Q3 2025 Inspire Medical Systems Inc Earnings Call
Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire.
Speaker #1: You may begin the conference.
Speaker #2: Thank you, Delemme, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer, and Rick Buell, Chief Financial Officer.
Speaker #2: Earlier today, we released financial results for the three and nine months ended September 30, 2025. A copy of the press release is available on our website.
Speaker #2: On this call, management will make forward-looking statements within the meaning of the federal securities laws. All forward-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 and various assumptions.
Speaker #2: 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.
Speaker #2: Please see our filings with the 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.
Speaker #2: 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.
Speaker #2: This conference call contains time-sensitive information, and speaks only as of the live broadcast today, November 3, 2025. With that, it is my pleasure to turn the call over to Tim Herbert.
Speaker #2: Tim?
Speaker #3: Thank you, Ezgi. And thanks, everyone, for joining our business update call for the third quarter of 2025. I'll start by highlighting some key takeaways of our third quarter results.
Speaker #3: I'll then discuss our updated 2025 guidance. And Rick will provide a financial review. We will then open the call up for questions. As always, I want to start by reiterating our commitment to put the patient first and deliver strong, patient outcomes.
Speaker #3: We continue to invest in innovation and clinical evidence as we lead the way in hyperglycemic nerve stimulation and this was on display at the recent ENT Society meetings where Inspire 5 performance data were presented.
Speaker #3: The results of our Singapore Clinical Study of 44 patients demonstrated significant performance improvements as well as a 20% reduction in surgical times. In early experience from our US limited market release of over 100 patients, demonstrated clinically relevant reduction in disease severity, with patients averaging over six hours of nightly device use.
Speaker #3: Furthermore, we presented data showing Inspire 5's 87% inspiratory overlap with the patient's breathing. As many of you already know, this is the foundation of our closed-loop stimulation system, as the airway collapses during the inspiratory phase of respiration, synchronizing stimulation with inspiration is essential to optimize therapy.
Speaker #3: We are excited and energized by the strong performance of the Inspire 5 system and the clinical feedback on the simplified procedure and comfort settings has been tremendously positive.
Speaker #3: In addition, Inspire-related publications led the discussions at the ENT meetings, and we were excited to see two academic centers independently found that Inspire is an effective treatment for both supine and non-supine dependent OSA.
Speaker #3: And that Inspire provides clinical benefit regardless of sleep position. Multiple papers demonstrated Inspire's ability to improve long-term cardiovascular comorbidities including a study from the University of Texas Health that assessed over 4,500 patients over a 10-year period in the TriNetX database.
Speaker #3: This is a large multi-institutional electronic health record network. The study showed that Inspire offered advantages in reducing long-term cardiovascular morbidity and mortality in patients of OSA compared to CPAP treatment.
Speaker #3: In another paper out of Thomas Jefferson University, using the same database, Inspire was compared to CPAP and to no treatment. The study demonstrated that Inspire was associated with broadly improved non-apneic outcomes compared to CPAP and to no treatment.
Speaker #3: Specifically, they showed that Inspire therapy resulted in lower risk for myocardial infarction, cardiac arrest, ischemic stroke, and depression amongst others. Together, these studies are the first evidence that Inspire can reduce cardiovascular morbidity and mortality in the most vulnerable patients, namely those who are unable to tolerate CPAP.
Speaker #3: These outcomes are a testament to the importance of diagnosing and treating OSA and validate the continued investments we're making in innovation, clinical evidence, medical education, and patient marketing.
Speaker #3: With respect to the Inspire 5 US launch, the team made significant progress in the third quarter, and we are excited to report that physician training is over 98% complete.
Speaker #3: Contracting is over 90% complete for our centers. And sleep-sick onboarding is complete for over 75%, bringing the total to over 75% implanting Inspire 5 today.
Speaker #3: Given this progress and our strong momentum, we are seeing we are reiterating our four-year revenue guidance of $900 to $910 million representing 12 to 13% growth compared to four-year 2024.
Speaker #3: Switching to our quarterly results, we are very pleased with the strong revenue performance and cost discipline we demonstrated in the quarter. Third quarter revenue totaled $224.5 million or a 10% increase compared to the prior year period.
Speaker #3: Including the increased investment we are making in patient marketing, we were able to deliver operating income of $9.6 million and earnings per share of $34.
Speaker #3: This strong performance gives us confidence to increase our earnings per share guidance to 90 cents to $1 up from 40 to 50 cents previously.
Speaker #3: On patient marketing, we've started rolling out a new ad campaign highlighting the fact that with Inspire, many patients report that they can dream again.
Speaker #3: Complete with a holiday-themed ad featuring none other than Ebenezer Scrooge treating his sleep apnea. You may also have seen our new ad featuring a celebrity influencer partnership with Chuck Chapelle.
Speaker #3: The winner of last season's Golden Bachelorette, a real Inspire user since 2021. We are encouraged by their early indications from these initiatives. Regarding reimbursement, CMS recently finalized the 2026 physician fee schedule at approximately $660, or an 11% increase for CPT code 64568.
Speaker #3: As you know, for Inspire 5, centers bill CPT code 64568, which has been accepted for plans covering over 90% of our 300 million covered lives including Medicare.
Speaker #3: This change will take effect January 1, 2026. We are still awaiting the final OPPS rules to be issued by CMS. As you are aware, in July, CMS proposed to increase the national average Medicare hospital reimbursement for CPT code 64568 to $32,000, up approximately $1,300, or 4% from 2025.
Speaker #3: And the ASC reimbursement to $28,000 up $1,300 or 5% compared to 2025. These positive reimbursement changes will take effect January 1st, 2026, once approved.
Speaker #3: Following our last earnings call, we conducted our own survey of over 200 sleep physicians to better understand their treatment paradigm for OSA since the introduction of GOP once.
Speaker #3: What we confirmed is that the GOP ones are driving increasing interest in sleep health and bringing more patients into the clinic. If only to get their GOP ones covered by insurance with an OSA diagnosis.
Speaker #3: Inspire welcomes this trend as it opens the door to alternatives beyond CPAP. Based on the survey results, about half the sleep physicians now prescribe and manage GOP ones themselves.
Speaker #3: While the rest refer patients back to family practice, due to the burden of managing these patients, whether it's insurance hurdles, challenging side effects, or because weight management just is not their area of focus.
Speaker #3: The survey also identified that sleep physicians are not comfortable prescribing GOP ones alone, but prescribe concurrently with other treatment options initially CPAP. Patient monitoring coupled with the insurance requirements to obtain refill prescriptions provides visibility into the patient's weight loss, adherence to CPAP, and overall sleep health.
Speaker #3: These same physicians then understand the patient profile that may be recommended for Inspire therapy. Overall, the survey confirmed that patients will try a GOP one prior to surgery, but also the patient pool has been increasing with the availability of GOP ones to treat OSI.
Speaker #3: This reinforces our confidence that GOP ones make it possible for higher BMI patients to lose weight and become eligible for Inspire therapy, and Inspire is excited to help even more patients access effective lasting care.
Speaker #3: In summary, we remain focused on the patient to continue the growth and adoption of Inspire therapy. We will execute our growth strategy of driving high-quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients.
Speaker #3: Our key strategies include training advanced practice providers, certifying additional surgeons qualified to implant Inspire therapy, and driving adoption of sleep sync and our digital tools.
Speaker #3: All of which are embedded strategies in our commercial teams' objective to increase provider capacity. Looking ahead, we are confident about our future in that we have the appropriate strategy in place to drive long-term stakeholder value.
Speaker #3: We have our arms around the headwinds that I have described, and actions are already underway to accelerate adoption of Inspire 5 for the remainder of the year.
Speaker #3: And 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.
Speaker #3: For his review of our financials.
Speaker #2: Thank you, Tim. And good afternoon, everyone. Total revenue for the quarter was $224.5 million. A 10% increase from the $203.2 million generated in the third quarter of 2024.
Speaker #2: US revenue in the quarter was $214.4 million. An increase of 9% from the $195.8 million in the prior year period. Revenue outside the US was $10.1 million, which was a 37% increase year over year.
Speaker #2: Gross margin in the quarter was $85.8% compared to $84.1% in the prior year period. The year-over-year increase was primarily due to increased sales volume and increased sales mix of Inspire 5, which is more cost-effective to manufacture.
Speaker #2: Total operating expenses for the quarter were $183.1 million, an increase of 17% compared to $156.5 million in the third quarter of 2024. This increase was primarily due to increased patient marketing expenses and general corporate costs, partially offset by a reduction in R&D year over year.
Speaker #2: Operating expenses included $1.3 million in legal fees related to a civil investigative demand from the Department of Justice and patent infringement lawsuits with a competitor.
Speaker #2: These legal fees do not reflect costs associated with our ongoing operations. Please refer to our earnings press release for a reconciliation of these items.
Speaker #2: Interest and dividend income totaled $4 million in the quarter compared to $5.9 million in the prior year period. Operating income for the quarter totaled $9.6 million compared to an operating income of $14.3 million in the prior year period.
Speaker #2: Net income for the quarter was $9.9 million compared to net income of $18.5 million in the prior year period. This represented diluted net income per share of 34 cents for the quarter compared to 60 cents in the third quarter of 2024.
Speaker #2: Adjusted EBITDA for the quarter totaled $44 million, compared to $44.5 million in the prior year period. The adjusted EBITDA margin in the third quarter was 20%, compared to 22% in the third quarter of 2024.
Speaker #2: Adjusted net income per share totaled $38 cents compared to 60 cents in the prior year period. The weighted average number of diluted shares outstanding for the quarter was 29.6 million.
Speaker #2: Operating cash flow totaled $68.5 million for the third quarter, bringing the year-to-date total to $64.5 million. We completed $50 million of share repurchases in the third quarter, bringing the year-to-date total to $125 million, and we ended the quarter with $411 million in cash and investments.
Speaker #2: Our strong cash position allows us to remain focused on executing our growth strategies. Moving on to 2025 guidance. As Tim mentioned, we are reaffirming our revenue guidance range of $900 million to $910 million.
Speaker #2: Representing an increase of 12 to 13% compared to full year 2024 revenue. We continue to expect full year gross margin to be in the range of 84 to 86%.
Speaker #2: We now expect diluted net income for the full year 2025 will be 90 cents to $1 per share, an increase from our previous range of 40 to 50 cents per share.
Speaker #2: We ended the quarter with $336 US territories and $268 US field clinical representatives. We are being more strategic in our approach to territory management and optimizing our model through targeted territory consolidation and increased field clinical reps.
Speaker #2: We hired nine field clinical reps in the quarter consistent with our strategy to get the ratio closer to one to one territory manager to field clinical rep. We now expect our reported tax rate in 2025 to be 25% as state minimum taxes are higher than expected.
Speaker #2: Furthermore, in the fourth quarter, we will likely eliminate a large portion of the valuation allowance on our deferred tax assets. This will create a large one-time tax benefit that we will call out when we report our fourth quarter results.
Speaker #2: We expect the full-year diluted shares outstanding to be approximately 30 million. With that, our prepared remarks are concluded. Dulem, you may now open the line for questions.
Speaker #3: Thank you, sir. As a reminder to ask a question, you will need to press star 11 on your telephone. To withdraw your question, please press star 11 again.
Speaker #3: Please stand by while we compile the Q&A roster. And I show our first question comes from the line of Travis Steed from Bank of America Securities.
Speaker #3: Please go ahead.
Speaker #4: Hey, everybody. Congrats on the progress with Inspire 5. 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 in '26.
Speaker #5: Hi, Travis. Yes. Great question. I know this is top of mind for everyone. Travis, right now we're focused on finishing the fourth quarter strong.
Speaker #5: There'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.
Speaker #5: The Inspire 5 launched positive clinical feedback and strong patient flow driven by our increased DTC investment gives us confidence in the durability of our growth heading into next year.
Speaker #5: We'll provide formal 2026 revenue guidance in January, once we've completed our year-end results and planning. Taking all of this 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.
Speaker #5: In the meantime, our business fundamentals remain strong. We've seen and continue to see excellent momentum with Inspire 5, both in position adoption and patient outcomes.
Um, you know, I guess you're a little bit over 75% of accounts that are implanting the Gen 5 device today.
How do we think about kind of bridging that figure to 100% of your accounts?
You know, I just want to better understand, you know, kind of the remaining.
Um, you know, gating items there. It sounds like Sleep SINK is maybe the biggest one, but I wanted to confirm that. And just one kind of clarification.
The accounts that are adopting Gen 5, are they, you know, only implementing Gen 5 going forward. Are they still kind of, you know, carrying a mix of Gen 4 and Gen 5. Hopefully that all made sense. No atom. That's a good clarification that, that we want to make. I think the, uh, we focused the, uh, on the centers that are the highest in planners. The top 100, top 200 centers, of course. And make sure we get the majority of those centers across the line and taking care of patients with 5. But even those centers to your last point, we'll continue to do Inspire 4 at a limited amount. I also will highlight there are centers due to economics and where they are in the United States. And the Medicare reimbursement that they will continue to implant Inspire for units. And we will continue to make Inspire for available, um, in the end of the future. So I think we'll continue to bridge most centers uh, over to inspire 5. But again, there there will still be some additional centers, um, carrying over and staying.
With Inspire 4, but I think the great majority will be complete with their transition by year end.
Very helpful. Thank you.
Thank you.
And as our next question comes from the line of Robert Marcus from JP Morgan. Please go ahead.
Oh great. Uh, good afternoon. Thanks for taking the questions. Um I wanted to ask more on expenses and R&D and Opex came in a good clip below where when the street were thinking, you know, great expense control, LED to, to really good
Earnings power. How should we think about, I guess a, what exactly you're pulling back on and B? How sustainable that is appreciate. Well, you also got to remember that's not necessarily pulling back but you also remember where we're kind of in that launch period with Inspire 5. And a lot of our focus is working on uh stabilizing the manufacturing line and getting a second line up and running and uh, and focusing on the digital side specifically with sleep sink. So we're going to continue to invest, uh, in our R&D. And I think we want to be more consistent with R&D, as we move forward, to focus on our opportunities, with Inspire 6, with our digital tools, and, uh, keep pushing those elements to it. But I do think it'll be, um,
More in line with what you're saying right now.
Great. May maybe just a a quick follow-up.
Uh, Tim, if you could update us where you are in in sort of the inventory conversion from 4 to 5, um, you know, was there any desk stocking or restocking in 3Q? What we should expect to that spaced into the guide in 4 q? And is it all done exiting the year or or is there still some more in 26, appreciate you call it. The beginning of the third quarter was pretty much all inspired for inventory in the field. And now the majority of the inventory is already inspired 5 and that continues to change on a weekly basis. And we think that those centers transitioning over to inspire 5 will, um, uh, work through their inspiring for inventory predominantly by the end of the year again, Robbie, remember there's a few centers that are going to stay with Inspire 4. So we'll continue to make that product available but again the reports and the success that people are having with Inspire 5 is really strong.
Strong and and once people transition over, they want to uh, uh, uh, continue to focus on that and and increase the number of patients that they can treat.
Appreciate it. Thanks a lot. Thanks Robbie.
Thank you.
And I show. Next question comes from the line of Danielle and Tali from UBS. Please go ahead.
Higher, um, on and using on a more regular basis.
Uh, thank you big initiative that we have ongoing. There, we have formed a new team that is really focused on that group about re-energizing the entities and we're kind of using Inspire 5 is the Catalyst to do that because remember the difference between it's about 4 and 5 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 inspired procedure for a ear, nose and throat surgeon. So Inspire 5 lets us come back to those. Um, ENT surgeons and to new surgeons and to re-engage with them, re-energize them around the benefits of inspired 5 the easier, um, uh, uh, implant implant of the device if you will and I really focusing on that. So we have a long history and list of those centers that have started but not
We've reached our potential, and we're going back and revisiting them with this team. We're also going to centers and starting to recruit additional entities who now find the procedure more acceptable, as they don't have to mess with the chest wall and the pressure-sensing lead.
Aren't you and just a quick follow-up. Are you starting to see that or is this something you know it sounds like this is a relatively new initiative. So is this really something that is probably more contributing factor in in 26 and Beyond or is this already contributing? Thanks so much. Um, thank you Danielle. I do think. Yes, it's a contributing factor in 26 and Beyond, but I do think we're going to see some activity with that in 25. And the key is getting surges, come in. Let's try 5. Let's get this transition to your Center. Let's have you go in and do a couple fives. And we've already seen some evidence that yes this does work, and we can re-energize them and and, uh, partner them up with a good sleep, position to build a strong system, or a strong practice. And we've already seen early indications that uh, we can excite the uh ENT so yeah, we're going to continue this and work hand in hand with aao. The American Academy of old learning to make sure that uh, we're running initiatives with this the society as well.
Perfect. Thank you. Thank you.
Thank you and I share our next question comes from the line of David reskit from bear. Please go ahead.
Oh great. Uh thanks for for taking the questions. Um I wanted to uh follow up on on some of the comments on on on on the growth and and the business and looking into 2026, you know the the the 2 big pieces of course that we all tend to track is is utilization and and these new center ads. I know last quarter uh you talked about some of the the pullback and spend
Uh, impacting the opening of new centers. Um, you know, I think prior to, to 2025, you had a couple of centers that were deactivated, uh, each quarter. So, just trying to get a sense for, um, maybe, where that Center base or the the train Center based off, uh, stands today. Uh, whether or not, we should assume that, that, uh, continues to be a, uh, a factor behind growth next year or, or more. So, if, if utilization with Inspire 5 is going to be a, a bigger driver than, than than, um, growth than I have, utilization has been growing.
Yeah. Thanks, David. I think we got to combine those 2 comments. And the answer is, yes. I think, what, what we really like is the Inspire 5
Is really the tool and the feature set there. With, of course, the easier, implantation of the device, the shorter impact times, but not only that, but the, the features that optimize, um, outcomes and really, um, increase the expected expectations for outcomes is really important.
And so, we don't see a lot of transition of centers away from Inspire over the last couple quarters. In fact, we significantly increase the number of centers and we think going back to the last question with Danielle that being able to excite additional entities, to do the procedure now that um, it doesn't have the pressure sensing lead.
Kind of gives us a little bit more impetus to increase the number of centers. So we're going to continue on the pathway of not only growing utilization at existing centers with reduced, surgical time, but also with the improved performance of the device and the implant of the device to be able to continue to train new surgeons at existing centers as well as open new centers.
Opex bases and whether or not we should think about that as a jumping-off point for 2026. Thank you. Yeah, yeah, David, that potential tax benefit is not factored into our guidance.
and so, um, um
Part of our part of our, uh, Improvement on the bottom line and, and, and operating margin, um, which I, I wanted to call out earlier was that we did have a 180 basis point Improvement on gross margin so that really helped Drive our leverage in the third quarter. And that's because of the higher mix of inspired 5 which drove higher gross margins.
Thank you.
And I share our next question comes from the line of John block from stifel. Please go ahead.
Thanks guys, I appreciate it. Good afternoon um, Tim the the the rough 10 to 11% Revenue growth next year. You know, seems like a refined thought from the acceleration off of the 12th to 13th percent that you conveyed.
Last quarter and you know the quarter was good and you talked about some of the facilities working down inventory. So maybe if you could just give some color you know what led to a little bit of the change in thought, from 3 months ago to today is it just being a little bit more prudent or what you see out in the field that led to the refined number?
So, I think that's it. We just have a little bit more experience and it's early in our planning too. And so, I know it was top of mind for everybody. As we said on Travis's question that we need to address that right up front, but we did we weighed in on the progress, making the Inspire for inventory, as you discussed. Uh, we did talk about the, uh, uh, GOP ones a little bit as well as the uh, uh, anti-competitive effect that could be there. But so we wanted to come out, just give our early indication as we work through the fourth quarter and the rest of our plan, and we'll come back with formal guidance, uh, in the January time frame.
Okay, that's helpful. And then maybe just a quick follow-up. Can you guys just talk to the inventory on your balance sheet? I think it was $142 million at the end of the quarter, with about $111 million in finished goods. You know, it's up a good clip really throughout the year, throughout Q2. Like, what's in there? Are those 4s or those 5s? If they're all 5s, does it sort of clean up for a lot of next year? Uh, maybe you could provide some color there? Thank you.
A winding down the manufacturer, and I've inspired 4. That being said, we are going to still have Inspire 4 available in the United States as we talked about, but we also have a long regulatory process in Europe and in Asia for Inspire 5. So we need to make sure that we have sufficient supplies of Inspire 4 in the carrier through until we can do the full international transition of Inspire.
So there is a big element of inspire 4 is in there that will burn down over time. That being said, we also are increasing our inventory of inspire 5 now that we're getting stability with our manufacturing site, we're still operating with a single manufacturing site and then also remember some of the piece parts that um are shared between Inspire 4 and Inspire 5. So you have, once we wind down 4, we'll be able to leverage some of that inventory in the building additional units for inspire 5 in the future.
Thanks Tim.
Thank you and I share our next question. Comes from the line of Larry bigsun from Wells Fargo. Please go ahead.
Uh, good afternoon. Thanks for taking the question. Um, I guess Tim I was curious on the 10 to 11% how how you thinking about the the market growth uh, with the new competitor, you know, coming into the market. And and and you know what you're seeing from that new competitor so far and I had 1 follow up sure it's very early days right now we uh um
They're just getting started. They got to work through all the reimbursements. So not a significant presence right now but I think that uh we'll watch for that a little bit and and continue to monitor that and come back and discuss that with greater detail when we get a full guidance in January,
Okay, and then maybe for Rick on the seasonality in 2026. I just want to make sure I heard correctly, um, with Tim's comments, similar to prior to 2025 2023. And 24 were pretty similar, but and and I'm sure you've done the math Rick if if hopefully I'm doing it right, it would imply like 205 in in uh in q1 or low single digit growth increasing through the year. Is that directionally right? Um and and why would you want to be so low? And I apologize if I did the math on the Fly wrong.
Um the last couple years Larry um our seasonality was um 15% sequential down and beginning of 24 and down 16% in 25.
Friends, we would expect, as Tim mentioned, that our cadence throughout the year will be comparable to kind of the...
Um, prior to 2025 and and earlier.
All right, thanks for clarifying.
Thank you and I share our next question comes from the line of Anthony. Petroni from nuo Americas, please go ahead.
Uh, thanks, and congrats on the progress in the quarter with the 5%, maybe on the 10% to 11% uh percent. Appreciate 10 comments on the survey work on GLP-1.
Uh, but still this Dynamic of how much is coming in uh, from the high BMI dropping into the sweet spot for inspire. And how much is, you know, sitting on the sidelines of spokes trial glp1. So in the 1000 to 11:00 was glp1 factored?
Uh would be the first question of the quick follow-up to that would be if you do see indications. That glp-1 is resulting in combo therapy out of the gate specifically with CPAP
that CPAP rated dropout rate is still quite High.
so over time, do you think the new starts on CPAP
Can actually transition to a higher rate of new starts on hypoglossal, nerve stimulation, over time. Thanks, absolutely. Um, you laid that out nicely, I think, the survey that we had, we learned quite a bit from that. And I think the, um, it's just a significant number of patients coming in to the Sleep Labs because they are getting increased phone calls to do a diagnosis for obstructive sleep apnea, because they need that indication to be able to help with insurance coverage.
Well, sleep Physicians are reluctant to just do that. Sleep Physicians, are responsible and they're going to do the proper diagnosis and make sure that that patient has proper care. And if they have moderate to severely bad meia, they're not going to just wait a year to see if a GOP want Works. They are going to put them on. Uh, can can can come in at therapy as you talked about, they're going to start them on CPAP, they're going to start them on a GOP 1.
But they're going to have to track those patients too, because that's the requirement of the insurance company. And so, so now we have an increase number of patients in the facilities with the Sleep Physicians.
And when they become, or if they become, non-compliant to CPAP, they are going to be looking for alternative surgery and/or alternative therapy. If they are of the right BMI, the sleep physicians know which patients do best with Inspire, and we would expect those two to be correctly referred over to receive Inspire therapy and the sleep physician.
We will continue to manage those patients long term. So that is exactly the hypothesis of where we stand. We do believe that the GOP ones can work in concert with Inspire and can help people lose weight and reduce the lateral wall collapse.
And allow Inspire to treat those patients that have tongue-based collapse, so it's really two mechanisms of action that can work together.
I'll hop in back in. Thank you.
Thank you.
And I show our next question in the queue comes from the line of Shagon Sink from RBC. Please go ahead.
Uh, great, thank you so much. Tim, I wanted to go back to the 10 to 11% growth next year, because consensus is currently at 14%, so that's a pretty big gap. And, um, you know, you called out inspired 5, uh, you called out the inventory, Dynamics glp1 competitive effect and you said, you know, competition is not a big headwind. I think glp-1 is a positive longer term. There could be some trial link, you know, I guess I wanted to ask. Are there other factors? Um, you know, that that need to be contemplated as we think about 2026, you know what, gets you closer to consensus at 14%, you know, have you factored in anything on increased reimbursement? Um, or, or is that a headwind as you think about inspired 5, uh, adoption and utilization? And uh, you know, just even looking at Q4, you know, I'm looking at a step down in growth on a
Need to do to to review that we're going to monitor that with Inspire with Q4 performance, as well, as when we come with full guide, uh, in January. But yeah, we've kind of laid out. Um, the headwinds that we see that uh, are going to challenge us, but we also want to leverage the opportunities that are there for us. Even the Opps rule that just came out showing an increase in physician reimbursement for inspire 5, as an opportunity, because it really closes the gap.
Between the reimbursement with 64568 versus the old code 64582, there are a lot of positives mixed in there. So, yeah, we have a lot of work to do to be able to kind of work through the details.
Uh, for when we come with full guide in January,
So, I can, I would just add, it's still very, very early. We're very happy to be able to give.
Uh, an early preview of 2026. But as Tim alluded to, there are quite a few puts and takes and we're just trying to be prudent at this time.
Next question, please.
Thank you. Our next question comes from the line of Vijay Kumar from Evercore ISI. Please go ahead.
Hi, this is Danielle Meirowitz. Um, so I had two questions. First, you noted that about 75% of centers are ready to transition to Inspire 5, but some continue to do Inspire 4 for economic reasons. Can you just expand a little bit on what those economic considerations are? Are you hearing pushback regarding the physician reimbursement rate as it stands today? And would you expect it to change given the finalized 2026 Physician Fee Schedule, which includes an 11% bump to physician reimbursement?
No, it's really more of a good question. It's more related to, uh, site of service or Hospital reimbursement. And with Inspire 4, Inspire 5, we can make Inspire 4 available on, with economic benefit to some of those centers to help them, um, get back, uh, to doing implants. So, there are some discounting on Inspire 4 that can help us out, um, Inspire 5. That's not true. So that's why some of these centers just choose to do 4 based on the economics with the coding today.
But as you saw, that doesn't affect our overall, uh, ASP or gross margin.
Got it. Okay, that's helpful. And then for the second 1, as we look forward to 2026, do you have any initial thoughts on the trend in operating expenses especially as it pertains to the new marketing campaign and DTC spend picking back up? I I guess also it was DTC spent back in a normal run rate for 3. Or is that still being being held down quite a bit?
A bit.
No, I think it was pretty close. We wanted to, um, do an increase there because we held back in the first half of the year on DTC spend. But it's kind of—look at Opex going forward. We're going to see, uh, maybe a slight increase in DTC, but again, more um,
level with full year, uh, but we don't expect that to grow, uh, with the same level of, uh,
Revenue.
That's great. Thank you very much. Thank you.
Thank you and I share our next question. Comes from the line of Michael. Sewn from Jeffrey's. Please go ahead.
Hey, good afternoon, and thanks for taking the questions, I guess. I'll just ask both of mine up front. You might have already answered. Kind of the second 1. I'll ask Tim but, um, you know, last quarter you had mentioned that at the accounts that were converted to inspire 5. You were seeing about 20%, uh, same store sales growth given the outlook for kind of 10 to 11% at least early on right now, uh, for 2026 seems like, you know, that that's not carrying through just wanted to maybe get an update on. You know how that, that 20%, same store sales has progressed, as you've kind of opened up more accounts with Inspire 5, um, and then, you know, is, is there any interplay there with the Inspire 5 reimbursement, uh, on the physician sea level of being lower?
Mike, thanks for the question. Um, so there's still absolutely a correlation between centers that have transitioned to Inspire 5 and faster volume growth that we saw through the end of Q3, which we're very, very pleased with. As we highlighted on our last earnings call, though, um, you shouldn't anticipate that 20% to continue for all centers.
But we're very pleased with the, uh, the correlation that we're seeing with Inspire 5 adoption and accelerated case volume. Again, as we noted on 2026, it's really early. There's still a lot of puts and takes, which we highlighted, and we just want to be prudent. But we're very, very pleased with what we're seeing with the Inspire 5 launch and experience today.
Got it. Thank you.
Yep.
Thank you.
Of Chris Pasquali from Nufan Research, please go ahead.
Thanks, I wanted to understand the territory realignment a little better. Was there. A corresponding reduction in the number of centers you're working with? Or are you just increasing the number of accounts? The remaining reps are responsible for know? We're actually building efficiencies into our territory management. So what we want is, well, because you've been around for a long time, you know, how we've kind of wrapping, and we started to ramp the number of field clinical reps as well, and we want to get that ratio closer to 1 to 1. So as we're doing that, uh, transition, we're doing some promotions of field clinical reps, territory managers, and then come back and and how your additional field clinical reps, uh, behind that. And that's going to be a trend going forward. And I think we're finding greater efficiencies uh, with larger territories with territory managers, as long as they have the support staff, like the field clinical routes to be able to do the case coverage in the training. So I think you'll see more of that in the future.
Chris, I would just add that we've all.
talked about having the average territory manager.
Four to six centers, and we're still very much in that range. We did add a healthy clip of new centers in Q3 after scaling that initiative down in the first half of the year.
Okay. Thanks Eddie. Um and then I wanted to follow up on the question about margins and Opex the implied guidance implies that Opex is going to grow at roughly twice. The pace of sales in 4 q. That was
obviously true in 3 q and you guys signaled that in the near term you would have elevated spending but you're also talking now about driving operating leverage next year, which would really seem to imply that spending is going to moderate given the Topline growth year signaling. So help me understand just the Cadence here. Is this just a very temporary boosts that then really sort of changes as the calendar flips, or how does how do those 2 things line up?
Yeah, you're you're right on all your um your your assumptions. Um, year-over-year Opex growth for for 2025 is going to be in that 16%. Um, outpaces full year Revenue growth. But we are going to have an improvement in operating margin, uh, sequentially into Q4.
Um, still pretty early to talk about 2026.
But um,
The the new guidance also implies um full year operate margins in that 2 and a half to 3%.
Um, and on a longer-term basis, we expect to improve that over time.
okay, thanks for
Thank you.
And nice to our next question. Comes from the line of Richard newer from truist Securities. Please go ahead.
Hi, thanks for taking the question. I just want to continue on on Chris's question. I, um, I mean congratulations, it's great to see, um, the expense control their uh, this quarter. I guess what? I'm I'm just trying to understand is what you know, we were all much higher. We thought your profit was going to preserve much better. Even with the revenue call down last quarter. I guess I'm just trying to understand what's changed from the Outlook uh that's causing kind of the 50 Cent upward revision here and then you know I know you're not giving the explicit guidance next year on on operating expenses but we're all just trying to understand what what the right and normalized spending rate is and you know, significant cost controls here.
But it's not clear whether that's in some way. It it linked to some improved efficiency that that's going to come as a result of the territory, uh, consolidation. I guess.
You know, is it 10% to 11% growth rate? It just requires less investment than what it did when you were, you know, initially at 15% to 20% growth. Just help us think through kind of what's changed because the earnings are kind of whipsawing around quite a bit here.
Yeah, I I
Could start Maybe.
Okay, thanks. And then maybe just 1 second 1. I'm, I'm curious, are you, are you able to actually see, uh, more, uh, procedures per account and the accounts that have adopted or been fully trained, and Inspire 5? And can you quantify that?
we are seeing that uh, the math,
Planting Inspire 5, it's over 75%. And yes, there is a correlation between, um, accelerated, uh, volume growth and the use of inspire 5. We are seeing that, for sure.
Okay, thanks.
Thank you.
And I share our next question comes from the line of Brett Fishin from KeyBank. Please go ahead.
Hey guys, thanks so much for taking the questions. Um, a lot of questions already on next year, so I'll ask one a little bit more qualitative. I think during the quarter you had the pressure release with some of the limited market release information about Inspire 5 in the U.S. Um, one thing that stood out to me was the anecdote on one of the casas performing 12 implants per day, I believe, compared to 9 with Inspire 4. So, something like a 30% to 40% increase in efficiency, um, which was above the 20% reported from Singapore. So, I'm just curious kind of like what drove that kind of performance, and are there specific items that can maybe be applied to other centers that have trouble to see that type of efficiency either in the past or within?
Inspire 5. Thank you. Yeah. Hey Brad, that was a key topic at the AAO meeting or the ISS meeting, with a surgeon actually on stage talking about that. And the key is, how do they set up their center to be able to do that?
Finding the number of patients, that's not the issue. We all know that. Um, the challenge is having capacity with surgeons to take care of the patients demanding therapy. Uh, but what this individual is able to do is have access to 2 operating rooms, and they kind of laid that out and talked through people of having the access to be able to come. It's competing the Inspire time versus the time it takes to clean the room to do multiple rooms in a day. And the efficiencies that can bring, and think about the efficiencies, is not just from the surgeon performing multiple procedures, but there's a revenue bonus or benefit for the hospital to do that many procedures in a day. Uh, think about Inspire, think about what we're talking about with our Opex and building efficiencies and us being able to have our field clinical rep there for a full day rather than doing a case and having to drive across town with windshield time. So, it's a win-win for everybody and it really takes an experienced um.
Um, an efficient surgeon to do this and so that drives the high. Um, um,
Quality surgeons have experience with numerous cases, so that is something that we really want to emulate across the board. The way to do that is to set up surgical days to stack cases.
Thank you. Thank you so much.
Thank you.
Thank you.
And I share, our next question comes from the line of Michael Poltar from Wolfe Research. Please go ahead.
Hey, good afternoon. Um, question on 2025, uh, revenue growth of earned 12 to 13%. As you reflect on the year, do you think you'll be calling out kind of a net inventory headwind at customers? This is similar to the question I asked, um, last quarter and maybe frame differently: in the 12 to 13% for your revenue growth, do you think Inspire procedures grew faster than that?
In 2025.
Manufacturing of Inspire 4, but we made sure that we did a forecast going forward. Remember, we have a 3-year shelf life on these products to look at what's going to be available to support Europe and Asia, as well as centers in the United States, and we want to continue with Inspire 4. So we are budgeting our manufacturing to align with our forecast going forward. So, what was your second question though, Mike?
I I, I'm just, um,
do you do you think our, our Inspire procedure volumes growing with
The revenue in Q3 is like $25 million. Is that the rate of volume growth, 12 to 13% consistent with revenue? Or is the procedure potentially faster? And then, the net impact of customers stocking up for a 5 as the transition was affected. That was a slight.
Headwind.
Go ahead.
At certain times over the course of the year, but for the most part, the implant to sales ratio has been pretty steady. I think we can take a closer look at that as we wrap up the year and figure out if it makes sense to, uh, disclose that on a 1-time basis. But I would say generally speaking implant volumes have trended pretty closely to to sales. So I don't know that, that would be necessary and it's Tim noted earlier the vast
The vast majority of inventory in the field sitting on shelves today is already Inspire 5 µm, so that gives us confidence as we look ahead into Q4 and beyond.
Understood, thank you.
Thank you, Mike.
Thank you.
And I share our last question in the queue, which comes from the line of Mike Cracky from Leink Partners. Please, go ahead.
Hi everyone. Thanks for taking my questions and congrats on a nice quarter. 1 clarine question there, really appreciate the color on the survey of sleep positions and certainly encouraging. It seems like you're expanding the top of the funnel. But were there any cross currents that are worth calling out there? And did you get the sense among Physicians surveyed to what extent they're seeing or expecting GOP? Ones to have a positive or negative impact on their overall inspired procedure volumes?
I think the sleep positions are gearing up. That GOP ones are increasing their procedure volume.
And again I think family practice doctors are sending them to sleep to get a diagnosis.
Um, but the speed positions are being more responsible. When they, they're not just going to do a study and send that patient back. They're going to want to make sure they do a proper.
Diagnosis. And make sure that they have.
Uh the proper procedure or therapy. Uh, not just leave them on a GOP 1 or not just send them back. So I think the survey kind of really showed that they're they're expecting an increase in their volume.
But we also wanted to tease out.
What patients they refer for Inspire, and we're able to pick up that information as well. So, the knowledge base is there. They know what patients can be helped with GOP ones, and they know that patients can lose weight; they can qualify for Inspire.
understood. Thanks very much.
Thank you.
Thank you. This concludes the Q&A session for the conference. I'd now like to turn the call back to 10 for closing remarks. Thanks. As always, I'm grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work, and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to patients remains unmatched and is the most important element to our success. I wish to thank all of our employees, as well as the healthcare teams, for their continued efforts. As we remain focused on further expanding our business in the U.S., Europe, and Asia.
Probably you on the call. We really appreciate your continued interest in and support of Inspire.
and look forward to providing you with further updates.
In the months ahead. Take care all. And thank you.
this concludes today's conference call, you may now disconnect