we want to and our goal is to increase utilization in the US.

Okay. That's helpful. And maybe just on the P&L again, I heard the comments around the total year-over-year OpEx growth and you -- kind of back into what's implied in the second half of the year. I'm curious just looking at the cadence in the back half relative to the first half, should we be thinking about some depending on where the models kind of shake out a positive kind of net income number, positive EPS number for Q3 or is that just in the numbers there? Thank you.

Yes, the way we frame that up 17% growth in OpEx year over year basis. And when I mentioned kind of incremental, we're expecting about the OpEx in Q2 was $161 million. And if you increase OpEx sequentially $9 million each quarter, that gets you to a 17% growth in OpEx. And with that, we expect to be profitable in the third and fourth quarter.

Okay, thanks. And apologies if that was already asked. Thank you.

Thank you. Shagun Singh, RBC Capital Markets.

Great. Thank you so much and congratulations. Tim, I was wondering if you could talk a little bit about how you feel about your business and some of the drivers in 2025? You obviously have Inspire V. You said that could speed up the procedure, benefit from the predictor study that could play out. Do you expect that this is the funnel of potential replacement cycle? Any comment around that would be really helpful.

And then I guess, I'm just wondering, does that give you confidence in 20%, 25% growth, company beyond this year of getting off of about 27% that you're doing this year? And maybe if you don't want to answer 25% question, how should we think about Inspire's long-term growth rate? Any comments there would be really helpful. Thank you.

Absolutely. Thanks for the question. And yes, when you ask a CEO about how he's excited about a business, that's a question I can go for quite some time to talk about because we're very excited about what the prospects of the company our technology and taking care of patients. Our safety and efficacy is unmatched, and we continue to drive our growth based on strong patient outcomes. And with the limited penetration we have in our target market, we stand that we have profitable growth for years to come.

And I know you're looking for a specific number that we're not going to go down that pathway yet, but we do have great confidence with our technology, both the implantables with Inspire V as well as the accessories with our programmer, with our SleepSync system, with our digital tools to help patients navigate the process or improvements, and market access. And not to mention the improvements that we're all seeing on the international landscape with the number of patients being able to treat continuing to grow. So yes, we're very excited about our future, and we continue to invest heavily in our growth and heavily in our technology going forward and I do see years of growth ahead of us.

All right. I guess, as a follow up on utilization, can you tell us where the top quartile customers are tracking, perhaps in your primary centers?

I'm just trying to understand the potential here in improving utilization and then have you guys decided on the guidance, how you are going to guide us in 2025 and beyond? Perhaps you can give us rates for primary versus secondary sites on utilization? Just any color would be great. Thank you.

Sure. We're still going to work backwards on that. I think the information that we're going to provide next year to help you kind of gauge the strength of the company, we're still working on that, will stay in communication with you as we work through the rest of this year. But we will continue to provide the number of centers and reps as we progress through the year and will be in close communication.

As far as the top quartile centers are the range of number of centers or number of implants per month, the range is somewhere approaching two or three quarters or three, all the way up to over 17 procedures per month. So we continue to push the upper end and we want to continue to move the entire normal distribution of the group of centers.

Thank you.

Thank you.

Larry Biegelsen, Wells Fargo.

Thanks for taking the question. Congrats, Jim and Rick, and Ezgi. Tim on Inspire V, we're -- are you in detail in terms of determining the right CPT code for Inspire V and what's the process and time line? And if you have to go back to the old code, what impact do you think that could have? And I had one follow-up.

Very good. Now we're going to have it all ready to go for training. And it'll be very clear for the centers. And we have some work to do with payers, but we're going to be in a really good shape from reimbursement. There's no new clothes we have to go after.

Okay. So the current code you're saying you have confirmation that you can use the current code?

I did not. I said we're going to have a plan all laid out and we will have that code part of the training package, and we'll have that ready to go when we move to launch.

Got it. And Rick, do you stock or consign? And I'm asking because we spoke to a center this week said they had over 10 Inspire IV devices on the shelf. We take those devices back from centers or require them to work down their inventory? Thanks.

Well, we do a lot of alternatives that you talk to. That's obviously a pretty productive account when they have that level of inventory and they likely have a power level that they keep as inventory. And we will expect that they're going to burn down their inventory before they ramp up with V, because remember IV as same functionality as the Inspire V system. So when I look at swapping out well, we'll work for they have them burned down their inventory.

All right. Thanks, Tim.

Thank you.

Kallum Titchmarsh, Morgan Stanley.

Great. Thanks for taking the question, guys. I wanted to ask on the center dynamics in the US. A lot added in Q2 at 81, but also seems a larger number of deactivations versus prior trends. Would just be helpful if maybe you could walk through what you saw there and how we should be thinking about this churn for the remainder of the year in light of the maintained guidance? Thanks a lot.

Sure, great. Question. I think the key to it is we want to make sure that the territory managers are focusing on centers that can be productive and can take care of our patients and those centers that have did not have the ability to take care of patients over the last one or two years, we want to deactivate them.

Another key example in the majority of those sites, you just have a physician moving to a different facility. So that maybe we're opening one facility, but they're left the old facility that we will deactivate and as Ezgi mentioned, we have reactivated centers as well because they want to go out and hire another surgeon to take over that program and we will restart them.

And we will we reprogram them. But in the interim, we don't want the field team to focus too much time on centers that aren't able to take care of patients. So we purposely deactivate them. If you go back in time over the last several years, that's very consistent. What we've kind of done on an annual basis, pretty close to the second quarter, we kind of deactivate. I think we did 25 in the year 2022 and 15 at 2020.

Correct. So to date, the 17 calls that we've done year to date is not really an anomaly.

Thanks a lot.

Thank you.

Thank you. Michael Polark, Wolfe Research.

Good afternoon. Thank you. I just have one thread on Gen 5. Rick, I heard you say it was flat pricing. It's gross margin accretive. Can you help us think about Gen 5 unit costs versus Gen 4? How much lower are they? And then the second part of this is, maybe back two to four quarters, there was speculation. You might consider a price increase here with Gen 5, where does that thinking stand? And if you were to take a price increase with the launch order magnitude, what might that be? Thank you?

Yes, of course, with our operational readiness, we're still working through those details, Mike. So we have determine whether or not there will be a price increase or continued pricing with that. But we are removing the sensing lead that will be now part of the IPG. And so we will be removing costs associated with that. And so we didn't mention it would be accretive even with a flat price. But we haven't quantified that yet.

Thank you.

Thanks, Mike.

Jon Block, Stifel.

Thanks, guys. Good afternoon. Just two for me. Tim, how quickly can you move across the 1,300 centers for Inspire V for training, considering this eliminates the lead and simplifies the procedure when we think about the broader rollout in early 2025? I'm guessing you can move pretty quick, but maybe you can quantify them. In the longer term, do we have to worry about anything regarding the physician fee, considering this does simplify the procedure and what that might mean or not mean for the physician? And then I'll just ask my follow-up.

Very good. Thanks very much.

I think 1,300, I think, it's kind of hint there, the training is relatively straightforward, right? We don't implant the pressure sensing lead, which is going to be very well accepted from my ear, nose, and throat surgeon. As you can imagine, that's the one part of the surgery that we think is a little bit uncomfortable for an ENT. So we do believe on a capacity front that by removing that sensor that we're going to have more ENTs who want to do the procedure and it will reduce the OR time. But I do think that longer term, if people wanted to look at the skin to skin time to do the procedure and they do a new rock survey. I think right now the procedures fairly paid and it may take couple of years for them to do another rock service.

I don't think you'll see any significant change in physician payment for several years, but certainly they will do a survey to make sure it's properly based. On your first question, I think the greater challenge is more. So working through all the contractual items because we have pricing agreements with every center and we just need to do contracting updates with all the centers. But we have a team that can effectively work through that process. And even though we have 1,300 centers, we can efficiently move through that. So thanks for having us.

That was really helpful. And then maybe just as a follow-up, Rick, the [H2] 2024 year over year revenue and it was up about 45 million up almost 50% drop through to net income. I mean, just a really impressive drop through. If I take the midpoint of your 24 guidance, I sort of do that same exercise in the back part of the year, I guess, way over $1 in the back part of Q2 in H2 2024 in terms of earnings per share. So again, really solid EPS power.

I'm just curious, is the $0.60 to $0.80 just reflects some of your usual conservatism or are there any other areas of spend that you may accelerate as we work our way throughout the balance of 2024? Thanks.

Yes, thanks for your question, Jon. Part of that driving that number is we do have variability in our R&D as a percentage of revenue. A year ago it was 20%. And even in recent quarters, it was high 10s. This particular quarter in Q2 was 15% of revenue so we're continuing to make investments in our R&D in our sleep segment, in our technology platform. And so we're not slowing down with investments, we'll also continue to expand and make investments in our commercial organization. So we're not slowing down. We want to drive top line growth with those investments.

Thank you. Mike Kratki, Leerink Partners.

Hi, everyone. Thanks for taking my questions. Can you provide an update on the current backlog of patients that are waiting to get an Inspire implant? And just to clarify, does that backlog specifically refer to patients that have been cleared for Inspire post DISE and are just waiting for a long time to become available? And how would you characterize that backlog of patients?

Yeah. It's a great question and a lot of different definitions in there. While we aren't at a high level talk about, is the time it takes somebody, patient from contacting on our call center through the implant. We still have they're running at about six months, although we're seeing some improvement with that and by increasing capacity, we can start to lower that down.

What is impressive is our ability to attract the patients once they go to a sleep endoscopy and reduce the time from sleep endoscopy to implant. And you can imagine if we can start to reduce the number of sleep endoscopies based on the predictor results, we can have a significant reduction in their experience that way. So a very key focus for the team right now, and we closely track patients once they get their insurance approval and make sure they get scheduled in a very expeditious manner and we can start to track that very closely. So it's a very high priority for the team.

Got it. Thanks very much.

Thanks, Mike.

Suraj Kalia, Oppenheimer & Co.

Congrats on the quarter. Thanks. A couple of questions and I'll throw them away together. I know it's been a long call. Maybe I missed some qualitative commentary or quantitative new store, same store sales. Any additional color there would be great.

And also, Tim, I'll throw my second question also your way. Your comments about physicians not wanting -- I'm paraphrasing, does not wanting to take liability on GLP-1 and waiting to see 9 to 12 months for the impact. I guess help us understand that a little more even the hypoglossal nerve stem, it takes almost four to six months to get through the pipeline and get to a surgery, another three plus months for full titration and you really don't know if you're going to respond to hypoglossal nerve stem. So maybe if you could tie your comments about the liability component would be greatly appreciated.

Thank you very much for taking my questions.

Thanks, Suraj. Same-store sales go back there for us. I think we continue as a priority to make sure that we want to increase same-store sales and increasing utilization at existing sites. And I think that is what you're seeing by seeing the increased utilization on a quarter-over-quarter basis, certainly year over year, and that member has a little bit of a dilutive effect by adding more centers to the denominator. And so it really shows that we are growing our utilization at existing centers. As far as sleep physicians. They don't want patients to remain left untreated.

And so maybe, let me backtrack from the word liability a little bit, but talk about the desire of sleep physicians to take care of patients, and they're going to want to start them on a therapy like CPAP right away to be able to move forward. As far as Inspire goes that we know there is a time that it takes people to get through the process, get to a sleep endoscopy or prior authorization and get to surgery or remember these are patients that have already attempted CPAP.

And so they've tried therapy. They may be using CPAP to carry them forward. But once properly selected, we've been able to show our safety and efficacy and a very high probability that they will have a strong benefit with Inspire therapy. And that's why we have over 75,000 patients treated with Inspire therapy today.

Thanks, Suraj. We have time for one last question. Dinam, can you queue up that one please?

Sure. Definitely. Stephanie Piazolla, Bank of America Securities.

It's actually Travis Steed from BoA. Okay. Before I just wanted to sneak in, my pen wasn't working. So I had a couple of questions tonight on the sequential increase in utilization and trying to tie that into the other comments of your comfort with the consensus US revenue. So I don't know if that's just the aspiration as it grows sequentially or just how to think about that sequential uptick in utilization this quarter?

We are going to be in the key for the rest of the year and quarter over quarter sequential increase in utilization and that's certainly year over year. So we're going to continue to focus on that. And that's the mode of the commercial team.

Okay. But the guidance, the comparable street is not necessarily showing that sequential increase, correct?

We keep those as a separate topic.

Okay. Perfect. And then one other question I got from investors is just kind of curious if there was any anything in Q2 that was one-time Easter timing that came in or anything impact of UNH not doing privatizations? Is there anything to consider in Q2 that was one-time that we would think about modeling this sequentially?

Yes, no. Yes, Travis, great question. We actually went through and tried to look at sales days and what the days are in and did that X calls because the icer, we had a hurricane this past week. So now we don't we didn't see anything in the second quarter that really highlights similarly, that I think we had a strong quarter from the team. We're very proud of the efforts both in the US as well as international in their support.

Okay, great. Thanks a lot.

Thank you.

Hey, let me jump in, just before we close, I want to thank everybody for joining the call today. And as always, we're grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. Team's commitment to patients remains unmatched and is the most important element to our success.

Wish to thank all of our employees as well as the health care teams for their continued efforts, as we remain focused on further expanding our business in the US, Europe and Asia. And 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. So thank you very much and Dilem, back to you.

Thank you, sir. This concludes today's conference call. Thank you for attending. You may now disconnect.