Inspire Medical Systems, Inc. Q3 FY2024 earnings call

• Patient Outcomes and Product Development: Surpassed 85,000 patients who have received Inspire therapy. Soft launched the new SleepSync programming system. FDA approved the Inspire V neurostimulation system.
• Financial Performance: Q3 2024 net income was $18.5 million, compared to a net loss of $8.5 million in the prior year period, representing net income of $0.60 per share. Raised full-year 2024 revenue guidance to $793 million to $798 million.
• Market Access and Education: Final 2025 national Medicare outpatient payment rates for CPT code 64582 increased. Hosted over 250 advanced practice providers and Inspire training programs. DTC program showed operating leverage with increased digital patient engagement at lower cost.
• Product Development: PREDICTOR study data presented on identifying patients for Inspire therapy without drug-induced sleep endoscopy.

In the third quarter, Inspire Medical Systems generated revenue of $203.2 million, a 33% increase compared to the third quarter of 2023. U.S. revenue totaled $195.8 million, also a 33% increase over the same period last year, contributing a significant portion to the total revenue. Outside of the U.S., revenue increased 27% over the same period last year to $7.4 million. The U.S. segment accounted for the majority of the revenue, while the international segment also showed growth.

• Raised full-year 2024 revenue guidance to $793 million to $798 million, representing 27% to 28% growth over 2023 revenue.
• Full-year diluted net income guidance for 2024 is between $1.20 and $1.40 per share.
• Expect full-year gross margin to be in the range of 83% to 85%.
• Continue to activate 52 to 56 new U.S. centers and establish 12 to 14 new U.S. sales territories during the remaining quarter of 2024.

• Impact of hurricanes and related IV solution shortage in the fourth quarter, which is expected to represent revenue headwinds.
• Uncertainty around regulatory and payer responses to new products and programs, such as the launch of Inspire V and market access implications.

Q: Congrats on a nice quarter. Two for me, top line and bottom line question. Maybe I'll start with the bottom line. Once again, fantastic upside on profitability, very nice EPS, margin upside versus consensus and the guide. Maybe just speak to the sustainability and trajectory of those margins?

A: Sure. Hi Robbie, we want to continue, as we said, when we became profitable that we want to see consistency in getting leverage throughout our organization, not just with DTC, but also with our R&D as well as the performance of our sales team through increased utilization. So we want to continue moving forward, a lot appeal in there but we have shown some efficiencies with our DTC as you highlight there to be able to continue to create awareness and bring patients into the system yet be able to do that in a more efficient and cost appropriate manner. But yes, we continue to move forward in a profitable state.

Q: Robbie, this is Rick. I'll add on to that. One item to call out is the R&D expense. It did – it was reduced to about 13% of our Q3 revenue historically. That's been closer to the higher teens. And so one of the phenomenon there is that we did have some prelaunch inventory, $1.7 million that was expensed in the third quarter of 2023. We did not have that in this quarter. And so we do expect R&D to be in the mid- to high teens on a going forward basis. We also had some development costs shift from development really into more of the regulatory process. We did not have some of those R&D costs in the third quarter. But we still expect that we'll have continued profitability on a year-over-year basis.

A: Great. Appreciate that. And maybe just for my follow-up on the top line. Tim, I think it was on the last quarter call and maybe it was at an investor conference earlier this quarter, you talked about improving sequential utilization third quarter over second quarter, fourth quarter over third quarter. Now that we have the results, what are you seeing in terms of utilization? How do you feel about third quarter? And what do you think – or what's implied in the guide in fourth quarter? Thanks a lot.

A: Yes. I think we had a great Q3. I do – the utilization from Q2 to Q3 is consistent between the two. We do have a step up from the prior year period. It is our aspiration to be able to continue to grow utilization, and that will remain our focus going forward. I think maybe we saw a little seasonality in Q3 and maybe a late impact regionally at the end of the quarter. But I think overall, we're happy with the performance in Q3 and utilization is flat to Q2.