Inspire Medical Systems, Inc. Q3 FY2025 earnings call

• Reiterated commitment to put patient first and deliver strong patient outcomes, with investment in innovation and clinical evidence. - Highlighted Inspire V performance data from ENT Society meetings, including significant performance improvement, 20% reduction in surgical times in Singapore study, and clinically relevant reduction in disease severity with over 100 U.S. patients. - Presented data on Inspire V 87% inspiratory overlap. - Positive clinical feedback on simplified procedure and comfort settings. - Multiple Inspire-related publications at ENT meetings showing effectiveness for various OSA types and improvement in cardiovascular comorbidities. - Inspire V U.S. launch progress: over 98% physician training complete, over 90% contracting complete for centers, and over 75% SleepSync onboarding complete. - Started new patient marketing ad campaign, including holiday-themed ad and celebrity influencer partnership. - CMS finalized 2026 physician fee schedule with 11% increase for CPT code 64568, and awaited final OPPS rules. - Survey of over 200 sleep physicians showed GLP-1s driving increased interest in sleep health and patients coming into clinics for OSA diagnosis, with sleep physicians prescribing GLP-1s concurrently with other treatments and tracking patients.

Total revenue for the third quarter was $224.5 million, a 10% increase from the $203.2 million in the third quarter of 2024. U.S. revenue was $214.4 million, up 9% from $195.8 million in the prior year period. Revenue outside the U.S. was $10.1 million, a 37% year-over-year increase. Gross margin in the quarter was 85.8% compared to 84.1% in the prior year period, primarily due to increased sales volume and increased sales mix of Inspire V which is more cost effective to manufacture.

• Reaffirmed revenue guidance range of $900 million to $910 million, representing 12% to 13% growth compared to 2024. - Expect full year gross margin to be in the range of 84% to 86%. - Updated diluted net income for 2025 to $0.90 to $1 per share, up from $0.40 to $0.50 previously. - Expected 2025 reported tax rate to be 25% due to higher state minimum taxes, and likely eliminate a large portion of valuation allowance on deferred tax assets in fourth quarter, creating a one-time tax benefit. - Expect full year diluted shares outstanding to be approximately 30 million.

• Legal fees related to a civil investigative demand from the Department of Justice and patent infringement lawsuits with a competitor, which do not reflect costs associated with ongoing operations. - Material risks and uncertainties that could cause actual results or events to materially differ from forward-looking statements, including market access changes, competitive activity, and regulatory developments.

Q: Congrats on the progress with Inspire V. Just curious how you're thinking about some of the puts and takes on 2026 at this stage. And anything to call out in terms of cadence, first half, second half and '26?

A: Travis, right now, we're focused on finishing the fourth quarter strong. Now it's still early in our '26 planning process. So I will not -- while we're not providing specific guidance at this time, I want to reiterate the underlying trends we're currently seeing. The Inspire V launch, positive clinical feedback and strong patient flow driven by our increased DTC investment give us confidence in the durability of our growth heading into next year. We'll provide formal 2026 revenue guidance in January once we've completed our year-end results and planning. Taking all into account and while not providing formal guidance, we can see accelerated growth from our third quarter and wish to provide an early indication of 10% to 11% growth for next year. In the meantime, our business fundamentals remain strong. We've seen and continue to see excellent momentum with Inspire V, both in physician adoption and patient outcomes. Our outreach campaign is generating record engagement. and our field organization is operating with greater focus and alignment than ever before, which is translating into more consistent execution. We're also realizing operational benefits from tighter integration across marketing and therapy development, which will continue to support long-term profitability. As always, we're mindful of near-term factors such as the Inspire IV inventory transition, GLP-1 trialing and ongoing competitive activity. Overall, we're executing with discipline and have reaffirmed our 2025 guidance. With Inspire V scaling and continued operational focus, we expect continued revenue growth and improvements in operating leverage. And as far as cadence, at this point, we expect to return to our historic norms prior to 2025 and the Inspire V launch.

Q: I'll echo the congrats on the progress. Maybe to start, just kind of a little bit of a follow-up there, very helpful response, Tim, to Travis' question. But I wanted to just try and better understand some of the trends that we're seeing in the business for the month of October as well as kind of the visibility that you have going forward, November, December. I think you typically schedule cases several weeks out. So it would just kind of be helpful to understand some of the dynamics and what you're seeing as we try and reconcile the implied Q4 guidance? And then I had a follow-up.

A: Sure. I think the key to it is really the trends we see with Inspire V. And as we talked throughout the last earnings call with everything from Medicare to available product to the transition with SleepSync, really the field getting their arms around all that and working with individual centers and really seeing that transition really transpire mostly in the third quarter. And we have some additional work. But we know the majority of the inventory in the field today is Inspire V. So we're already working through that inventory transition from IV to V. So we do see implants going forward. We know we always have our highest seasonality later in the year because of the high deductible insurance plans, and we're seeing those same trends now. And again, just to highlight, the marketing team is doing a great job with our new awareness campaign, and we are seeing the benefits of that as well.

Q: Congrats on the good progress in the quarter. I'll echo everyone else there. Just a question on thinking about ramping centers that are sort of lower to mid-volume. And -- and what you guys are doing around that? Because I do think ENT sort of mind share, I guess, I would say your capacity is still an important driver here, appreciating the benefits Inspire V brings. So just curious about what you guys are doing out in the field with these lower volume centers to get them higher and using on a more regular basis.

A: Thank you. A big initiative that we have ongoing there. We have formed a new team that is really focused on that group about reenergizing the ENT. And we're kind of using Inspire V as the catalyst to do that. Because remember, the difference between Inspire IV and V is you don't have to place the pressure sensing lead between the intercostal muscles, and that's always been a little bit of the uncomfortable part of the Inspire procedure for an ear, nose and throat surgeon. So Inspire V lets us come back to those ENT surgeons and to new surgeons and to reengage with them, reenergize them around the benefits of Inspire V, the easier implantability of the device, if you will, and really focusing on that. So we have a long history and list of those centers that have started but not reached their potential, and we're going back and revisiting them with this team, but also going to centers and starting to recruit additional ENTs who now find this procedure more acceptable that they don't have to mess with the chest wall and the pressure sensing lead.