Inspire Medical Systems - Q2 2024
August 6, 2024
Transcript
Operator (participant)
After the speaker's remarks, there'll be a question-and-answer session. I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.
Ezgi Yagci (VP of Investor Relations)
Thank you, Delano. Thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer, and Rick Buchholz, Chief Financial Officer. Earlier today, we released financial results for the 3 and 6 months ended June 30, 2024. 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 2024 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, August sixth, twenty twenty-four. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?
Timothy Herbert (President and CEO)
Thank you, Ezgi, and thanks everyone for joining our business update call for the Q2 of 2024. We always start our earnings call by reiterating our commitment to delivering strong and consistent patient outcomes. Our mission is to put the patient first, and we now have over 75,000 patients treated with Inspire therapy to date. With that, let's review our results. In the Q2, we generated revenue of $195.9 million, representing a 30% increase compared to the Q2 of 2023. Q2 U.S. revenue totaled $187.8 million, a 30% increase over the same period last year.
This revenue growth reflects greater therapy adoption as a result of increased market penetration in existing centers, as well as expansion into 81 new implanting centers in the United States and 12 new US sales territories. We now have 1,316 active US centers and 310 sales territories. Outside of the US, revenue increased 27% to $8.1 million. We saw strength in Germany, Switzerland, the Netherlands, and Belgium, as the derogation authorizations allowed us to continue to grow the adoption of Inspire therapy. With this strong start and confidence in our outlook for the remainder of the year, we are increasing our 2024 revenue guidance to $788 million-$798 million, which represents 26%-28% growth over 2023 revenue of $625 million.
Net income for the Q2 was $9.8 million, compared to a net loss of $12 million in the prior year period, representing net income per share of $0.32, compared to a net loss of $0.41 in the Q2 of 2023. Given the strong performance we have seen year to date, we are raising diluted net income guidance to $0.60-$0.80 per share for the full year. We'd like to highlight some very important business updates. First, we are excited to announce EU MDR certification in Europe, which includes full-body MRI compatibility. This is a very significant milestone, as approval requires a stringent review in operations, quality, and regulatory compliance, and we are very proud of our team for this achievement.
As a reminder, we obtained derogation in several European countries to help ensure patient access to therapy and product continuity. With this EU MDR certification, we may now submit for approval of the Bluetooth patient remote, the updated physician programmer, and the Inspire five neurostimulation system. Second, we received countrywide reimbursement in France at levels consistent with other European countries. France is the second-largest OSA market in Europe. Our local team is already in place, and we are ready to start reimbursed Inspire cases. And just last week, we received FDA approval for the Inspire five neurostimulation system. This is a significant accomplishment, highlighting many years of development and evaluation... and we are incredibly proud of the hard work across the organization.
We are focused on operational readiness and building sufficient inventory to support a soft launch in late 2024 and a full launch in 2025. The Inspire V neural stimulation system incorporates respiratory sensing capabilities into the IPG, eliminating the need to implant the pressure sensing lead. This will provide benefits to the patient with one fewer component, to the physician with reduced surgical times, and to the company with reduced production costs and complexity. Turning now to market access. We continue to make good progress with the PREDICTOR study and analyses. As a reminder, the initial focus with the PREDICTOR study is for patients with a lower BMI, who may not have significant lateral wall collapse, and therefore may not require the drug-induced sleep endoscopy or DISE. We expect to continue the analysis and move towards submission of the manuscript to a peer-reviewed publication this fall.
We have already discussed the results with payers and have had several payers update their policies to remove the DISE requirement. We will continue our discussions with other payers to further improve a patient's experience in obtaining Inspire therapy. Staying on the market access front, we are pleased with the proposed 2025 national Medicare outpatient payment rates, which call for a 2% increase, bringing the hospital outpatient rate to $30,198, and a 3% increase, bringing the ASC rate to $25,620. The proposed physician fee schedule for 2025 calls for a roughly 2% reduction to the Medicare physician fee of $837. However, we would expect the final rule to reflect a higher overall physician reimbursement rate.
With respect to our market development activities, we continue to advance our medical education programs, and year to date, we have hosted over 150 advanced practice providers in Inspire training programs. The primary focus of this initiative is to improve capacity in both sleep and ENT clinics to meet the strong patient demand we continue to see for Inspire therapy. Further, we continue to increase our presence at primary care and cardiology conferences to drive increased awareness of Inspire therapy. Our direct-to-consumer program remains strong and provides a pathway for patients to connect with the proper healthcare providers. In the Q2, our direct-to-consumer spend declined modestly compared to the prior year's period, as we found ways to be more targeted and efficient in our digital advertising, which has contributed to a significant increase in digital patient engagement at a lower cost.
We continue to advance initiatives to improve the patient experience, and one example is we now have over 200 centers using digital scheduling to book appointments. With digital scheduling, we have observed a 60% increase in a patient's ability to schedule an appointment on their first attempt, greatly improving the patient's journey to receive Inspire therapy. Switching to the recently released data from the SURMOUNT-OSA trial, the data further reinforces our view that GLP-1s will be complementary to our market opportunity and may provide a mechanism for patients to reduce their weight and qualify for Inspire therapy. As you know, Inspire therapy stimulates the hypoglossal nerves and is designed to treat tongue-based collapse. Patients with a higher BMI are more likely to experience lateral wall collapse of the airway, which is not effectively treated with hypoglossal nerve stimulation.
This was further confirmed with our predictor results, as discussed above. Based on the results of the SURMOUNT-OSA trial, we believe many patients who experience significant weight loss, including those who benefit from the use of GLP-1s, are likely to experience a reduction in their lateral wall collapse, which would allow them to qualify for Inspire. Please refer to our updated investor deck for a third-party data on concurrent use of GLP-1s and Inspire therapy. According to the report, over 1,500 patients in the past two years received Inspire therapy while actively on GLP-1 therapy. Finally, we have made great strides in profitability, which we expect to continue into 2025 and beyond.
Given our strong balance sheet, financial performance, and long-term outlook, we believe shares of Inspire stock represent a strong investment opportunity, and as such, today we announced our board's approval of a $150 million share repurchase authorization, the first in the company's history.... The program provides us with a flexible way to return value to our shareholders, including supporting our stock when we see unwarranted volatility. In summary, we remain focused on the patients to continue the growth and adoption of Inspire therapy. We will continue to execute our growth strategy of driving higher quality patient flow, increasing the capacity of our provider partners to effectively treat and manage more patients.
Our key strategies include adding advanced practice providers, training and adding new implanters, increasing center independence, driving the adoption of SleepSync and our digital tools, all of which are embedded strategies and our commercial team's objective to increase provider capacity. As we move into the second half of 2024, we remain excited about our future prospects 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.
Rick Buchholz (CFO)
Thank you, Tim, and good afternoon, everyone. Total revenue for the Q1 was $195.9 million, a 30% increase from the $151 million generated in the Q2 of 2023. US revenue in the Q2 was $187.8 million, an increase of 30% from the $144.7 million in the prior year period. Revenue outside the US was $8.1 million, which is a 27% increase year over year. Gross margin in the Q2 was 84.8%, compared to 83.9% in the prior year period. The increase was primarily driven by increased sales volumes and manufacturing efficiencies.
Total operating expenses for the Q2 were $160.9 million, an increase of 12% as compared to $143.4 million in the Q2 of 2023. This planned increase was primarily due to the expansion of our sales organization and increased general corporate costs. As Tim noted, our targeted DTC investments are yielding some savings. Interest and dividend income totaled $5.9 million in the Q2, compared to $4.9 million in the prior year period. This higher income was driven by higher interest rates on our cash and investment balances compared to a year ago. Operating income for the Q2 totaled $5.1 million, compared to an operating loss of $16.6 million in the prior year period.
Net income in the Q2 was $9.8 million, compared to a net loss of $12 million in the prior year period, representing net income per share of $0.32, compared to a net loss of $0.41 in the Q2 of 2023. The weighted average number of diluted shares outstanding in the Q2 was 30.4 million. Excluding the impact of any share repurchases that we may effect over the remainder of 2024, we now expect the full year diluted shares outstanding to be approximately 30.5-30.6 million. Our total cash and investments were $466 million at June 30. This strong cash position allows us to remain focused on executing our growth strategies. We continue to expect to generate positive cash flow for the full year 2024. Moving on to 2024 guidance.
With the strong trends we are seeing in our business, we now expect full year revenue to be in the range of $788-$798 million, representing an increase of 26%-28% compared to full year 2023 revenue. We continue to expect full year gross margin to be in the range of 83%-85%. We also continue to expect to activate 52-56 new US centers and establish 12-14 new US sales territories during each remaining quarter in 2024. Given the strong momentum in our business and our improving operating leverage, we expect the diluted net income for the full year 2024 will be between $0.60-$0.80 per share. Lastly, given our strong financial performance and outlook, we are excited to announce a $150 million share repurchase authorization.
In conclusion, our strong performance and business momentum provide us with confidence in our outlook for the remainder of 2024. With that, our prepared remarks are concluded. Delano, you may now open the line for questions.
Operator (participant)
Thank you, sir. As a reminder, to ask a question, you will need to press star one one on your telephone. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Also, as a reminder, we ask that you please refrain to one question and one follow-up, and if time permits, we'll be more than happy to take more questions. And our first question comes from the line of Robbie Marcus from J.P. Morgan. Please go ahead.
Robbie Marcus (Analyst)
... Oh, great. Thanks for taking the questions, and congrats on a fantastic quarter here.
Timothy Herbert (President and CEO)
Hi, Robbie.
Robbie Marcus (Analyst)
Tim, you know, coming off a great quarter, so I wanna try and ask this in a positive way here. There's been one disappointing quarter, one good quarter, another disappointing quarter, a really good quarter here with Q2. Help us understand if any of this was catch up or recouped procedures from Q1, and if not, how do we think about the go forward on a fundamental basis? Is this the new normal? Do you think you fixed all of the compensation and sales force issues, and now we're back to normal? Just give us a sense of sort of what you think the underlying in Q2 was and the go forward.
Timothy Herbert (President and CEO)
Gotcha. Well, I wanna back up a little bit. Remember, we had the challenges in the Q3 last year that did have a reflect a really strong Q4, and we talked about the impact that had on the Q1, which is a little bit of a residual going all the way back to the Q3. We believe we had a strong Q1 that had us in the right momentum going forward, and then we demonstrated that into Q2, and we do have the momentum with the team going forward. We certainly have the patient demand, which has always been there and really important to us. But when you look back at the prior authorization challenges, and we have all that resolved, in fact, we've had some real positives on that front.
Yeah, we have confidence moving forward, and hence, we have significantly increased our revenue guide in both Q1 and Q2 to reflect the positivity we have going into the rest of the year.
Robbie Marcus (Analyst)
Great. Down the P&L, Rick, you know, the profitability was impressive here, and you're raising the EPS guide for the year. You talked about better productivity on the digital advertising, but how do we think about where the rest of the savings are coming from? You're clearly being more productive with the sales force and the expenses here off of the revenue. So just help us understand where it's coming from, and again, same vein, how sustainable are they into 25 and beyond? Thanks.
Rick Buchholz (CFO)
Yeah, thanks, Robbie. Yeah, we're really focused on continuing to drive top-line growth and growing therapy adoption. And we continue to make investments, and what I would say is, we continue to invest in our top-line growth, but we are getting leverage, operating leverage from our business model. If you look at a couple larger items, DTC, a year ago, in the Q2, it was 17% of our revenue. In the Q2, it's 12% of our revenue. But we're taking a more targeted approach, and we are seeing savings. And so we expect to continue to drive leverage off of DTC, as well as R&D, was down from a year ago.
As a reminder, in the Q2 of 2023, we had an expense of about $3 million for pre-launch inventory with Inspire Five in R&D. We did not have that in the Q2 of this year. So we also did focus Inspire Five, shifting from development efforts to operational readiness. So between the combination of top line and some of those items in the OpEx, drove you know, $5 million of operating income, which we're very proud of and very proud of the overall team's effort in the Q2.
Robbie Marcus (Analyst)
Appreciate it. Thank you very much.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Richard Newitter from Truist Securities. Please go ahead.
Richard Newitter (Analyst)
Hi, thanks for taking the questions. Congrats on the quarter. Maybe just thinking about the back half here and with the updated guide, you know, should we be thinking about U.S. utilization? Because there's ... I think there's some seasonality in the Q3. Any help you can give us on the cadence, particularly around the U.S.? And I'm just wondering if you can give us any signal as to whether or not, you know, utilization should be increasing sequentially every quarter. You know, by my calculations, you should be increasing on a year-over-year basis in the back half by mid-single digit utilization growth. But that also presupposes that you come in line with your new account adds, and that exceeded handily in the Q2.
So maybe just kind of walk us through the puts and the takes and bring it back to utilization, cadence and growth sequentially and year over year. Thanks.
Rick Buchholz (CFO)
Sure. I mean, going back to, consensus is kind of what you're indicating there, too, Rich, is, year to date, you know, we have exceeded consensus by $12 million, and we've raised our first half of the year guidance by $13 million. And we put forth guidance that we have a high degree of confidence in. As you know, historically, we do have seasonality in the Q1, and the composition of our full year revenue generally builds throughout the year. And so with that said, our aspiration is to increase utilization sequentially and year-over-year going forward.
Richard Newitter (Analyst)
Okay, that's pretty clear and helpful. Thank you. And then, I guess, just you exceeded the number of new account openings or center adds substantially in Q2. I guess, you know, is 52-56 the right-quarterly number and you know, how should we think about that? I know in the past you've talked about, you know, you have a lot more new accounts that are in the base. They're all coming up the curve. You know, is this the right number for the quarterly new account you know, assumption? Just help me understand that. You've been beating that handily for the last few quarters. Thanks.
Timothy Herbert (President and CEO)
Got it, Rich. We've been very consistent. We haven't changed that guide for quite some time, and that does vary quarter-to-quarter because we do not open centers until they're ready to open and have patients in the pipeline ready to go. So that's why this quarter, we're in a good position with centers. There's always the high patient demand, and there is a significant number of centers that would like to open up with Inspire therapy. And when they get through all their training programs, get through the contractual phase, and they're ready to open, and they have the patients ready to go, we do open them up. So that's why there's always been a little bit of fluctuation in that number.
But we're gonna hold guide where it is, and but we're gonna continue to find avenues to further increase patients' ability to find a proper healthcare provider.
Richard Newitter (Analyst)
Thank you.
Timothy Herbert (President and CEO)
Thank you.
Operator (participant)
Thank you. I show our next question comes from the line of Adam Maeder from Piper Sandler. Please go ahead.
Adam Maeder (Analyst)
Hi, Tim, Rick, Ezgi. Thank you for taking the questions, and congrats on the progress. I wanted to start by asking about Inspire V and the rollout there, and really just hoping to get some more granularity on the U.S. commercial launch. So you know, the first question is, when do you expect to start offering that product to customers? It seems like based on your prepared remarks, that's a Q4 event, but wanted to confirm, you know, how many accounts will you target initially? Just maybe level set us on capacity and inventory levels as you get ready to launch. And then finally, just any color around pricing and margin with Gen V, then I had a follow-up.
Timothy Herbert (President and CEO)
Gotcha. Hi, Adam. I think the key is, it's nice to have the first milestone with the FDA approval that came last week, and the FDA worked with us interactively to answer a lot of questions, and very proud of the team for years in the development of the Inspire five product. But now we need to be ready to launch our the Inspire five into the US market. And the key is making sure that we have sufficient inventory, so once we do full launch, we're able to have continuous supply of product. So we're gonna really focus on that in the second half of the year.
The purpose of the soft launch is really just in a handful of centers to introduce it and to make sure the, with all the operating norms, with the physician program and the remote, with SleepSync and our digital tools. And so it'll just be a handful of centers that we'll use to help with that evaluation, and then, look to have a full launch into, into 2025. But very excited about, having the approval with the FDA. That really allows us to lean in hard on the operational readiness, to be able to launch in, the full launch in 2025. Let me hand off to Rick on, on pricing question.
Rick Buchholz (CFO)
Yeah, thanks for the question, Adam. We're working through our pricing strategy prior to launch as part of our operational readiness. But with that said, even with flat pricing, Inspire five is gross margin accretive.
Adam Maeder (Analyst)
Got it. Thanks for the color, guys. For the follow-up, I wanted to circle back to the guidance and, you know, just kind of unpack that a little bit more. So the, on the top one, the $ 788 -$798 million, you know, I guess could you just comment around the cadence for Q3 versus Q4? I have Q3 consensus, on the top line at $197 million. Any reaction to that figure? And then would also just like to better understand how you're thinking about specifically the US business versus the OUS business as it relates to the guide. Thanks for taking the questions.
Rick Buchholz (CFO)
Sure. I'll, I'll take that. Given our updated guidance, consensus revenue estimates are reasonable for the rest of the year as they stand. And regarding the split between US and OUS, OUS for the full year will still represent between 3%-4% of our worldwide revenue.
Adam Maeder (Analyst)
Thanks, Rick.
Operator (participant)
Thank you. Our next question comes from the line of Anthony Petroni from Mizuho Group. Please go ahead.
Anthony Petrone (Managing Director and Equity Research Analyst)
Thanks, and congrats on a strong quarter here. Maybe a couple on Inspire V, and I'll have a quick follow-up on GLP-1. On Inspire V, maybe a little bit on the funnel. You've said in the past, Tim, that the funnel is still around 6 months. Inspire V is gonna have a procedure time benefit, I think bringing the total procedure time down to a half hour from 60 minutes or so today. So where do you think the funnel could go once Inspire V is launched? And I'll have a quick follow-up.
Timothy Herbert (President and CEO)
I think that you bring up a key point, and that's one of our opportunities to improve efficiencies with the ENT and to build capacity. We also mentioned advanced practice providers that can help offload some of the ENT office-based opportunities. But we also have initiatives to help the ENT in the operating room. One of them for patients with a low BMI, not necessarily meaning they need to have a sleep endoscopy procedure. But secondly, with the Inspire V and reducing the OR time, that as you hint at, it allows the ENT to do more procedures in a given day, thereby increasing capacity, having an overall effect of reducing the time a patient has to wait from contacting a physician to receiving therapy.
Absolutely, it will have a positive effect on, on that overall timing.
Anthony Petrone (Managing Director and Equity Research Analyst)
And then a follow-up just on GLP-1. So the debate is out there. I know you mentioned prepared comments that upper BMI, you know, category can come into the sweet spot for hypoglossal nerve. Are you seeing any evidence of that sort of out of the gate here? There are folks out there, obviously, on GLP-1s, for obesity specifically. There's already, obviously, a large comorbid, you know, population out there. Are you seeing actual quantitative evidence of this yet? And if not, you know, how much of a factor do you think it could be in 2025? Thanks.
Timothy Herbert (President and CEO)
Well, we think it's gonna be significant for patients as we go forward. As we're working through the GLP-1 investigation and trying to understand it, we knew that we had subjective feedback from our physicians that they're seeing patients on a GLP-1. So we went and contracted with a third party to do an independent review of claims data, and we actually have provided several of the slides in our updated deck that you can find on our website. And I think that really kind of highlights the number of patients that have dual claims, meaning when they receive Inspire therapy, they are also actively on a GLP-1 therapy. And the number over the last two years was significant, up over 1,500 patients.
So we're already seeing evidence of that right now, and we're gonna make sure that we continue to communicate with our physicians to take advantage of these therapies. Because, again, we believe these GLP-1s are complementary to Inspire and will help patients qualify for Inspire therapy.
Ezgi Yagci (VP of Investor Relations)
I would just note, Anthony, that data is not all-encompassing. It's claims data from one provider. So 1,500 is a huge number, but that may not be capturing all of the patients on GLP-1s receiving Inspire therapy today. But we thought it was a helpful, helpful, data release to share with you guys, and it's in our updated deck.
Anthony Petrone (Managing Director and Equity Research Analyst)
Thank you.
Timothy Herbert (President and CEO)
Thank you.
Operator (participant)
Thank you. I show our next question comes from the line of Danielle Antalffy from UBS. Please go ahead.
Danielle Antalffy (Analyst)
Hey, good afternoon, guys. Thanks so much for taking the question. Congrats on a really good quarter here. Just a question, Tim, for you on surgeon capacity, and it came up a little bit with Inspire five, but I think there's more to it, right? And I guess, maybe, give us some color here on where you guys think you are in this process of freeing up capacity at the ENT level and really just getting more mind share, getting them to commit more of their time to doing Inspire therapy. I'm guessing Inspire five alone is helpful, but it's not the only thing. So maybe talk a little bit more about some of the other initiatives there and how you guys are progressing against those. And I'll just leave it at that one question. Thanks so much.
Timothy Herbert (President and CEO)
Great, Danielle, and it's a great question. I think it's twofold. It's taking care of building efficiencies from their office setting and seeing patients initially, but also improving their capacity in the operating room. And what we find is that there are advanced practice providers, APPs, that can do a lot of the early work, helping patients understand what Inspire is about, what to expect during the education part of it. And on the opposite end, after surgery, helping them with the early titration and the programming of the device. So we can free up the ENT to really focus their time on being in the operating room, which is probably the number one priority.
Number 2, in the operating room, it's about gaining experience, getting comfortable with the procedure, and having confidence so they know they can reduce their own operating room time, they can confidently speak to patients, and then we help them out a little bit. Predictor and eliminating DISE for low BMI patients is one initiative we can really help them out to not require them to be in an operating room to do a sleep endoscopy. And then, of course, as you mentioned, Inspire V is gonna reduce the overall OR time. This also culminates in... with proper reimbursement as well. So when the doctors get comfortable that the reimbursement level for the amount of time they spend in the operating room is sufficient, then they can commit more of their practice to Inspire.
I think that's what you're saying when you see a demand to open up 81 new centers in a quarter and grow the utilization quarter-over-quarter. That really is reflective of the increased physician awareness and desire to increase their capacity.
Danielle Antalffy (Analyst)
Thank you.
Timothy Herbert (President and CEO)
Thank you.
Operator (participant)
Thank you. And I show our next question comes from the line of Michael Sarcone from Jefferies. Please go ahead.
Michael Sarcone (Analyst)
Hey, good afternoon, and thanks for taking the question.
Timothy Herbert (President and CEO)
Hey, Michael.
Michael Sarcone (Analyst)
Hey, so, maybe for Rick, just to start on, on gross margin and, and OpEx control, really nice progress there. Can you give us any, any help on how to think about trends in the back half of the year, particularly around both 3Q and, and 4Q?
Rick Buchholz (CFO)
... Yeah, sure. Thanks for your question, Michael. So, you know, now that we're providing earnings per share, and we also provide gross margin guidance of 83%-85%. Q2 OpEx growth was 12%, but based on our our earnings per share revised guidance of $0.60-$0.80 per share and our revised revenue guidance, that implies that our year-over-year OpEx growth will be 17% over 2023. So in in 2023, our total OpEx was $568 million, and and the growth in OpEx would be roughly around 17% or so year-over-year growth, and that will be a ratable increase over the next couple of quarters.
Michael Sarcone (Analyst)
Great. Thanks, Regan. Maybe, Tim, one for you on Predict. You had some positive commentary around, you know, some of these early conversations you've had with payers, some of whom have already updated their policies. Is it fair to read that as kind of, you know, what you've seen so far in terms of the data, looks, you know, successful enough to convince some of these payers, and now it's really just a matter of time for waiting for the publication, and then we could start to see some of the large payers follow suit?
Timothy Herbert (President and CEO)
Yeah, I think that's exactly true. I think that our focus is gonna remain on low BMI patients, primarily patients who have a BMI less than 32. Again, it's back with our discussion around GLP-1s and lateral wall collapse, and patients with a low BMI just don't have that lateral wall collapse, and therefore, it's intuitive that they just won't need a sleep endoscopy. And that's how what the data supports in our discussions with some of the patients, and they're open to those discussions. But we've had other payers earlier remove the requirement for DISE, because remember, the FDA does not specify sleep endoscopy. It only specifies patients have the proper anatomy, and we're seeing some payers kind of align around that.
But we remain very active with a lot of the payers, with all changes, including the increase in the AHI, the increase in the BMI. Most recently, you may have saw UnitedHealthcare removed the requirement to trial oral appliances. Now, while we manage that with the prior authorization process, certainly that's a benefit to patients, but they also improved and clarified the language around patients being able to refuse CPAP, not necessarily failing a trial of CPAP. So we continue to work with all the payers to maximize the clarity across all payers and improve the experience for patients.
Michael Sarcone (Analyst)
Great. Thank you, Tim.
Timothy Herbert (President and CEO)
Thank you.
Operator (participant)
Thank you. And now, our next question comes from the line of Chris Pasquale from Nephron Research. Please go ahead.
Chris Pasquale (Analyst)
Thanks, and congrats on the quarter, guys. The operating leverage in particular was great to see. And as I look at the ratio of new territories to center adds, you know, in the first half of last year, you added about one new territory for every four new centers, and it's kind of what you guided to historically. It was one for every six here, so more efficient use of the sales force. Is that sustainable, or did you not, just not see as many good candidates in terms of new rep adds?
Timothy Herbert (President and CEO)
It is sustainable because what we've also done is increased the number of field clinical reps. So we have a larger support staff in each of the territories to help with case coverage, as well as working through some of the titration and some of the training. So we're just finding ways to leverage it and be more efficient, and I don't think long term, we're gonna really significantly increase the ratio, but I think we're gonna continue to focus on that.
Chris Pasquale (Analyst)
Great. And then the GLP-1 data-
Rick Buchholz (CFO)
Hey, Chris, this is Ashley.
Chris Pasquale (Analyst)
Yeah.
Rick Buchholz (CFO)
Sorry. It's important to note that we actually did have 12 deactivations in the quarter, and we reactivated 1 center. So I think the ratio that you're backing into may be a little off.
Timothy Herbert (President and CEO)
Little off.
Chris Pasquale (Analyst)
Okay. And then the GLP-1 data in the back of the deck is very helpful. The money slide for me is the last one, where you show the before and after, and it seems to support the conclusion that more patients are gonna come into your target zone than drop out once the dust has settled. I guess the question that it doesn't really speak to is whether there could be some disruption or an air pocket at some point as patients get on drug therapy and then wait to see where they're gonna end up and whether it's gonna resolve their apnea. How do you think about that risk and have those conversations started to change post the SURMOUNT-OSA results?
Timothy Herbert (President and CEO)
Yeah, I think that, the key is gonna be for patients who are newly diagnosed, and they want to go on a GLP-1, I think the sleep community, the sleep physicians have really talked about that they're gonna start them on CPAP and the GLP-1 at the same time, because the sleep physician does not want to accept the liability of a patient going 9-12 months, to lose weight and to see if they resolve their sleep apnea. And that money slide that you're talking about in the back of the deck did talk about the benefit, of 9-12 months of being on therapy to have significant weight loss. So I think that starting patients on the CPAP and GLP-1s at the same time is really gonna help any air pocket.
And then I think that when, if patients are not successful or refuse CPAP, then they're gonna be ready to come over to Inspire therapy, and you won't see an air gap in it, air gap from that standpoint. The other practical standpoint is, as mentioned earlier in the call, we're running about six months from the time you call to the time a patient receives an implant, and within that window, that capacity with the ENT surgeons, we have sufficient patient population that we're working to take care of, that I don't think you'll really see any kind of GLP-1 air gap even visible.
Chris Pasquale (Analyst)
That's helpful. Thanks, Tim.
Timothy Herbert (President and CEO)
Thank you, Chris.
Operator (participant)
Thank you. I show our next question comes from the line of Brett Fishman from KeyBanc Capital Markets. Please go ahead.
Brett Fishman (VP and Senior Equity Research Analyst)
Hey, guys. Thank you so much for taking the questions. A lot of good ones already asked, but I'll follow up on the Inspire V rollout with just one more question. Just curious, I mean, we have, like, a general sense of the timing, you know, at some point in late 2024, that will start. But maybe if you can just talk a little bit more about what the limited market launch actually includes in terms of, like, engaging and training the initial accounts. And then maybe, like, directionally, how much of the install base would actually be participating in the LMR? And, and finally, like, any key milestones that you would want to see to indicate that you're ready to move on to, to the full launch next year.
Timothy Herbert (President and CEO)
No, I think it's gonna be a very simple, limited launch. It's gonna be a few centers, and we wanna measure positive experience with the device, with all the externals, meaning the programmers, the remote, and the proving out the training and getting some experience with that. But it's not gonna be an extensive, limited launch. It's gonna be just a few centers. And the key milestones is just having a positive experience with the device.
Brett Fishman (VP and Senior Equity Research Analyst)
All right, and then just a really quick follow-up here. Obviously, like, the number of new centers added this quarter was well above the guidance and what we would typically expect to see. But, you know, revenue guidance for the full year is coming up, so $5 million, you know, maybe not, like, as much as you would expect to see apples-to-apples with the number of new centers. So I, I'm just curious, like, one topic over the past year or two has been an increased number of secondary sites of service, where you may be adding centers at face value, but not necessarily opening a ton of new capacity. So maybe if you could just touch on kind of, like, the balance between secondary sites of service that were in that 81 number versus new, new doctors.
Rick Buchholz (CFO)
Yeah, on an overall basis, Brett, you know, we're still seeing significant growth in hospitals and ASCs being used kind of more frequently, sometimes as a second site of service. At the end of the Q2, about 24% of our overall centers are secondary sites of service.
Brett Fishman (VP and Senior Equity Research Analyst)
All right, got it. Thank you so much.
Rick Buchholz (CFO)
Thanks.
Operator (participant)
Thank you. I show our next question comes from the line of David Rescott from Baird. Please go ahead.
David Rescott (Analyst)
Oh, great, thanks for taking the questions. Congrats on the strong quarter here. I wanted to go back on some of your comments around utilization, new center adds. I think just, I guess depending on the way you slice it, it looks like utilization in Q3 last year was down sequentially, and I think if I heard you right, you're expecting utilization to increase sequentially in Q3 this year. Is that right? And can you just help us think about if that is the case, why we should expect a sequential increase in utilization in Q3?
Rick Buchholz (CFO)
Yeah, I mean, we said that that's our goal, aspiration, is to increase utilization sequentially and year over year, just like we did in the Q2. And there are a lot of positive items we talked about in our prepared remarks about that gives us confidence for the rest of the year. You know, not only in Europe with countrywide reimbursement in France and commercial payers continuing to adjust their policies for expanded indications. Tim briefly touched on the reversal of the oral appliance therapy requirement and the continued progress we're making with our DTC programs. And so again, we put forth guidance that we have high degree of confidence in, and we wanna increase utilization.
David Rescott (Analyst)
Okay, great. So, okay, so that, that's a maybe a worldwide number rather than something specific to the U.S. Is that correct?
Rick Buchholz (CFO)
No, U.S., we expect, or we want to, and our goal is to increase utilization in the U.S.
David Rescott (Analyst)
Okay, that's helpful. Maybe just on, on the PNL again, heard the comments around the, total, year-over-year OpEx growth, and, and we can kind of back into what's implied in the second half of the year. I'm curious, you know, just looking at, at the, the cadence in, in the back half relative to the first half, should we be thinking about, depending on where the models kind of shake out, a, a positive kind of net income number, positive EPS number for Q3? Or, or is that up to, to us to the numbers there? Thank you.
Rick Buchholz (CFO)
Yeah, the way we framed that up, 17% growth in OpEx year-over-year basis, and when I mentioned kind of incremental, we're expecting about a, the OpEx in Q2 was $161 million, and if you increase OpEx sequentially, $9 million each quarter, that gets you to a 17% growth in OpEx. And with that, we expect to be profitable in the third and Q4.
David Rescott (Analyst)
Okay, thanks, and apologies if that was already asked. Thank you.
Operator (participant)
Thank you. I show our next question comes from the line of Shagun Singh from RBC Capital Markets. Please go ahead.
Shagun Singh (Analyst)
Great. Thank you so much, and congratulations. Tim, I was wondering if you could talk a little bit about how you feel about your business, and some of the drivers in 2025?
... You know, you obviously have Inspire V. You said that could speed up the procedure, you know, benefit from the PREDICTOR study, you know, that could play out. Do you expect that to speed the funnel, a potential replacement cycle? Any comment around that would be really helpful. And then I guess I'm just wondering, you know, does that give you confidence in a, you know, 20%-25% growth company, you know, beyond this year of, you know, off of about 27% that you're doing this year? And, you know, maybe if you don't wanna answer a 25 question, you know, how should we think about Inspire's long-term growth rate? Any comments, that would be really helpful. Thank you.
Timothy Herbert (President and CEO)
Absolutely. Thank you for the question. Yeah, when you ask the CEO if he's excited about his business, that's a question I can go for quite some time to talk about, 'cause we're very excited about what, the prospects of the company, our technology, and taking care of patients. Our safety and efficacy is unmatched, and we continue to drive our growth based on strong patient outcomes. With that, and with the limited penetration we have in our target market, we stand to have profitable growth for years to come.
And I know you're looking for a specific number, that we're not gonna go down that pathway yet, but we do have great confidence with our technology, both the implantables with Inspire V, as well as the accessories with our programmer, with our SleepSync system, with our digital tools to help patients navigate the process, our improvements in market access. And not to mention the improvements that we're all seeing on the international landscape, with the number of patients who are being able to treat continuing to grow. So yes, we're very excited about our future, and we continue to invest heavily in our growth and heavily in our technology going forward, and do see years of growth ahead of us.
Shagun Singh (Analyst)
Got it. Just, I guess as a follow-up on utilization, can you tell us where the top quartile customers are tracking, you know, perhaps in your primary centers? I'm just trying to understand the potential here in improving utilization. And then, have you guys decided on the guidance? You know, how are you gonna guide us in 2025 and beyond? You know, perhaps you can give us rates for primary versus secondary sites on utilization. Just, any color would be great. Thank you.
Timothy Herbert (President and CEO)
Sure. We're still. I'm gonna work backwards on that. I think the information that we're gonna provide next year to help you kind of gauge the strength of the company, we're still working on that. We'll stay in communication with you as we work through the rest of this year, but we will continue to provide the number of centers and reps as we progress through the year, and we'll be in close communication. As far as the top quartile centers, the range of number of centers or number of implants per month, the range is somewhere approaching 2.75 or 3, all the way up to over 17 procedures per month. So we continue to push the upper end, and, and we wanna continue to move the entire normal distribution of the group of centers.
Shagun Singh (Analyst)
Thank you.
Timothy Herbert (President and CEO)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.
Larry Biegelsen (Analyst)
Thanks for taking the question, and congrats to Tim and Rick and Ezgi. Hey, Tim, on Inspire five, where are you in terms of determining the right CPT code for Inspire five, and what's the process and timeline? And if you have to go back to the old code, you know, what impact do you think that could have? And I have one follow-up.
Timothy Herbert (President and CEO)
Yeah, very good. No, we're gonna have it all ready to go for training, and it'll be all very clear for the centers, and we have some work to do with the payers, but we're gonna be in a really good shape for reimbursement. There's no new codes that we have to go after.
Larry Biegelsen (Analyst)
Okay, so the current code, you're saying, you have confirmation that you can use the current code?
Timothy Herbert (President and CEO)
I did not. I said we're gonna have it, a plan all laid out, and we will have that code part of the training package, and we'll have that ready to go when we move to launch.
Larry Biegelsen (Analyst)
Got it. And Rick, do you stock or consign? And I'm asking because we spoke to a center this week that said they had over 10 Inspire IV devices on the shelf. Will you take those devices back from centers or require them to work down their inventory? Thanks.
Timothy Herbert (President and CEO)
What we do is, a lot of those centers that you talk to, that's obviously a pretty productive account when they have that level of inventory, and they likely have a par level that they keep as an inventory. And, we will expect centers, they're gonna burn down their inventory before they ramp up with five. Because remember, four has the same functionality as the Inspire five system. So we're not looking at swapping out. We'll, we'll work for they have them, burn down their inventory.
Larry Biegelsen (Analyst)
All right. Thanks, Tim.
Timothy Herbert (President and CEO)
You bet. Thanks, Larry.
Operator (participant)
Thank you. I show our next question comes from the line of Kallum Titchmarsh from Morgan Stanley. Please go ahead.
Kallum Titchmarsh (Analyst)
Great, thanks for taking the question, guys. I wanted to ask on the center dynamics in the U.S., a lot added in Q2 at 81, but also seems a larger number of deactivations versus prior trends. It'd just be helpful if maybe you could walk through what you saw there and how we should be thinking about this churn for the remainder of the year in light of the maintained guidance. Thanks a lot.
Timothy Herbert (President and CEO)
Sure. Great question. I think the key to it is we want to make sure that the territory managers are focusing on centers that can be productive and can take care of our patients. And those centers that have not had the ability to take care of patients over the last one or two years, we wanna deactivate them. Another key example, in the majority of those sites, you just have a physician moving to a different facility. So that maybe we're opening one facility, but they're the old facility that we will deactivate. And, as Eske mentioned, we have reactivated centers as well because they want to go out and hire another surgeon to take over the program, and we will restart them, and we will reprogram them.
But in the interim, we don't want the field team to focus too much time on centers that aren't able to take care of patients, so we purposely deactivate them. If you go back in time over the last several years, that's very consistent. What we've kind of done on an annual basis, pretty close to the Q2, we kind of deactivate. I think we did 25 in the year 2022 and fifteen in 2020.
Ezgi Yagci (VP of Investor Relations)
Correct. So the 17 call that we've done year to date is not really an anomaly.
Kallum Titchmarsh (Analyst)
Thanks a lot.
Timothy Herbert (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Michael Polark from Wolfe Research. Please go ahead.
Michael Polark (Analyst)
Hey, good afternoon. Thank you. I just have one thread on Gen five. Rick, I heard you say with flat pricing, it's gross margin accretive. Can you help us think about Gen five unit costs versus Gen four? How much lower are they? And then the second part of this is, maybe back two to four quarters, there was speculation you might consider a price increase here with Gen five. Where does that thinking stand? And if you were to take a price increase with the launch order of magnitude, what might that be? Thank you.
Rick Buchholz (CFO)
Yeah, we're with our operational readiness, we're still working through those details, Mike. So we have to determine whether or not there'll be a price increase or continued pricing with that. But we are removing the sensing lead that will be now part of the IPG, and so we will be removing costs associated with that. And so we did mention it'll be accretive even with a flat price, but we haven't quantified that yet.
Operator (participant)
Thank you.
Timothy Herbert (President and CEO)
Thanks, Mike.
Operator (participant)
Our next question comes from the line of Jon Block from Stifel. Please go ahead.
Jonathan Block (Managing Director)
Thanks, guys. Good afternoon. Maybe just two for me. Tim, how quickly can you move across the 1,300 centers for Inspire V, you know, for training, considering this eliminates a lead and simplifies the procedure? You know, when we think about the broader rollout in early 2025, I'm guessing it can move pretty quick, but maybe if you can quantify. And then just longer term, you know, do we have to worry about anything regarding the physician fee, considering this does simplify the procedure and what that might mean or not mean for the physician? And then I'll just ask my follow-up.
Timothy Herbert (President and CEO)
Very good. Thanks very much. I think 1,300, I think, as you kind of hint there, the training is relatively straightforward, right? We don't implant the pressure sensing lead, which is gonna be very well accepted from an ear, nose, and throat surgeon, as you can imagine. That's the one part of the surgery that we think is a little bit uncomfortable for an ENT. So we do believe on a capacity front, that by removing that, that sensor, that we're gonna have more ENTs who want to do the procedure, and it will reduce the OR time.
But I do think that, longer term, if people wanted to look at the skin-to-skin time to do the procedure and to do a new RUC survey, I think right now the procedure is fairly paid, and it may take a couple of years for them to do another RUC survey. So I don't think you'll see any significant change in physician payment for several years, but certainly they will do a survey to make sure it's properly paid. On your first question, I think the greater challenge is more so working through all the contractual items, because we have pricing agreements with every center, and we just need to do contracting updates with all the centers.
We have a team that can effectively work through that process, and even though we have 1,300 centers, we can efficiently move through that. Thanks very much.
Jonathan Block (Managing Director)
Yeah, that was, that was really helpful. And then maybe just as a follow-up, you know, Rick, the, the 2Q 2024 year-over-year, year-over-year revenue, I think, was up about $45 million, almost 50% drop through to net income. I mean, just a really impressive drop through. If I take the midpoint of your 2024 guidance, I sort of do that same exercise in the back part of the year. I get way over $1 in the back part of, you know, in 2H 2024 in terms of earnings per share. So again, really solid EPS power. I, I'm just curious, you know, does the $0.60-$0.80 just reflect some of your usual conservatism, or are there any other areas of spend that you may accelerate as we work our way throughout the balance of 2024? Thanks.
Rick Buchholz (CFO)
Yeah, thanks for your, for your question, John. Part of that, driving that number, we, we do have variability in our R&D as a percentage of revenue. A year ago, it was 20%, and even in recent quarters, it was high teens. This particular quarter in Q2, it was 15% of revenue. So we're continuing to make investments in our R&D, in our SleepSync and our technology platform, and so we're not, we're not slowing down with investments. We'll also continue to expand and make investments in our commercial organization. So, we're not slowing down. We want to drive top-line growth with those investments.
Operator (participant)
Thank you. Our next question comes from the line of Mike Kratky from Leerink Partners. Please go ahead.
Mike Kratky (Senior Research Analyst)
Hi, everyone. Thanks for taking our questions. Can you provide an update on the current backlog of patients that are waiting to get an Inspire implant? And just to clarify, does that backlog specifically refer to patients that have been cleared for Inspire post-DICE and are just waiting for OR time to become available? And how would you characterize that backlog of patients?
Timothy Herbert (President and CEO)
Yeah, but it's a great question, and there's a lot of different definitions in there. What we at a high level talk about is the time it takes somebody a patient from contacting our call center through to implant, and we still have that running at about six months, although we're seeing some improvement with that. And by increasing capacity, we can start to lower that down. What is impressive is our ability to track the patients once they go to a sleep endoscopy and reduce the time from sleep endoscopy to implant. And you can imagine, if we can start to reduce the number of sleep endoscopies based on the predictor results, we can have a significant reduction in their experience that way.
So a very key focus for the team right now, and we closely track patients once they get their insurance approval to make sure they get scheduled in a very expeditious manner, and we can start to track that very closely. So very high priority for the team.
Mike Kratky (Senior Research Analyst)
Got it. Thanks very much.
Timothy Herbert (President and CEO)
Thanks, Mike.
Operator (participant)
Thank you. And our next question comes from the line of Suraj Kalia from Oppenheimer & Co. Please go ahead.
Suraj Kalia (Analyst)
Tim Herbert, can you hear me all right?
Timothy Herbert (President and CEO)
Yeah, Suraj, how are you?
Suraj Kalia (Analyst)
Congrats on the quarter.
Timothy Herbert (President and CEO)
Thank you.
Suraj Kalia (Analyst)
So Tim, a couple of questions, and I'll throw them your way together. I know it's been a long call. Maybe I missed some qualitative commentary or quantitative on new stores, same-store sales. Any additional color there would be great. And also, Tim, I'll throw my second question also your way. Your comments about physicians not wanting, I'm paraphrasing this, not wanting to take liability on GLP-1 and waiting to see 9-12 months, you know, for the impact, I just... Help us understand that a little more. Even with hypoglossal nerve stimulation, it takes almost 4-6 months to get through the pipeline and get to a surgery, another 3+ months for full titration. And you really don't know if you're going to respond to hypoglossal nerve stimulation.
Maybe if you could tie your comments about the liability component, would be greatly appreciated. Thank you for taking my questions.
Timothy Herbert (President and CEO)
Sure. Thanks, Suraj. Same-store sales, go back there first. I think we continue the priority to make sure that we wanna increase same-store sales or increase the utilization at existing sites, and I think that is what you're seeing by seeing the increased utilization on a quarter-over-quarter basis, certainly year-over-year. And that, remember, has a little bit of a dilutive effect by adding more centers to the denominator. So it really shows that we are growing utilization at existing centers. As far as sleep physicians, they don't want patients to remain left untreated. And so, maybe let me backtrack from the word liability a little bit, but talk about the desire of sleep physicians to take care of patients, and they're gonna wanna start them on a therapy like CPAP right away to be able to move forward.
As far as Inspire goes, that we know there's a time that it takes people to get through the process, get through a sleep endoscopy, a prior authorization, and get to surgery. But remember, these are patients that have already attempted, CPAP, and so they've tried therapy. They may be using CPAP to carry them forward, but once properly selected, we've been able to show our safety and efficacy at a very high probability that they will have a strong benefit with Inspire therapy, and that's why we have over 75,000 patients, treated, with Inspire therapy to date.
Ezgi Yagci (VP of Investor Relations)
Thanks, Suraj. We have time for one last question. Delano, can you queue up Stephanie, please?
Operator (participant)
Sure. Thank you. Our final question comes from the line of Stephanie Piazzola from Bank of America Securities. Please go ahead.
Adam Maeder (Analyst)
Hey, it's actually, Travis Steed, from B of A.
Ezgi Yagci (VP of Investor Relations)
Hey, Travis.
Travis Steed (Analyst)
Hey.
Ezgi Yagci (VP of Investor Relations)
Welcome.
Travis Steed (Analyst)
Just wanted to sneak in. My pen wasn't working. So, I've had several questions tonight on the sequential increase in utilization and trying to tie that in to the other comments of you know, you're comfortable with the consensus US revenue. So I don't know if that's just the aspiration as it grows sequentially, or just how to think about that sequential uptick in utilization this quarter.
Timothy Herbert (President and CEO)
We are gonna be in the key for the rest of the year, quarter-over-quarter, sequential increase in utilization, and certainly year-over-year. So we're gonna continue to focus on that, and that's the mode of the commercial team.
Travis Steed (Analyst)
Okay, but the guidance, the comfort with Street, is not necessarily showing that sequential increase, correct?
Timothy Herbert (President and CEO)
We keep those as separate topics.
Travis Steed (Analyst)
Okay, perfect. And then one other question I got from investors is just kind of curious if there was anything in Q2 that was one time, you know, Easter timing, that came in or anything, impact of UNH not doing prior authorizations. Just anything to consider in Q2 that was, you know, one time that we would think about modeling this sequentially?
Timothy Herbert (President and CEO)
Yeah, no. Yeah, Travis, great question. We actually went through and tried to look at sales days and what month the days are in, and did FedEx close because of ice or we had a hurricane this past week? So no, we didn't see anything in the Q2 that really highlights a single event. I think we had a strong quarter from the team. We're very proud of the efforts both in the U.S. as well as international, and their support.
Travis Steed (Analyst)
Okay, great. Thanks a lot.
Ezgi Yagci (VP of Investor Relations)
Thank you.
Timothy Herbert (President and CEO)
Thanks, Travis. Hey, let me jump in just before we close. I want to thank everybody for joining the call today, and as always, we're grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work, and continued motivation to achieve successful and consistent patient outcomes. Team's commitment to patients remains unmatched and is the most important element to our success. We 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 US, Europe, and Asia. And for all of you on the call, we appreciate your continued interest and support of Inspire. I look forward to providing you with further updates in the months ahead. So thank you very much, and Delano, back to you.
Operator (participant)
Thank you, sir. This concludes today's conference call. Thank you for attending. You may now disconnect.