Inspire Medical Systems Q3 2026 Earnings Call Transcript

Inspire Medical Systems (NYSE:INSP) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Inspire Medical Systems reported third-quarter revenue of $206.7 million, a 7.9% decrease year-over-year but a 3% sequential increase, driven by strong U.S. performance offsetting international weakness.

The company is focusing on navigating coding challenges with a new billing framework and expects a significant reimbursement increase pending final OPPS rule release, enhancing long-term coding simplicity with an approved Category 1 CPT code effective January 2028.

Strategic initiatives include Project Horizon, which reallocates $30 million in growth investment capacity toward expanding market access and improving patient flow, alongside investments in cardiology-based referrals and targeted marketing efforts.

Significant clinical evidence supports the efficacy of Inspire Therapy, with ongoing studies demonstrating reduced disease burden and potential cardiovascular benefits, fueling market expansion efforts.

Guidance for 2026 has been narrowed with expected revenue between $850 million to $860 million and efforts to address reimbursement challenges, estimating a $120 million impact on results from these issues.

The company expects low single-digit revenue growth in 2027, supported by a stable coding environment, strategic growth investments, and increased contributions from battery replacements.

Full Transcript

OPERATOR

Good afternoon. My name is d’Alem, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Inspire Medical Systems’ third quarter 2026 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, Louisa Smith from Gil Martin Group. You may begin the conference.

Louisa Smith

Thank you. Joining me on today’s call are Tim Herbert, Chairman and Chief Executive Officer, and Matt Osberg, Chief Financial Officer. Earlier today we released financial results for the three months ended September 30, 2026. A copy of the press release is available on our website. On this call, management will make forward-looking statements within the meaning of federal securities laws. All forward-looking statements, including without limitation those relating to our operations, financial results, financial condition, investments in our business, financial and operational outlook for 2026 and future periods, and changes in market access and different aspects of coding or reimbursement, are based upon our current estimates and various assumptions. Forward-looking 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. For a discussion of these risks and uncertainties, please see our filings with the Securities and Exchange Commission, including our periodic reports on Form 10-K and 10-Q, as well as the Form 10-Q which we filed this afternoon with the SEC for the quarter ended September 30, 2026. 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, November 2, 2026. With that, I’ll turn the call over to Tim. Go ahead.

Tim Herbert (Chairman & CEO)

Thanks, Louisa, and thank you to everyone for joining today’s call. To start, the focus of our employees and the physician and care teams we work with is delivering the best possible outcomes for patients. OSA, a largely untreated condition, and the more we learn about it, the clearer it becomes that its impact goes beyond sleep to a patient’s underlying health. Our Inspire Therapy is the market leader for hypoglossal nerve stimulation treatment for OSA, and we believe that better treatment leads to better sleep, which leads to better health.

This belief shapes how we approach everything we do. For the third quarter, we were pleased to deliver revenue and adjusted operating income slightly ahead of our expectations, with another strong quarter of operating cash flow and a 3% sequential revenue increase. Coding has been a central topic this year, so I’ll provide an update using the same near-, mid-, and long-term lens we shared in August. In the near term, we continue to work closely with physicians and staff on the new billing procedures.

As with any abrupt workflow change, it took time for implanting sites to get comfortable with the new rules. Over the last several months, centers have gained experience with a stable temporary billing framework. We expect centers to continue to use this framework and grow increasingly comfortable with it throughout 2027. For the midterm, back in July of this year, CMS announced the proposed OPPS rules for 2027 hospital and ASC reimbursement, but the final OPPS rule has not yet been released. The proposed rule in July showed a significant increase, although we will confirm only once the final rule is published, which we expect to be later this week. Longer term, we were pleased by the recently approved Category 1 CPT code for single-lead hypoglossal nerve stimulation, which covers the Inspire 5 device.

This dedicated Category 1 code is set to take effect on January 1, 2028, and stands to meaningfully simplify coding and reimbursement, thereby expanding access to Inspire Therapy. With the code now approved, the focus shifts to the RUC valuation and reimbursement review process. This process has been started, and physicians have been completing the RUC surveys sent out by the ENT Society. We will continue to provide updates as these activities progress toward the code’s January 1, 2028 effective date.

Overall, we are in a much more favorable position with coding than we were just last quarter and are increasingly confident in our path forward. We are very pleased with the work our internal team and external partners did to help prepare us to have the best chance of securing a new code and achieving a favorable outcome. I also want to highlight some of the exciting work we are doing in expanding our clinical evidence and how this strengthens our underlying value proposition. Recent studies and publications include the full results of the Inspire 5 trial, a secondary analysis of the STAR trial data, a TriNetX meta-analysis, and the PREDICTOR study, all of which further support Inspire Therapy’s efficacy and positive impact on patient outcomes. We remain excited about the strong data from the early clinical assessments of Inspire 5, which we updated at the most recent ENT conferences, the American Academy of Otolaryngology and the International Sleep Surgical Society.

The accelerometer-based sensing showed improved inspiratory overlap compared to Inspire 4, meaning more of the stimulation is synchronized with the patient’s inspiration. Median AHI also fell markedly at six months, showing a substantial reduction in the burden of disease. As we build that evidence, we are looking beyond AHI as a quantitative measure of OSA severity, which is simply the number of breathing events per hour, to hypoxic burden, which measures the overall systemic impact of oxygen deprivation during sleep.

With further analysis of our STAR trial data, we saw significant reduction in hypoxic burden with Inspire Therapy, and even further independent studies are now looking at how that connects to cardiovascular risk and underlying health. In the TriNetX analysis, Inspire Therapy was associated with significantly lower odds of stroke, heart attack, and atrial fibrillation compared to CPAP. What it tells us is that sleep apnea is not just a sleep problem; it is an overall health problem, and that is foundational for expanding access to care beyond ENTs and sleep doctors. We are early in that work, but we currently have field team resources targeting a cardiology-based call point to expand our market reach into adjacent specialties. We look forward to sharing more as this initiative develops.

With the improved coding landscape, our primary commercial focus is shifting to improving patient flow. By optimizing our organizational structure and consolidating production through Project Horizon, we created approximately $30 million of annualized growth investment capacity. We are directing those funds to our highest-impact revenue initiatives, which center on expanding access to care, improving patient education and engagement, and helping patients navigate their treatment journey.

We began making these investments in the third quarter and will further invest in the fourth quarter in order to build momentum for 2027. One example is adding field roles in approximately 40 high-potential growth markets to improve patient flow, increase capacity, and support continued growth. Further, we have made incremental marketing investments to create more targeted patient outreach and education, and are continuing to enhance our prior authorization process, Navigator program, and Inspire Connect platform to improve our patient pathway.

Inspire remains the market leader in lasting OSA treatment, and we look to expand our market share. Adoption of Inspire 5 has been strong, and it now makes up the vast majority of our procedures. The market remains underpenetrated, with a large and growing population of patients who could benefit from our therapy. As we look to 2027, we are encouraged by how the pieces are coming together. The current coding framework is stable, with a new code coming in 2028.

The evidence for Inspire 5 continues to build, and Horizon is directing resources to patient flow optimization initiatives. Improvements like these take time to move through the system, but we feel confident that much of the disruption is behind us. The coding and reimbursement path is clear, and we are moving forward with conviction to drive a return to growth. With that, I’ll turn the call over to Matt. Thank you.

Matt Osberg (Chief Financial Officer)

Tim, and good afternoon everyone. I’ll begin with a review of our third quarter results before providing an update on our 2026 outlook. Third quarter revenue was $206.7 million, down 7.9% from prior year and up 3% sequentially from the second quarter. Our revenue achievement was driven by stronger than expected results in the U.S., which offset international revenue underperformance. Gross margin was 86%, up 20 basis points from prior year. The increase was primarily due to a higher sales mix of Inspire 5, which carries a higher gross margin than Inspire 4.

Operating expenses were $206.6 million, an increase of $23.5 million over prior year. The increase was primarily due to $24.1 million of restructuring charges related to Project Horizon, $7 million of legal settlement expense, and higher legal fees, partially offset by lower marketing and stock-based compensation expenses. Adjusted operating expenses were $176 million compared with $181.8 million last year. Our operating loss was $28.7 million compared with operating income of $9.6 million last year.

Adjusted operating income was $1.9 million compared with $10.9 million. The effective tax rate was 2.5% compared with 26.7% last year, primarily driven by the current-period pretax loss and discrete tax charges related to restructuring. Our adjusted effective tax rate was 27% compared with 26.5% last year. We had a diluted loss per share of 84 cents and our adjusted diluted earnings per share was 14 cents. Our adjusted EBITDA margin declined 130 basis points to 18.3%, primarily due to the decrease in revenue.

Turning to cash flow and the balance sheet, operating cash flow for the quarter was $46.4 million with year-to-date operating cash flow of $82.5 million compared to $64.5 million in the year-to-date period prior year. Our balance sheet remains strong with no debt and cash and investments of $453.1 million as of the end of the quarter. Our strong balance sheet and free cash flow conversion gives us the opportunity to continue to invest in growth initiatives.

Turning to our outlook for the full year, we are narrowing our revenue outlook to a range of $850 million to $860 million. In addition, we now expect adjusted operating margin of 4.5% to 5.5%, diluted loss per share of $0.36 to $0.10, and adjusted diluted earnings per share of $1.20 to $1.40. Our updated outlook assumes an effective tax rate of approximately 120% to 175%, an adjusted effective tax rate of 33% to 34%, weighted average diluted shares outstanding of approximately 28.9 million, and capital expenditures between $35 million and $40 million.

We estimate that our third quarter results were adversely impacted by coding and reimbursement challenges by approximately $30 million. For the full year, we are currently estimating the total impact to be approximately $120 million. The estimated impact of these items on our results reflects high-level assumptions based on currently available data and incorporates inherent uncertainty related to quantifying how these items impact customers, physicians, and patients.

We are pleased to have delivered sequential revenue growth in the third quarter and are expecting another significant sequential revenue increase in the fourth quarter in both U.S. and international, with fourth quarter international revenue expected to be approximately flat to Q4 last year. As we look into 2027, based on our expectations for market growth, a more stable coding environment, growth initiative investments funded by Project Horizon, and a more significant contribution from battery replacement revenue, we are increasingly confident in our ability to return to growth and deliver low single-digit year-over-year revenue growth for the full year 2027.

In closing, despite the top-line pressure this year, I am pleased with our spending discipline and focus on prioritizing investments in revenue-generating activities. Our team remains committed to providing strong patient outcomes and supporting our customers to expand the adoption of Inspire Therapy while delivering value for our shareholders. This concludes our prepared remarks. Dilem, please open the line for questions.

OPERATOR

Thank you. As a reminder, to ask a question, you will need to press Star 11 on your telephone. To withdraw your question, please press Star 11. Again, we ask that you please limit yourselves to no more than one question. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Block from Stifel. Please go ahead.

John Block (Analyst)

Thanks, guys. Good afternoon, Tim or Matt. Maybe you could just talk to the dynamics that you’re seeing that allow for the low single-digit revenue growth in 2027. Maybe that has something to do with the conversations you’re having around reimbursement with some of your customers. What’s the assumption around market growth as we think about additional players? In other words, does that assume the market’s growing mid-single or high-single digits in 2027?

And just, sorry, one more sort of continuation of the same question. What does that reflect or embed in terms of the preliminary codes? In other words, if the preliminary codes were to hold up, I think it was roughly low double digits for next year. Is that what you’re putting in your assumptions, or could that be arguably upside to the initial low single-digit outlook? Thank you.

Tim Herbert (Chairman & CEO)

Got it, John. Thank you very much. We look at where we are today in addressing the challenges, and Matt kind of laid out the impact that we believe that had this year, and we’re gaining confidence with all of our centers to get back to a growth situation. A lot of the items that you identified we built into it. We do understand that we do have competitors in the market, albeit not as impactful at this time, but we do build that into our assessment.

We also built a little bit into the coding, but we don’t know where those codes are specifically going to land. We did estimate a little bit of an increase, but we’re being careful until the final OPPS rules are released later this week. So really turning the corner, getting back to a growth situation. We know the market dynamics are changing, but we know we’re having significant improvements in the confidence of the code set that we have now. And that leads further into setting us up as we move into 2028 with the new code being put in place. And so that’s why we landed on this initial guide for 2027.

John Block (Analyst)

Thank you.

OPERATOR

Thank you. Our next question comes from the line of Adam Mater from Piper Sandler. Please go ahead.

Adam Mater (Analyst)

Hey, good afternoon. Thank you for taking the question. I wanted to continue to pull on the guidance thread, but I guess specifically ask about Q4 and kind of what’s implied. I think at the midpoint of your full-year guidance range it implies growth decelerates year over year from Q3 levels and is kind of closer to similar to Q3 using the high end of your full-year range. Hopefully you followed that. It sounds like the reimbursement headwinds are continuing to abate, get a little bit better.

So why wouldn’t the growth rate improve as well in 4Q? Thank you.

Tim Herbert (Chairman & CEO)

Yeah, sure. Let me comment, and I’ll ask Matt to comment as well. Q4 is always the seasonality quarter for us. We always have a large step-up coming off the third quarter, and it’s the biggest change for the dynamics of the market. So we do expect to have a significant step-up because, of course, this is the quarter when we focus on commercial implants and those with high-deductible insurance. So, yeah, we built that into our modeling. Any other comments, Matt?

Matt Osberg (Chief Financial Officer)

Yeah, I think you’ve got the math right on there. And like Tim said, I mean we’re focused on stepping up from Q2 to Q3 like we did, and we’ve got another very large step-up, you know, even at the midpoint of our guide for Q4. And that’s what we’re focused on delivering.

Adam Mater (Analyst)

Thank you.

OPERATOR

Thank you. Our next question comes from the line of Robby Marcus from JPM. Please go ahead.

Robby Marcus (Analyst)

Great. Good afternoon, and thanks for taking the question. Tim, if I’m doing the math right, I’m getting to about 7% implied U.S. growth, assuming you’re the vast majority of the market for hypoglossal nerve in 2026, when I add back the $120 million. What do you think on an underlying basis the right growth rate is for this market, and how do you think about the trajectory of that going forward, as 7% is still fairly sharp decel from the past few years?

And what can you do to help improve that going forward, if that is the right rate? Thanks.

Tim Herbert (Chairman & CEO)

Absolutely, Robby. Great question. I think we’re looking at multiple functions, as we talked about before. We’ll again highlight Project Horizon, where we can put more focus of our operating expenses towards revenue growth, and not just a bigger hammer, but putting it into different channels such as the cardiovascular channel, because we’re really developing that clinical evidence and we can lean in from that standpoint. We do believe the overall market continues to grow and that we need to continue to build capacity.

The other project we have going there is adding field reps in 40 of our largest markets to help capacity and help patient flow. And then inside, we’re building a lot more marketing programs to just help the patient through the process and streamlining the whole opportunity, either with our digital communication with patients to helping our navigation systems and even working towards a virtual sleep. So we’re focused on getting back to growing the market, and we’ll get 2027 in our line of sight, and we expect to continue to push that growth rate higher.

Robby Marcus (Analyst)

Appreciate it. Thanks.

OPERATOR

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

Anthony Piccione (Analyst)

Thank you. I’m sorry for the background noise. Maybe, Tim, just on kind of the process with RUC in 2027, you know, when will the RUC survey actually take place, and when do you think the medical societies—AASM, AAO—will actually have comments from the survey? You know, when do you expect that to actually hit in 2027? And when you look ahead to 2028, can you kind of just level set how this—with a Category 1 code in place for 2028—you know, how hospitals and ASCs are going to benefit and how implanting surgeons are going to benefit?

And if I could sneak one more in on guidance, that would be helpful, thanks.

Tim Herbert (Chairman & CEO)

Absolutely. I think the RUC process is a pretty set process. Once the code is approved, it gets handed over to the society. In this case, the AAO is managing the RUC process. They send surveys out to their membership, and they are looking for ENTs who are experienced in implanting the device, and they’re requested to fill out a survey and return that. There’s a minimum number of respondents that the AAO requires. They pull that information, and they go to the RUC committee.

I think the first panel meeting is probably in the January timeframe where they start to review much of that data. And then the RUC proposes a number to CMS. Of course, the first time we all see it officially is when CMS puts out the preliminary rule in July. So we don’t coach any physicians on the process, but they did start the process before the AAO meeting and the ISSS meeting—the International Sleep Surgical Society meeting—so there was awareness of the survey happening.

And so hopefully they have good respondents from their membership and they can build that into a good reimbursement. Now I gotta go back here. What was your follow-up question?

Anthony Piccione (Analyst)

Maybe just looking ahead to ’28, you know, with three Cat 1 codes in place, you know, just how that’s going to streamline the reimbursement process for, you know, hospitals, ASCs, and implanting surgeons.

Tim Herbert (Chairman & CEO)

Thanks. Well, I think the overall value is there’s simply one code, whereas today we have an algorithm. And so depending upon if you’re Medicare, you bill a C code for a facility, or 64582 if you’re a physician; commercial payers, you bill to policy. And what the CPT code is in that policy, and what it does, is it really streamlines the overall coding approach. And so in 2028 we can say for every payer, including for Medicare, you’ll be billing this code for implant.

And the other two Category I codes are really just for replacement or revision should they be required. But there’s really only the one key Category I code, and everybody will use it for all payers.

OPERATOR

Thank you. Thank you. And I’m sure our next question comes from the line of Lawrence Beagleson from Wells Fargo. Please go ahead.

Lawrence Beagleson (Analyst)

Good afternoon. Thanks for taking the question, Tim. You know the 10-Q says the GLP-1s are still a headwind. Is there any way to quantify that? When do you think that turns to a tailwind, and what are you assuming as new GLP-1s are approved for OSA with a BMI threshold of 27 as opposed to 30 today?

Tim Herbert (Chairman & CEO)

Thank you. Thanks, Larry. I think that we’re really addressing the GLP-1s by watching that closely. We’re coming up on a little over a year since they’ve been on the market and helping people lose weight, but monitoring their sleep. And as we talked about in our preparedness notes, it’s not just about sleep, it’s about health and making sure that patients are not just addressing the weight loss so they look better, feel better, but that they are in fact addressing their obstructive sleep apnea.

And when they get to a year out, many of the payers are requesting that physicians do an assessment to make sure they’re properly addressing the obstructive sleep apnea, because that is what they are being reimbursed to do. And if they show that they’re not being properly reduced to a safe level, these patients are going to need to be on another therapy. So in other words, we watch that closely, we still track our patient flow closely, and we believe a lot of patients are losing weight and therefore now qualifying for Inspire, whereas they, with the high BMI and the lateral wall collapse, just were unable to be properly treated with Inspire until they lost some of that weight. So again, Larry, we continue to track that very, very closely. We do believe that it will be a tailwind in the future as more and more patients lose weight and come into our funnel.

And for those patients that resolve their lateral wall collapse or resolve their sleep apnea with weight loss, they may have never had tongue-based obstructions for which they would need Inspire anyway. So again, we’re going to continue to talk about it and I know you and I will continue to discuss that well into the future.

Lawrence Beagleson (Analyst)

Thanks, Tim.

OPERATOR

Thank you. And I share, our next question comes from the line of Richard Neuwater from Truist Securities. Please go ahead.

Richard Neuwater (Analyst at Truist Securities)

Hi. Thanks for taking the question, or questions. Maybe just on the ’27 outlook for low single-digit worldwide growth — thanks for that. I guess really, I just want to know what you’re assuming there for international, or if maybe you can give us a sense as to what percentage of total revenue international will comprise as we think about ’27, and that in fact you are also anticipating a low single-digit U.S. growth trajectory next year. Thanks.

Tim Herbert (Chairman & CEO)

Thanks, Rich. I think we’re going to continue to see international still be about a mid-single-digit percent of our global revenue. I think they’re doing a good job in specific target markets, primarily core Europe with Germany and France, UK, Netherlands, Belgium, Switzerland and Austria. That’s probably the core of all of it. They’re going to continue to grow at a higher rate than that, but it’s coming off a smaller base, so mathematically it’ll still probably be in the mid-single digits.

But good prospects there. Good progress in France, because we’re only a couple years into having national coverage there to be able to further expand. That’s a worldwide number. But I think international — Europe — will be higher than that, but it’s coming from a small base, so it’ll still make up probably mid-single-digit percent of our overall global revenue.

Richard Neuwater (Analyst at Truist Securities)

Okay, thank you.

OPERATOR

Thank you. And I share, our next question comes from the line of Drew Curtis from Wolfe Research. Please go ahead.

Jerome (Analyst at Wolfe Research)

Hey guys, this is Jerome from Ike. Can you help remind us on the Wiser-related headwinds embedded in ’26? I think it was 125 million previously, but would welcome any update to that number. And then how much of that impact should we annualize in ’27 versus representing it more as sort of a transitory headwind? Thanks.

Matt Osberg (Chief Financial Officer)

Hey Drew, this is Matt. I’ll take that one. So yeah, we’ve tried to guide the year. I think 125 million you’re referring to is what we’re considering all reimbursement and coding impacts, so that’s inclusive of Wiser. But Wiser is, you know, the 80/20 — Wiser is more at the 20 than the 80 in that. So we just updated in my prepared remarks, we think that that estimate now for the year is about 120 million. And so, you know, that’s what we updated related to that.

We’re working hard to improve the education and the momentum in the field and really continue to drive more efficiency and utilization in the flow so we can continue to benefit and get some of that back in 2027.

OPERATOR

Thank you. And I share, our next question comes from the line of Travis Theed from Bank of America. Please go ahead.

Travis Theed (Analyst)

Hey, thanks for the question. The international business declined for the first time since first quarter ’25. I was curious what the driver was there this quarter. And when you think about the ’26 guide, you did narrow the guide so that the top end did come down. So curious what took some of the upside away on the full year this year.

Matt Osberg (Chief Financial Officer)

Yeah. Travis, this is Matt. So the impact we saw in Q3 in international was primarily around some destocking activities in Germany, and that led to their high single-digit decline. We did guide that there should be some recovery, and they should be about flat for Q4 year over year. So a little bit of recovery there. So yeah, I think that’s what we’re seeing there.

OPERATOR

Thank you. And I share, our next question comes from the line of Keith Hinton from Freedom Capital Markets. Please go ahead.

Keith Hinton (Analyst)

Great. Just one on the 2027 guide and then a question on the commercial efforts. So in terms of the low single-digit revenue growth, can you just talk a little bit about the contribution there in terms of new patients versus battery replacements, or just how you’re expecting replacements to trend year over year so we can kind of think about new patients versus replacements. And then I have a follow-up.

Matt Osberg (Chief Financial Officer)

Yeah, Keith, this is Matt. From a replacement perspective, we’re going back to the kind of trajectory of when we start needing replacement revenue. So think about 10 years back, look at the revenue, and then we’re assuming a conversion rate of who would come back. We’re not assuming 100% of that converts back into new batteries, but we’re assuming a pretty high conversion rate. So that’s how we’re thinking about that from a replacement perspective.

What’s exciting — it’s the first time that we’ve actually called it out, and you’re the first person to have the opportunity to ask the question between de novo and replacements. And I think that’s something that’s going to continue to grow and become more significant in the future. But again, it’s still from 10 years back — you can look at where revenue was. It’s still a small part of the overall program, but it’s a new topic to be introduced into our business.

So thanks for that.

Keith Hinton (Analyst)

Excellent. Thank you. So just in terms of adding more reps to the U.S., should we understand the commentary about the 40 additional territories, meaning that there are going to be net 40 additional reps, or is there some transfer of investment from other areas? And then how should we think about the field clinical reps — should that continue to stay at kind of one-to-one? And then, related to that, just on the cardiology call point, are you really going after cardiologists looking for referrals to ENT surgeons to perform the surgery, or are you actually looking to target cardiac surgeons to perform the procedure themselves?

Tim Herbert (Chairman & CEO)

Yeah, let’s work backwards. We want the referrals. We know the cardiovascular physicians are working with patients who have atrial fib that have had an event, and they need to assess those patients for obstructive sleep apnea and to be able to refer those back over to an ENT. So we’re not looking to expand a surgical call point at this time, but definitely want to work the referral aspect of it.

Matt Osberg (Chief Financial Officer)

Yeah, backing up. Yeah, we are thinking it’s not that 40 increase. We’re adding 40 heads into, as Tim said, markets where we think we’ve got significant potential to grow and improve the patient pipeline there. And this shouldn’t displace or change how we’re thinking about FCRs and how we’ve built that structure to date.

Tim Herbert (Chairman & CEO)

Right. And just to comment on that, what we’re talking about is not increasing 40 new territories, but adding capacity within the territories that we have. And these are the territories that are at the cusp of expanding to really the high-volume territories. They just don’t have enough support to drive patient flow, support the referral networks like we just got done talking through, and support the overall scheduling and management of centers within that territory.

So really it’s a support role for territory managers. But we’re not looking at adding 40 specific territory managers. It’s more of a support function there.

OPERATOR

Thank you. Thank you. And I share, our next question in the queue comes from Suraj Kalia from Oppenheimer. Please go ahead.

Suraj Kalia (Analyst)

Hey Tim, can you hear me?

Tim Herbert (Chairman & CEO)

Yes, Suraj. Hi.

Suraj Kalia (Analyst)

Thank you for taking my question. Tim, can you help us appreciate all the commentary on the previous questions. I was curious on a different topic on the SG&A line item. Tim, understand the market dynamics and how you’re managing things, but in terms of the selling part of the equation, how has that changed? Your revs were up, you know, like mid-single digit, little high single digits, but your SG&A bumped up pretty significantly. So help us understand on the ground, what should we infer from that tactically and more strategically?

Thank you for taking my question.

Matt Osberg (Chief Financial Officer)

Hey Suraj, it’s Matt. Maybe I’ll just start with the SG&A side of that, and maybe that leads to the next part of the question. So if I’m thinking about our SG&A, from the second quarter to the third quarter we had a pretty significant increase. The majority of that increase came from our increase in marketing expense. We put a pretty significant investment in Q3, so that’s really driving our SG&A increase from the second quarter. And then year over year, we’ve significantly reduced our adjusted operating expenses from last year.

OPERATOR

Thank you. And I share, our next question in the queue comes from the line of Michael Ciccone from Jefferies. Please go ahead.

Michael Ciccone (Analyst)

Hey, good afternoon and thanks for taking the question. Tim, you talked about the RUC process going on and we’ll get a single code that should reduce some of this complexity. I guess on the other side of it, is there any risk that, from an implanting physician standpoint, because Inspire 5 is a quicker, more efficient procedure, could that professional fee go down to the point where it’s potentially detrimental to new implanting surgeons signing on?

I think that’s

Tim Herbert (Chairman & CEO)

A very fair question and one that we need to watch. Two things. Number one, we encourage significant members of the ENT community to submit surveys such that when the AAO has a database, it has a significant database to get an accurate measurement of what are the true costs of performing the procedure. Not just the surgical time, but also the in-office support time. The third leg of it is the malpractice. That’s a calculated number. So as long as they’re measuring all three elements of it and the RUC is able to work through that, it should be a pretty accurate measurement of what the true cost of ENT and managing these patients should be.

And the advantage that we have going into this is Inspire 5 is performed by well over 1,000, 1,500 surgeons today. Whereas if you go back to when we valued 64582, it was a much smaller sample size for which they had to work with. So it all comes down to the number of respondents that they get and the data that is provided to the RUC process. There’s always a risk of a reduction in reimbursement, but that goes along with Inspire 5 being a much more efficient procedure and also making sure that they have good partnerships with their sleep physicians who do the longitudinal management of patient care.

And they have different CPT codes that they built. So we’ll monitor this very closely, obviously.

OPERATOR

Thank you. Our next question comes from the line of David Restcott from Baird. Please go ahead.

David Restcott (Analyst at Baird)

Oh, great. Thanks for taking the questions. I wondered if you could provide some maybe more color on this 100 and I think $120 million reimbursement headwind number you called out. Curious if these are patients that are kind of essentially lost from the funnel or ones that you ultimately do see that you could recapture. And if it is more of the latter, you know, how are you assuming that some of this recapture of these patients pulls through relative to the, you know, low single digit guide in 2027 and what that, you know, kind of implies for the overall, you know, pieces to growth next year when you think about de novo plus recapture plus maybe some of these, you know, limited replacement batteries or replacement plans. Thank you.

Tim Herbert (Chairman & CEO)

Yeah, thanks, David. We try to track all those patients. One of the comments we made in the prepared remarks was around the marketing initiatives that we have. A lot of that is maintaining communication with these patients and gaining the proper consent to be able to keep them updated on progress and how their centers are doing and making sure that they can get appointments with their healthcare provider to be able to be assessed and still be interested in receiving Inspire.

Yes, as time goes on, patients do tend to go away, but I do think a lot of them are still in the queue looking to gain Inspire therapy. And as we continue to get more confidence and comfort around using the code set that’s in place and growing that education, we’ll continue to grow utilization and those patients will be able to receive Inspire therapy. So we don’t think they’re gone. What we’re trying to do is make sure we improve all of our communication techniques to be able to keep them informed both from the time they come to the website to go to our call center, to being in the process and even communicating with them after they receive therapy and they can track their therapy with the new Inspire app that will be coming out. So really improving communication is a key initiative that we’re working marketing as part of Project Horizon.

OPERATOR

Thank you. Our next question comes from the line of Brett Fishman from KeyBanc Capital Markets. Please go ahead.

Brett Fishman (Analyst at KeyBanc Capital Markets)

Hey guys, thank you so much for taking the questions. I think you commented a little bit on Inspire 6 at some recent conferences and it sounded like 2027 might be in play for a potential PMA submission. Was curious if you could just provide any updates on the timeline here and then what the key steps are before you’re ready to submit. Thank you so much.

Tim Herbert (Chairman & CEO)

Thanks, Brett. You know, I always love the technology talk, so you brought it up. So Inspire 6 is progressing in the development stages. The intention of 6 is to take therapy adherence to the next level. When we describe the benefits of Inspire 5, it improves outcomes by reducing inspiratory overlap. So when a patient inhales we can stimulate the airway and maintain an open airway, thereby reducing the burden of the OSA disease. What Inspire 6 is meant to do is detect sleep.

And so when patients fall asleep, the device automatically turns on. And this automated sleep detection will improve outcomes because the patient no longer needs to turn the device on at night. We are in the final algorithm development. There’s a series of algorithms that are part of the package. We are in clinical validation of this. We’re doing the algorithm development and validation and we’re targeting if we can get to the FDA next year would be a good target.

We have been in communication with the FDA already, so very excited about Inspire 5 and very excited about Inspire 6, which is just a firmware upgrade to Inspire 5. So more to come on that in the near future.

OPERATOR

Thank you. And I’m sure our next question comes from the line of Mike Kratke from Leerink Partners. Please go ahead.

Mike Kratke (Analyst at Leerink Partners)

Hi everyone, thanks for taking our question. So maybe going back to OUS. So understood on some destocking impact in Germany having an impact on OUS in 3Q that sounds like it should normalize this quarter, but I believe you also mentioned some overall OUS revenue maybe expected to be flat year over year in 4Q. So just curious if there are any other factors contributing to that or what other markets might be weighing on OUS growth.

Matt Osberg (Chief Financial Officer)

Yes, Mike, this is Matt. So Germany is a very significant portion of our OUS revenue and so the destocking in Q3 was the primary driver for it to be down 9%. We think they’ll start to recover a lot of that. And so the guide we had for fourth quarter was that OUS would be flat year over year in fourth quarter, picking up some of that recovery, but not yet growing back to double digits like they were the first half of the year.

OPERATOR

Thank you. And our next question in the queue comes from the line of Daniel Markowitz from Evercore ISI. Please go ahead.

Daniel Markowitz (Analyst)

Hey guys, thanks for taking my questions. The first one, there seem to be several factors supporting return to growth in 27, which you highlighted, lapping the 120 million headwind on greater reimbursement clarity next year, the Project Horizon investments and then the potential reimbursement upside. In that context, would you say it’s fair to characterize the initial low single digit outlook as a prudent early view, or are there some offsets to those tailwinds on the other side that we should keep in mind as well.

And then again, I had one clarifying question after as well.

Tim Herbert (Chairman & CEO)

Yeah. I think we want to put the initial based on where we are. We know that we’ve had significant revenue reduction this year. We need to turn the corporate corner. Come back. We do believe there’s, as you identified, several elements that get us back into a growth situation. And going back to question from earlier on from Robbie, we expect to push that growth higher in time. But coming from single digit reduction this year to turning the corner, we think that’s the right guide for us to lean into and get us back into a growth situation.

We look forward to achieving that and working further in the future.

OPERATOR

Thank you. And I’m sure our last question in the queue comes from the line of Crispus Kraut from Barclays. Please go ahead.

Crispus Kraut (Analyst)

Thanks, Tim. The number of US territories ticked down again. I think it’s five quarters in a row. Where are you at now with the US commercial organization? Do you see it stabilizing around the current level? And then you talked about investing in these 40 high potential territories. What criteria you’re looking at to steer that investment and is this targeted at opening more centers in those territories or going deeper in existing accounts?

Tim Herbert (Chairman & CEO)

Yeah. Thanks, Chris. Welcome back. I think US territories are stabilizing and we have some turnover but we’re able to recruit and hire territory managers to be able to fill those roles. That’s not, again, what these 40 positions are for. These 40 are to drive capacity in territories that can expand further. And it is twofold. It is both opening new centers in those territories, but it’s also in regards to growing utilization at existing centers. And we pushed this hard in the fourth quarter.

We want to get back to opening more centers because we had to kind of work through the whole coding clarification and we’re going to be watching the final OPPS rules and we want to do a greater push to start transitioning to ASCs, as the percent of procedures at ASCs has grown from the high teens to kind of the mid 20% of our implants in the United States recently because Inspire 5 lends itself so well to ASC. So we’re going to see a strong push for that in 2027.

And I think the 40 staffers that will help some of the top territories will really start pushing more growth in ASCs as well as growth in existing hospitals and opening new centers as a whole. So thanks for that. For everybody, I want to thank you all for your questions and your continued interest in Inspire. I’d like to thank our employees for their dedication this year, the physicians and care teams who partner with us, and the patients who trust us with their care. We look forward to updating you on progress on our Q4 call as we close out 2026 and move into the new year. Thank you all very much.

OPERATOR

Thank you. This concludes today’s conference call. You may now disconnect.

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