Q2 2025 Inspire Medical Systems Inc Earnings Call
Good afternoon. My name is DM, and I'll be your conference operator today.
At this time I would like to welcome everyone to the Inspire Medical Systems, second quarter 2025 conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
Begin the conference.
Thank you, Jhelum, 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 3 months end of June 30th, 2025 a copy of the press release is available on our website.
On this call management will make forward-looking statements within the meeting of the federal Securities laws. All 4 looking statements, including 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 in 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 a Securities and Exchange Commission. Including our form 10q, which we filed with the SEC earlier this afternoon.
For a description of these risks and uncertainties.
inspired 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 4th, 2025.
With that. It is my pleasure to turn the call over to Tim Herbert Tim
Thank you. And thanks everyone for joining our business update, call for the second quarter of 2025.
I'll start by highlighting some key takeaways of our second quarter results.
I'll then discuss our updated 2025 guidance and provide additional context and rational rationale around the, the change, then Rick will provide a financial review.
We will then open the call for questions.
It has been an impressive start to the year 2025, and we have achieved many key milestones.
that said, I want to provide some important context on the challenges we are facing in the commercial roll out of our inspired 5, Next Generation system, which began in May
As the quarter progressed, we encountered certain headwinds that slowed our efforts to transition customers to Inspire 5.
While we are disappointed with the elongated time frame, we now expect the rollout. We remain focused on advancing the transition of our customers to Inspire 5.
To this end. We are taking concrete actions that we believe will allow us to complete this transaction in the next few quarters.
Strong market demand, positive patient and surgeon feedback, and favorable clinical results give us conviction in our platform and our ability to make a difference in the lives of our patients with obstructive sleep apnea.
I'd now like to provide some detail regarding the challenges faced during the quarter and the steps we are taking to actively address the factors at Play.
First, in the second quarter, many centers did not complete the training Contracting and onboarding criteria required prior to the purchase and implant of inspired 5.
Specifically, the implementation of the sleep sink has been the most challenging step to accomplish.
Although not technically difficult, the approval process from our customers, it departments has taken longer than expected.
Additionally, some centers have been delaying implementing implementing sleep sink until the first patients are scheduled to receive the Inspire 5 device.
To increase the rate of information of sleep sink by our customers. We began and continue to leverage our technical teams.
To date, we have completed the implementation at over 50% of the U.S. centers.
With these technical resources fully engaged, we expect to complete the vast majority by the end of Q3.
As an aside.
Most of the units sold in the second quarter were Inspired 4S.
Therefore, we did not experience much inventory. Destocking in the second quarter?
as we continue the transition to inspire 5,
The Second Challenge related to adoption of CPT code 64568 for inspire 5 for Medicare patients.
The approval of the code change was announced in April with a retroactive effective date of January 1, 2025.
However, the software updates for claims submissions and processing did not take effect until July 1st, thus, although traditional Medicare and Medicare Advantage, patients could receive its prior therapy.
Implanting centers would not be able to build for those procedures until July 1st.
Given this dynamic, many centers continued to treat Medicare patients with Inspire.
With this software update now complete, we anticipate centers will ramp up their efforts to transition to inspire 5.
Third certain patients opted to wait for the Inspire 5 device. Knowing its availability was imminent, instead of being treated with inspired 4,
And as more centers transitioned to inspire 5 into the third quarter, these patients should start receiving Inspire, 5 therapy.
Forth. We intentionally held off on patient, marketing and education spend and footprint expansion, namely new centers and territories in the first half of the year.
This was a strategic decision given all the resources required for the Inspire 5 transition.
As we move into the second half of the year, we have ramped up both marketing and footprint, expansion efforts to increase, patient, awareness and build capacity across the US.
These investments have already started to be implemented, and we have already experienced an increase in website activity, calls into our advisor CARE program, and appointments to health care providers.
We continue to leverage our ACP to connect patients interested. And as far as therapy with qualified Physicians, including through the expansion of digital scheduling
In addition, we are ramping our medical education and local community health. Talk efforts to promote the launch of inspire 5.
These efforts should provide a Tailwind into the second half of 2025 and Beyond.
Lastly, we believe some patients may be delaying inspired therapy to try GOP. Once we are unable to quantify this, and continue to believe, GOP wants present, a Tailwind long-term. As we do here of patients, losing weight to qualify, and receive and spare therapy.
as an example, when a prospective patient fails the dise procedure, due to complete conceptual collapse, our centers work with the patients to help address their High BMI, including prescribing a GOP 1,
As a result of these headwinds, we are adjusting our four-year revenue guidance to a range of $900 million to $910 million, down from our previous revenue guidance of $940 million to $955 million, representing a 4% reduction at the midpoint.
The new Revenue guidance, reflects growth of 12 to 13% over 2024 Revenue.
We are also reducing our diluted net income per share to a range of $0.40 to $0.50 from our previous guidance of $2.20 to $2.36 per share to reflect this change in revenue guidance, and to a lesser extent, the planned increase in patient marketing costs for the second half of the year.
I will now take a few minutes to highlight this success. We have already seen with the Inspire 5 system what to expect moving forward.
The early results of our Singapore clinical study have been presented at the recent sleep meeting and demonstrated a 20% reduction in surgical times.
This reduction will provide for increased capacity at centers.
In fact, we have already noted that the US centers that have completed the transition to inspire 5 have experienced a more than 20% increase in patient implants in the first half of 2025 as compared to the same period in 2024.
From an efficacy standpoint, the accelerometer study highlighted that recent investor conferences suggested significantly improved sensing capability, including an 86% inspiratory overlap with a patient's breathing.
Synchronization with respiration is essential as the airway collapses during the inspiratory phase of respiration.
The early review of Ahi reductions appears very promising as well.
And we plan to present this data at the upcoming ENT meetings in October,
Regarding reimbursement.
CMS recently released the 2026 proposed OPPS rules, which, if approved, would provide positive increases for Medicare reimbursement for the Inspire system.
as you know, for inspire 5 centers will be billing CPT code, 64568, which has been accepted for plans covering over 90% of our 300 million covered lives including Medicare
The national average Medicare Hospital reimbursement for CPT code. 64568, is proposed to increase to 32,000 up roughly 1300, or 4% from 2024,
And the ASC reimbursement is proposed to increase to 28,000 up 1300 or 5% compared to 2024.
Finally, the surgeon reimbursement for CPT code. 64568 is projected to increase to 660 up 11% as compared to 2024.
Should the proposed rules be finalized as expected. In early November, the new reimbursement would take effect, January 1st, 2026,
With respect to clinical evidence, we are very excited to have submitted the predictor manuscript to a leading journal and expect it to be published later this year.
As a reminder, the clinical evidence proposes an algorithm, which uses BMI and necks circumference to determine a patient's eligibility.
Thereby eliminating the need for a dice procedure for the vast majority of patients.
We are all so excited to announce that we became a corporate champion of the American Academy of older. Andy the sponsorship, sponsorship positions, Inspire, as a leading voice in ENT, Innovation, aligning with top thought, leaders and decision makers.
It also strengthens our brand and trusts within the ENT Community which is vital for expanding expires, influence and adoption.
It also provides a platform for collaboration, research, and policy, thereby advancing Inspire's market leadership and hypoglossal nerve stimulation.
Before I turn the call over to Rick, I'd like to take a moment to discuss a personnel announcement that we made today.
No, 1 has lived up to our commitment to delivering strong patient outcomes more than Randy ban, our Executive Vice President patient access and therapy awareness.
Randy recently announced his intention to retire at the end of January 2026.
As 1 of our earliest, team members, in a long time, commercial leader. At Inspire, Randy has played a significant role in advancing access to inspire therapy and building a strong mission-driven organization.
He will remain fully engaged in its current role in the early next year to support a smooth and thoughtful transition.
We are grateful to Randy for his many contributions and wish him the best in his well-earned retirement.
At the beginning of this year, Carlton Weatherby assumed the lead.
Of the year of sales and marketing teams and will continue to build upon the robust history of growth in the adoption of his birth therapy.
Initiated by Randy many years ago.
In summary.
We remained focused on the patient to continue the growth and Adoption of this fire therapy. We will execute our growth strategy of driving high quality patients, low and increasing the capacity of our of our provider Partners to effectively, treat and manage more patients.
Additional surgeons qualified to implants for a therapy and driving the adoption of sleep sinks and our digital tools.
all of which are embedded strategies and our commercial teams objective to increase provider capacity,
Looking ahead, we are confident about our future and that we have the appropriate strategy in place to drive long-term stakeholder value. We have our arms around the headwinds that is described and actions are already underway to accelerate the adoption of inspired 5 in the latter half of the year.
Looking beyond 2025, we continue to take actions to position the company for strong, profitable growth.
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 quarter was 217.1 Million.
And 11% increase from the 195.9 million generated in the second quarter of 2024.
Us Revenue in the quarter, was 207.2 Million, an increase of 10% from the 187.8 million in the prior year period.
Revenue outside the US was 9.9 million which was a 23% increase year-over-year.
In the quarter, our performance was 84% compared to 84.8% in the prior year period.
The year-over-year decrease was primarily due to a $2.1 million charge for excess Inspire 4 subcomponents, which reduced gross margin by 100 basis points in the quarter.
Total operating expenses for the quarter were 185.7 million and increase of 15% as compared to 160.9 million in the second quarter of 2024.
This increase was primarily due to the expansion of our sales organization and increased General, Corporate costs partially offset by a reduction in R&D year-over-year.
In addition, operating expenses included accelerated, non-cash stock-based compensation expense of $11.2 million for employees who are now retirement eligible, in accordance with the implementation of changes to the treatment of equity awards upon an employee's death, disability, or retirement.
Operating expenses also included 1.7 million in legal fees related to a civil investigative demand from the Department of Justice and a patent infringement suit that we filed against a potential competitor.
These items do not reflect.
Costs associated with our ongoing operations.
Please refer to our earnings press release for a Reconciliation of these items.
Interest and dividend income, total of 4.5 million in the quarter compared to 5.9 million in the prior year period.
Operating loss for the quarter totaled, 3.3 million compared to an operating income of 5.1 million in the prior year period.
Net loss for the quarter was 3.6 million compared to a net income of 9.8 million in the prior year period.
This represented a loss per share of $0.12 for the quarter compared to a net income of $0.32 per share. In the second quarter of 2024,
Adjusted IBA death for the quarter totaled 44.1 million, which is a 14% increase compared to 38.7 million in the prior year period.
The adjusted ebit dub, margin in the second quarter was 20% and consistent with the second quarter of 2024.
Adjusted net income per share totaled $0.45 compared to $0.32 in the prior year period, representing an increase of 40% year-over-year.
Average number of diluted shares outstanding for the quarter was 29.5 million.
We ended the quarter with $411 million in cash and investments.
Our strong cash position allows us to remain focused on executing our growth strategies.
Moving on to 2025 guidance. As Tim mentioned, we now expect full-year revenue to be in the range of $900 million to $910 million.
Down from 940 to 955 million.
Representing an annual increase of 12 to 13% compared to full year 2024 Revenue.
We expect Q3 revenue to increase 1% to 3% sequentially from the second quarter, as we continue the transition to Inspire 5.
Full year gross margin is expected to be in the range of 84% to 86%.
We now expect
diluted net income for the full year. 2025 will be 40 to 50 cents per share.
A decrease from our previous range of 220 to 230 per share.
The reduction is primarily due to the revised Revenue guidance, and to a lesser extent, the planned increase in patient marketing costs for the second half of the year.
We ended the quarter with 348 US territories and 259 us field clinical Representatives.
We continue to expect our reported tax rate in 2025 to be roughly 10%.
Primarily related to State and local taxes.
We expect the full year diluted shares outstanding to be approximately 31 million.
With that, our prepared remarks are concluded. As DM, you may now open the line for questions.
Thank you.
As a reminder to ask a question, you will need to press * 1 1 1 on your touchtone telephone.
To which are your question. Please press *1 1 again.
we ask that you please keep your questions to know more than 1 question and 1 follow-up and if time permits will be 1 and happy to take more questions, please stand by while we compile the Q&A Q&A roster,
can I show our first question comes from the line of Adam Mater from Piper Sandler. Please go ahead.
Hi, good afternoon. Thank you for taking the questions, um, you know, a couple from me, I guess. Um,
You know, the first one is on the revised guidance and...
You guys outlined a handful of different headwinds that are facing the business here. I was just hoping to get a little bit more color there. If you could kind of put some.
You know, uh, Force rank order around those different items or quantification around those items. So we can kind of understand those different components and kind of how you're thinking about the potential impact in the second half of the year in the night of follow-up. Thanks.
Sounds great. Adam, how you doing? Good to good to hear from you. I think when we laid out the 4, um, key items,
That that we highlighted the first 2 are really the the predominant.
Um, factors that we had and the first 1's, certainly being the number of centers that have completed their, uh, full training and um, adding sleep sink to their systems to be able to use the Inspire Inspire 5 program. And the second is really the concern over billing Medicare, which is, um, everybody was aware of it being approved but not being able to build it. Um until July 1st was really put some centers in a a tough spot. And so they chose to continue to implant Inspire 4 and those 2 factors really are the predominant drivers and we really got our arms around both of those of course the Medicare is now approved and and centers are able to build 645684, Inspire 5 and we have full team working to, uh, get all the other centers trained and up and running. As we mentioned over, 50% of the centers have already uh, have access to uh sleep sink.
That's helpful at color, Tim. Thank you for all that. And for the follow-up, um, you know, I I'm going to test my luck on
You know, 2026. And you know, I the roll out obviously, um, you know, going slower than expected with Gen 5 here this year. Um, but you gave some kind of helpful, you know, um, color around kind of how you're thinking about the trajectory in the back half of the year. Um, maybe to ask it a little bit more directly. Would you expect a revenue in 2026 to accelerate?
Accelerate over the 12 to 13% that you've guided to and, uh, FY 255. Thanks so much. Absolutely well. We're going to, we're going to provide our, our next year's guidance, of course, um, at a year on call. Uh, but we're making several Investments, as I've already mentioned to get the sites up and running with Inspire 5, we talked about the increased marketing with our direct to, uh, consumer spend expanding our footprint, both with new centers, with surgeons, bringing back some of the surgeons, uh, who were doing as many procedures because of the pressure sensing lead with 4. Um, and so yes we would expect our Revenue growth to exceed the 12 to 13. We're talking about now.
Thanks very much.
Thank you.
And our next question comes from the line of Travis Speed from Bank of America Securities. Please go ahead.
At least the 2 20 to 230, went to 40 to 50 cents. There was, I guess a 57 Cent 1 time charge this quarter, but trying to get the bridge kind of back to the underlying EPS guides, and I'm going to adjusted basis. If you could kind of help walk how the guy changed uh, versus the 220 of 230 that you gave last quarter.
Sure, um, hey Travis. So, um, the most significant item there is just the gross margin that we're going to, um, the reduced gross margin that we would, um.
Obtain had, we had higher Revenue. So really, the biggest impact there is the reduction of the of the revenue guide from our previous midpoint of 948 948 million down to 905 million. So, that's the majority of that. But we are also increasing our our DTC, spend too. So to a lesser extent, there's some impact there from in continued Investments.
Um, and the big driver there is that we expect to actually increase our DTC investments, um, significantly now, um, that we've gotten the launch underway.
And so, um, part of that launch is we want to, um,
take advantage of the, of the launch with Inspire 5 to ensure that um, we're building patient awareness,
And so that uh that growth we had DTC and 95 million in 2024, expect that to be over 20% growth which implies about 115 million in 2025.
So, the 40 to 50 Cent EPS guide is excluding the 50 Cent 57, Cent 1 time charge to quarter just to be clear.
Uh, no, that's included. It's GAAP EPS; it's inclusive of that.
Okay, so if I take the $220 versus $230, uh, subtract the $0.57, and that's that should be the end of the underlying EPS guide, right?
Yes, because you have the um original. The underlying guide is uh midpoint of 45 cents roughly
$120, for the reduction in Revenue.
And then, and then the, uh, roughly $0.60 for the one-time items. Yes. Correct.
Okay, just want to make sure that was clear since this is confusing for a lot of people. And then the the second question I had was just on the Q3 guide and any kind of view on June July trends that kind of helped inform that Q3 guide up 1 to 3% sequentially. Thank you.
Uh, hi, Travis know, I think the uh, uh, as we come out it's always a little bit lower at the beginning of a quarter especially when you're talking about the beginning of July. But uh, we do uh, see the patient flow that we're working through in the second quarter and be able to um get a handle on, where we are from. Uh uh patient flow and expected implants to be able to um guide 1 to 3%, step up over the second quarter Revenue.
So that's those are just the early views that we see from the patient flow.
Okay. Thanks a lot. Thank you, Travis.
Thank you.
And I show. Next question comes from the line of Danielle and Ty from UBS. Please go ahead.
hey, good afternoon, guys, thanks so much for
Um, just want to make sure I understand what's Happening Here on underlying volume Trends. Appreciate all the color, you provided Tim. But I guess even if it's a matter of like slower transition to inspire 5 volumes seem to be lower than than what, well, certainly than what you guys have been tracking over the last few years, but you know, then what a lot of people expected. And so I guess some of that is, you know, patients choosing to, to wait, but I guess I'm just curious. Like, why you're still seeing
Such pressure on on volumes. And I know it's hard to quantify, like the glp1 impact, things like that. But anything you can say there to just give us, um, some more confidence that this is truly temporary and not
You know not something structural in in the market would be would be great. Sorry, I know that's an open-ended question and I'll just leave it at that. Thanks Danielle. I think. Well first off in the second quarter um we did achieve expectations with our revenue and taking care of patients and and so we did a a good patient flow there uh
Quarters. We're working on the transition. We didn't add as many territory managers as as we noted in the script, we did increase the number of fields clinical reps because that builds the capability to, to move forward. And again, um, as Adam, uh, asked earlier on the 2 keys of getting the sites up and running the transition to 5, and really, the ability to build Medicare centers really had a, a difficult time building Medicare knowing that they wouldn't get, uh, billing accepted until July 1st,
The other two factors do play as well. Of course, with the patients who are expecting or waiting for Inspire 5, but until their centers are up and running, they certainly can't get in the queue to be able to get scheduled for that. But we know those patients are there.
And then finally, um, with the majority of the units, being sold in the quarter being inspired for us, we still have a burn down of inventory that will carry forward, uh, moving forward. So yes, we have strong confidence in, um, our ability to move forward and that's really highlighted by the great performance that we're seeing with Inspire 5 device so far both in the US. And again, as you mentioned from the clinical study, uh, in Singapore, and we're going to be proud to, to present some more of those results at the upcoming ENT meetings. So yeah, the teams got their head down. They're working hard. We think we got our arms around the
Headwinds, uh, limiting The Inspired 5 transition, and have good confidence that uh uh we have the corrective actions in place to be able to overcome those.
Thanks for the comprehensive answer.
Thanks Danielle.
Thank you and I share our next question comes from the line of Robbie Marcos from JP Morgan. Please go ahead.
Oh great. Uh, thanks for taking the questions. Um, 2 for me first 1.
Tim, I I appreciate you're not commenting on 2026, um, but with the expectation be given this is a transient issue that you you'd basically go back to your prior run rate in 2026. Meaning you'd get back the 40 to 45 million in Revenue. Cut that you had here, uh, in 25 next year, if it's not demand related.
Um, I think that, uh, that's what we're going to be targeting for. I think that, uh, we do think this is a short-term issue. Um, and with the shift, it limits our ability to work through Q3 and Q4, but it does set us up for a very promising, uh, 2026 and beyond. As we need to be focused to get all the sites transitioned over, but we already have the payers in place. As we mentioned with the CPP coding, we have Medicare now in place, and we have seen positive experience.
From centers that have already implemented Inspire 5, we are going to give the formal guidance when we move forward. But our intent is to bring the growth back, absolutely.
Great. Maybe. Uh, just the follow-up. You've had approval for.
a long while. Now, you were in limited launch for many months. The launch isn't going according to plan.
Um, what would you say if you compare now versus on the first quarter call, which was partway into the second quarter?
What exactly didn't go to plan? What was the biggest delta versus expectations? Um, sure. And how do you plan to fix those shortcomings? Uh, you know, through...
I think this is, uh, the largest launch in the history of the company. There's no question about it. It's one of the largest launches in MedTech, based on where we are today. So there are challenges that go with it. At the beginning of the year, really, we were focused more on making sure we had sufficient inventory to be able to even start the launch. And so, we were really limiting the number of centers that could be exposed to Inspire 5, still being able to pick up enough data to have confidence moving forward in the rollout. As we got to May, when we did the full, uh, launch and started to roll that out, we did have the opportunity with the extended time.
To be able to get all the reimbursements in place, we did have Medicare approval. Although, when they do their documentation, they do it twice a year. Of course, we weren't a part of the January release, knowing we had to wait until the July release. That had one issue, so that's a timing factor.
Uh, when physicians do the device programming, that's really a long-term opportunity to build the robustness of the Inspire system. And so, it is a complex launch. But I think now we have our arms around it. I think, uh, having inventory earlier would have allowed us to release this earlier. Albeit, we still would have been constrained from a Medicare standpoint.
But yeah, we do uh, take it to heart and do look closely at a lot of the details and when we go into our programs, uh, moving forward on, what can we do to, to enhance that going forward and have, uh, some better planning to address some of the challenges that we've seen.
Appreciate it. Thanks, Tim. Thanks, Robbie.
Thank you.
And I share. Our next question comes from the line of Richard Neuber from Truist Securities. Please go ahead.
Hi, thanks for taking the questions. Um, just a couple here and I'll, I'll list them all up front. Um, I'm curious, you know, if you could just parse out a little bit more clearly for us is is this entirely inspired 5 execution related it and that's the transient item that gives you confidence here for moving into 26. You did call out glp1 impact uh a little bit more concretely than you have in the past. So I'm just trying to understand between that and maybe capacity utilization. You know what what potentially
You know, newer term transient and then what's related to those other items and and anything, you can give us on kind of underlying demand, uh, uh, Trend, uh, since there is inventory in the channel, and then, um, sorry, 2, more your accounts receivable stepped up. I just wanted to know kind of how that factors into some of these, um, some of these considerations and then, lastly, you talked about a 20% increase for inspire 5 users, uh, that have adopted, uh, in the first half, I'm just curious. What's driving that that patient that just aren't able to get Inspire 5 that they found the few Physicians? Who have them going there? Or is it actually throughput increases and Physicians doing more procedures on their plan but Inspire days. Thank you. You bet, risk got it. Okay. Start with number 1. It's fire 5 uh, transition and and is that really the overriding element? That's limiting patient flow. Again, I think we had good patient flow in the
Second quarter and we achieved the expectations that uh, we set forward, but it was the continuation of the patient flow going into the third quarter. While the Inspire 5 is the leading issue. There, there are underlying elements to it. Well, obviously, the 4 items I talked about, with the Inspire 4, specifically cites being ready to go with 5 the Medicare. Um, some patients waiting for the Inspire 5. And, of course, uh, the burndown of IM,
We also held back, remember a little bit on our DTC and a little bit on our footprint expansion. So, not purposely going out and adding a lot of rough, we made sure that the team stays in place, focused on existing centers, getting them transitioned to 5, and then turning around to really start to expand. That specifically is what we started here in the third quarter. Not just increased DTC, but an increased focus on building the footprint in the United States.
Um, and then we'll come back to, uh, that's going to grow, uh, capacity. No question about it. GO1 impact, we're going to keep watching that closely. We do think that as the indication has come out, we may see, uh, pockets of that, um, with some of our centers of patients wanting to try a GO1, and we've talked about that with you before. But again, we do think that's a real, uh, tailwind in the end of the future. It's really about helping patients lose weight, addressing their ladder of a wall collapse. So we don't think that's a significant impact, but we're watching that very, very closely. I'm going to skip by it, call to receivable to give that to Rick and go down to the third question, which is the 20% improvement in patient flow with implants with our physicians. These are with our limited release sites, and this is patient implant. This is patient flow. Those are real numbers. We're tracking their implants during the first half of '25 versus the...
Jurassic, um, not in the thoracic cavity to the intercostal muscles is part of the surgery. That is just not the most comfortable part for ENTs.
And that really has been the number one primary, uh, positive feedback.
So, that being said, I'm going to back up to number 2 and ask directly: comment on culture receivable.
Yeah, Rich. Um, the council seal will increase is really a a 2-fold item. Uh, the the primary driver there is um, in May uh, we we actually completed a transition to a new customer billing service.
That helps automate and streamline our billing process, which is an upgrade from our previous manual process.
Billing process and and with that implementation of the new system, um, we had a, a temporary delay in the delivery of customer invoices, actually, with the new, uh, portal and our, and our new automated delivery process. Um, that that, uh,
Temporary delay has been resolved, and we expect to have this fully remediated in the third quarter, so it's really just a timing issue. We'll get those collections here as we get into the third quarter, and then, to a much lesser extent, too, is um.
The second quarter was a little back-end loaded in the fact that we had a really strong June, and so that also contributed to the increase in the accounts receivable balance at the end of the quarter.
Thank you.
And I show the next question in the queue comes from the line of David Prescott from Bear To. Please, go ahead.
Oh great. Um, thanks for for taking the questions. Um, Ricky you, you answered um, the question earlier, but I wanted to just make crystal clear. Um, you know, the the updated ETFs guide for the year the the 40 to to 50 cents that's that's now in in the guide relative to the the the prior to $2 plus um guide it is that 40 to 50 cents relative to the negative -2 cents of net income per share or relative to the 55 cents of adjusted net income. For sure you've delivered year to date so far. Um, and uh, I guess based on on that answer, um, are you expecting, you know, incremental um uh stock-based comp for this retirement um, uh, uh, component in the back half of the year as well, and I'd follow up.
Yeah. Uh, to your first question, it's relative to the $0.02 earnings per share.
To to address your first question. And then, um, the implementation of the retirement policy was really a, a 1-time charge. Um, and we expect our stock-based compensation to revert back to traditional levels as a percentage of our of our Revenue going forward.
Okay, that's helpful. Um, and then uh you know, Tim you you called out um you know, be 3 or 4, or 4, or 5, uh, components of this, uh, lowered um, outlook for the year. And, um, I'm curious on if, if you can bucket it in so much, as to the progress that those, uh, have recovered either in June, you know, in the back half of the quarter or already in, in July, and just based on kind of some of the trends that you're seeing in the back half, where we kind of stand from a. Hey, are some of these headwinds bottoming out are they on on the up at this point? Any any color? That would be helpful. Thank you. Absolutely David. So the first uh 2 the the primary contributors as we mentioned
Um, the first 1 being the center is being up and running. Remember we had to do the training Contracting and implementation of sleep sink and we mentioned sleep sink is already adopted. In 50% of the centers training is already Complete because the training of Surgeons is relatively straightforward, right? Don't implant the pressure testing lead anymore in this and it's
So again, we think we have our arms around that as well and look forward to continuing to report back on that.
Thank you.
And I shall next question comes from the line of Michael Cerrone from Jeffries. Please go ahead.
Good afternoon and thank you for taking the question. Um, I guess just first attempt to follow up on, uh, on the Medicare billing and and software update. Um, you said that's been available since July 1st, could you give us, you know, any sense of you know, what kind of uptick maybe you've seen since July 1st. Now that these centers are able to build Medicare
Uh, pretty limited early in this quarter so far. And that, uh, we had to get the sites up and running before they're in a position to build it. So a lot of sites weren't even going through the full implementation process until they're able to really step in.
And so now that Medicare is in place, we can say that's no longer a barrier. Now, we get to lean in with a lot of those centers half; that's really kind of the push into the third quarter here. That's driving a lot of the guidance changes.
Great, that's really helpful and then a follow-up on. Um, you know, the growth in the accounts that did, uh, transition to inspire 5, you said over, 20% growth, uh, 1 age, 25 verse 1 H 24. He just talked about, um, you know, the, the phenotype of those accounts. And and the characteristics, you know, is there any reason why we shouldn't expect that, uh, analog to hold for kind of the average account for inspire?
No question. I think the key is when we look at the accounts that we're in our limited market release, obviously these are accomplished centers, but when we can see that kind of growth in the accomplice centers, the the high volume centers are ready. Yeah, we want to use that to translate in across the board into other centers, to be able to, so to show that kind of growth going forward and we can use that as an example with centers to show that capacity increases, by the way, we do still our time and the ease in, uh, doing the programming with these patients. So yes, we want to reflect that across other centers as well, um, and, and we'll communicate that to the centers and to our team.
Great. Thanks Tim. Thank you.
Thank you. And I saw. Next question comes from the line of Shaun Sink from RBC. Please go ahead.
Oh great, thank you for taking the question. Um I I wanted to get a better sense of the implied Q4 guide. It assumes a substantial step up from Q3 to Q4 about 20% growth and uh, you know, uh, just what is your confidence in that in that number? Um, you know, and that it won't be pushed into 2026 any assumptions. You can quantify, um, uh, you know, for that would be helpful and then just on. Q3 I, I think somebody asked the question earlier, but can you can you give us a sense of volume growth that you've seen in July, uh, specifically how many accounts have been converted. And, um, lastly just, uh, have you heard any push back from customers around profitability? Thank you for taking the questions.
Um,
I'll go backwards. No, we haven't really seen any press or pressure from.
Centers on profitability, I think that, uh, the new Medicare rates and the OPPS rules coming out really help that off quite a bit. I think the 6456 and 8 give a little bit better reimbursement for ASCs. And again that steps up quite well going into 2026, so really not any, uh, too much pressure from that standpoint. Second question was.
I'm sorry. Second, what was the second question?
Um, so I was just wondering if you can comment on the Q4 guide, any quantification you can provide, and then also on July specifically, anything you can share on volume growth.
I, I'm not in a position to really kind of too much on the early July, as we're, um, new into the quarter right now, we did talk with Michael and last question, uh, in regards to, uh, really leaning in to really get the other centers, kind of up and running. And then when we look at the fourth quarter, remember that's our, uh, the big quarter, that's the 1 where we have our seasonality, because of the high deductible insurance plans. And so if you kind of look historically that we always get a pretty good step up from Q3 to Q4. And when we set our guide this time and we talked about the 1 to 3%, step up from Q2 to Q3 and then the what we had expected, uh, through Q3 to Q4 with that seasonality, that's how we set that overall guidance.
Thank you.
Thank you.
Last question comes from the line of Anthony Petroni from Mizuho Americas. Please go ahead.
Uh, thanks. Um, I'm going to go into 3 quick ones, rattle them off on some of the headwinds here. And 1 is capacity, and then you talked about sleep sync, and then GLP-1.
So on the capacity side, maybe just an idea of where general surgeons can be as a channel heading into '26.
On Sleep Sink, can it be fully up and running to all accounts by the end of the year? And if so, what does that do in terms of unlocking channel?
And then, uh, a failed diagnosis, you know, going into GLP-1.
Like, how often does that happen?
And you know, any experience so far? Have you gotten any of those patients back?
You know, at this point. Thanks. Absolutely good question. Thank you. Uh, from a capacity standpoint, the first step that we're doing is with existing centers and making sure that they understand the improved capacities with Inspire 5. We just talked about the demonstrated 20% increase already at the sites in the limited market release. But we do think that the next step is going to be uh,
Added ents, both, those that were reluctant to do procedures based on the pressure, sensing lead or those that were trained. And really haven't really engaged and done a lot of procedures. And we believe the pressure sensing lead has, uh, uh, uh, factor in that, and that we can improve it. Then we can move forward, and talk about both oral surgeons, who do maximum mandibular, advancements and even general surgeons. Now that we don't have that pressure sensing the it can lend to improved adoption by general surgeons. We do have a few that are already doing that and, and quite successful with that,
Go into your second question on Sleep Sink. Sleep Sink is a long-term view. It's our cloud-based patient management system.
And it is what it's going to provide improved patient outcomes because it's going to help sleep Physicians with the monitoring and, um, uh, programming and care of their patients from a longitudinal standpoint. And having that, as part of the Inspire 5 system is another conduit to be able to have data into the Sleep sink overall. So, it is a very important part of it. Yes, we plan to have the majority of the sites, all up on sleep sink. Who are every site, who will be doing Inspire 5 will be up on sleep sack, there may be a few sites that will continue with 4, but I think them, a great majority of sites will have sleep.
Bank implemented and that really provides a long-term benefit. Both to the centers, especially to the patients, because we can monitor their outcomes. And of course, for um, Inspire cure. It is a Competitive Edge as well, and then finally GOP ones, um, the failed dice as you know, with the predictor study. Uh, we're saying that we now have an algorithm for patients, who have a BMI less than 32, that we can use the BMI 32 and a nexo conference to predict their qualifications for inspire.
And therefore, eliminate a sleep at, uh, sleep endoscopy, for those patients with a higher BMI and when you start to get a BMI up at about 35, it could be as high as uh, 50% of patients.
Uh, we would have a large enough NEXO conference to have complete, concentric collapse. And those patients need to lose weight so we can reduce the lateral wall collapse and be able to treat them with a tongue-based collapse or hypoglossal nerve stimulation.
Yeah.
Thank you.
Can I show our next question in the queue? It comes from the line of Chris Pasquali from Nephron Research. Please go ahead.
Thanks. Um, I had a couple of questions. I wanted to start off just taking a different spin on Shagun's question to your point: single digits in Q3, then up 20% plus in Q4. That's very similar to what we've seen in the past couple of years. I guess my question is, should this year follow the typical seasonality? It seems like many of the headwinds you called out are going to be peaking here in Q3. It's going to take you some time to realize the benefit from ramping back up to DTC spend. So why shouldn't we expect Q3 to be weaker than usual and then maybe even have a steeper ramp in the year than we might typically see?
Sure, I think what we said in Q3 is going to be up about 1% to 3%. Historically, if you kind of look at it, it's usually a little bit higher than that, maybe coming out of Q2. And so, it's a little softer, uh, in our guide as we mentioned.
Going into Q4. So the key is going to be, we just need to keep focused on uh the corrective actions that we have in place and all the actions to be able to get the patient flow going and you're correct. The DTC does have more of a longer term impact both in the Q4 and then of course, um uh setting up for 2026.
Okay, and then you said, you haven't heard a lot of push back on, uh, reimbursement, yet 1 of the things that we have heard from some high volume Physicians. Is that the lower payment rate for Medicare, um, patients under the new CPT code, makes it less attractive for them to treat that population and, and they're thinking about deemphasized, cohort in their own practice. So how confident are you that? That everything we're seeing here is really just a matter of getting all the pieces in place. Uh, so that it's easy to do the billing and not, uh, a broader issue around those patients. Uh, getting served. I have a good point. And so, we need to continue to communicate that the difference between the old cold 64582. The new code 64568, did have a, a $200, Medicare Gap. And, and we also think that's reflective in the work that they do not have to put in the pressure sensing leads. So it is a reduction in time and the reimbursement per minute for the uh, high level.
And planners The Experience, uh, in planners, uh, will be a wash. Now, the good news is with the op PCS rules coming out. There's a $100 increase in 64568. Uh, there was a slight decrease in 64582 were not, um, too concerned about that. That needs a little bit more review, but it really has significantly reduced that Gap nonetheless, with the increase to 660 proposed with 64568 and with the experience that they can get with a red reduced or time, it should increase their capacity and we believe and as we've shown with our initial sites uh patient flow and impact implant volume, uh has increased over 20% with the, with the first limited market release date. So, I think we'll be able to work with the surgeons communicate, that and get their commitment to take care of patients.
Thanks.
Thank you. Our next question comes from the line of Larry Bigsun from Wells Fargo. Please go ahead.
Uh, good afternoon. Thanks for taking the question. Hey, Tim. Um, I think some of us, or maybe just me, might be struggling to understand how the delay in Inspire 5 negatively impacted Q2. Uh, because Inspire 5 doesn't really have a clinical benefit over Inspire 4. So, I wanted to run the factors that impacted Q2 that I heard on this call by you.
You to see if I'm missing anything. So Q2 it sounds like was negatively impacted by patients who are waiting for inspire 5? 1, some burning down of inspire 4 inventory um lower highs and center edge and some impact from uh glp-1 tri-ling is that kind of the right way to think about why the US growth in in Q2 was about was 10%.
Yes, but yes. And we communicated that on the Q1 call.
Uh, what? We expect out of Q2, and that's what we delivered.
Okay. And the GLP-1, what makes you think the impact is temporary and short-lived? You know, why couldn't it get worse from here? And do you have any visibility on, like, DICE test growth? Like the top of the funnel? Thanks.
Well, thanks Larry. Uh, we do monitor the, the dice growth and when they get scheduled, but we do track from the top of the, um, funnel all the way through. And when we just have communicate with some of our sites, that's what we get at the anecdotal, uh, feedback that some patients may be trying it. Uh, we do think with the focused effort on the high BMI patients with dice and the cognitive effort to get those patients to help them lose weight with BMI that were being proactive around that to offset any challenge. We may have with GOP wants but of course, we'll, uh, to your point monitor that very closely to see, um, how
Patients are doing well with the GOP ones. But again, the data to date really shows that it has the best impact with the high BMI.
Um, patients with a lower BMI generally don't experience lateral wall collapse. Instead, they tend to have tongue-based collapse, which is treated with Inspire therapy. These are the patients that we are targeting.
All right, thanks, Tip. Thanks, Larry.
Thank you, and I show. Next question comes from the line of John Block from Stifel. Please go ahead.
Afternoon. Um, maybe just to break it apart. Are you going to sell Inspire for $4 million in 2026 in the U.S.? And, you know, when we think about the revised guidance, is the $4 million...
You know, arguably cleaned up or depleted, if you would, Tim, in your opinion about the end of 2025? And then I'll just try to ask a follow-up. Yeah, well, we're going to continue.
Have inspired 4 is available um both in Europe and in Asia and in the United States, for select sites, that would like to to uh, remain using us for. So it is going to be available. The real challenge is managing the inventory in Europe. Because remember how long it takes to be able to get the EU MDR approval? Um, and so that's really the number 1 Reserve. We have with that that inventory and then we'll monitor in 26, how much inventory we even have, um, to, to be able to use, uh, in the US?
And, uh, we'll have better answers and more clarity around that, uh, as we work through the year.
Okay, um, thanks for that. And then, Rick, I'll take a third shot at the EPS. So, the way I look at it is that the GAAP EPS is essentially flat year-to-date, essentially, and then you've got a $0.40 to $0.50 guide in GAAP EPS for the year. So, you have interest income, I'm backing into like, call it low single-digit EBIT margins in the back part of 2025.
The gross margins are unchanged, the guide. So is it just Opex as a percent of sales that moves much higher in 2H 2025?
I guess that's part 1, is that correct? And then is that also what's going to drive Tim, in your view, the 2026 revenue acceleration? Because there's a good amount going into SG&A, DTC, etc. as we exit the back part of this year. Hope that made sense. Thanks, guys.
Yeah, John that that driver is really increased operating expenses um with our previous guidance uh operating expenses increased about 16% over 2024. Now with our revised earnings per share, if you work backwards, that overall Opex growth, um inclusive of the uh a couple of adjusted items um is 18%.
And yes, I think the um increase in our marketing and increases of the footprint is exactly the way as you described to be able to uh continue to excite patients, low and move forward um into 2026. And and yes John we we we uh for the uh remain committed to profitability.
Thank you. Thanks John.
And I show. Next question comes from the line of Brett Fish from KeyBanc Capital Markets. Please go ahead.
Uh, hey guys, thanks for taking the questions and first fitting me in here. Just, um, I'll have to follow up on this EPS topic. Um, you mentioned that part of the revision has to do with investments in both marketing and footprint expansion. I was just curious if you could provide a little bit more specific color on what spending in those buckets is incremental versus the prior range. So, like, what's being added to the budget versus what was previously assumed coming out of Q1? Thank you.
Yeah. Brett, uh, the, uh, the the real driver there is is that we want to continue to, uh, um, build patient awareness. And so, it's going to be our DTC, spend that we're going to have increased awareness, um, to really take advantage of the launch and, and kind of amplify our messaging, as we said, in our prepared remarks,
Um, we did, uh, intentionally hold off on DTC in in the first real half of the year and to to focus on the the launch. But so now we're ramping up those efforts here in the in the uh, second half of the year. Uh, we are still going to do, um, some other, you know, spending on other marketing areas as well. And and we're going to continue to um, add territories as we've done in the past. And so those are the
Continued investments that we want to make. So, um, we are.
um,
As Tim said, we remain committed to improving long-term profitability.
Thank you.
Thanks Brett.
Thank you.
And I show our last question comes from the line of Michael Polark from Wolfe Research. Please go ahead.
Hey, good afternoon. Um, for the...
Inventory destocking headwind in that number. So, 4 comes down, centers that start on 5 ramp.
Those units backed up a little bit, but it sounds like there's a net negative impact in this updated guidance. I'm wondering what that number is for the full year.
Yeah, we have not factored that into our guidance at all. Um, we have increased our inventory balances because we want to have Inspire 5 fully available. And so, um, give me a second, these stuff, right.
So, these stockings are factored into our updated back half guidance. We did not quantify it, and it would be very difficult to do. So, keep in mind there's also a timing element here. Depending on when that center transitions to Inspire 5 and DTO, therefore, their Inspire Force, there could be some timing elements, but that is factored into the outlook we provided for the back half of the year.
Yeah. And that's what I was driving to. I can understand for 2 H why there would be a headwind on the timing but you know uh at some point it'll work its I would think it works its way back to neutral. So if there was a number
You wanted to call out for the full year. I'd be happy to receive it, and where I'm going is I'm trying to visualize the path.
Back to higher than 12% to 13% growth in 2026, and one of the things that might not.
Recur. Uh, next year that that is impairing growth this year is this item and if, if there was a quantification of it, it'd be helpful to
To Envision the re acceleration.
Understood. Uh, we're not prepared to give that number at this time, but we'll take that under consideration as we provide guidance for next year.
Okay, I appreciate that. Um, if I can sneak one more in, I'm up for it. I know this is a number you're not giving, but again, I think it could be helpful for um,
Kind of the new vision from here after the reset. So, would you be willing to share as of June 30th? We're active in planting in the U.S.; I know the last number we got was 1,435.
12:31. Um, it would just be great to understand how much center activation was really suppressed in the first part of the year due to all the launch activities.
Part of this year, but not at the same rate that we did in 2024. Again, with the Inspire 5 transition underway, we did not want new center openings to distract the fields, but we did continue to add centers.
Just not at the same rate, Mike. Congratulations on your first one.
Thank you. Thank you.
As always, I'm grateful to the growing team of dedicated support employees for their enthusiasm, hard work, and continued motivation to achieve successful and consistent patient outcomes.
Teams 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 health care teams for their continued efforts. As we remain focused on further, expanding our business in the US in Europe. And in Asia for all of you on the call, we appreciate your continued interest in and support of inspire and look forward to providing you.
With further updates in the months ahead.
Thank you. This concludes today's conference call. You may now disconnect.