Inspire Medical Systems, Inc. 2026 Q2 Earnings Call

Thank you, Dilem, and thank you all for participating in today's call. Joining me 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 June 30th, 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 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 2026 financial and operational outlook, 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 June 30th, 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, August 3rd, 2026. With that, it is my pleasure to turn the call over to Tim Herbert.

Tim? Thank you, Ezgi, and thanks, everyone, for joining us today.

On the call today, I will provide some key takeaways of our second quarter results and updated outlook before providing an update on coding and reimbursement. I'll then turn the call over to Matt, who will provide additional insights on our second quarter and full year financials. We will then open the call up for questions. Prior to discussing the operations of the quarter, we always highlight that the focus of the Inspire team, as well as healthcare professionals, is to deliver the highest possible patient outcomes. During this call, we will highlight the impressive safety and efficacy of the Inspire V system and also the emerging data demonstrating long-term cardiovascular health associated with the use of Inspire therapy. We are pleased to have delivered results ahead of our expectations for the second quarter.

During the quarter, we continued to make progress working with our sales team and customers to navigate the evolving coding and reimbursement environment and delivered adjusted operating income and positive cash flow ahead of expectations through continued disciplined cost management. Given our performance, we are increasing our 2026 outlook for revenue, adjusted operating margin, and adjusted earnings per share. I'd like to start by providing an update on coding and reimbursement. Let me address this across the short, mid, and long terms. In the short term, we are continuing our efforts to provide Inspire V coding and reimbursement education and support to our customers. As we are starting with our highest volume centers, these represent disproportionately higher percentages of our revenue.

We have continued to see improved trends in key data points, such as prior authorization submissions. We will continue our support efforts in the second half of the year. The bottom line is enhanced coding and billing clarity for all payers, be it commercial, Medicare Advantage, or government Medicare. Each of the payer groups has coverage policies that clearly identify the coding to be used for Inspire procedures. The confusion created early in the year is being effectively managed. Let me provide a little more detail. The previously announced C-codes are now in place. Importantly, hospital and ASC reimbursement rates remain unchanged. These C-codes have also been adopted into the WISER system for the six applicable states. We believe these changes should significantly reduce any uncertainty regarding the appropriate codes that customers should use for the Inspire V procedures.

For surgeon reimbursement, the majority of the medical area contractors, or MACs, do not require use of a modifier 52 when billing CPT code 64582 for Inspire V procedures. Two MACs, however, currently require the modifier. Based on available data, the payment reduction applied by those MACs has ranged from 0%-30% of the current national average Medicare payment of $723. We have placed significant emphasis on educating customers regarding the documentation requirements and related considerations for reporting Inspire V procedures using CPT code 64582 with the modifier 52. Turning to midterm actions, CMS has issued its proposed 2027 OPPS and PFS reimbursement rates. For Medicare facility reimbursement, CMS has proposed increasing hospital outpatient reimbursement for the Inspire V procedure to $35,414, an increase of approximately $3,900, or 12% over 2026 rates.

CMS has also proposed increasing ASC reimbursement to $31,722, which is an increase of approximately $4,200 or 15% increase over 2026 rates. While these proposed increases are very encouraging, we are not making any assumptions regarding future reimbursement levels until CMS publishes its final rates in November. On the physician fee schedule, CMS has proposed 2027 physician reimbursement of approximately $699 for CPT code 64582. This represents a year-over-year decrease of approximately 4%, driven primarily by a reduction in the physician RVU rate. As with the physician reimbursement proposals, the final physician reimbursement rates will be published in November. Looking further ahead, we are focused on supporting the development of a new category 1 CPT code for a single-lead Inspire system. As a reminder, our initial application was not approved at the April AMA CPT Editorial Panel meeting.

Following that decision, we met with reimbursement experts to better understand how we could improve the application and have incorporated that guidance into a revised application, which will be reviewed at the September CPT Editorial Panel meeting. The revised application addresses three key areas. First, it corrects several coding issues related to subcodes for replacement procedures. Second, it is being submitted jointly with another participant in the industry, demonstrating broader stakeholder support. Third, it includes additional clinical evidence that was not presented in the initial submission. If the revised application is approved, the process moves to code valuation and reimbursement review, keeping the proposed new CPT code on track for implementation on January 1st, 2028. With coding clarification improving, we feel we can more aggressively refocus our efforts on improving patient flow and revenue growth.

As such, and aligning with our earnings results, we are announcing a strategic growth plan called Project Horizon, which is intended to accelerate revenue growth by investing in initiatives designed to enhance patient flow. We are creating this capacity by optimizing our organizational structure to better align resources with revenue growth initiatives. In addition, we are optimizing our supply chain by consolidating production to support quality, scale, and efficiency. Through the actions of Project Horizon, we expect to create $30 million of annualized growth investment capacity, which we intend to invest in areas that we believe have the largest growth opportunities for us to further penetrate the OSA market. Our primary area of focus will be expanding patient access to care, improving patient education and engagement, and helping appropriate patients navigate the treatment journey with the information they need to make informed decisions about Inspire therapy.

Although Project Horizon is still in its early stages and we are continuing to refine our growth investment priorities, one area where we have already seen encouraging results is the addition of prior authorization support capabilities within the SleepSync platform. These tools help support patients as they navigate the coverage approval process and have been very well received during the pilot phase. Based on that early success, we are increasing our investment in this initiative to further facilitate patient access to therapy. Another example is Inspire Connect, a program designed to enhance the post-implant patient experience by providing patients with timely education and support throughout their Inspire journey.

The program is intended to help standardize key aspects of the patient experience by engaging with patients at appropriate intervals following implant to ensure that they have the information and resources needed to understand what to expect during activation and the acclimation process. We believe this additional support can improve patient confidence and preparedness, helping patients make informed decisions and navigate their therapy journey more effectively. As we move forward with Project Horizon and our efforts to reinvigorate revenue growth, I look forward to providing additional updates on these and other initiatives as investments that will support our long-term growth strategy. Switching to patient outcomes, we remain excited about the clinical outcome data on Inspire V. At the recent American Academy of Sleep Medicine conference in Baltimore in June, we presented the full results from the Inspire V trial conducted in Singapore.

While we have previewed some of the early data points, including inspiratory overlap, this was the first time we showed the full trial results, including the ability of the new accelerometer-based sensing technology and the safety and efficacy of the Inspire V implant. In addition, multiple presentations highlighted the growing body of evidence supporting Inspire therapy, particularly in improving cardiovascular risk markers. Separately, Inspire highlighted additional research at its exhibit booth, including recent peer-reviewed articles on hypoxic burden and cardiovascular outcomes. The first article I want to highlight was a secondary analysis from the STAR trial that demonstrated significant reductions in hypoxic burden, a key measure of the total impact of oxygen desaturation events during sleep, integrating the depth, duration, and frequency of these events to quantify sleep apnea severity.