Inspire(US:INSP)2024-08-06 20:07PART I. FINANCIAL INFORMATION This section provides unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the period Item 1. Consolidated Financial Statements This section presents unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, highlighting revenue growth and a shift to net income Consolidated Balance Sheets Total assets increased to $728.4 million by June 30, 2024, driven by inventory and property growth, while total liabilities decreased, strengthening the financial position Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $728.4M | $676.8M | | Cash and cash equivalents | $188.0M | $185.5M | | Inventories, net | $59.0M | $33.9M | | Total Liabilities | $90.3M | $104.3M | | Total Stockholders' Equity | $638.1M | $572.5M | Consolidated Statements of Operations and Comprehensive Income (Loss) Q2 2024 revenue increased 29.6% to $195.9 million, resulting in a $9.8 million net income, a significant turnaround from a $12.0 million loss in Q2 2023 Q2 Performance Comparison (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $195.9M | $151.1M | 29.6% | | Gross Profit | $166.0M | $126.8M | 30.9% | | Operating Income (Loss) | $5.1M | $(16.6M) | - | | Net Income (Loss) | $9.8M | $(12.0M) | - | | Diluted EPS | $0.32 | $(0.41) | - | Six-Month Performance Comparison (in millions, except per share data) | Metric | Six Months 2024 | Six Months 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $359.9M | $279.0M | 29.0% | | Operating Income (Loss) | $(10.1M) | $(36.1M) | 72.0% | | Net Loss | $(0.2M) | $(27.4M) | 99.2% | Consolidated Statements of Cash Flows Net cash from operations significantly improved to $8.8 million for the six months ended June 30, 2024, with investing activities using $13.9 million and financing activities providing $7.9 million Cash Flow Summary (Six Months Ended June 30, in millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8.8M | $3.7M | | Net cash (used in) provided by investing activities | $(13.9M) | $1.1M | | Net cash provided by financing activities | $7.9M | $20.6M | | Increase in cash and cash equivalents | $2.5M | $25.5M | Notes to Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation (95.5% U.S.), increased inventory for the next-generation Inspire system, and ongoing legal proceedings - The company's proprietary Inspire system is the first and only neurostimulation technology of its kind approved by the FDA, EU (MDR), and Japan (PDMA) for treating moderate to severe Obstructive Sleep Apnea (OSA)19 - Inventory related to the next-generation Inspire system, which received FDA approval in August 2024 for a 2025 launch, increased to $6.5M as of June 30, 2024, from $0.9M at year-end 202341 - The company is a defendant in a federal securities class action lawsuit and a related stockholder derivative lawsuit concerning prior disclosures about a program intended to help customers with prior authorizations from payors8990 Revenue by Geographic Region (Six Months Ended June 30, in millions) | Region | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | United States | $343.6M | $269.2M | | All other countries | $16.3M | $9.8M | | Total Revenue | $359.9M | $279.0M | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong financial performance, including 29.6% Q2 2024 revenue growth, operational results, liquidity, and key business developments like GLP-1 drug impact and supply chain Overview Inspire Medical Systems commercializes neurostimulation for OSA, with approximately 260 million U.S. lives covered, while addressing GLP-1 drug impacts and resolved supply chain issues - In Q2 2024, the company activated 81 new U.S. medical centers and added 12 new U.S. sales territories, bringing the totals to 1,316 centers and 310 territories, respectively104 - The company received FDA approval for its next-generation Inspire system in August 2024, with a full launch expected in 2025102 - Management believes GLP-1 weight-loss drugs may ultimately benefit the business by making more patients eligible for Inspire therapy, as weight loss may address lateral-wall collapse, a contraindication for the therapy105106 - A shortage of polyurethane-based stimulation leads in Europe adversely affected revenue in Q4 2023 by an estimated $4.0M, most of which was recovered in the first half of 202498 Results of Operations Q2 2024 revenue increased 29.6% to $195.9 million, with U.S. growth of 29.7%, leading to a $5.1 million operating income and improved gross margin of 84.8% Financial Performance Summary (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $195.9M | $151.1M | +29.6% | | Gross Margin | 84.8% | 83.9% | +90 bps | | Operating Income (Loss) | $5.1M | ($16.6M) | +$21.7M | | Net Income (Loss) | $9.8M | ($12.0M) | +$21.8M | - U.S. revenue grew 29.7% in Q2 2024, driven by increased market penetration in existing centers and expansion into new ones121 - International revenue grew 67.3% in the first six months of 2024, partially due to the recovery of an estimated $4.0M in revenue opportunity lost in Q4 2023 from a supply issue127 - SG&A expenses increased 17.3% in Q2 2024, primarily due to higher compensation costs from increased headcount, while R&D expenses decreased by 6.4%124 Liquidity and Capital Resources The company maintains a strong liquidity position with $466.0 million in cash and investments, generating $8.8 million from operations in H1 2024, sufficient for future funding - The company holds $466.0 million in cash, cash equivalents, and available-for-sale debt securities as of June 30, 2024134 - Net cash provided by operating activities was $8.8 million for the first six months of 2024, a significant improvement from $3.7 million for the same period in 2023141142 - The company spent $24.1 million on property and equipment in the first half of 2024, mainly for production equipment for its next-generation system and the SleepSync™ platform137 - Management believes existing cash and investments are sufficient to fund operations for at least the next 12 months138 Item 3. Quantitative and Qualitative Disclosures About Market Risk The primary market risk is interest rate risk on cash and investments, with a 1% rate change impacting interest income by $2.2 million for H1 2024 - The primary market risk is interest rate risk on the company's portfolio of cash equivalents and investments150 - A hypothetical 1% change in interest rates would have impacted interest and dividend income by approximately $2.2 million in the first six months of 2024150 - The company's cash balances are maintained with financial institutions but are in excess of federally insured limits, posing a credit risk in the event of institutional failure151152 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024153 - There were no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2024154 PART II. OTHER INFORMATION This section provides updates on legal proceedings, risk factors, equity sales, other information, and a list of exhibits filed with the report Item 1. Legal Proceedings This section details two ongoing lawsuits: a federal securities class action and a related stockholder derivative lawsuit, both vigorously defended by the company - The company is a defendant in a federal securities class action lawsuit and a related stockholder derivative lawsuit8990155 - Both lawsuits relate to prior disclosures about the effectiveness of a program intended to help customers with prior authorizations from payors for Inspire therapy89 - The company is vigorously defending these lawsuits and moved to dismiss the amended complaint in the class action on June 28, 202489 Item 1A. Risk Factors Updated risk factors emphasize heightened competition from other neurostimulation technologies and GLP-1 drugs, alongside ongoing securities litigation risks - The company faces increasing competition from other neurostimulation technologies designed to treat OSA, such as those from LivaNova and Nyxoah, which are pursuing FDA approval157 - The growing popularity and clinical evaluation of GLP-1 drugs for treating OSA, such as Eli Lilly's tirzepatide which has been submitted to the FDA for this indication, pose a potential risk to future demand for the Inspire system159 - The company is involved in a securities class action lawsuit and a related derivative suit, which are subject to inherent uncertainties and could result in very substantial costs and divert management's attention164 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None165 Item 5. Other Information This section discloses the adoption of Rule 10b5-1 trading plans by three executives and directors in May 2024 Adoption of Rule 10b5-1 Trading Plans | Name | Title | Adoption Date | Shares to be Sold | | :--- | :--- | :--- | :--- | | Randall A. Ban | Chief Commercial Officer | May 16, 2024 | 21,000 | | John C. Rondoni | Chief Technology Officer | May 23, 2024 | 21,832 | | Shawn T McCormick | Director | May 24, 2024 | 1,050 | Item 6. Exhibits This section lists exhibits filed with the 10-Q report, including CEO and CFO certifications, compensation policies, and an employment agreement - Key exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and an employment agreement with Melissa Mann169