Inspire Medical Systems, Inc. Q1 FY2025 Earnings Call

Good afternoon. My name is Dilem and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems First Quarter 2025 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 participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer; and Rick Buchholz, Chief Financial Officer. Earlier today, we released financial results for the three months ending March 31st, 2025. A copy of the press release is available on our website. 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. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. Please see our filings with the Securities and Exchange Commission, including our Form 10-Q which we filed with the SEC earlier this afternoon, for a description of these risks and uncertainties. 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. This conference call contains time-sensitive information and speaks only as of the live broadcast today, May 5, 2025. With that, it is my pleasure to turn the call over to Tim Herbert.

Thank you, Ezgi, and thanks, everyone, for joining our business update call for the first quarter of 2025. We achieved many important milestones to start the year. As our patients remain our top focus, we are proud to announce that, since the inception of Inspire, we have surpassed 100,000 patients who have received Inspire therapy. Even with this key milestone, there is so much more in front of us, as we remain lightly penetrated in our target market and we are just getting started. We also recently announced the appointment of Dr. Paul Hoff and Dr. Ruchir Patel as Vice President and Senior Medical Directors. Dr. Hoff and Dr. Patel are both highly experienced in treating sleep apnea patients, including with Inspire therapy. Dr. Hoff brings a focus from the ENT surgeons' perspective, while Dr. Patel will leverage his expertise in sleep medicine. They will play key roles in guiding Inspire's medical education, training, and technology development activities. In addition to their focus on these newly appointed physicians, both Dr. Hoff and Dr. Patel will maintain their clinical practices independent from Inspire. In the first quarter, we continued to expand the limited market release of the Inspire V system in the U.S. and with this gain meaningful experience with the Inspire V while concurrently solidifying our inventory levels. As such, we are incredibly excited to announce that we are ready and we will begin the full launch of the Inspire V system in the U.S. this month. The Inspire V system kick-starts the next generation of therapy with the release of this new platform, incorporating sensing into the neuro-stimulator, providing a stable sensing environment, which is key to our differentiated closed-loop hypoglossal nerve stimulation system. The added technical capabilities of the device provide the basis for future therapy enhancements including sleep detection and broader therapy indications. From a financial perspective, we had a strong first quarter generating revenue of $201.3 million, representing a 23% increase compared to the first quarter of 2024. Net income for the first quarter was $3 million, representing diluted net income of $0.1 per share as compared to a net loss of $10 million, representing a net loss of $0.34 per share in the first quarter of 2024. Looking forward to the balance of 2025, we are reiterating our full year 2025 revenue guidance of $940 million to $955 million, representing 17% to 19% growth year-over-year. Regarding profitability, we are increasing our full share diluted net income guidance to be in the range of $2.2 to $2.3 per share. As we initiate the full launch of the Inspire V system, we anticipate the second quarter will be a transition quarter as we work through the steps necessary to launch this system. For centers, this process includes contract amendment, implementation of the new physician programmer, and working through their Inspire IV inventory. Our experience to date with the Inspire V system has been very positive and well received by healthcare providers, especially with ENT surgeons. Since the start of the limited market release last year, we have continued to add additional centers and increase the number of patients receiving the new device. This led to an increased general awareness of the pending Inspire V launch. Late in the first quarter and continuing into the second quarter, we started to see evidence of patients waiting for the new device. Combining this with centers working through the launch process, we expect the second quarter to be a transition quarter and for revenue to grow mid to high single digits sequentially. As the full launch of the Inspire V system progresses, we expect a strong second half of 2025, and as such we are reiterating a full year revenue guidance and raising our EPS guidance. Detailed performance data in the Inspire V System is being closely tracked and initial data will be presented at the upcoming Sleep Conference. Regarding reimbursement of the Inspire V System, on our last call, we detailed the transition to CPT code 64568. We are happy to announce that this code has been incorporated into policies covering approximately 80% of our over 300 million covered lives. This includes commercial payers, Medicare, and the VA system. We expect to submit for regulatory approval of the Inspire V system in Europe and in Asia this year, and will continue to provide the Inspire IV system during the review processes. We also plan to initiate a focused patient marketing and education program to announce the full launch of the Inspire V system. Prior to launching Inspire V, we had deliberately pulled back on patient marketing, but expect to step this up in the second quarter and throughout the rest of 2025. This will focus on the education and awareness of the Inspire V system and aim to increase patients visiting our website and inquiring about making contact with a healthcare provider. To further support this, during the early part of the year, we continued our efforts to expand utilization of digital scheduling with implanting centers. As a reminder, digital scheduling is an online tool used by our Advisor Care Program to submit appointment requests to qualified healthcare providers on behalf of prospective patients. Digital scheduling significantly streamlines a patient's request to schedule that important first appointment. With respect to our market development activities, we continue to advance our medical education programs. In the first quarter, we hosted over 300 physicians at Inspire programs, including 120 soon-to-be graduating ENT physicians, over 110 sleep fellows, and introduced Inspire therapy to 90 new ENT residents. We remain committed to our mission to educate the next generation of sleep and ENT leaders. In addition, this year we trained over 100 advanced practice providers, bringing the total inception to date to over 400 APPs trained. We plan to increase the investments we are making in our medical education programs, including ongoing resident, fellowship, and APP training, participating in cardiology and primary care conferences, and a continuing medical education program to support the awareness and adoption of Inspire therapy in cardiology and primary care. 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. 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 reviews of our financials.

Thank you, Tim, and good afternoon, everyone. Total revenue for the quarter was $201.3 million, a 23% increase from the $164 million generated in the first quarter of 2024. U.S. revenue in the quarter was $193.6 million, an increase of 24% from the $155.8 million in the prior year period. Revenue outside the U.S. was $7.7 million, which was a 6% decrease year-over-year. As a reminder, European revenue in the first quarter of 2024 benefited from the pent-up demand created by the supply shortage resulting from the EU MDR approval delay in the fourth quarter of 2023, as we transition from polyurethane to silicone-based fleets. Gross margin in the quarter was 84.7%, which was stable with the prior year period. Total operating expenses for the quarter were $172.1 million, an increase of 11% as compared to $154.5 million in the first quarter of 2024. 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 expenses year-over-year. Interest and dividend income totaled $5.1 million in the quarter compared to $5.9 million in the prior year period. Operating loss for the quarter totaled $1.5 million, compared to $15.2 million in the prior year period. Net income for the quarter was $3 million or a 1% net income margin, compared to a net loss of $10 million or a 6% net loss in the prior year period. This represented diluted net income per share of $0.1 compared to a net loss of $0.34 in the first quarter of 2024. Adjusted EBITDA totaled $33.2 million or a 16% adjusted EBITDA margin in the first quarter, compared to $11.9 million and 7% respectively in the first quarter of 2024. The weighted average number of diluted shares outstanding in the quarter was 30.5 million. We ended the quarter with $414 million in cash and investment balances. The reduction in our cash position is attributed to $75 million of share repurchases and cash used in operating activities, including building Inspire V inventory balances. The strong cash position allows us to remain focused on executing our growth strategies. 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. As Tim noted, we are initiating the full launch of Inspire V this month. As such, the second quarter will be a transition quarter and we may see some inventory destocking of Inspire IV and patient warehousing for Inspire V. Therefore, we expect to grow revenue sequentially from Q1 to Q2 by mid to high single digits. We continue to expect full year gross margin to be in the range of 84% to 86%. We now expect diluted net income for the full year 2025 to be $2.2 to $2.3 per share, an increase from our previous range of $2.1 to $2.2 per share. We ended the quarter with 343 U.S. territories and 245 U.S. field clinical representatives. We continue to expect our reported tax rate in 2025 to be roughly 10%, primarily related to state and local taxes. We expect the full year diluted shares outstanding to be approximately 31 million. As previously noted, our products are currently sourced and assembled primarily in the U.S., and our exposure to recently-implemented tariff policies is minimal. In conclusion, our strong performance and business momentum provide us with confidence in our outlook for 2025.

Thank you, sir. Our first question comes from Travis Steed from Bank of America Securities. Please go ahead.

Hi. Thanks for taking the question. And first, congrats on profitability this quarter, but actually wanted to focus on the Q2 revenue guidance and the destock and the patient warehousing that you mentioned. I think it's in the 10-K as well or 10-Q. First of all, maybe just like what happened kind of versus expectations there? Is the impact in the quarter basically the kind of $12 million delta between your 2Q guidance and the Street number? And how do you read it at the full year guidance? Do you expect that to kind of be made up in Q3 and Q4 to be able to read out the full year guidance?

Yes. Hi, Travis. I think as we started to expand the Inspire V limited market release, word got out and the awareness of the technology and the pending launch became more prevalent, and we started to see more of the patient warehousing. We knew as we were going to launch Inspire V, there would be a transition period with centers working through the contracts, working through getting the new physician programmer as well as working through their Inspire IV inventory. That's why we expect with the number of patients waiting for therapy with the V until such time as it's available that we would see the second quarter affected and that's why we will still see a good step-up in Q2, but as we mentioned in the mid to high single digits. Yes, we do plan to make that up throughout the year as we continue to launch and grow the utilization of Inspire V.

Thank you. And I show our next question comes from the line of Danielle Antalffy from UBS. Please go ahead.

Hi, good afternoon, guys. Thanks so much for taking the question. Congrats on a really strong start to the year. Just if I could follow-up on the cadence commentary for the year. I guess, how much confidence do you have in as far as how much Inspire IV inventories in the marketplace right now? And I guess sort of that number you're putting out there for Q2 and that you can sort of make up for some of that in Q3 and Q4. Just curious about what level of visibility you guys have into that, and how confident can we be because obviously back-half loaded guidance can sometimes make people a little nervous. So just wondering if you could give a little bit more color. Thanks so much.

Absolutely, Danielle. Thank you very much. We have close knowledge of the inventory in the field. The majority of centers only have a couple of units on the shelf. The high volume centers will have a higher number of Inspire, but they also tend to be the core trial one centers that perform a significant number of implants on a monthly basis. They'll be able to work through the majority of that inventory in a short period of time in the second quarter. Once they work through that Inspire IV inventory, there's a replacement with the Inspire V inventory. We do have confidence in this back half of the year, as we continue to ramp and expand the full launch of V. But we do closely monitor existing IV inventory, and that's why we have confidence that, the majority of the units and the inventory burn downs will be accomplished in the second quarter.

Thank you. And I show our next question comes from the line of Robbie Marcus from JPM. Please go ahead.

Great. I'll add my congratulations on a nice quarter. Sorry to keep on this, but maybe just a follow-up on the question there. Is the way we should be thinking about this, you had very good procedure volume growth in sales in the first quarter. There's some lower number of procedures in the second quarter, call it, the $10 million to $15 million that's lower than the Street, but maybe not quite as much as that because you're eating into existing inventory. And then, we'll get that restocking in third and into fourth quarter. And I guess the question I really have is, how should we think about the balance of restocking and how should we think about the sizing of the pent-up demand, and is the system ready? Is it a big amount of patients that are being warehoused that gives you the confidence in the back half of the year and it's just you're seeing some bleed down of inventory and some delay of procedures, and that's why you're not raising guidance for the year?

Got you. Thanks, Robbie. Great question. Getting into detail, the first thing that's always strong is patient outcomes and our awareness programs, the patient follow-up remains strong. We continue to add centers and we continue to grow the utilization and we continue to help patients make that first connection. So the front of the funnel remains very, very strong, and that's what gives us confidence going forward. We do know that we have to work the process of activating these centers, and we do have to burn down the Inspire IV inventory. But the key is to continue to grow the number of implants. Yes, we're still going to do implants with Inspire IV in the second quarter, but there's going to be a little bit of a shift until the Inspire V inventory comes in and replaces that. So while we are launching this month, there is a little bit of a transition process for centers to get up and running with V. The strength that we have is the demand with the patient flow remains very, very strong and that's what's really encouraging to us as we look forward to have confidence going into the second half of the year.

Thank you. And I show our next question comes from the line of Adam Maeder from Piper Sandler. Please go ahead.

Hi, good afternoon. Thank you for taking the questions and congrats on a nice quarter and the full launch of Gen V this month. I wanted to ask maybe just one more on Gen V. The level of confidence that you have to kind of take that next step from a launch standpoint really just around manufacturing, reimbursement, and device performance. Presumably you're pleased with the progress you made in each of those different areas, but there has been some speculation around why the rollout hasn't gone faster. So just wanted to give you the opportunity to add a little bit more color there, with what you're seeing and the progress that you're making in those different areas. Thank you.

Okay. Sure, Adam. Thanks very much. First off, the device is fully approved. We submitted to the FDA the full dataset that we had, the full qualification. It has been under tight review and we're very confident in the performance of the device. We have done the work in Singapore. As you recall, we have done a significant number of centers and implants in our limited market release. We have full confidence in the product moving forward. The cash flow that we had is ramping up the manufacturing facility to have standard processes, such that we could have the throughput and the starting inventory to support the full launch. We do a significant number of implants on a monthly basis, more so than we did obviously when we did Inspire IV back in 2018. We needed a strong inventory level to do the full launch, and we now have stable manufacturing. We do have good inventory levels. We've always had confidence in the Inspire V technology, and we're really liking the response that we're seeing from the healthcare providers, specifically the Inspire V experienced surgeons who no longer have to implant the pressure sensing lead, which we all know has been the most uncomfortable step of the process for Inspire implanting with the ENT surgeons. We just needed to make sure that we were ready, that we had all the key elements in order. From technology to product to approval to reimbursement as we mentioned and the support with the policies with the new code 64568. Finally, with the proper inventory levels, we're ready to throw the switch and be able to move into full launch.

Thank you. And I see our next question comes from the line of Richard Newitter from Truist. Please go ahead.

Hi. Thanks for taking the questions. Nice first quarter here. Maybe you can frame for us the reiterated revenue range for the year. One, when you originally provided that guidance, what were you assuming, or were you assuming any transition situation that would require kind of inventory work down? And then, B, can you talk to the bottom and top-ends of your range right now? We're just trying to figure out what kind of cushion is built in and how much you ate into what normally is a cushion provided in the guidance range. So if you could just talk to what gets you to the upper end, what gets you to the lower end with respect to the various components of capacity, Inspire V and enabling increased capacity and some of the dynamics now that you're introducing with the Q2 revenue push out? Thank you.

Got you, Rich. Well, from a full year, we haven't changed and we still have confidence in that full year. We knew we were going to do an Inspire V launch during the year sometime and we would be working through the inventory. So not a lot of change there. What's clarifying here is our ability to do the full launch right now. With our limited release, we saw a little bit more of the patient awareness and wanting to wait for the new device, and that's become evident really most recently late Q1 and into the second quarter that we started to see that. That kind of shifts the mix or the timing of the revenue and where Inspire V comes in. So not a lot of changes in our overall annual planning. But again, we knew we were going to work through the Inspire IV inventory since the timing issue, as we do the full launch in the second quarter, and I'll hand off to Rick for additional comments.

Yes. We did say at the beginning of the year that we did expect our full year revenue to be a little more heavily back-end weighted. Given the Q2 launch dynamics as we talked about, we are expecting some utilization improvements in the second half, and we expect Q4 to be a little bit stronger than our historical levels.

Thank you. And I show our next question comes from the line of Kallum Titchmarsh from Morgan Stanley. Please go ahead.

Thanks for taking the question, guys. From your initial rollout of Inspire V in the limited launch, I assume the majority of these surgeons were sleep specialists. But I'm curious if you're able to target any of those generalist ENTs that you think could eventually be the driver of a broadening surgeon pool. Just maybe talk us through how you plan on onboarding these generalist ENTs, as you enter the full market launch in May and how that may differ from your strategy with the bulk of active implants today? Thanks a lot.

No, absolutely. Thank you. I think the key is when we do new launches like this, when we do clinical studies, when we do research, we obviously partner with a lot of our key physicians at the academic centers. In our limited market launch, it is a commercial launch albeit limited. We do want to involve the commercial centers and the general practice ENTs to get a good balance when we do that limited launch. It is a balance between the two groups, both academic as well as the general ENTs, and that gives us confidence to move forward with the full launch of Inspire V. We have had the ability to talk with both groups and have confidence with our training programs. As we introduce V broadly in the U.S., the training programs will go very swiftly. The ENTs that have performed Inspire V implants have responded very favorably and we expect a pretty seamless transition moving forward.

Thank you. And I show our next question comes from the line of David Rescott from Baird. Please go ahead.

Great. Thanks for taking the questions and congrats on the start to the year here. Wanted to ask about OpEx so far and what's implied in the guide. If you look at the past couple of quarters, you've grown OpEx well below half of that of what the top-line is. If you continue that for the rest of the year, you're getting somewhere ahead of what the EPS guidance for 2025 at this point. So I'm just curious about what your assumptions are in the implied guide on EPS this year and whether or not we should be thinking out about some incremental step-up or acceleration in spend behind the Inspire V launch?

Yes. Thanks for the question. We're going to continue to invest in our operating expenses to drive top-line revenue, and we continue to expect that revenue on an annual basis will outpace OpEx growth. But we are going to continue to slightly increase our DTC on a year-over-year basis. We are going to spend more on patient marketing with the Inspire V launch as Tim mentioned. R&D is going to continue to run in mid-teens; that does fluctuate a little bit. Stock-based compensation on an annual basis too is going to continue to increase. That net, net is really going to get us to mid-single digits from an operating margin standpoint on an annual basis.

Thank you. And I show our next question comes from the line of Michael Sarcone from Jefferies. Please go ahead.

Good afternoon. Thanks for taking my question. Just one on the Inspire V launch and CPT code 64568. It's been a few months of the limited market release now. I was wondering if you could just give us some commentary on how physicians are responding to the lower professional fee that comes with the 64568 code? And are you seeing any increased procedures in the data offset that? We'd love to hear what the experience has been so far.

Absolutely. Thanks, Michael. I think we're going to track that very closely going forward. We have confidence in the reimbursement levels with 64568 and a $200 reduction with Medicare across the board. A lot of the limited lab centers were academic, so they're not as effective. But equally balanced is the commercial centers with, as we talked about general ENTs from a couple of questions earlier on that they're comfortable with the procedure. A lot of excitement around Inspire V not needing to put in the pressure-sensing lead will far outweigh the extra work it takes to do that part of the procedure, and not getting paid for the work that they don't do. I think it's been quite balanced so far, and the feedback from the physicians is very positive regarding not having to deal with the pressure sensing lead, with reduced OR time and the ability for them to plan their time consistently without that complication. We will continue to monitor this as we go through the year to ensure that physicians are comfortable with 64568 and the reimbursement levels. The other key aspect is we're going to track their acceptance of Inspire V, and we really expect strong acceptance from the surgeons due to the simplicity of the procedure compared to Inspire IV. There is also an increased payment to ambulatory surgical centers with the new code. I think the payers have been very accepting of the transition to 64568, and I think the surgeons will also welcome the simpler procedure with the reduced time and the available reimbursement levels. We'll continue to monitor and provide feedback throughout the year.

Thank you. And I show our next question comes from the line of Shagun Singh from RBC. Please go ahead.

Great. Thank you so much and congratulations. Just a couple of quick ones for me. So what was the impact of pausing in inventory dynamics in Q1? On Q2, any color on EPS versus prior consensus at $0.41? And then, I have a follow-up.

Yes. Hi Shagun. Regarding Q2, we talked about mid to high single-digit sequential revenue growth. We are going to spend more on patient marketing with the Inspire V launch, but we do expect to be profitable in Q2, and then to improve that profitability sequentially throughout the year. So it may be a little bit lower in Q2, but lower than current consensus, but we are going to grow that sequentially.

But you should also expect sequential EPS growth in Q2 versus Q1. Got it. And what was the impact of pausing on inventory dynamics in Q1?

We didn't have significant impacts. It would have been really difficult to tell. There weren't really a lot of one-time items. The patient warehousing didn't manifest until later in Q1, making it difficult to quantify any specific impact.

Got it. And then just as a follow-up, I was wondering if you can comment on procedure profitability. It seems like we've gotten mixed feedback on that. I'm just wondering, why don't you think that could be a barrier to broader adoption? Thank you for taking the questions.

Yes, absolutely. Thank you. I think as we work with surgeons to streamline practices and how they introduce their Inspire systems, we can improve their profitability. We've trained 100 Advanced Practice Providers (APPs) that really help streamline patient flow through centers, and this supports much more efficient operations for both patients and physicians. This is particularly effective in the high-volume centers, where efficient operational procedures allow surgeons to perform greater numbers of procedures in less time with reduced OR time, directly impacting profitability. In academic centers and lower volume centers, it can be more challenging, which is where some of the mixed feedback may originate. However, in high-productivity accounts performing greater numbers of implants, they understand throughput and how to leverage APPs, maintaining strong partnerships with sleep physicians to manage patients more effectively, thus enhancing their practices and profitability.

Thank you. I show our next question comes from the line of Chris Pasquale from Nephron Research. Please go ahead.

Thanks. Tim, you talked about some early data on Inspire V being presented at some of the upcoming meetings. Curious what you expect that to show. Most of the focus has been on the increased convenience of this form factor. But I think you've also said that you think the accelerometer could actually do a better job with respiratory gating. So, do you expect that to manifest in any tangible outcome improvements?

Yes, I think that's the key. Yes, everybody is excited, because they want to hear numbers about reduced OR time. The safety performance, as well as completed procedures has been very strong. However, from a patient outcome standpoint, that is a high priority for us. We believe that the accelerometer provides a more stable sensing environment, and the data we provided to the FDA as part of our approval process did show improved stability. In Singapore, we performed a detailed clinical study to capture data related to patient adherence to therapy. The AHI data may not be available yet, but we are tracking that, as well as collecting feedback from all the U.S. centers as part of the limited launch. By June, we expect to share outcomes beyond just reduced OR time. We will provide comprehensive insights into surgical times and critical patient outcomes based on the new technology, as well as the impact of new algorithms we have implemented into the device.

Thank you. And I saw our next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Hi guys. Thanks for taking the question. Hey Tim, just a multipart question. When do you expect to complete the transition to Inspire V? Last call, it was Q4. And so my question is, why won't these factors that you mentioned impact also Q3, given that the full launch won't complete until Q4? Second, our checks suggest that just linking the Inspire V CPT code to the ICD 10 code for sleep apnea can also slow things down. What are you seeing on that as well? Thank you.

Got you. We talked last call that we would complete the transition by the end of the year, and when we stated that, we didn't have the full launch date announced. Now that we're doing the full launch, we will do everything we can to pull the individual centers forward. We don't expect too much carryover in the third quarter. As Rick mentioned, we expect a stronger Q4 than normal. We're reiterating our full year guidance. The field and physicians are excited for Inspire V. The contracting is straightforward as it just requires amendments to the existing contracts. The new physician programmer, released last year, means most centers are ready to take it on. The transition won't be difficult. We'll work hard in Q2, but we will monitor closely as we get into Q3. Regarding linking the ICD 10 code, we're working with CMS to facilitate that. We have already achieved 80% coverage for our $300 million lives, which includes Medicare, commercial payers, and the VA. We've proactively addressed those connections, so we are confident.

Thank you. And I show our next question comes from the line of Anthony Petrone from Mizuho Financial Group. Please go ahead.

Thanks and congrats on the quarter here. Maybe just a question on capacity into the second half. Specifically, you mentioned Tim, you're adding ENT general surgeons and obviously, we have a little bit of backlog that's pushed into the second half. Just wondering where that ENT capacity sits today and is it enough to handle this bolus of volumes in the second half? A quick follow-up would just be if you can give us any update on SleepSync and how that's evolving your front-end of the funnel? Thanks.

Absolutely. Thank you. Talking about capacity first, several elements are in play here. The Inspire V device allows existing surgeons to perform additional cases each day due to shorter procedure times. Once they start using Inspire V, they will schedule more cases because they no longer have to implant the pressure sensing lead. There are several ENT surgeons who were reluctant to perform the Inspire procedure due to that pressure sensing lead, so as we move through the year, we will reach out to these surgeons to familiarize them with Inspire V. Additionally, we have educated a significant number of new ENTs who are excited about incorporating Inspire into their practices. We will continue to add new centers throughout the year, especially those coming on for training with Inspire V. A key focus will be to build capacity, as this continues to be the limiting factor. Regarding SleepSync, as more patients are treated, SleepSync allows sleep physicians to manage greater patient loads effectively. Many high-volume centers have already integrated SleepSync into their practices and can utilize it to streamline patient flow and management efficiently. The new Inspire V physician programmer leverages SleepSync to provide direct data inputs, facilitating better patient management.

Thank you. And I show our next question comes from the line of Jon Block from Stifel. Please go ahead.

Great. Thanks guys. Good afternoon. Maybe a two-parter. Of the 1,500 centers, Tim, what was the sort of incoming where delays were or are taking place? I'm just curious, was it a couple of hundred centers that heard about five? Was it much more pervasive than that and across most of the centers? Any details would be appreciated. And then, this is sort of a follow-up to a prior question, but I just want to make sure I've got it clear. The prior plan was to have, I think on the last call, all the centers trained by the end of 2025; I think you were citing a full conversion by the end of 2025. Are you now talking about full conversion by, call it, end of Q2? If so, what gives you the confidence, while still putting patient safety and priority first?

Got it. Thanks, Jon. From your first part of the question, it's more qualitative feedback from patients delaying to choose Inspire V than any specific quantities. Of the 1,500 centers, especially at high-volume centers, word gets out as limited market release centers perform cases and share outcomes. Yes, people follow our earnings calls, read notes, and discuss Inspire V's pending launch. Qualitatively, awareness is growing across the board without specific numbers. Regarding question two about transitioning all centers, we will continue to focus on training all centers. This month we are launching Inspire V to make it available, but not every center will be trained by Q2. However, we are focusing on high-quartile centers to ensure they are operational with V, and we are committed to a full transition by year-end. The strong launch timing in May enhances our chances for increased penetration.

Thank you. And I show our last question comes from the line of Brett Fishbin from KeyBanc Capital Markets. Please go ahead.

Hi. Good evening. Thanks for taking the questions. Just wanted to switch gears a little bit to the marketing strategy for Inspire V. It sounds like you're going to be stepping up the D2C spend a little bit ahead of the launch, which makes sense. I'm curious how you're thinking about changing the external messaging to potential patients. Are you going to focus specifically on improvements to the procedure or will that be too detailed for general consumption? Maybe just a little bit more about how you're thinking about that.

Yes. I think we will do a little bit of both. We will continue our outreach programs that are very strong, helping patients gain awareness and guide them to the website. Our site will detail Inspire V, providing necessary information so patients can understand the therapy fully before reaching out to their healthcare provider. We will also communicate with past patients who have provided contact details previously to inform them about Inspire V's full launch. This will be part of a multifaceted marketing program to ensure broad knowledge of the offering.

Thank you. And our next question comes from the line of Michael Polark from Wolfe Research. Please go ahead.

Afternoon. Thank you. Two quick ones. How many Inspire V implants to date worldwide? If you said it, I missed it. I'm just curious for evidence ahead of launch. Then, with all the sequential phasing discussion, I'm interested if you're willing to pinpoint Q3. Given the last two years, 3Q has been up low single digits versus Q2. Since Q2 sounds suppressed, should we benchmark our 3Q expectations against Q1 or what progression growth would you expect? How loaded is the guidance into Q4?

Sure, Mike. For Inspire V, we haven't disclosed specific numbers of implants yet. Early work prior to approval, we submitted data to the FDA which allowed us to collect data with Inspire IV patients, using external V as they became their own comparisons. We have valuable evidence going into the approval process, and we've conducted significant work in commercial markets and through our limited release. We'll compile that data and present it at the upcoming Sleep Meeting in Seattle in June. Regarding the second half of the year, Q4 historically is our strongest quarter. I did mention earlier that we expect improvements in utilization in the second half and anticipate Q4 to be even stronger than normal due to the impact of the Q2 launch.

And I show our last question comes from the line of Mike Kratky from Leerink Partners. Please go ahead.

Hi, guys. This is Brett on for Mike. Thanks for taking the question and congrats on a good quarter. The inventory days obviously, we've spoken about this at length on this call, but it increased by almost a full quarter's worth of inventory. So just want to see how you're thinking about the progression of gross margin over the course of the year as this Inspire V mix increases?

Yes. We reiterated our gross margin guidance of 84% to 86%. We did increase that this year compared to a year ago. We have stated that without a price change, our gross margin is accretive with Inspire V. We will continue to manufacture Inspire IV throughout 2025, as we're going to continue selling it internationally while awaiting approval. We want to ensure we have adequate Inspire IV inventory until Inspire V is approved outside the U.S. A lot of components for Inspire V can be used for Inspire IV, so we will build sufficient inventory in the meantime, and we're excited about this launch.

Understood. That's helpful. And if I get one follow-up just on the OUS side, I don't know if we touched on it too much, but you said a tough comp and it was down sequentially. So, was there any FX that was impacting that?

No real FX impacts were noted in the first quarter, but we are seeing some in the second quarter.

Thank you. This concludes the Q&A session for the conference. I would now like to turn the call back to Tim for any closing remarks.

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 healthcare 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.

This concludes today's conference call. You may now disconnect.