Inspire Medical Systems Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Robbie Marcus - JPMorgan - Analyst : Great. Congrats on a nice quarter. Thank you for taking the questions. Two for me, top-line and bottom-line question. Maybe I'll start with the bottom line. Once again, fantastic upside on profitability, very nice EPS, margin upside versus consensus and the guide. Maybe just speak to the sustainability and trajectory of those margins? I see what's implied in the guide for fourth quarter. But really, just thinking further out, it seems like you've been able to leverage your DTC spending better, you were down year over year. How do you think about the trajectory forward, the need for investment in '25 behind the new launch? And I guess, really, can we see this continue upwards as sales grow?

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

Question: Robbie Marcus - JPMorgan - Analyst : Appreciate it. Thanks a lot.

Question: Danielle Antalffy - UBS Securities LLC - Analyst : Hi, good afternoon, guys. Thanks so much for taking the question. Congrats on a strong quarter here. Just to follow up on Robbie's question around the guidance and specifically, the comment, I think, Tim, that you made around reflecting some potential impacts from the IV fluid shortage and the hurricanes, any way to quantify that? Or maybe the way to ask the question is, how would we be thinking about utilization? Were we not seeing some impact there? And then just a follow-up after that.

Question: Danielle Antalffy - UBS Securities LLC - Analyst : Got it, okay. That's helpful. And then the follow-up I had is on what you guys are seeing at the sort of start of the funnel, thinking about like from the sleep physician perspective, feedback perspective, with -- we got approval for the app measuring obstructive sleep apnea, and our techs indicate like doctors expect what are already pretty long wait list to continue to grow. Anything you can say about what you're seeing there and sort of how to think about that as a potential tailwind in 2025? Thanks so much, guys.

Question: Danielle Antalffy - UBS Securities LLC - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: Travis Steed - BofA Global Research - Analyst : Hey, congrats on the good quarter. I wanted to ask about the coding strategies for Inspire V. If you could kind of elaborate on what some of the potential outcomes could be around that and the decision to not take a price increase on Inspire V?

Question: Travis Steed - BofA Global Research - Analyst : Great. And I have a follow-up on 2025. I think before you said you were fine with the consensus at 2025. Is that still the case? And just how you're thinking about some of the puts and takes around competition baking in Inspire V, GLP-1s? Any other puts and takes to think about on 2025 at this point?

Question: Travis Steed - BofA Global Research - Analyst : Great, thanks a lot. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: Adam Maeder - Piper Sandler & Co. - Analyst : Congrats on the quarter and the impressive leverage. And thanks for taking the questions. Maybe just picking up on that thread on 2025. Rick, you just kind of outlined the tailwinds for next year. But as you think about maybe some of the potential headwinds that could face the business in '25, whether it's potential impact from device competition or GLP-1s and tirzepatide, would just love for you to kind of provide some early thoughts there in terms of how you see that potentially impacting the business? I have a follow-up. Thanks.

Question: Adam Maeder - Piper Sandler & Co. - Analyst : That's helpful, thank you for that. And for the follow-up, maybe if we could just double-click on the Gen 5 rollout and hoping for some additional granularity there. It sounds like progressing to a soft launch. What exactly does that look like? How are you coming along on the manufacturing and inventory side? Should we expect kind of an early 2025 full launch? And then just on the margin side, pricing sounds like is at parity to Gen 4, but will this still be gross margin accretive? Thanks again.

Question: Adam Maeder - Piper Sandler & Co. - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: David Rescott - Robert W. Baird & Co. Incorporated - Analyst : Great. Thanks for taking the questions, and congrats on the quarter here. First one from us, the margin in the quarter is obviously pretty outstanding. I did want to ask more so on the DTC, the advertising side. It looks like that's been pretty flat, if not down slightly year over year. When you think about the level of investment that you have in DTC so far this year, I mean, is that something that you think can probably remain pretty flat into the out years? Does it continue to maybe go down on a year-over-year basis? Or is there some point in the future where maybe you have to start to reaccelerate that just to support the level of growth that's out there?

Question: David Rescott - Robert W. Baird & Co. Incorporated - Analyst : Thanks. Maybe on international, you called out France for next year. I know in Q4, you had a -- you have a little bit of a benefit, I guess, on a year-over-year basis in the fourth quarter for this year. So maybe can you help us think about how you're thinking about the implications for international in the fourth quarter this year? And then any other color, I think, that you could provide just around some of these additional markets that are contributing maybe the size of what France could be, but just help us think about that broader growth into 2025 as well? Thank you.

Question: David Rescott - Robert W. Baird & Co. Incorporated - Analyst : Thank you.

Question: Michael Sarcone - Jefferies - Analyst : Great. Thank you for taking the question. Just a follow-up actually on Adam's question about the Inspire V rollout. Tim, you mentioned a few things that have to be done, including renegotiating some of those contracts. Do you think you can just talk about whether or not that's a heavy lift or does that vary by the type of account or customer?

Question: Michael Sarcone - Jefferies - Analyst : Great, thank you. And then just we saw the PREDICTOR data a few weeks ago. I was just curious if you had any update on how your conversations with payers are resonating now that we have that data?

Question: Michael Sarcone - Jefferies - Analyst : Okay. Thanks, Tim.

Question: Richard Newitter - Truist Securities - Analyst : Hey, guys. Thanks for taking the questions. Congrats on a good quarter here, especially the profit. I wanted to start. First question, just on the Inspire V coding strategy. If you could get a little more specific. Our understanding was that the most logical route or strategy is to go back to using the cranial neurostimulation code. Is that correct? And then if it were, can you just talk to what your confidence level is that whether it's that pathway or some other pathway that you can keep the physician economics neutral to where they stand now, given the faster procedure time on a per kind of unit to time basis?

Question: Richard Newitter - Truist Securities - Analyst : Okay, thanks for that. And then just going back to the 2025, you don't view consensus as unreasonable or consensus looks reasonable, however, you want to phrase that. I guess, because there's an international component to consensus, I'm just trying to think on US utilization. You've talked in the past about the goal being to consistently grow utilization in the US year over year. I guess, when you say consensus doesn't look unreasonable, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call the consensus does project modest, but still growth in US utilization year over year, low single digits. I guess, does that count as part of your comment that the consensus looks reasonable? Thank you.

Question: Richard Newitter - Truist Securities - Analyst : Okay, thanks, Tim.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Hi, good afternoon. Thanks for taking the questions. Tim, I'll make this pretty quick, two quick ones. One is when you do the soft launch, what are you going to tell surgeons -- how are you going to tell surgeons to bill for Inspire V, if you're not going to disclose the coding until next year? And second, is there any concern at this point of patient warehousing for Inspire V ahead of the full launch? Thanks.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Got it. Thanks for the question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: Shagun Singh - RBC Capital Markets - Analyst : Great. Thank you so much. I guess just two clarification topics on Q4 and '25. If you look at sequential growth from Q3 to Q4, it implies about teams. And looking at the past 5 years, you've pretty consistently delivered sequential growth in the high-20s. It comes to somewhere around $20 million in that differential. And I'm just wondering what have you contemplated in your guidance for this hurricane IV saline shortage? And then is there any US inventory dynamic at play ahead of the Inspire V launch or is it conservatism? Anything you can share there? And then on 2025, again, just a follow-up, why do you think consensus is reasonable at about 20% year-over-year growth versus 27% to 28% that you're looking to do this year? And there are a lot of drivers next year as we think about Inspire V, PREDICTOR, replacement cycle, et cetera? So why is that reasonable at all? And why can't you do better? Thanks for taking the questions.

Question: Shagun Singh - RBC Capital Markets - Analyst : Thank you.

Question: Kallum Titchmarsh - Morgan Stanley - Analyst : Yeah. Thanks for taking my questions, guys. I'll ask two upfront. Firstly, just wanted to understand your priorities with a strong cash pile. Last quarter, you obviously announced the buyback, but any other intentions you want to flag there as we head into 2025 and beyond? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call And then secondly, just looking for any update on the metrics, you're thinking of providing us to help assess performance from '25 and beyond in absence of those center numbers? Thanks a lot.

Question: Kallum Titchmarsh - Morgan Stanley - Analyst : Thanks a lot.

Question: Jon Block - Stifel Nicolaus and Company Incorporated - Analyst : Great. Thanks, guys. Two quick ones. Tim, I'm just curious if you're seeing any early outreach or inquiries from ENTs that are now looking to get trained due to the pending elimination of the sensing lead, simplifying the procedure, having them be a little bit more comfortable? Obviously, that could help the number of ENTs per center and free up capacity. That's the first quick one. I'll pause.

Question: Jon Block - Stifel Nicolaus and Company Incorporated - Analyst : That's helpful. Maybe just a follow-up there. I've actually always been surprised when we reach out the docs are very in tune with Inspire V. And quite honestly, Tim, most know about it. So I get your point if you're not marketing it, but they do seem to be pretty knowledgeable about and that it's approved, what are you telling these docs in terms of when they're going to get trained or when they can start doing the procedure, that's sort of a follow-up to that last one? And just quickly, Rick, the EPS was huge. The OpEx that I've got it right was down about $4 million to $5 million sequentially. Back on the conference call, you expected it to be up $8 to $9 million, I think, sequentially. So just what played out throughout 3Q on the OpEx side that led it to come in considerably below what your view had been? Thanks.

Question: Jon Block - Stifel Nicolaus and Company Incorporated - Analyst : Thank you.

Question: Anthony Petrone - Mizuho Securities USA - Analyst : Hi, thanks. Maybe one on the funnel, Tim. Just when we think about GLP-1s that 32-plus BMI category potentially providing a halo effect to hypoglossal nerve stimulation, are you seeing that already in numbers? And when we think ahead to 2025, potentially having a GLP-1 on label for sleep apnea, how do you think that plays out from a funnel perspective? And then I'll have one quick follow-up for Rick. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: Anthony Petrone - Mizuho Securities USA - Analyst : That's helpful. One for Rick. Just on R&D, it stepped down quite a bit. Maybe just to recap of what studies are in there today is complete collapse still in there? And will there be additional studies launched in 2025? Thanks.

Question: Anthony Petrone - Mizuho Securities USA - Analyst : Thank you.

Question: Brett Fishbin - KeyBanc Capital Markets - Analyst : Hey, Tim and Rick, thanks so much for fitting me in. I just wanted to ask a follow-up on the hurricane and IV shortage topic. It sounded like you're still working on quantifying the impact on revenue for 4Q? So just curious if you think that, that item is generally de-risked in the implied guidance or if you're still seeing an impact and level of uncertainty even into the month of November? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: Brett Fishbin - KeyBanc Capital Markets - Analyst : All right, thank you for that color. And then just for my follow-up. I was wondering if you could comment a bit on how the new centers that you added in the first half of this year have ramped around utilization compared to the typical progressing curve that you've seen in the past? Thank you.

Question: Brett Fishbin - KeyBanc Capital Markets - Analyst : Thank you.

Question: Chris Pasquale - Nephron Research - Analyst : Yeah, thanks for fitting me in. I'll just ask one, Tim. I wanted to follow up on the Inspire V rollout. I imagine customer demand is going to be high once you make that broadly available, you need to retrain the reps and the physicians, how do you execute that transition without taking people out of the field and disrupting procedure volumes? Is it going to be spread out enough across the account base? Is that not an issue or should we be actually expecting some disruption during the first quarter of the full launch? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call

Question: Chris Pasquale - Nephron Research - Analyst : Okay, thanks.

Question: Michael Polark - Wolfe Research - Analyst : Good afternoon. Thank you. Just one for me. I want to confirm on the center additions in the quarter, 66 added, I see the center network up 55% sequentially. So can you confirm there are 11 deactivations

Question: Michael Polark - Wolfe Research - Analyst : And can you just remind us what the criteria are to activate some of these centers? Thank you.

Question: Michael Polark - Wolfe Research - Analyst : Thank you.

Question: Mike Kratky - Leerink Partners - Analyst : Hi, everyone. Thanks for fitting us in. So following the PREDICTOR data, can you just help us understand to what extent you expect to be able to navigate away from certain patients needing a DISE procedure in 2025? Is that a noticeable tailwind next year? And what are some of the remaining gating factors to be able to see a meaningful impact on your procedure volumes from that?

Question: Mike Kratky - Leerink Partners - Analyst : Awesome. Thanks very much.

Question: Suraj Kalia - Oppenheimer & Co., Inc. - Analyst : Tim and Rick, thanks for squeezing me in. In the interest of time, I'll just ask one question. So Tim, just trying to understand US dynamics. If we normalize Q3 '23, the $10 million that got moved to Q4 '23. We normalized all that, utilization for the last four, five quarters has been relatively flattish. Can you help us reconcile your statement about capacity issues for this Q4? I guess what I'm trying to understand is that utilization is, let's say, 5.7 implants per site per quarter. So you have 65 working days. And somewhere, I'm not understanding your comment about the capacity REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 04, 2024 / 10:00PM, INSP.N - Q3 2024 Inspire Medical Systems Inc Earnings Call issue. Even if it's hurricanes, it moves around. But maybe if you can expand on your capacity comments? That would be greatly appreciated. Thank you for taking my questions.