Inspire Medical Systems, Inc. (INSP) November 10, 2026 Conference Transcript

John Block with Stiefel, and I'm happy to introduce the team from Inspire Medical. Tim Herbert, Chairman and CEO, Matt Osberg, CFO. We're going to do predominantly Q&A, but I just spoke to Tim. We're going to kick things off with a couple slides. So I'll hand the floor over to Tim. We'll go over a couple slides, and then we'll jump into Q&A from there.

Very good, John. Thank you very much for hosting us again this year. We really enjoy this conference and enjoy having all the meetings that we've had with everybody today have been very informative. So I just have to.

Click on that. Or is he driving it?

I think we're trying to rectify it in the back.

We're trying to sign up for a free trial?

What if we learn more?

How are we doing back there on the slides? Okay. There we go.

Go ahead, advance the slide again, if you will. One more.

There we go.

Quickly, just a quick overview. We really have an underpenetrated market right now, and I know we've had challenges over the last two years and continuing to grow our adoption, but we've always continued to focus on the clinical evidence. We have over 400 publications and more really important publications forthcoming. We're up to 1,300 employees, and most recently on the bottom, we just announced we've crossed over 150,000 patients have received Inspire Therapy. What's so important to the team at Inspire and all the employees and the healthcare providers? It's all about clinical outcomes, and with clinical outcomes, We can push the adoption as fast as we want as long as we never give up on the patients. What's so unique about hypoglossal nerve stimulation is you need to identify when the patient inhales because that's when the airway is susceptible to collapse. So we have a sensing capability, and so when the patient inhales, that's when we provide stimulation to the hypoglossal nerve to maintain an open airway. Now, what we've done with Inspire 5, our fifth-generation device, we've taken a sensor that used to be placed between the intercostal muscles in a patient's chest. And we relocated that using an accelerometer that is now inside the neural stimulator, inside the body of the patient. Same technology that you see with cardiac pacemakers when we do rate-responsive pacing. So as the patient goes jogging, it measures its respiratory rate and paces faster. We can use that same technology to measure respiration. And what we found is it's a much more stable environment. And you see how we measure this called inspiratory overlap and 1% of the inspiratory cycle. Do we provide stimulation to maintain an open airway? And you can see we've improved that from 79% all the way to 87% with Inspire 5. That translates into reductions in the severity of sleep, specifically in this case, the apnea-hypopnic index. The data that you see here is from a clinical study that was ran in Singapore, and will be published in the very near future. A couple key catalysts and updates that I'm sure John will have several questions on. This year has all been about reimbursement. We've had challenges with transitioning to Inspire 5 and what code to be able to use. And when we went back to the code 64568 that everybody has heard us talk about so frequently during the year, that there was challenges using that code and the reimbursement. So we needed to develop a new code as we progressed into 2026, and we were solving that with three steps, near-term, medium-term, and long-term. The near-term was there's temporary codes in place that centers can use to bill for an Inspire 5. Those codes are in place. They've been educated with centers, and centers now know what code they need to use to be able to bill in Inspire 5. Midterm is we want to improve the reimbursement at facilities. That came through last Thursday. Our earnings call was last Monday. Since then, last Thursday, we received the data that the OPPS, or the reimbursement to the facilities for Inspire, went up significantly. In fact, hospital reimbursement went up 11%, and reimbursement in the ambulatory surgical center went up 13.5%. That's really significant as we move forward. Of course, long-term is a brand-new CPT Category 1 code that was recently awarded. In fact, we're right in the process right now for that code being valued, and that code will take effect January 1st, 2028. I already mentioned the Inspire 5 and the clinical data that we had. This was recently. Presented at the ENT conferences, there's two of them, the AAO and the ISSS meeting. And then Project Horizon, Matt will talk a little bit more about this, but as we continue to grow, we took the opportunity to look for efficiencies in our organization. We identified $30 million of efficiencies that we can reallocate towards growth, and we'll let Matt talk more about that. We're going to keep working on expanding our clinical evidence. It's about Inspire 5 performance that I mentioned. Talk about the physiologic disease impact. And what's more important, it's not just about AHI, apnea hypoxic index. It's about that term you see there, hypoxic burden. And that's the challenge that the body, that's the stress the body is under during a night of sleep with apneic events with the oxygen desaturating. And that has direct correlation with cardiovascular health and systemic outcomes. And then finally, what we can do with this is work more so with patient identification and access to care. So quite a bit more moving forward on that. Let me hand it out to Matt for a summary of some financials.

Good afternoon, everyone. Thanks, John, for hosting. So a quick summary of our 3Q highlights. As Tim said, we just had our call last week. So we delivered results top and bottom line ahead of expectations. Although we were declining year over year, we were importantly wanted to step up our revenue run rate from the second quarter to the third quarter. We were able to achieve that. We've got a really strong gross margin for the company, 86%. We were able to expand that year over year, and that gives us a lot of ability to drive stronger operating margins as we continue to grow the top line. We've had a great year of cash flow. We've been able to improve cash flow year over year, even in a depressed top line situation. And the company has no debt, and we can continue to use our strong balance sheet and our cash positions to invest in growth. From an outlook perspective, so 2026, we narrowed the ranges top and bottom line for outlook for the year. And we did introduce a 2027 revenue outlook of low single digit growth as we've been talking about returning to growth in 2027. We wanted to start kind of creating a picture of what that would look like for us as we get into next year. Tim mentioned Project Horizon. So this is something that we announced in our second quarter, or we executed on in our third quarter. It's really about utilizing some. Capacity in our organization, where we'd grown so much as an organization, we were able to look for efficiencies in our organizational structure and then rededicate some of those costs to high revenue generating activities. And some of that we started reinvesting in the third quarter. Some of it will invest in the fourth quarter. We've got some more opportunity to invest as we go through our budgeting cycle and start to choose some initiatives for 2027. I'll drop it over to Tim to wrap up.

Well, again, just quickly, and then we'll go to John for some Q&A, but really enhance coding clarity in 26 and 27, and that really has us in the ability to get back to our game, which the team and the field are very excited about. And then, of course, we have the new code coming as we enter 2028. We're going to really focus on physician experience and patient outcomes, which is so important, and really start continuing to publish our new clinical evidence showing the cardiovascular benefits of long-term use of Inspired Therapy. So with that, John, thanks for giving us a chance to kind of jump through some of those. But let's hand it off to you. Get after some questions? I'm sure you've got some more detail you want to. Just a couple pages. Peel the onion a little bit.

So I'll start with reimbursement, obviously a hot topic, and I'll try to go 2027 and then 2028. Right. 2027 reimbursement, Tim, you mentioned, you know, good news out last week, 11% increase at the hospital, 13% the ASC. It's one of the bigger increases in years that I can remember, you know, from a facility standpoint. So what does this mean for Inspire? In other words, does this translate into, call it maybe more pricing power, or is it just sort of giving some of these facilities a bigger, greater incentive to increase their utilization?

Well, I think we're going to look at all aspects of that. When we put that in perspective, the increases is based on the national average Medicare payment, and those payments are geographically adjusted. So when you go to the southern where the labor rates may be a little bit less, they get less Medicare reimbursement. There is a point in time where... Almost 40% of our procedures could not do Medicare because it puts them in a loss situation. Now with this increase, that really helps out. That gets the majority of the ASCs in the United States in a profitable situation where they can certainly offer Inspire therapy. We think that's really important. We believe, especially with Inspire 5, the technology lends itself to really moving. To an ASC. I assume you have another question on that, so we won't go too far into that pathway yet. But we're going to look at that. So as we put our detailed annual operating plan together on what it is, we'll look at do we maintain our common pricing point? Do we change that price point at this point? And so a little early to think through this because these numbers just came out Thursday. We are highly encouraged by not only the increase in the hospital, but the way in which they calculated. The discount to the ambulatory surgical centers from the hospital and the result being the ASC is actually going up 13.5% is really a distinct opportunity, and we've already seen a trend. of procedures migrating more so to ASCs, and this is certainly one more data point that was going to continue to support that.

So I remember when, you know, a couple years ago when you started pushing into ASCs, you were hoping to really have that RAM. Maybe just level set us. Where are you in terms of, you know, percent of procedures done at the ASC, and then how do we think about that progressing over the next one to two years with hopefully reimbursement a little bit more favorable there?

Sure. I think that a couple years ago, we looked at that and said, you know, it's time to start moving this to the ASCs, especially because we knew Inspire 5 was on the horizon. And once we launched Inspire 5, of course, we unfortunately spent this year focused on coding and getting clarification on what the proper use of the code is. But the ASCs have rebound quite quickly with the new coding. As an example, in the third quarter, 25% of our surgical procedures were performed in an ambulatory surgical center. That's up from just a year ago when it was about 18%. That's a significant change. When we're looking at high signal digits year over year down, yet we're seeing a positive impact in ASCs. That's a really good signal moving forward. That's where we want to be able to move this procedure. And now that we have this in a position where physicians can leverage that. We're going to continue to push that quite harder, and we believe we can get to a point where someday we'll be over half our procedures will be done in an ambulatory surgical center.

Okay, one more in 27 reimbursement. Matt, as you mentioned on your earnings call, you gave the low single-digit revenue growth for 2027. Sort of an early look. You did that on Monday. These codes come out Thursday. What did you embed in the guidance when we think about the anticipated increase that you saw? Does this give you a little bit of wiggle room when we think about the guidance?

Yeah, so, I mean, we factored in that, you know, there's typically nominal increases, and that's what we expected when we gave the low single-digit guide. So, obviously, this gives some tailwind to that, and, you know, it's an exciting opportunity for us to start, you know, doing some of the ASC strategies that Tim mentioned. So, you know, we're looking at it for us as, you know, as a tailwind and another reason that we think we can return to growth in 2027. Okay.

So, 2027 reimbursement I hit on, how about 2028?

That's a long ways away.

Yeah, it's a long ways away, but as you know, you have to start working at it more in advance. So, the new code's in place. It's going to be for you guys and Lee Vinova, not NXOA. We recently heard the survey went out, the RUC survey went out, I think it was like late October. So, the process has started. Help us with the data points going forward. Like, where do we go from November 26 until what? Do we hear anything until the prelims out in July of next year?

Sure. Once the code is accepted by the American Medical Association CPT Committee, then it gets... Sent over to the RUC committee who assigns it to a society to conduct a survey on the amount of work it takes to do that procedure. In our case, it was sent to the AAO, the American Academy of Otolaryngology, who then sent that survey out to its membership. What's unique about. Doing the survey today as it was several years ago when we first did the 645A2 code, there's just so many more surgeons who are trained on the procedure, over 1,500. So when they do the survey, they can get a greater volume of respondents, and by getting a greater volume, it gives a much more accurate picture with a tighter standard deviation. So I think the value that this will create and the eventual reimbursement or the RVUs, if you will, that ENTs will receive will be much more accurate and truly reflect their procedure because there's such experienced surgeons out there. The survey is closed, and the AEO is collecting all that information, and then they will go present that to the AMA RUC committee. And I think that'll happen early next year. That data will then be presented to CMS. I'm seeing if I can get a couple more acronyms in here. But CMS will continue to review that, and the proposed rules will come out in July, just like the normal OPPS.

And that's really the first look we get of it. Do you get anything before then or no?

I think the RUC and the AAO will work in regards to the data itself. To calculate the hours and ideally propose what RV use relative value units that they would like CMS to pick up. But I think the 1st time really publicly, you see something. Formal or tangible is July.

July 27th.

And that's the proposed. And then, of course, it goes through comment period. And then the final rule, just like the OPPS last week, will come out in November.

Okay. And for that pro-fee, Tim, I mean, are we thinking the time to complete the procedure? I think there's also other variables, right? Like in-office support, malpractice. And so... The other two variables that I mentioned, those are sort of static. Those really shouldn't change. Maybe time comes down a little bit because of NSP5 efficiency. We'll see. But if we think about the other variables not changing, does that sort of go into the calculus that maybe there's not a big movement, you know, on the profi for NSP-5?

Well, I think they will look at what data was submitted with the 645A2 several years ago from the middle bucket, the office support side, as long as collecting the data on the amount of work it takes to implant or perform the procedure itself. And they will go back and reevaluate that and work with the REC. It's unsure if it's going to remain static. That's something that the AEO has to work. With the REC committee and proposed that to CMS. The key to the code is there's a lot of experience with InspireFive procedures. Like over 10,000 procedures last year and tens of thousands again this year. So there's a lot of experience for CMS to be able to do a read across, if you will. But they did conduct a formal survey, which I think is really good. And again, just highlighting if we can get a significant number of respondents, That gives a much more accurate measure. But I don't know if we're looking for anything earth-shattering one way or the other.

Okay, last one. Sorry, then we'll move on. Should anything happen on the facility side of things, or is that more sort of straightforward?

Well, again, I think there's enough experience with Inspire 5, both with 64568, 64582, as well as the new C code that was issued by CMS earlier this year, that they all map to that Level 5. So I think you can see a read across where it'll map to the same facility reimbursement.

Okay. I'm going to move on to a different topic, and then Matt, I'll circle back on guidance. But in terms of new topic, coding and billing. So the codes moving around, you know, then you go over to the C code. You had to go back out to a lot of your facilities, roughly 1,600. At last count and educate them, right? Here's the process. Here's how you do the procedure. Here's how you build. Here's how you build for the procedure. Pardon me. Where are you with that process? Obviously, you prioritize your high volume centers first, but maybe talk us, walk us through the, where you are amongst the 1600 or even more specifically amongst some of the high volume centers.

I think the information is available to all centers, and I believe... The great majority of the centers know how to bill an Inspire 5 procedure today, and the key is being sure that once they bill it, that they can audit it to make sure that they get the proper payment, but what hasn't changed in this whole process is coverage, either from a commercial, Medicare Advantage, or the max, and the coverage has remained very solid. We are able to get prior authorizations as long as they have the proper coding, and we've been able to show that the reimbursement is really consistent between the codes that have been educated, so we're kind of getting a lot of that behind us. The MACs have really become a little bit stable. There's a couple that require a modifier, but even using a Dash 52 modifier is not. Um, been problematic in the field. So coding is really kind of settled down now. And I think it's going to stay that way, especially because. The commercial peers and Medicare, they know the new code is approved. They know that by mid-year, they need to start preparing their system to go to the new code that will take effect January 1st, 2028. So I think the coding aspect of it, I think, is really going to settle down and stabilize.

And should remain that way until you start talking to these centers in, I don't know, July or August of next year. To start wrapping up. Here's where you got to go to the new code starting January 1 of 2028. Okay. And how about new facilities? If I rewind the clock, you know, three or four years ago, or even more, when I thought about Inspire's Growth Algo, it was driving utilization of existing centers, but then you would give us a new facility number, right? And how many additional facilities you were signing up. So you would get a contribution from like a new store. Correct. I'm guessing that was probably pretty difficult over the past nine to 12 months with reimbursement and flux to go to these facilities and say, hey, sign up and make this part of your hospital when there was a lot of difficulty billing. So if that's settled down, are you back on your front foot in terms of signing up new facilities and having that contribute to top line growth?

Sure. I think that it's a little bit of a relative scale, too. We have a much larger presence out in the field, and so when we open sites, while we may not open to the bolus that we used to in the times that you're referring to, but we're pretty consistent throughout the year at opening new territories. Even with this coding situation, we do put a focus on ambulatory surgical centers as well. But now that we're getting into the fourth quarter, we are starting to lean in. And I do think with the OPPS last week, that is even further. Ability to accelerate the ramp up. I think the key to it, when you look at our growth algorithm between increased utilization and contributions from new centers, with the number of centers that we have, you just aren't able to really drive the new center growth as much. So we still focus on. We're going to increase utilization as a key part of our growth, but complement that with opening new centers. So I would expect the fourth quarter we're going to see a significantly higher number of centers open up as compared to the first three quarters of the year. That was still okay, but more nominal with what you saw in the past.

Okay. And how has the retention been with the current facilities? In other words... Did you get a lot of drops in facilities that stopped performing the procedure still to this day when reimbursement was in flux?

I think that we had a pause and a slowdown at centers, but we don't see a lot of drops. And the reason is people are comfortable with the outcomes and they're comfortable with how the patients respond to the therapy. So we want to re-excite those centers, but we want to make sure that they get back to a utilization that's worth their while. And worth everybody's time. And what I'm trying to say by that is centers that have the highest utilization have the best patient outcomes. It's because they're practiced. Everybody knows their role. So we really want to focus on centers that have the highest utilization. And if they can't get there, we might slow them down a little bit and say, let's kind of work on your center a little bit. They may or may not continue on the website per se. So we'll. Focus on fixing them to get their utilization back where we can really highlight those centers that can handle the patient flow and really show the strong patient outcomes.

Okay. Got about a little less than 10 minutes left. I want to hit on 26 guidance and then 27 guidance. So for 26, the revenue guidance is down 6% at the midpoint for the year. For 4Q26, the guidance reflects down 10% at the midpoint. But you're still up high teens, 3Q to 4Q. And that's really representative of what's gone on the past two years, the 3Q to 4Q. So maybe talk to us about what you're seeing in the field currently. And how are the prior authorizations with the commercial payers trending, you know, as you worked your way throughout 3Q and even the beginning of 4Q, because that's an important component when we think about the fourth quarter.

Yeah, I mean, one of the most important things for us is driving improved utilization, right? So as Tim talked about, as we came through the disruption the first half of the year, a big focus for us is to start building back that ability for the doctors and facilities to scale back up and get to their utilization. So that's something that we've been watching, something we've seen great trends in while improving trends in as we've gone through Q3, leading to our revenue improvement sequentially. And we expect another improvement in Q4 to be able to drive to the numbers that you mentioned. So seeing good trends there. Prior authorizations, we're really focusing on continuing to go, continuing to try and reduce the time it takes to get someone through prior authorizations, because if we can accelerate that, We can accelerate the ability to get more implants in in the fourth quarter. So if we're focused on that and really trying to operationalize that as we hit the fourth quarter, and, you know, we do expect kind of our typical seasonal improvement, but we want to see some of the underlying organics improve as we step through Q4.

And Tim, you used to always fight capacity a little bit in the fourth quarter, right? How do you feel on that front?

We have more, with the ASCs, you have more flexibility in scheduling. And so a key measure that we use inside is the time from a prior authorization to an implant. And in different facilities, that can be much shorter. And so, as Matt mentioned, that gives us an ability to still perform prior authorizations even in December and get those cases done by the end of the month. And with ASC, that gives us much more flexibility in scheduling and availability of ORs, and so we like the higher percentage there. But nonetheless, all of our territory managers are working with their facilities to make sure that they are reserving OR times later in the month. We know our busiest implant week of the year is between Christmas and New Year's because all the individuals, the patients with their high deductible insurance plans demand they've got to get their procedure this week before their $3,000 high deductible, whatever it is, resets on January 1st. So we all start doing implants on Saturdays, of course. And people, our team and the physicians and healthcare providers, they really start ramping up. They know the big push is going to be at the end of the year. That's always very consistent.

Okay. And sorry, guys, if you have questions, sometimes I've got my head down, just throw up your hand. I do want to pivot to 27 guidance, ask about, you know, the absolute, and then I want to make sure I hit on the cadence a little bit, because I think the street's a little off on one cue. So you got a low single digit revenue growth implies 870 to 875 million for 2027, roughly. Just talk to the dynamics that allow for the resumption of growth. Like, I can think of a lot of variables that sort of Easy Coms, Project Horizon, you know, some of the 120 that maybe comes back next year. But, you know, what went into your calculus when you're pointing to the resumption of growth in 2017?

Yeah, let me comment on this and hand it over to Matt to just talk about some of the cadence that you referenced as well. I think the key is looking at where we're coming from. And so it's been a challenge as we kind of work through this year to go to have an experience where we're having the high single digit down. To get the back to the growth and so we're excited to be able to commit back to the growth and start looking at setting that up as low single digit growth. And again, it's all about patient outcomes and being able to help patients work through that process to get back to where we need to be back in a growth situation. And then from there, keep leaning in even further. But if you want to comment a little bit on cadence, too.

Yeah, you know, one thing that's really kind of been very consistent for us, if you look back to 2025, 24, 23, and look at the amount of revenue that's done in each quarter relative to the full year's revenue, it's been very consistent. So as we're trying to provide some early color on 2027 with low single digits, the way we're thinking about that is we expect to kind of return into that similar cadence. So that similar distribution of revenue of the full year into the quarter should be pretty consistent in our view right now.

And so I went back and I pulled some of that because I think we had a little bit of this conversation after the earnings call, and you're usually around like 21% of revenue in 1Q. So 21% on your full year gets you to about 185-ish in 1Q, and streets goes for like 193, give or take.

And that's natural. That's where we are today, kind of moving back up, maybe a little still negative in Q1, but then turning profitable at that point. Yeah.

Okay. I'll hit on this one quickly. Replacement opportunity. So I've been following you long enough to know about this one, right? So what are we doing here? We're pulling the procedures from 10 years ago. We're putting some conversion rate on it. You know, what we're doing is we're pulling it from 10 years ago, Tim, 75% conversion rate and an ASP on generator only of about 20,000. Just maybe your thoughts.

Yeah, I think that's a very similar way that we would think about it, right? I think there's a blend of where that is at exactly somebody from 10 years ago, or there's a kind of a blend over a couple of years. But I think you're thinking about it the right way, and we're looking forward as we start to go back now 10 years and see how that revenue almost doubled every year that we get more significant contribution from that replacement revenue in 27. And then, you know, as we step in years beyond 27.

It's exciting that after all these years, for the first time, we're talking about replacements. And it's going to just continue to build and add to everybody's models. And we're excited about the patients coming through and continuing on with their therapy. And the patients who are coming through now have the old Inspire 2 unit. That they get replaced with an Inspire 5, which is about a third of its size, yet still gets 11 year battery life. So they get a significant technology improvement.

And maybe that's a good segue to the last topic, which at least I left you one minute for. When you see improvement, talk to us about innovation. You alluded to Inspire 6. And somewhere in there, how does Inspire want to get at the CCC opportunity long return? Sure.

I think that let's jump to the path with the technical roadmap that we have. Inspire 5 really increased outcomes as we showed on that one chart. And it's because of the inspiratory overlap in our algorithms. But what limits it today is people don't use the therapy all night, every night. CPAP's a great therapy, but people don't use CPAP to the level that they need to. Inspire 6 is going to have sleep detection to it. And so when the patient falls asleep, the device will turn itself on, and we can take therapy adherence to the highest level, thereby taking outcomes even a step further. There's further developments down the road with Inspire 7 and beyond that we'll get into at a later date. But the digital tools are going to continue to evolve. How we communicate with the patients, that once they come to a website and identify themselves as a potential patient, we know that if they're a qualified patient, that we can communicate even texting with the patients to get them the information that they need. So when they see the ENT, they're coming in decision ready. And then finally, post-implant, we want to make it easier for the sleep physicians to be able to manage these patients, and one of the avenues that we're really focusing on is remote programming. So the physicians can program from their office to the patient's home, and I think that's going to really make it a lot easier for the patients, and again, allow us to focus on what is our number one priority, is prioritizing patient outcomes. So it's been a long, tough year, and I give credit to the Inspire team, the whole field team, for their positive persistence to be able to overcome challenges, especially when you get these challenges with a reimbursement. The key with reimbursement is there are difficult problems to solve, but they do get solved. It just takes time. And we're at the point now that we're transitioning to the corrective action side, and we're seeing the improvements of reimbursement next year with a new code scheduled for the following year. Fair enough. Thank you for having us.

Thanks, Tim. Thanks, man. Appreciate it.

Thank you. Very good.