Inspire Medical Systems, Inc. Q4 FY2024 Earnings Call

Good afternoon. My name is Dilem and I'll be your conference operator today. I would like to welcome everyone to the Inspire Medical Systems Fourth Quarter and Full Year 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will 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. You may begin the conference.

Thank you, Dilem, and thank you all for joining today's call. With me are Tim Herbert, Chairman and Chief Executive Officer, and Rick Buchholz, Chief Financial Officer. Earlier today, we released our financial results for the three and twelve months ended December 31, 2024. A copy of the press release is available on our website. During this call, management will be making forward-looking statements as defined by federal securities laws. All forward-looking statements, including those related to our operations, financial results, financial condition, investments in our business, full year 2025 outlook, and market access changes, are based on current estimates and assumptions. These statements are subject to material risks and uncertainties that could lead to actual results differing significantly. Therefore, you should not place undue reliance on these statements. For a description of these risks and uncertainties, please refer to our filings with the Securities and Exchange Commission, including our Form 10-K filed earlier this afternoon. Inspire does not intend or have an obligation to update or revise any financial projections or forward-looking statements, except as required by law, due to new information, future events, or otherwise. This conference call contains time-sensitive information and reflects only the details available as of the live broadcast today, February 10, 2025. With that, I will turn the call over to Tim Herbert. Tim?

Thank you, Ezgi and thanks, everyone, for joining our business update call for the fourth quarter and full year 2024. 2024 was filled with many important milestones, including surpassing 90,000 patients treated with Inspire therapy, exceeding 350 peer-reviewed publications; the U.S. FDA approval of the Inspire V neurostimulator; European Union medical device regulation approval which included full body MRI compatibility; the approval of country-wide reimbursement in France; and our first full year of profitability. We continue to strengthen our leadership team and recently announced an organizational change aimed at fueling our future growth. We welcome the new Chief Manufacturing and Quality Officer, Jason Kelly, who will lead our supply chain, quality assurance and regulatory teams. Carlton Weatherby was promoted to the expanded role of Chief Strategy and Growth Officer and assumed leadership of the U.S. sales and marketing teams. Randy Ban transitioned to the newly created role of Executive Vice President of Patient Access and Therapy Development, a new team tasked with enhancing therapy outcomes and patient access, increasing focus on research and clinical evidence development and leading our key opinion leader communications and medical society relationships. Randy will also continue to lead our international teams. The organization is energized by these enhancements and we look forward to another year of strong execution in 2025. Earlier in the year, we preannounced that we generated revenue of $239.7 million, representing a 25% increase compared to the fourth quarter of 2023. Given our strong performance, we are reiterating our full-year 2025 revenue guidance of $940 million to $955 million, representing 17% to 19% growth year-over-year. Net income for the fourth quarter was $35.2 million compared to $14.8 million in the prior year period, representing diluted net income of $1.15 per share compared to $0.49 per share in the fourth quarter of 2023. With this, we are excited to announce that 2024 was our first full year of profitability with diluted net income of $1.75 per share compared to a loss of $0.72 in 2023. Further, we generated $130 million in operating cash flow for the full year and we plan to improve profitability in 2025. As such, in 2025, we expect diluted net income to be in the range of $2.10 to $2.20 per share. As you know, in 2024, we received FDA approval for the Inspire V neurostimulation system. A key feature of the Inspire V device is that it incorporates respiratory sensing internal to the neurostimulator, eliminating the need to implant the pressure sensing lead. This feature is designed to provide benefit to the patient with one fewer component to the physician with reduced surgical time and to the company with reduced production complexity and cost. Further, the Inspire V device provides the capability for future software-based enhancements, including sleep detection for auto activation and sleep performance tracking. We have already gained valuable experience with the Inspire V device with systems implanted in both Singapore and in the U.S. and early feedback has been positive. We are continuing with our limited market release in the U.S. and we will continue to gain further experience with Inspire V procedures at additional U.S. sites as we move towards full launch during the year. The primary factor driving the timing of our full launch remains building sufficient inventory to support the expected demand in the U.S. For the procedures performed in the U.S. to date, all cases utilized CPT code 64568 and received prior authorization from the insurance carriers. CPT code 64568 was originally used by Inspire for the first 8 years since our approval in 2014 and accurately describes Inspire V procedure, namely 1 neural stimulator and 1 stimulation lead. The current CPT code 64582 was only incorporated a few years ago and will continue to be used with all Inspire IV cases. We want to emphasize that the professional fee in CPT code 64568 appropriately reflects the reduced work of implanting the Inspire V system, specifically the elimination of implanting the pressure sensing lead. The surgical placement of the sensing lead has long been a source of discomfort for ENT surgeons as it is not where they typically operate. We believe the resulting reduction in surgical time associated with not placing the sensing lead will result in a comparable reimbursement rate for the surgeon on a time-adjusted basis. Further, we believe the benefits of surgeon comfort and confidence with the Inspire V procedure will free up surgeon time to perform additional Inspire cases and will encourage more surgeons to adopt Inspire therapy. The new Inspire SleepSync programming system has been fully launched in the United States. The goal for the new system is to provide more efficient patient programming and improved access to patient data to assist the healthcare provider in their decision-making. A key feature of this system is that healthcare providers may utilize their own laptop or tablet and simply log in the SleepSync to access programming screens. With this upgrade, Inspire is no longer required to provide laptops or tablets, further reducing operational complexities. With respect to our market development activities, we continue to advance our medical education programs and in 2024, we hosted over 300 advanced practice providers, 300 ENT residents and 150 sleep fellows at Inspire training programs. The primary focus of our APP, or advanced practice provider, initiative is to improve capacity in both sleep and ENT clinics to meet the strong patient demand we continue to see for Inspire therapy. In 2025, we plan to increase the advancements we are making in our medical education programs, including ongoing resident, fellowship and APP training, continued participation in cardiology and primary care conferences and initiating a continuing medical education program to support the awareness and adoption of Inspire therapy in cardiology and primary care. We focus our patient marketing and education programs to deliver broad therapy awareness as well as provide a pathway for patients to connect with a healthcare provider that offers Inspire through our website and adviser care program. In 2024, we designed our outreach programs to be more targeted. And one example is with our digital advertising strategy which has contributed to a significant increase in patient engagement at a lower cost. In 2025 and beyond, we plan to continue to invest in our robust marketing programs with the goal of further enhancing patient awareness of Inspire therapy and improving a patient's ability to connect with a healthcare provider. An exciting example to improve the patient experience is with digital scheduling, an online tool used by our Advisor Care Program to directly submit electronic appointment requests to qualified healthcare providers on behalf of prospective patients. We currently have 300 centers using this tool and we plan to expand this program in 2025. On the market access front, we continue to make progress updating our commercial payer policies to our expanded FDA label. Additionally, we facilitate patient access to Inspire therapy by assisting patients in obtaining prior authorization coverage decisions from payers. In this regard, we have steadily expanded our prior authorization team to enhance our ability to provide this assistance. Before I turn the call over to Rick, I would like to provide one additional update. On January 17, we received a civil investigative demand from the Department of Justice. The CID requests information relating to the marketing, promotion and reimbursement practices associated with our products. We intend to fully cooperate with the investigation and provide the information requested. We are confident in the strength of our compliance programs and procedures and we remain committed to conducting our business ethically and in compliance with applicable laws and regulations. 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 higher quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include adding advanced practice providers, certifying additional surgeons qualified to implant Inspire therapy and driving the adoption of SleepSync and our digital tools, all of which are embedded strategies in our commercial team's objective to increase provider capacity. Looking ahead, we remain excited about our future and are confident that we have the appropriate strategy in place to drive long-term stakeholder value. 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 $239.7 million, a 25% increase from the $192.5 million generated in the fourth quarter of 2023. U.S. revenue in the quarter was $231.6 million, an increase of 22% from the $189.4 million in the prior year period. Revenue outside the U.S. was $8.1 million which was a 163% increase year-over-year. In the fourth quarter, we added 72 new U.S. centers, bringing the total to 1,435 active U.S. centers as well as 12 new U.S. sales territories, bringing the total to 335 U.S. sales territories. Gross margin in the quarter was 85%. Total operating expenses for the quarter were $171.8 million, an increase of 11% as compared to $155.2 million in the fourth quarter of 2023. This planned increase was primarily due to the expansion of our sales organization and increased general corporate costs, partially offset by a reduction in R&D and patient marketing and education expenses year-over-year. Interest and dividend income totaled $5.5 million in the quarter compared to $5.9 million in the prior year period. Operating income for the quarter totaled $31.9 million compared to $9.3 million in the prior year period. Net income for the quarter was $35.2 million or a 15% net income margin compared to net income of $14.8 million or 8% net income margin in the prior year period. This represented diluted net income per share of $1.15 and compared to $0.49 in the fourth quarter of 2023. Adjusted EBITDA totaled $62.7 million or a 26% adjusted EBITDA margin in the fourth quarter compared to adjusted EBITDA of $33 million or a 17% adjusted EBITDA margin in the fourth quarter of 2023. The weighted average number of diluted shares outstanding in the quarter was 30.8 million. We are excited to announce that we generated $69 million in operating cash flow during the fourth quarter, bringing the full year total to $130 million and increasing our total cash and investment balances to $517 million at December 31. The strong cash position allows us to remain focused on executing our growth strategies. For the full year 2024, revenue totaled $802.8 million, a 28% increase over $624.8 million in 2023. U.S. revenue was $771 million, a 27% increase year-over-year while revenue outside the U.S. totaled $31.8 million, a 71% year-over-year growth. Operating income totaled $36.1 million for full year 2024 compared to an operating loss of $40.3 million in 2023. Net income was $53.5 million for full year 2024, a 7% net income margin compared to a net loss of $21.2 million for full year 2023, a 3% net loss margin. Adjusted EBITDA totaled $157.8 million for 2024, a 20% adjusted EBITDA margin, compared to adjusted EBITDA of $44.9 million and a 7% adjusted EBITDA margin in 2023. Full year diluted net income per share totaled $1.75 compared to a net loss of $0.72 per share in 2023. Moving on to 2025 guidance. We continue to expect full year revenue to be in the range of $940 million to $955 million, representing an increase of 17% to 19% compared to full year 2024 revenue and we expect full year gross margin to be in the range of 84% to 86%. We expect diluted net income for the full year 2025 will be between $2.10 to $2.20 per share. As previously discussed, we'll no longer guide to or report on centers. However, to give you a sense of how our commercial organization is scaling, we will continue to provide territories and field clinical representatives going forward. Although not formal guidance, we would like to provide additional color on 2025. Now that we have reached profitability, we expect our reported tax rate in 2025 to be roughly 10% primarily related to state and local taxes. Excluding the impact of any share repurchases that we make complete over the remainder of 2025, we expect the full year diluted shares outstanding to be approximately 31 million. In conclusion, our strong performance and business momentum provide us with confidence in our outlook for 2025.

I would like to introduce our first question from Travis Steed at Bank of America Securities.

I wanted to first ask about the EPS guidance. I'm thinking, should we assume a linear path to profitability here, assuming there's some conservatism kind of built into the 2025 EPS guidance? And then also I wanted to ask about the DOJ CID as well.

Sure. Travis, I'll take the first part of the question. On earnings per share guidance, we are committed to improving our annual operating margin on a year-over-year basis. And given our revenue seasonality that we've had traditionally from Q4 to Q1, we do not expect to be profitable in the first quarter but then we'll have sequential improvement thereafter on a quarterly basis throughout the year.

Absolutely. We received that January 17. It's very new. It's obviously active. So there's only so much detail that we can provide. But we're committed to working with the inquiry and provide the information that's necessary. We're committed to conducting our business ethically and in compliance with applicable laws and regulations and to working with our customers and other value partners, continuing to provide high-quality medical devices. We do not anticipate that the investigation will interfere with the important work we're doing to improve the lives of patients who need our products. So as noticed, the investigation remains ongoing. As such, we don't have additional comments or details at this time.

And I show our next question comes from the line of Danielle Antalffy from UBS.

Tim, I wanted to follow up on the commentary around the 300 centers that are doing the automated scheduling or online scheduling, or however you characterize it, sorry if I'm mischaracterizing it. What have you seen from a growth perspective at those centers? Have you seen growth accelerate from a patient volume perspective? Or maybe the right way to ask the question is a more streamlined process? Maybe talk a little bit about what you've seen at those centers, what kind of impact that's having on the ability to work through volumes. And one quick follow-up question on Inspire V and reimbursement, your favorite topic.

No problem. Let's take it back a little bit. You've been with us for a while, tracking the story. We did a pilot program a few years ago. And what we wanted to do is measure the success of patient appointments using digital scheduling as compared to the normal pathway which would be through direct phone calls or via e-mail between the center and the patient. And we saw a significant advantage by using the digital scheduling, meaning the Advisor Care Program has direct linkage into the center to send the patient appointment requests directly and it really streamlined that process. Therefore, in 2024, we started to ramp up the number of centers that we're participating in that program. And we ended the year at about 300 centers and it's a big initiative as we start this year to continue to take advantage of the technology, to improve the patient's ability to make an appointment. So we're going to keep pushing that program based on the success of the pilot program we saw a couple of years ago.

Okay, that's helpful. And then just on Inspire V reimbursement, I appreciate the commentary you've provided thus far. I mean, one of the things we talk about, I know you and I have spoken about this in the past, is physician reimbursement. And maybe you could talk a little bit about what you're hearing from your physicians and whether they're happy with reimbursement as it is? Or is that a barrier, I guess, I should ask, to physicians doing the procedure if the physician fee does come down a little bit?

Absolutely. Thanks, Danielle. We don't believe it's going to be a barrier. In fact, we think it's the opposite. It's going to be opportunistic. I think the purpose of Inspire V was to remove a key barrier that we had with ENT surgeons and that was the placement of the pressure sensing lead in the chest wall of the patient which is just not where they operate every day. Therefore, with the accomplishment of V, it is reduced work but it's the right kind of reduction of work so that ENTs can focus on their strengths, placing the electrodes, tunneling and placing the neurostimulator. And that's the feedback that we saw with the cases in Singapore and the centers that we already have implanting patients in the United States to date. The feedback is exactly that, 'Wow, we're not implanting the pressure sensing lead anymore,' and they're able to progress to the next case. And with that, we believe there's going to be reduced surgical time. And the reimbursement, on a time-adjusted rate, will be consistent between Inspire IV and Inspire V, allowing them to do more cases in the day. And the reimbursement for ambulatory surgical centers is actually higher. So for those surgeons who have a stake in their ASC, there's a benefit to be able to bring more Inspire cases to the ASC. So we don't think it's going to be a barrier. I think that there's talk early on, of course, about the rates. But once we move further into a limited launch and into full launch, we don't think this will be a barrier as physicians will quickly progress. If I can add one more topic to this, what we talked about last year quite a bit with physician reimbursement or the professional fee is making sure that the ENTs have efficiencies in their practice. And that's what we talk about when we talk about APPs, or advanced practice providers, to ensure that the APPs are able to educate the patients in the office, to be able to help streamline the patient flow or help them navigate through the practice. And the surgeon focuses on performing the surgical implant of Inspire, thereby maximizing their time and really taking care of the reimbursement. So we don't think it's going to be a barrier as we move into Inspire IV or Inspire V as we progress into the year.

And I show our next question comes from the line of Robbie Marcus from JPMorgan.

Very nice profitability.

Thanks, Robbie.

Maybe for Rick, considering that we are going from a limited launch to a full launch of Inspire V sometime during the year, how do you want us to think about the phasing of revenues and expenses and margin as we go through the year? You talked about negative EPS in the first quarter but how should we think about how you want this maybe versus historicals? And do you think the Street is in a good spot for first quarter to start the year?

Thanks, Robbie. Yes, we normally don't discuss consensus. But given the Inspire V launch dynamics, we did make some comments earlier this year about Q1. And generally, we are comfortable with Q1 estimates. But we do expect to see sequential improvement in revenue throughout the year after we have our seasonality in the first quarter. And we're going to continue to make investments in our business in R&D as well as continue with our expansion of our footprint. We will continue adding sales territories and adding centers. We're not going to be guiding to it but generally, it will probably be in line with our historical trend. So we'll continue to increase expenses throughout the year. But with that, the increase of sequential growth in revenue, profitability will follow.

Great. And maybe one just on GLP-1s. I know it's painful to bring it up but it just got added to one of the labels for sleep apnea. I wanted to see what, if anything, you're seeing in the field, the clinical discussions and just the latest on how you see Inspire fitting into the equation.

Sure. Thanks, Robbie. We don't see GLP-1 as a difficult subject because we spent a lot of time talking about it. As you realized or just stated, it just came on label and I think we're still trying to understand how it's going to be covered and really what the strategy is to be able to educate the sleep physicians and what the distribution plan is. That being said, we haven't seen the tailwind yet but we believe it's coming. It was going to really help patients lose weight and reduce their lateral wall flats to be able to qualify for Inspire. We continue to believe that this is a benefit for Inspire and for patients to help them lose weight whereby they wouldn't qualify for Inspire. So we continue to work with our sites. We have several single sites that are conducting early work to try and measure the success of helping patients lose weight and qualify for Inspire and we'll continue to monitor and report back. But I think it's still pretty early on. And again, we haven't seen the tailwind yet.

And I show our next question comes from the line of Chris Pasquale from Nephron Research.

Rick, you made great progress in '24 on profitability. As I look at the '25 guidance, I know you said you're committed to improve margins for the year but it doesn't seem like it's implying the same kind of leverage that we saw last year. So when we think about the big buckets for spending, R&D was down in '24. I think you said that DTC was going to kind of flatten out. Should we expect any of those to really ramp up here? Or what else is implied in the earnings guidance that you guys gave?

Sure. With our guidance of $2.10 to $2.20 per share, Chris, we do expect that revenue growth will continue to outpace OpEx growth. DTC, we're expecting that to be flat year-over-year, so roughly $94 million. R&D will probably run mid-teens as a percentage of revenue. And we also mentioned the tax rate will be roughly 10%. And so it does imply with our guidance that we will have low single-digit operating income margin. So there will be some improvement. But we are committed to improving our annual margin improvement. But we are going to continue to invest in long-term growth. We're very lowly penetrated in our potential market as well as the number of surgeons as well as centers. So we're in this for the long term. And on a longer-term basis, we still believe that we can still reach 30% operating margins.

And with the Inspire V launch, when you do make that transition, is there any sort of near-term impact on gross margin that we should think about? Is that initial inventory coming through going to be higher cost of production? Or is that not a factor?

No, not a factor. We did increase our annual gross margin guidance to 84% to 86%. And so that does include a tailwind in the gross margin from Inspire V. If there's any short-term items, we don't see that at this time.

And I show our next question comes from the line of Anthony Petrone from Mizuho Financial Group.

Maybe a couple on Inspire V, Tim. Just when we think about you ended the year at a little bit over 1,400 centers, can you share how many centers in the United States actually have Inspire V at this point? And at what point do you expect that to be fully launched throughout all sites in the United States? And the quick follow-up will just be on the sites that are doing it in the United States and Singapore. Can you share how many cases they are doing per day? Like, what is the uptick in daily cases at those early adopter sites?

Absolutely. Thanks. The key point is that Singapore started earlier, and we previously mentioned that they had completed 40 out of a planned 46 cases this year. They've since completed a couple more and are on track to finish that group. We began our first cases in Pittsburgh, and since then, we have opened a few additional sites with more planned in the coming month. We will continue to increase our limited market release as we progress. The main challenge for our full launch is the production of our product, but we are making significant progress there, which is encouraging. We are learning a lot as we expand the number of centers during this limited market release. We will keep scaling up throughout the year, and once we have enough product for a full launch, we will proceed with a broad release.

And I show our next question comes from the line of Richard Newitter from Truist Securities.

I'll just try to squeeze two quick ones and congrats on the profit this quarter. I guess the first, I think you had spoken in the past about a back half versus first half weighting in part due to Inspire V. Can you just reconcile that with the comment that you feel comfortable with 1Q and maybe just help us understand what the magnitude of that first half, second half might look like? And then just second, in your 10-K, you said that you're looking to drive an increase in utilization at established centers or growth in center utilization. I guess, could you just talk about what exactly that means? I know you're not giving utilization growth guidance anymore but just is there anything in that, that you can parse out for us?

Sure. Again, regarding guidance, we provide annual guidance. We don't like to speak too much on the quarterly breakdown. But we do expect our seasonality. We are comfortable with Q1, where estimates are at and we expect to have sequential growth thereafter. You can look back historically on what our sequential growth has been. We're not signing off on that but we're really expecting to have continued increase in our sequential revenue as we have done in the past from a revenue standpoint. There's still a lot of moving parts with the Inspire V launch and the biggest one is making sure we have adequate inventory on hand. But we're very excited. This is our largest product launch in the history of the company. And so we're excited to get the full launch going. And then on your second question, in our guidance assumptions, we are assuming the Inspire V launch in our guidance but we're not really assuming much impact to our throughput. But we didn't specify utilization, Rich, so much but we did say that we're going to continue to expand our footprint of territories and centers and that's generally in line with what we've done historically. But we're no longer providing those metrics but we will give you an update on sales reps and field clinical reps going forward.

And I show our next question comes from the line of David Rescott from Baird.

Congrats on the finish to the year here. Two from us and maybe I'll ask both of them upfront. You, obviously, have heard the comments on the cadence for the full year broadly. I'm curious if you could maybe parse out whether or not international in specific is something that should be accretive to the growth. And then when you think about the pieces on the P&L for 2025, I heard the comments on tax and spend. But just curious what your assumption is maybe for interest income which is a bigger component of the P&L.

Sure. Thanks for your questions. Regarding OUS revenue, it has trended for quite some time to be between 3% and 4% of our worldwide revenue. That will continue for the foreseeable future into 2025. As quickly as the U.S. is growing, it's hard to keep pace. Given it's between 3% and 4% of our worldwide revenue, we don't expect that to change in 2025. And then, your other question...

Interest income, it's $20 million for the year.

Did you catch that? $20 million for the year, roughly $5 million per quarter for interest income.

And I show our next question comes from the line of Adam Maeder from Piper Sandler.

Tim and Rick, congrats on the leverage in the quarter. I wanted to start with one on Gen 5. In our checks, it's been pretty consistent. The fifth-gen device should unlock faster procedure times and drive increased capacity. But I guess the question is, how do you help kind of ensure that the extra OR capacity is allocated to Inspire versus the other ENT procedures that the doc has on his or her plate? And is there anything that you can do to kind of help the doc stack Inspire cases? And then I had a follow-up.

Yes, I believe this is a significant topic, and we collaborate with ENTs to identify which procedures are taking up their time. We conducted our own analysis using CPT codes for general ENT procedures to determine, on a per-minute basis, how Inspire compares. We found that Inspire is among the more time-intensive procedures that ENTs are performing. Our focus is on enhancing efficiencies so that ENTs, particularly the high-volume implanters you mentioned, can rely on support teams to educate and guide patients. This allows surgeons to allocate more time for operations, especially if they have partners who can assist with the implants. It is crucial for us to create efficiencies that enable them to maximize their time in the operating room. We are prioritizing establishing dedicated case days so that when they come in each morning, they are aware it's an Inspire day. This awareness extends to everyone in the OR suite, ensuring they know which procedures are scheduled and which equipment and surgical trays are necessary, allowing for optimal performance. Even the reimbursement team is informed that it’s an Inspire day, so they understand what codes to apply for those cases. Our goal is to drive consistency and effectively organize case days to demonstrate the benefits of Inspire V, particularly with time savings, while ensuring OR supervisors are mindful of adding cases without extending into overtime or a second shift. However, they also want to maintain operations smoothly in the OR. Ultimately, it's about improving efficiencies, and we believe Inspire will instill greater confidence and comfort among the ENTs.

That's really helpful color, Tim. And just one quick one on gross margin for Rick, 84% to 86% for the full year is the guidance. Just wanted to kind of maybe flesh out some of the key assumptions there. And I guess, specifically the impact from the Gen 5 launch. How much of a positive contributor is Gen 5 to gross margin this year? Or do we see more kind of a pronounced impact benefit to gross margin in '26?

Sure. We did increase our guidance by 100 basis points at the midpoint. And we have assumed the Inspire V launch in our guidance. And I think we've captured it with the tailwind of Inspire V. But 2026 would be a first full year of the impact, more so in '26 than in '25 given that we're already into February.

And I show our next question comes from the line of Larry Biegelsen from Wells Fargo.

Tim, could you talk for a minute about just the logistics of transitioning back to the cranial nerve stimulation code? How does that work for Medicare and commercial patients? And do you envision a period of time when centers do both Inspire IV and V? And I had one follow-up.

Sure. I think 3 years ago; we transitioned from 64568 to 64582. And here, by eliminating the pressure sensor, we're transitioning right back. And so we've done this and we worked with the payers and a lot of them still have the 64568 still in their system. The key to it is making sure we update the software at the payers and CMS such that when the hospitals or the centers or ASCs build that code, that it goes through. So, we work with every payer to make sure that the policies are updated to include both codes, including with CMS to have both codes. Because, to your point, as they work down the Inspire IV inventory, there may be a short period of time where they are using both codes. There's no question about that. And while we have several sites on the Inspire V limited launch now using 64568, those centers are, in fact, also doing Inspire IV cases. So, it's a little bit of handholding upfront. But again, as we mentioned, we expect a full launch through the year and transition by the end of the year. So, most sites and the payers will all be transitioned over by then.

That's helpful. And Tim, what are you assuming in the guidance for competition? And any potential warehousing of patients before the full launch of Inspire V?

Absolutely. I think competition, it's been very quiet. We don't know anything there. And you'll have to do that inquiry on your own. But we know that if they get approval, that there will be some experimenting with some of the academic centers. So, we're prepared for that and we include that into our guide, no question about that. We also know that as we transition into V, there will be patients that will want to wait. We believe that to be quite limited now but there are patients who are aware of V and that it's forthcoming and that they may want to choose to wait. But we don't think that we're seeing a lot of that yet. But as we continue to ramp up, we'll monitor that very closely. But again, we do kind of build that into our guide as well.

And I show our next question comes from the line of Shagun Singh from RBC.

I guess just a follow-up on the DOJ investigation. Are you maybe willing to share what your initial assessment is of the time and scope of this investigation? Any next steps or potential timelines you can share and estimates around potential costs to be incurred? Do you have a third party looking into this? Just curious if you can share anything in addition to what you already have.

Sure. We just received it on January 17. We're just still in the very early stages. We're committed to conducting our business ethically, in compliance with applicable laws and regulations. We'll work with all our customers and other valued partners to continue to provide the Inspire products. We do not anticipate that the investigation will interfere with the work that we do to improve the lives of our patients. Again, so early on, we just can't provide the details. But again, we have confidence in our policies and we'll continue to work closely with the investigation to provide the information that they need.

Got it. And then I was hoping you can touch a little bit on your guidance philosophy. You're obviously exiting 2024 on a pretty high note, 25% year-over-year growth. You're guiding to high teens. What are you assuming in terms of a step down besides law of large numbers, it seems it's just that. But then what factors can really help you deliver another year of 2025 growth? It seems like the Inspire V launch, you said it's going to be a bit of a phased commercial launch. So maybe help us think through how you thought about the guidance and what you factored in for Inspire V.

Thank you. We built a detailed plan at the beginning of the year. We take into account all the elements that you identified. Rick earlier had identified many of those elements as well as far as the tailwinds and even some challenges we see to build a detailed model. It's earlier in the year. And so as we progress, we'll continue to open up new centers. But we expect the majority of our growth to come from increased work at existing centers as same-store sales and we'll continue to scale our field team to be able to continue our growth and continue to invest in our growth going forward. Rick talked about continuing our DTC program consistent with prior year and we're going to continue to invest in our R&D. And again, very excited about launching Inspire V as we move into the year.

And I show our next question comes from the line of Brett Fishbin from KeyBanc.

Just one for me. I was hoping you could provide a bit more color on where you currently stand around the inventory build for Inspire V ahead of the full market launch. It feels like this keeps coming up really as the primary driver of timing. And then maybe if you could just touch on if there was any like barriers with the production process that was preventing this from happening as fast as you ideally wanted.

Sure. We are opening up a brand-new production line or, I should say, we have opened a brand-new production line. Those are units off that line, have been implanted in Singapore, did the first implants last year in the U.S. and additional sites here this year. It is an active production line. We are building inventory and we are starting to scale that production line. So with every new line, as you continue to scale up, we continue to make sure that we find efficiencies and then we add to the capacity of that production line. So the team is there today and working hard to continue to produce product and scale that up. We did not disrupt the Inspire IV production line which continues to manufacture product today because, again, once we transition in the United States, we do not have approval in Europe to be able to do Inspire V. So Inspire IV will be needed into the future. So we are building a brand-new production line. It's just a normal process of going through the setup process. It's fully qualified. It is active and we are in the process of scaling right now.

Super helpful. And just a really quick follow-up on that one. Is there a general target level of inventory either in dollars or maybe like weeks of cases that you're trying to get to?

Without specifically stating a number, really, what we're preventing, we don't want to start-stop. We will have Inspire IV but once we transition to V, we want to go. And so we're going to keep on a limited launch as we build up that inventory and keep increasing the number of centers as we scale up. But once we go to a full launch, we want to make sure that we have inventory to go forward. Again, we just do not want to start-stop and having to go back to IV and then restart V. So we're going to be a little bit careful about that.

And I show our last question comes from the line of Jon Block from Stifel.

Maybe just a follow-up on that last one. For Inspire V, I think I'm just trying to get a better feel for how back-end weighted it is or how it ramps throughout the year. And Tim, is it fair to say, look, this is going to be less than 5% of the overall procedures in 1Q, it seems like you're certainly targeting full conversion in 4Q, I mean do we think about it surpassing 50% evolves in the third quarter? Maybe you could just talk about the cadence and how we get there over the 4 quarters? And then I'll ask a follow-up.

Yes. John, I think you generally are describing it correctly as we start to ramp it up. I think that we want to be transitioned by the end of the year. I think it's certainly safe to say we're less than 5% in the first quarter and then just kind of grow through the year as we progress. So the way you describe it, generally, we're comfortable with that.

And I show our next question comes from the line of UnitedHealthcare.

Yes, we do believe that we're going to have the transition and we see that there is an opportunity. However, they made too many changes over a period of time, so we need to have discussions with them so that it's very clear on PREDICTOR and what strategies we're putting in place.

And I show our last question comes from the line of Shagun Singh from RBC.

Absolutely. We just received it on January 17. We're just still in the very early stages. We're committed to conducting our business ethically, in compliance with applicable laws and regulations. We'll work with all our customers and other valued partners to continue to provide the Inspire products. We do not anticipate that the investigation will interfere with the work that we do to improve the lives of our patients. Again, so early on, we just can't provide the details. But again, we have confidence in our policies and we'll continue to work closely with the investigation to provide the information that they need. Thanks, Dilem. Thank you all for joining the call today. 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 health care teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe and Asia. For all of you on the call, we appreciate your continued interest 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.