Inspire Medical Systems, Inc. Aktie

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Conference.

And we'll start out with you and, kind of, new CFO at Inspire. And how should we think about kind of the guidance setting strategy and kind of your handle on the CFO at Inspire.

Yes. Yes. Well, first of all, thanks for hosting me. It's a great conference. Glad to be here. Thanks, everyone, for attending this morning. I'm excited to be with the company. Obviously, we're in a period of transition right now. But with the kind of market, the kind of product we have, what we do, very excited about the future. One of the things that as we've gone through this more current trend of top line challenge is I've been able to come in and help us really focus on some of our cost discipline and not necessarily how much we're spending, but what we're spending on and do a lot of prioritization.

We want to continue to recognize the top line situation we're in this year, but we're still investing for the future. We're still investing in revenue growth. We're still investing in product development. And I think there's lots of opportunities for us to continue to get more profitable. And as we move through this kind of transient period of reimbursement challenge, get back into strong growth, we're going to be able to come out of this kind of leaner and meaner and be able to manage our spending, I think, really well. And I'm excited to be able to bring some of the experiences that I've had doing that and excited to learn a lot about the business and kind of see how I can plug in and help continue to improve.

And Tim, I think we've been on the stage 7 to 8 years in a row or something like that outside of COVID. And I think for many of those years, you were probably one of the highest growth companies [indiscernible]. And a lot's happened in the business maturity as all businesses do. There are a lot of factors though that externally you haven't controlled that kind of came out of nowhere. Maybe I'd just start at a higher level, like what have you learned through all this last few years have been a little more challenging? And how does that kind of set you up for the go forward?

Well, I think that's a great question to start with. I think what you really got to understand is what you can control. And what all the team, all the employees really focus on is patient outcomes and the product that we deliver and making sure that the outcomes are as strong as they can be, both safety and effectiveness. And we're publishing new data now on the Inspire V, showing just the highest standards.

But also over 10 years, we now are publishing evidence of cardiovascular health. So in other words, Inspire is really making a difference for people, not just in their quality of life, which they are, not just in reducing the severity of their sleep apnea, but also long-term health benefits, and that really has a long-term implication for not only the individual patients, but health care companies watch that very, very closely.

So the team really focuses on that and focuses on the growth. Yes, if we go back through those 8 years and look at everything from COVID, in fact, I remember having to cancel 1 year because of COVID myself. But the COVID, the GLP-1s last year, we had challenges manufacturing enough Inspire V to launch that in a timely manner. We were able to do that at the end of last year and really showed really good momentum.

We had 10,000 units delivered to patients last year using one code. And this year, that code gets pulled out from underneath us. So it's a test of resiliency. And I think the lesson that we learn and share to everybody is it is about positive persistence. That is the motto of the company. That's what we value most. Things happen during the day.

And as we are really a one therapy product, we're susceptible to those elements, and we just have to work through those and understand it. And coding is the topic of the day, obviously, but it's a clear process that you need to work through, but it takes time. And so the confusion that's created in the early part of the year, we need to work through that, educate centers and then work towards our long-term solution.

We can help control that, but we have a lot of external forces on that, too, with several government agencies, physician societies and input from our centers and our physicians as well. So it's really about just staying true to who we are and staying committed to the patients.

Maybe kind of transition to the 2026 outlook. So set a guide 3 months ago and then kind of changed, lowered the guide this time. Maybe just walk through kind of what changed in the last 3 months in the market in your business that made you adjust the guidance.

Well, I think the -- I'll comment and I'll ask Matt to comment on it as well. The demand and the excitement of the patients wanting therapy hasn't changed. Our ability to deliver that has changed because the coding has upended. And so what we saw in the beginning of the year is early on Medicare being able to use CPT code 64568, that transitioned over to 64582 and the debate on with or without a modifier. And I think everybody kind of played out that story.

So as we transitioned through the first quarter and we kind of looked at the leading indicators that we have, which primarily is prior authorizations, we're so involved with that, helping centers prepare the prior auths. We can see that the dip in the prior authorization submissions in the first quarter. That's because centers want clarity on the coding. They want to make sure they understand what risks do they have, not just Medicare but commercial Medicare Advantage.

And so they kind of calm everything down, tap the brakes and say, let's make sure we understand that before we start to ramp back up to it. As we transition through the quarter, more changes happened because we're able to get the C-codes with CMS. That was a positive. We saw several of the MACs come forward getting -- adopting the C-code and specifying 64582 without a modifier. And most lately, we did have a MAC come out with a modifier. And so now we have to kind of work through all those key elements.

The key to it is centers are getting more and more comfortable. We're educating centers one at a time on their coding strategies. There's variance from center to center. But we're seeing indications of the prior auth coming up. And that's why when we put our guide out, we know that second quarter is going to be the low point because there's about a quarter shift in prior auth. But with the indicators, we can see that improving through the year. Anything you want to add to that?

No, I think it's very much what Tim said. It's -- you're getting new information introduced and then you're getting time to understand how everybody is going to react to that. And like Tim said, when we started the year, it was more of a focus on the modifier that's shifting now to what we're seeing trends in prior authorization and how people are interpreting and applying the new coding guidance that's out there. And so we're trying to use the data that we have. We can see a lot more clear in the next 3 months and then use some reasonable estimates to extrapolate the rest of the year.

There was a little bit of a -- it's hard to kind of reconcile the Q1 to the Q2 guide takedown. It was like a 20-point lower in Q2. So -- and then from there, it's also hard to reconcile kind of usual sequential seasonality in Q3, but you're assuming the stability. So can you help us first like understand why such a step down in Q2? Is that conservative? Are you just taking a reasonable approach to setting Q2? And then why the confidence to get better in Q3?

Yes, yes. So the big impact between Q1 and Q2, as Tim mentioned, is we see the rate of prior authorizations in Q1 declining. And we typically see about a quarter lag of impact between that rate decline and the impact to revenue. So we can see what that Q1 experience is and then we translate that into revenue for Q2. That's the biggest change from Q1 to Q2, bringing that down. We said 9% to 11% decline on the top line.

And then at the midpoint for the rest of the year, the implied guide for the second half of the year is about a 9% year-over-year decline. So if you do that, it still implies that sequential revenue gets better from Q2 being kind of the low point for the year into Q3 and then Q4, but from a year-over-year decline, only really slightly better as we move through the year.

And how do we go from down 9% in the second half to growth in '27?

Well, I think we stay focused on the patient, as I mentioned before, and we know the demand is there, and we improve our ability to help the patients get that first appointment. But what's most important is we gain experience with the centers using the codes. And we educate centers one at a time. We start with the highest volume centers and make sure we have meetings so they understand coding what's appropriate for Medicare, what's for commercial, what's for Medicare Advantage.

As we gain experience and centers gain experience and confidence and understand their risk profile, they're able to expand and bring more patients in. We know the patient demand is there from our leading indicators from our website and our calls are the ACP, the Advisor Care Program and setting up appointments. So we still work those elements of it to make sure that we build efficiencies there. And so we, again, focus on the demand, but get the experience with the centers with the coding. And as we progress long term, we'll work towards a full-time solution with a new code, of course.

The only thing I'd add to that is just, obviously, we're expecting that decline to be pretty significant in Q2, Q3 and Q4. So eventually, you're annualizing that and you're building off of that, and we're assuming that the industry gets more experience and gets better from there.

And I don't know if you can help quantify what growth means in '27 or if you look at where the Street shook out and any kind of color on what growth in '27 means?

No, we didn't specify that. It's really early. I mean, it's only mid-May right now. So we have a lot of time. We have to go through our strat planning for next year. We do track all the TRx for the GLP-1s. We track all the CPAP new starts. We track claims data, our own prior auth data. So we look at all of our leading indicators.

We do know where Street settled out and I'm a little hesitant to comment on sell-side estimates in a public forum, but I think everyone got the message that while we are anticipating a recovery in revenue, that does not mean a new double-digit growth rate, right? So I think people got that message.

Okay. That's helpful. And then the modifier, like even since the quarter, it was like one of the MACs came out and said use the modifier. So can you just help us understand what's going on with the modifier, why is it important that there's consistency there and kind of what it means that there's different MACs saying different things.

Yes. It's debated by many agencies from the MACs, which are the regional medical carriers, of course, by CMS, which is the whole Centers for Medicare and Medicaid Services as well as the AMA. All have weighed in a little bit in discussions on that, and there's concerns about even using that modifier because it's anesthesia-based and using that as a full-time solution is just not what modifiers are set up to be.

So a lot of the -- 3 of the MACs came out without the modifier. In fact, one of them actually took any reference from modifier out of there to be clear. Most lately, one MAC came back and said, yes, let's put the modifier in there. The key is we're now using 64582, which is a CPT code that has the pressure sensing lead that's part of Inspire IV. As we go to Inspire V, that sensing lead is now internal to the neurostimulator and the code doesn't perfectly describe it.

But if you look at the way the valuations are set up, it's not just the OR time, it's all encompassing from office-based time to various calculations. And so just a minimal amount of time is really impacted by going from 4 to 5 as far as RVUs, relative value units associated with the 2 CPT codes. And if you look at the national average Medicare difference between 64582 and 64568, it's only $63.

So while it is an improved procedure to not put in the pressure sensing lead in the big picture, it doesn't change that much. So we educate the physicians, in this one case with this MAC, there's 6 states involved with that. We educate the surgeons on how to bill it. There's a separate information tab that goes in, that gives the full justification of what would be the appropriate reduction.

And we believe it should now be between 0% and 10% because that's the experience that we've seen as we've gotten to this point in the year, and with all the discussions that we've had. So again, it still provides -- it's still a level of confusion out there, and there's variability from site to site, and that's kind of how we're navigating through this.

I think there's maybe some that have suggested like a 50% cut in pro fees. Are you seeing that though?

No, we haven't. We've seen just a couple of examples of people using a modifier and it's been in the 10% range. If you Google [indiscernible] 52, I think it will pop up and say 50%. But if you look at the 2 procedures, Inspire IV to Inspire V and not just surgical, but global, there's just not that much difference in there and the MACs certainly understand that.

Okay. And then why are we seeing kind of an impact on the commercial side as well? And I think that was a little bit of a surprise this past quarter.

The administrators like to go and instruct their coding people to use one code for therapy. Well, we don't have that. We have a decision tree now, right? If you're Medicare, you got to code of the C-code and 64582, and if you're [indiscernible] state, you do have to do a modifier. If you're commercial, the good news is those are prior authorized. And so you can get the code and clarity upfront, but they want to slow down. And what we saw in the first quarter, centers want to understand this is our coding strategy. This is what we're going to do.

There's been some large payers that have said, no, we're going to do everything one way, and we're going to get prior authorized this way. And can you prior authorize 64582 for Inspire V? Yes, because that code is in the commercial policies as well as 64568. So centers do things slightly different. Our job is to provide the education so they're comfortable that they can code and get paid.

There's 3 legs of the stool: coding, coverage and payment. And what's really not being discussed is coverage. We have coverage with all the payers, with all the MACs. Everybody understands this is a very viable and necessary therapy for the patients who are indicated. And with the code 64582, we know it's a Level 5 APC, the C-code pays the same. And so there's consistency there. We just got to get them comfortable in understanding how to instruct their coding people in the hospitals to properly bill it.

Can we dig into that a little bit in terms of like kind of center by center, like how are you getting centers comfortable on how to bill? And are you seeing any evidence of like once you do get them comfortable kind of volume returns, prior authorizations return kind of the leading indicators are heading the right direction?

So we have ramped up our market access team because this is obviously the big challenge. And it's not just our in-house team. We've hired more market access, market access, reimbursement people in the field to be able to support these cases. And we have a coordinated program to list the centers and proactively schedule business reviews and education reviews.

And not only are we talking about the no coding, but we want them to audit the cases that they have done. We want them to see what payment are you receiving? Is it appropriate? Did you bill it correctly? And so we can do a corrective action at that time as well and start at the top and work all the way through. And early on, we see signs that, yes, prior auth is changing and people want to get the coding laid out.

As an aside, we do have Inspire IV offered for all centers. If they want clarity of coding and clarity of payment, Inspire IV is still there. And we're able to offer that because it's a differentiated product at a slight discount, so they can be able to handle that if they want to really be risk averse and not go down that and have clarity on coding. But I think what we're seeing is people want to figure out the V, and they want to figure out the coding and they're going to keep fighting to do that.

Yes. Why not just to be like, hey, let's hold off Inspire V. Let's wait until we get our CPT code and then let's do all Inspire IV until this figures out and it's kind of business as usual.

We have that ability with Inspire IV, but people have experience with V. They know what V is. They know the outcomes. They know the comfort of doing that implant. It's really about ENTs not having to put in that pressure sensing lead. We talked about that way back. That is kind of one of the key benefits of Inspire V. So they want to fight through it.

That's fair. On the CPT code, I guess that's kind of the ultimate goal here is to get the new code. Can you help us walk through kind of the pathway and kind of what you do know and what you don't know at this stage?

Well, we do know that it was submitted and reviewed. We do know that it was discussed at the AMA CPT panel last week or a couple of weeks ago. We do not know the results. That is a different vote. But there's still another window, another cycle in this annual cycle. So if it's accepted, it goes to the RUC committee and the RUC committee does the valuation come up with the RVUs for that procedure, and it becomes effective January 1, 2028.

If it's not accepted, we get feedback to answer some additional questions. And there's another meeting in September that still holds the same January 1, 2028. So let's -- we're just going to wait and the minutes are to be out soon. It's a long-term solution, so it doesn't affect anything in the short run, but we'll at least get clarity to be able to respond to that, and we'll be back in with another submission in June if it doesn't go through or the AAO will be doing a RUC if it does go through.

Do you have any color on what happened in May, the meeting at all?

We were certainly there. We presented. They asked the normal questions, we think, and then they took a vote.

You don't know what the outcome because you can't see what the outcome?

I don't have access to that outcome. But the key is make sure you understand both sides to it. If it goes through now we got to make sure that they do the RUC properly and get a proper valuation. If it doesn't go through, make sure we understand what were the debates or what were the questions that were asked, so we can provide feedback on that as it goes back for the next review. So either way, we're still running the program.

So you have one more -- if it doesn't go through from this May meeting, you have one more chance to keep the same time line?

September -- yes, there's 3 windows in the same time frame. The November -- so that's September, the November meeting actually goes to the next year.

Okay. So if you don't get it in May or in September, then it's a year delay. So it's 2 chances?

Yes, if you got to go back to November, yes, it would be another year delay.

Making sure we understand kind of the timing.

That's the way AMA works.

Okay. Helpful reminder. And then in terms of the RUC analysis, like what's the confidence that you actually get the dollars that you need for this procedure?

Well, I think the physician society looks at the reimbursement of the code and even though it's been established for some time, I still -- they feel that it should probably be a little bit more for the amount of work that it takes for an Inspire case. And I think that's probably one of the concerns as the AAO wants to make sure they're ready to do a RUC and they get a fair valuation for the work to be performed.

But they're very experienced in doing the RUC surveys. They know how to do those surveys fairly. The good news between now and back in 2018 when this code first came out is we just have so many more surgeons, right? We have over 1,500 surgeons that have skilled in Inspire IV and Inspire V. And so they just have a greater sample size to be able to work from. But that's the AAO. They know how to do these surveys.

Like do you think in terms of -- they kind of see this as an unusual circumstance, like there's -- there needs to be clarity here. Is there -- one, is there any ability for them to accelerate the process and do something unusual that's not typical from a time line perspective? Or does it maybe give you a little more confidence that you're going to get a better outcome or higher probability of a better outcome because of kind of the unusual circumstances?

No, the society was involved from the beginning, and they've been very proactive. They communicated with the MACs, they communicated with AMA, they communicated with CMS. They wanted 64568 for obvious reasons. They are okay with 64582, and they put mentions out on the modifier and how to be able to establish the proper payment if you did use a modifier. And they do want a long-term solution for their membership. They're actively engaged, and they really know that this is an important factor to make sure that we get this right.

As far as changing the AMA schedule, that doesn't happen. AMA has the same schedule that's been years and years. And you know there's 3 meetings for each annual cycle, and we're right in the middle of it. There's one more meeting in September for that cycle. And becomes effective January 1, '28.

Okay. That's fair. WISeR, I think one question is you've talked about WISeR, but we're not hearing it in other places from other companies. And so I don't know if you have a view on why you think it's impacting you more than other companies or why you're seeing it more?

No, I think it's in 6 states, it's impacted with the prior authorizations in those 6 states, I don't want to sound like a broken record, but the #1 issue upfront is coding. And so initially at the beginning of the year, we were doing WISeR with 64568. Well, when that changed over, the WISeR systems, and there's 6 independent systems, they all had to change to 64582, and they don't allow a modifier because there's only -- it's an electronic portal. They haven't included the C-codes yet.

So there's -- we're kind of affected a lot by the coding aspect of it as well. And then it does go through and there's different prior authorization reviews for each of the 6 states that are involved in the WISeR program. We are learning quite a bit. The systems are getting updated with the proper coding right now. So as we have more experience and the centers have more experience, as we mentioned on the call, we can see this improving as we move through the year, but it's just a tough start-up with it, with the coding variations and just the prior authorization variation state to state.

I think WISeR is in a pilot stage now. When does it move to a broader stage? And what's the impact when that happens?

No, I think this is all opinion now. I think the government will look at that and is it effective in these 6 states? And do all the therapies that are in the pilot stay in the pilot? Or does it show consistency? And does it go away or does it expand? I think it's kind of really anybody's guess right now. The good news is people have experience with it now. So if it expands to additional states next year, people at least know what it's like and they know how to educate centers to manage it.

Maybe help us walk through kind of why there's a bottleneck with Wiser and what are the things that you can do to kind of push patients through faster?

Well, I think it's really just centers. WISeR introduced the concept of prior authorizations at centers and Medicare cases have never been prior authorized. So really, the whole bottleneck is those patients have to be through the prior authorization process and centers need to make sure that they put the proper information into the WISeR portal. It is an AI system that reviews those.

And if they are rejected, we do know how to do the appeals and the appeals are peer-to-peer. And so once we get to the humans, we are able to get those approved. But that's a time lag. Ideally, if we can get those approved right upfront, that really streamlines it. So get the coding clarity first, then make sure we understand centers have the proper documentation to be able to get through the prior auth. And that's what we believe will streamline as we get through the year.

Okay. And then you did call out GLP-1s. I don't know how much of the impact was that, but I think it kind of leads me to even wonder, you've got all these kind of different pressure points. How are you kind of quantifying how much is WISeR, how much is coding, how much is GLP-1s and how much of that is the GLP-1 impact?

We track our leading indicators. We do know our web activity. We know how many people go to the call center for appointments and really, as we discussed, tracking the prior auth. And so we can kind of get a good feel for what impact is from the coding, which is the majority of it. And we have discussions with every center. Our territory managers are closely involved with each center.

So we have a pretty good feel for that the coding is really the key impact right now. We always highlight GLP-1s. We do think long term that it will be a benefit for patients with sleep apnea, increasing the diagnostic rate, and you're hearing that from other companies by CPAP prescriptions. And I think that's going to help our business in the long term.

Again, what we always highlight with GLP-1s, it is a different mechanism of action. It addresses the lateral wall where we address the tongue-based obstructions. So we always want to highlight. We're aware of it. We know sleep physicians are now active in prescribing GLP-1s, but I think they tend to be prescriptive. They know the higher BMI patients should go on a GLP-1 because they're going to have a hard time passing the sleep endoscopy and qualify for Inspire as is. But we also know there's patients who go on a GLP-1 lose weight and do qualify for Inspire.

And what are you assuming or seeing on the competition front?

I think they put out their information yesterday. I think it's very early on. They don't have a significant impact right now. I think they're having -- our centers will trial their device, of course, and I think that's probably what you saw yesterday. But we need to stay focused with our centers, make sure they work through the coding issues.

And going back to what our opening comments were, our physicians know the outcomes you're going to get with Inspire, especially with Inspire V with the new data out there, we're setting the bar on safety and efficacy that the physicians know what to expect. And I think that works as the baseline.

So they're working through the coding with Inspire V in mind. So we're going to keep running our game and keep improving the product to make sure it works best for our patients. We know we're going to have competition. We're okay with that. I think that is healthy for the overall market, but we're setting the bar high for what those competitors have to be as far as safety and efficacy and what patients should expect from such a therapy.

And then as growth has slowed, how are you thinking about profitability and spending? And you talked about spending more on some of these market development reps and you've got DTC advertising you have to think about as well. Like how should we think about margins and the impact? Can you continue to keep profitability where it is?

Yes. Well, I mean, kind of in conjunction with the revenue takedown, we did take down our operating margin target for the year, but we're very focused on delivering that, and we were able to overperform in Q1 on the bottom line, and that's a lot of focus of the team.

We're continuing to focus on that and prioritizing, right? So we talked about on the call, we're going to spend less in DTC this year than last year, mostly because in the second half of last year, we put some additional investments in there, but we want to make sure that we're keeping a foot on the accelerator there, keeping patients in the funnel.

We've got a lot of projects to continue to improve our conversion rate through the funnel. But right now, we want to also invest in education that we have in the field around coding. But we're making really strategic choices, I think, are going to help set us up for the long term as we continue to grow, we'll be able to improve our profitability over time.

Great. Anything that I didn't ask you want to cover?

No, we really want to make sure we covered our outcomes to make sure we cover the response that we had to the Inspire V system. We're so proud of the team for developing that product and the impact it has. And we have to work through the coding because we can't really highlight the true benefits of what Inspire V is and what that sets up for our pipeline in the future.

Great. Thanks a lot.

Thank you very much. Appreciate it.

Thank you.

Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Inspire Medical Systems First Quarter 2026 Conference Call. [Operator Instructions]. After the speaker's remarks, there will be a question-and-answer session. I'll now hand the conference over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.

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 3 months ended March 31, 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 and 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 March 31, 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, May 4, 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 start by providing some key takeaways of our first quarter results including an update on coding and reimbursement. I will also provide some insight into our revised outlook for the year, and we'll then turn it over to Matt, who will provide additional insights on our first quarter and full year financials. We will then open up the call for questions. .

First, I want to highlight how pleased we are with the team's execution in the first quarter. Despite challenges related to coding and reimbursement uncertainty as well as the Wiser program, the organization delivered revenue growth and improved adjusted operating income and operating cash flow compared to the prior year period. In this environment, it is critical that we focus on the factors within our control.

Our first quarter results demonstrate this as well as our focus on prioritizing revenue-generating activities and maintaining disciplined cost management while continuing to make targeted investments to support long-term growth. We believe these actions position the company well both in the near and long term.

As we progressed through the first quarter, we saw many developments with respect to coding and reimbursement, and we are diligently working to establish a consistent methodology to coding of the Inspire V procedure in the short term. The long-term solution is to establish a new CPT code for a single lead Inspire System. This is a long process. And if approved, we expect this new CPT code to become effective on January 1, 2028.

Therefore, we are establishing short-term remedies for the various payers to bridge until the new CPD code is in place. For a center is concerned with the Inspire V reimbursement, we have inventory of Inspire IV, which has proven itself to be an extremely effective therapy with clear coding and reimbursement.

As for coding for Inspire V systems, we are working with physicians, centers and payers to establish clear and consistent coding and reimbursement guidelines and there was progress in the first quarter. For Medicare patients, the Centers for Medicare and Medicaid Services, or CMS, announced the creation of a C code to be used with Inspire V procedures. And the Medicare administrative contractors or MAX, are beginning to incorporate the C code into their local policies.

This provides a reliable solution for hospitals and ambulatory surgical centers and importantly, the facility payment is equal to the Inspire CPT code 64582. Staying with Medicare. For physicians, currently, the MAX list the Inspire IV CPT code 64582 without the use of a modifier. As such, the majority of Medicare cases this year have been built without the use of a modifier, and we will continue to monitor this throughout the year.

At this point, the commercial payers continue to list CPT C65 for Inspire procedures. There is guidance provided by societies, including a nonbinding newsletter from the American Hospital Association recommending the use of an unlisted CPT code specifically 64999. However, the use of an unlisted code requires manual reviews and additional support from centers.

Because of this, many centers and pairs may be reluctant to adopt the use of this unlisted code. The good news for commercial payers is each case is prior authorized, meaning the building code is approved in the prior authorization before the procedure, significantly reducing payment uncertainty for the center.

Medicare Advantage is managed by commercial payers and we recommend consistent coding practices as defined by the payer, and Medicare Advantage patients are also prior authorized. Although challenging, there has been progress in coding and reimbursement. And we've seen initial billing practices being established by physicians and centers in response to the changes in coding.

However, we recognize that significant uncertainty remains, and we will continue to support our customers as they navigate the path forward. This coding uncertainty has adversely impacted the number of patients in the pipeline, including the number of prior authorizations submitted to commercial payers as we moved through the first quarter.

We expect this trend to reverse and improve in the remainder of the year as we continue to support prior authorizations and build confidence in the coding processes and guidelines. To further support patient access to therapy, we are increasing our assistance to customers by providing additional proactive education relating to prior authorization and billing processes -- and we are adding to our field reimbursement team.

Our goal is to provide as much clarity to our customers as possible to mitigate disruptions to patient access to care. Switching to the Wiser program. Wiser is a government initiative requiring AI reviewed prior authorization for Medicare cases in 6 pilot states and the program kicked off in mid-January of 2026. During the first quarter, the Wiser program created prior authorization delays for traditional Medicare procedures in the 6 Wiser states, resulting in a headwind to our first quarter revenue.

As we continue to gain experience working with the new systems in these states, we anticipate the headwinds to abate in the remainder of the year. With the ongoing coding and reimbursement challenges and the Wiser program impact, we are revising our full year revenue outlook.

In light of our lower revenue outlook and as we demonstrated in the first quarter, we will continue to be disciplined with our spending and focus on prioritizing revenue-generating activities while still making progress long-term growth investments.

In addition to enhancing our support to customers for proactive education and assistance with prior authorization and billing processes. We are also prioritizing projects to drive an improved patient care pathway enhanced marketing effectiveness, improved digital product experience, continued R&D for new product development and operational efficiencies.

We believe that these projects in these areas can begin to deliver returns in the second half of 2026 and accelerate in 2027. We continue to remain focused on our commitment to put the patient first and deliver strong patient outcomes. We continue to believe that there is a large untreated population of people struggling with sleep apnea that can benefit from Inspire therapy, and we continue to be encouraged by the strong adoption of Inspire V and the positive data we continue to collect.

At the upcoming Sleep conference in Baltimore in June, we will be presenting the full results from the Inspire V conducted in Singapore. While we have previewed some of the early data points, including inspiratory overlap, this is the first time we will be showing the full trial results, including the ability of the new accelerometer based sensing technology and the safety and efficacy of the Inspire V implant.

Additionally, the Inspire Adhere trial is now complete. The data from the 5,000 patient cohort will be presented at the Sleep Conference. This is a real-world cohort demonstrating the effectiveness of Inspire as it is delivered today and builds upon our previous safety and efficacy trials. We will further highlight the effects of Inspire therapy and cardiovascular outcomes, utilizing a large claims database to retrospectively examine incident cases of cardiovascular disease after Inspire implantation as compared to a matched group of patients receiving CPAP therapy and those not receiving treatment.

At the Sleep Conference, we will present this study on the cardiovascular outcomes along with 2 other independent studies using 2 different claimed databases to compare the use of various claims databases in the demonstration of improved cardiovascular and respiratory outcomes associated with Inspire therapy.

In addition, a third independent study from Virginia Commonwealth University was just published in a peer-reviewed journal. The data demonstrated that the Inspire patient cohort had significantly lower odds of stroke, myocardial infarction, atrial fibrillation, acute heart failure, acute respiratory failure and hospitalization to name a few, with at least 2 years follow-up.

These strong results adjust Inspire provides systemic cardiovascular and respiratory health benefits and reduces health care burden compared to CPAP. We expect further studies to support these findings. We are happy to report that the predictor manuscript has been accepted by a major medical journal and we look forward to the publication in the coming weeks.

As you are aware, Predictor is the 600-patient study we conducted to demonstrate alternative screening options to replace the drug-induced sleep endoscopy or DICE procedure for a large subset of eligible patients, improving the patient experience and reducing the time line to implant.

Last, but not least, last month, we published our 2025 patient experience report. Highlighted in the report is a continued improvement in our revision and explant rates, which were 1.7% and less than 1%, respectively, for full year 2024.

In summary, we remain focused on providing the best therapy solution for patients and helping our customers navigate what we believe will be a temporary market disruption related to coding and reimbursement and the Wiser program. We are actively addressing the challenges posed by this disruption, and we remain excited about our product and the market opportunity to improve the lives of our patients as we've already done for over 135,000 patients since our inception.

We will continue to take actions to position the company for long-term profitable growth. And we believe that we have the right strategies in place to drive long-term stakeholder value.

I'll now turn the call over to Matt for his review of our financial performance.

Thank you, Tim, and good afternoon, everyone. First, I'll begin with a review of the first quarter results and then follow with commentary on our outlook for the remainder of 2026.

Revenue increased 1.6% to $204.6 million, primarily driven by increased market penetration. As Tim mentioned, in the first quarter, we experienced disruption related to coding and reimbursement challenges and the Wiser program, and we estimate that these items adversely impacted revenue by approximately $20 million. .

Operating margin and adjusted operating margin improved primarily driven by gross profit expansion due to a higher sales mix of Inspire V systems. The effective tax rate increased to 571.2%, primarily driven by tax shortfalls related to our stock-based compensation, which were created by a decline in our stock price at award vesting date compared to the stock price at grant date.

Additionally, in the prior year period, we maintained a full valuation allowance against Federal and state deferred tax assets. The adjusted effective tax rate, which removes the impact of stock-based compensation, was 25.7%. As we mentioned on our fourth quarter call, as we are in a situation where our pretax income is relatively small base, certain discrete tax charges can have a material impact on our tax rate.

Due to the fact that we have a significant amount of stock-based compensation outstanding and due to the volatility of our stock price, the tax impact of stock-based compensation on our effective tax rate can be material and could have significant variability from year-to-year.

We expect the tax impact from stock-based compensation will be concentrated in the first quarter of the year as that is when the majority of our vesting of our RSUs and PSUs occur. Diluted EPS was a loss of $0.39 and adjusted diluted EPS was $0.10 for the quarter. Our adjusted EBITDA margin, which excludes the impact of stock-based compensation, improved 100 basis points to 17.5%. Turning to cash flow and the balance sheet. Operating cash flow was $12.8 million for the quarter, an improvement of $20 million compared to the first quarter of the prior year, primarily driven by improved working capital, partially offset by a higher net loss in the current period.

Our balance sheet remains strong with no debt and $400 million in cash and investments at the end of the quarter. Our strong cash position allows us to remain focused on making investments to drive profitable growth. We ended the quarter with 284 U.S. territories and 288 U.S. field clinical representatives.

We are being strategic in our approach to territory management and optimizing our model through targeted territory consolidation. We hired 13 field clinical reps in the quarter and are now at our goal of 1 territory manager to 1 field clinical rep.

Turning now to our 2026 outlook. We are revising our full year revenue outlook to be in the range of $825 million to $875 million. This range incorporates updated assumptions of the expected impact on our full year results from continued coding and reimbursement uncertainty and the Wiser program.

As I mentioned, our first quarter revenue was adversely impacted by coding and reimbursement challenges and the Wiser program by an estimated $20 million. We expect the adverse impact of these items to increase to approximately $40 million to $50 million in the second quarter as we see a more dramatic impact on our second quarter revenue due to the decline in preauthorizations in the first quarter.

As changes in preauthorization rates typically impact revenue on a 1 quarter lag. We expect the adverse revenue impact from these items to improve sequentially from the second quarter as we progress into the third and fourth quarters as our customers receive more education and build experience with coding and billing processes and as we continue to gain experience working with the Wiser state systems.

For the full year, we are currently estimating the total impact of these items to be in a range of $120 million to $150 million. Due to the nature of the items noted, the estimated impact of these factors on our first quarter results and full year outlook reflect high-level assumptions based on currently available data and incorporate inherent uncertainty related to quantifying how each of these items impact customers physicians and patients.

The ultimate impact of these items may differ materially from current expectations based on how quickly coding and reimbursement clarity evolves over the fiscal year. Although we believe there is a long-term benefit to our market from GLP-1s as prospective patients lose weight and become eligible for Inspire therapy, we also believe that in the short term, our revenue is being adversely impacted by their increasing prevalence and adoption.

Our ability to estimate the potential impact of GLP-1 therapies on revenue is subject to meaningful uncertainty and relies on limited and evolving data regarding patient behavior, physician prescribing patterns, referral dynamics and payer coverage decisions and may not fully capture developments in longer-term treatment options for obstructive sleep apnea.

In addition to revising our revenue outlook, we are also revising our outlook on profitability metrics for the year. We now expect adjusted operating margin in the range of 2% to 4%; diluted EPS in the range of $0.07 to $0.62 and and adjusted diluted EPS in the range of $0.75 to $1.25. The changes to these metrics primarily represent the impact of the lower revenue outlook partially offset by continued actions to reduce operating expenses.

Our updated outlook assumes an effective tax rate of 65% to 70% and an adjusted effective tax rate of 27% to 29%. The increase in the effective rate -- tax rates as compared to our previous outlook primarily relates to lower expected pretax income.

Our outlook assumes estimated weighted average diluted shares outstanding of approximately $29.4 million and capital expenditures between $40 million and $45 million. Looking at the cadence of the year, we are forecasting a 9% to 11% year-over-year revenue decline in the second quarter of 2026 and due to the expected ongoing impact of coding and reimbursement uncertainty, the impact of the Wiser program and lower expected commercial procedures driven by a reduction in preauthorizations in the first quarter.

Additionally, we expect an adjusted operating loss in the second quarter of $10 million to $15 million, primarily due to our lower revenue expectation and sequentially higher operating expenses as compared to the first quarter, primarily due to higher stock-based compensation expense. We expect sequential improvement from Q2 in both our revenue and adjusted operating income in the back half of the year with the fourth quarter having the highest levels of the year.

As we demonstrated in the first quarter, we will continue to be disciplined with our spending and focus on prioritizing revenue-generating activities while still making investments in long-term growth.

In closing, despite the dynamic reimbursement landscape, our team remains committed to providing strong patient outcomes and supporting our customers. As we look ahead to the remainder of 2026 we will continue to emphasize execution and remain focused on what we can control in order to drive long-term shareholder value.

This concludes our prepared remarks. Dilem, you may now open the line for questions.

[Operator Instructions] Our first question comes from the line of Robbie Marcus from JPM.

This is Lily on for Robbie. Maybe just starting with the guidance. I was hoping you could walk through your thinking behind the updated range. I think what we're all trying to figure out is how derisked the guide is now. So can you walk through the assumptions that you're making around reimbursement and the confusion around the reimbursement and what that looks like the rest of the year. Why are you confident that this is now the right range and it's 1 that you can not just need but hopefully exceed .

Very much, Lily and thanks for the question. I do want to just highlight a little bit on the reimbursement and center each center looks at it a little bit differently. So what -- our goal is to really focus with centers in providing education and a methodology that they're comfortable with to consistently start billing -- coding and billing for patients, both Medicare and commercial.

And our assumptions is that will improve as we progress through the year. But we know, as Matt mentioned, there's a 1 quarter lag in prior authorization. So as the coating impact or uncertainty unfold in the beginning of the year, a lot of centers put on the brake to make sure they understood it before they proceeded forward with prior authorization.

So our core assumption, and I'll let Matt jump in. Our core assumption is that we are going to be able to build that confidence as we move through the quarter and improve prior authorization here in the second quarter and beyond, and that will show a net benefit or a benefit and implants and revenue as we progress through the year. .

Yes. Lily, it's Matt. Maybe following up on what Tim said. As I pointed out, we saw a $20 million impact in Q1. We're estimating that accelerates and gets to $40 million to $50 million in Q2. And then I think if you look at the range for the year and back into what Q3 and Q4 might be, you can still see there's fairly significant impacts on the third and fourth quarter, although they're improving from the impact that we had in Q2. So we still have risk in for the remainder of the year, although that risk is abating a bit from the second quarter. .

And I show our next question comes from the line of Jon Block from Stifel. .

I'll adhere to the 1 question, maybe 1.5. So just first, the $120 million to $150 million impact for the year from reimbursement headwinds Tim, where do those revenues go? And maybe importantly, what can the company do to ensure they sort of stay hot leads at some point and don't leave whether that's coming back in 2027 or even beyond, maybe you can talk to that a bit. .

And then just to push on the improvement into the back part of the year, if I'm framing that correctly. If there's just 1 quarter lag from preauthorization to getting through the funnel, call it, I mean, are you starting to see anything thaw, right? It's early May, you are anticipating some sort of improvement 2Q to 3Q. So maybe help us out just like real time, are there any green shoots that starting to to take place.

Absolutely. Very good. Jon, great point on the hold. Yes, we make sure we work with our centers to keep track of the patients. We do work with them on their prior authorization and help them get those submissions in. But we also help patients make that first appointment. We're trying to make sure we stay in contact with all these patients to give them the opportunity to receive Inspire therapy.

We know they are there and still require treatment. So we're doing everything we can to make sure we continue to communicate with them and work with the centers to track them and work with their prior authorizations. As far as seeing some improvements, I think with Medicare and the changes that we have there with the new C code that being incorporated into the MAC LCDs, local coverage determination.

We're starting to see a little headway there and that's important. As well as surgeons having experienced building the Inspire IV code without modification. And the more experience we get there, I think that will build on itself. And even if there's a modifier down the road that we would minimize any kind of negative impact to that.

And then secondly, when we start looking at the Wiser cases and we gain experience in those states to be able to work through the prior authorization and be able to improve that process, and that will continue to improve as we get to second, third and fourth quarters.

Our next question comes from the line of Adam Maeder from Piper Sandler. .

I guess I wanted to ask just 1 kind of bigger picture question on the revised outlook. And I just wanted to confirm, Tim or Matt, that the guidance cut is entirely related to the reimbursement coding uncertainty plus headwind from Wiser. Is that the case or GLP-1s did come up, I think, towards the end of the prepared remarks. I'm not sure if you're baking in a little bit more conservatism for those or if you're seeing anything from a competitive standpoint. But just would love just to, I guess, kind of flesh out all those different components. .

Yes. Adam, it's Matt. I'll jump in on that one. So yes, I think if you do the math from where we started at the beginning of the year on our outlook and then what it's implied now -- and you say the $120 million to $150 million is due to some of the reimbursement headwinds. There's a gap there. It's a smaller gap, obviously, but there's a gap. And that's coming from a number of different things. Some of those are hard to put your finger on. We do think we're being impacted by GLP-1s, but harder to put your finger on what's driving some of that other impact, but we definitely think that the main part of the revenue takedown in our outlook is due to the reimbursement headwinds.

Our next question comes from the line of Chris Pasquale from Nephron Research.

Tim, I was hoping you'd talk a little bit more about the current state of the sales force. Your U.S. territory count has contracted 3 quarters in a row, now down high teens from where you were a year ago, which is a pretty big adjustment -- how much of that has been an intentional rethinking of your commercial organization versus unplanned attrition? And are you kind of simultaneously dealing with new reps or reps with expanded territories, having to establish new relationships while you're going through this period where your customers kind of need you even more. .

Got you. We do see adjustments in the field. And yes, it's a combination of both factors that you talked about. We did our own adjustments with our realignment of our territories, as you described, and also increase in the number of field clinical reps wanting to get a ratio back to 1:1. That start beginning of the year.

I think we performed pretty well with in the first quarter by achieving the impacts and the revenue that we did, albeit as Matt mentioned, impacted by the coding and the reimbursement environment as well as Wiser in those 6 states. I think it's purposeful for where we are, and we'll continue to add territory managers as we deem appropriate. But I think the field team is doing quite well. We're have a pretty experienced team right now.

And then complementaring those sales territory managers, along with a strong field clinical representative. I think we're handling that very well, and that allows us to address issues such as this coding and reimbursement uncertainties.

Our next question comes from the line of Anthony Petrone from Mizuho Financial Group. .

Maybe sticking with Wiser here specifically, it's across 6 states. It sounds like there's a higher prior authorization hurdle here. But are those procedures should we kind of consider those backlog -- or are they sort of just pushed out indefinitely as you navigate Wiser. And then just building on the codes, the CPT code, some of these policies are -- the managed care policy specifically still have the Inspire IV code. They've introduced 999. Why is it not just the case that they can build to the code in the policy, why is their ambiguity? Sorry for the 2-part question there. .

No, that's okay. That's great. Wiser, as you mentioned, with the prior authorization, previously, -- in the other non-Wiser states, Medicare does not prior authorize. So this is a new requirement that was placed on center starting middle of January. And we believe the majority of those patients exist -- but as time goes on, they may get frustrated. That's why we want to act quickly.

As we submit prior authorizations, we continue to learn and centers are able to provide improvements in those prior authorizations to ask questions or be able to understand the Wiser requirements that they're placing on them. And what we've learned is all 6 of the Wiser states have a different system and there is variability in each. So we're trying to work through that and the sites and ourselves are getting smarter to be able to work with Wiser in a more efficient manner.

As far as CPT coding goes, yes, these are contracted rates with both facilities and payers. Payers want to have centers work within their policies, and that's what we're recommending as well. And as we mentioned before, the good news is that these patients do carry a prior authorization. So when we submit the initial application, it does have the CPT code that will be used during the procedure.

And once we receive approval, that really kind of prevents a lot of post procedure challenges. And using a 64999 code is confusing because it does take additional work. It does take manual reviews. It does take additional communication from the sites to the payers. So I think right now, we continue to work with centers and payers and use the codes that are in the existing policies.

And our next question comes from the line of Travis Steed from Bank of America.

On the $20 million impact, maybe if you can kind of go through some of the math behind that. There's a lot of factors you're calling out, but curious how do you kind of get confidence in that $20 million number -- and when you look at the prior as like, are they just billing 64568 for commercial? Just curious why products are dropping. If they can just build the 64568 for commercial, especially given UnitedHealthcare, I think just moved April 1 as well to that code. .

Yes, Travis, this is Matt. Maybe I'll take the first half of that question, Tim, grab the second one. So yes, obviously, there's lots of $20 million is an estimate. We've got some data, and we're triangulating some different trends in the business to come up with that, looking at data we've got quarter-over-quarter and versus last year and our expectations coming into the year. So -- it's a way for us to triangulate it. Obviously, there's estimation involved with that, and we think we're triangulating it to $20 million in a reasonable range. .

As far as the commercial payers, you're correct that when we support centers with doing the prior authorizations. We use the code that's in the policy. And you're great, UnitedHealthcare just adopted 64568 into their policy. And so we don't expect a lot of the commercial policies to move away from that. Although the whole coding and reimbursement environment put challenges on the centers to understand what code that they want to use and it caused a slowdown that we see with the reduction of prior authorization. .

The implant -- commercial implants in the first quarter tend to be the prior authorization submitted in the fourth quarter that were not completed within that quarter. And so that kind of drove a lot of the revenue and now the impacts in the second quarter are going to be reflective of the center slowing down to make sure they understand the coding coverage situation before they ramp up submission of commercial cases. And with that, we believe we're going to continue to gain confidence. And that's what you'll see will continue to improve here in the second quarter and beyond through the continuation of the year.

Our next question comes from the line of Lawrence Biegelsen from Wells Fargo.

Tim, one, I guess, technical coding and reimbursement question. So the 10-Q states that the MAX identify CPT code 64542 as the appropriate code for Inspire V, but commercial payers continue to pay 64568. Why would there be a different code for Medicare and commercial payers? Is this common to have 2 different codes and the 10-Q also states that it's you believe that it's appropriate to bill 64582 without a modifier, but 64582 includes a respiratory sensor. So why would it not be appropriate to use the modifiers as you expected, I think, on the Q4 call. .

I think -- Larry, thank you. I think your question really kind of laid out the coding and reimbursement uncertainty in the quarter. And with an ideal situation long term with the new CPT code, Medicare, Medicare Advantage, commercial will all use the same CPT code. Where we are today, we do have that variant. And with the MAX currently identifying 64582 physicians to build. And they understand that the work related to Inspire 4 and 5 for the pressure sensor is that not that significant.

And Medicare difference in payment is only $70 between the 2 procedures. And so they have updated their local coverage determinations to not specify the use of a modifier and for surgeons to use 64582 for both the Inspire IV and Inspire V cases. Back a little bit overlapping. Travis, that's a good question with commercial payers, why would they move away from 64568 and the answer is they don't really have to.

That is the -- what they have in their policy, it's the contracted rates that they have with the centers, and we expect that we will stay at 568 as long as they're in the policies and recommend centers, follow the policies and submit prior authorizations to policies. So it does cause some confusion, as you can imagine with the payers within the system, and it's just simply not typical. You just don't see events like this, and it really puts us in a unique situation and every center kind of use it a little bit differently.

But I think we're gaining experience with it. And that's why we believe with the prior authorization, we'll see challenges in the second quarter, but be able to build through that in the second half of the year. and get back to growth in 2027.

Our next question comes from the line of Richard Newitter from Truist Securities.

Tim, just on your last comment there, I think you said there were a few MAXs where you're saying they updated to, say, 64582, but no modifier required I guess, in most instances, they had 64582, and there was nothing about to modify, but they never updated to 64568 to begin with -- so I guess when they put out their updated policies, technically, they're not -- there is no update. So what gives you the confidence to say that those policies are updated saying you don't need to use a modifier. And is there a risk that they could change to use a modifier.

Sure. Very good comment, Rich, and thank you. If I misspoke, I think I probably did. -- the LCDs identified 64582 as the only code. And they don't say do not use a modifier. They just are silent on that, and they don't have any language in there on a modifier. There are 3 MACs who have updated to include the new C code, but remain silent on any modifier.

There are several other MAX who you are correct, did not switch over to 64568. But at this point, there is no MAC that identifies the use of a modifier in Inspire V cases and they remain silent on that. is there risk to it if they want to come back and review this in the future. That's something that we will continue to monitor. And we'll certainly monitor if there are surgeons who have used a modifier and what template they use? And is there any -- or what level of reduction there was with the payment between the two, but we do know that the difference in payment between 64582 and 64568 is only $70. Just check back with you, Rich, if that makes sense.

It does. And then just what's your definition of growth for 2027? And I appreciate, '26 is hard enough. So I'm not asking you to pinpoint us on '27, but you did see a return to growth in '27 is an opportunity to kind of corral a sheet, if you will. Any -- where would you where would you presume consensus should fall or what's your definition of growth at this juncture to be prudent? .

Yes. Thanks, Rich. We have to be careful with that because we have a lot of work to do as you've heard from some of the questions right before here in our prepared remarks, on working through and getting consistency and confidence in the coding and reimbursement environment to allow centers to open up and increase their utilization again is really kind of our focus and keep asking that question through the year as we go, and we'll provide updates to it. But we are committed to getting back to growth. We've just got to be careful about really kind of putting too much of a detail to that. .

Our next question comes from the line of Michael Polark from Wolfe Research.

I'm interested in an update on the Inspire IV versus V mix. Tim, I heard you say you still have inventory of 4 for centers that have concerns about 5 billing. Where does that stand? And is the company speaking about maybe reinvesting in 4 to navigate this difficult period. .

Sure, right. And we did build up inventory, as you probably saw from the financials. And so we do have good inventory for to be able to offer that to centers in the U.S. as well as to continue to support ongoing implants in Europe and Asia. .

But as we started the year and as we went through the first quarter, implants are predominantly Inspire V. And I think when started doing Inspire, they want to work through the coding and reimbursement. They want to have a solution to that. But there are centers that have different levels of Medicare reimbursement, as you know, from geographically adjusted that they do adopt, they continue in Inspire IV. But while we make it, we're going to make it available to them, but I think 1 center can convert over to V, they kind of want to stay there. They just want confidence in having a good coating solution and to have proper reimbursement. .

Mike, this is Matt. I'd just add to that. As Tim said, predominantly, the mix in Q1 was 5, and that mix really didn't change very much from what we saw in Q4. So we're going to continue to monitor it. But so far, it's been predominantly be -- and as Tim said, we've got inventory for us should that mix tick up a little bit.

Our next question comes from the line of Shagun Singh from RBC Capital Markets.

Tim, I was intrigued that while you were providing your guidance, you indicated that it based on some high-level assumptions. And this quarter, you're talking about adviser program a little bit more than you have in the past. I think some of our checks were suggesting there could be a little bit of overutilization there. And then you're also mentioning GLP-1s and some of our checks were suggesting that it's in a bit of a lag between when patients do come in eventually to get the Inspire therapy and it could be over a year. So can you put a final point on your 20 -- just the comment around returning back to growth. Why should you return back to growth any time before January 1, 2028, when you do have a new code .

Thank you very much. I think the -- as Matt went through in his comments, the impact on our revenue this year and which is reflected in our updated guide, is really based on coding and reimbursement uncertainty as well as negative impact from the Wiser program and delay in procedures due to prior authorization. We make mention of the GLP-1s as a broader topic, but not specifically having a significant part of that revenue adjustment. .

And I think if we can focus our activities gaining confidence with a solid methodology for coding and reimbursement and continue to learn to work with the Wiser systems to gain prior authorizations that we can continue to see improvements through the year to get back to a growth situation.

And our next question comes from the line of David Rescott from Baird.

Great. Tim, you mentioned, I think, a couple of times that despite this uncertainty, the company is continuing to prioritize investing in these revenue-generating activities. And so when I think about the existing accounts that potentially are revenue generating and the prior algorithm for growth of adding new accounts.

Is it fair to assume that the focus at this point is primarily on the accounts that you have today where you can capture that untapped or push through some of those revenue opportunities -- or should we assume, as we're looking into the back half of the year in 2027, that's still bringing on new accounts maybe is a way in which you expect to grow next year. Just any more granularity on those prioritized investments would be helpful. .

Thank you, David. Yes, the answer is both. And I think you asked a very clear question on do we focus on existing centers? And the #1 focus area is to make sure our existing centers have a solid pathway in coding and reimbursement. I know we've repeated this over and over. But once that is in place, and they understand how they can code both Medicare, commercial and Medicare Advantage and they have confidence in the reimbursement that they're going to receive that they can increase the use of Inspire therapy, and we'll be able to see that with increased prior authorization submissions and the ability to take on more patients.

As we work through this, the inherent question and there is the challenges of opening new centers in the first quarter with this quoting uncertainty also existed. But we're going to continue to lean into that because we still don't have the capacity to treat the patient demand that we have. And so we will continue to open new centers or train additional surgeons at existing sites. And that was 1 of the key benefits that we talked about with Inspire 5 last year but have been unable to kind of lean into until we get the coding taken care of.

So yes, the priority is certainly open up and increased utilization at existing centers, but we are still going to be leaning in to open new centers as well.

Our next question comes from the line of Michael Sarcone from Jefferies.

Tim, you talked about getting accounts comfortable with the billing and coding situation. I guess what does it take? I know this can vary by account, but when you think about it, what does it take to get an account comfortable? Do they have to submit 1 and then maybe wait for reimbursement and submit 2 more? And I guess, how long does it take for the average account to get comfortable here? .

It's experience. And so what we do is we make sure that we proactively conduct business reviews with centers. We want them to understand what the coding and billing is. And as we mentioned from prior questions with Larry about 1 code for Medicare different code for commercial and to make sure that the coding personnel in -- at the facility understands what the right code is to use, to be able to send that code in and then closely monitor the payment when it comes back or if it's denied, did it have to go back to an appeal to be able to do that.

So as we work through the first quarter, we're starting to pick up that experience, and we're going to continue to lean in on that as we work through the year. And that's what we define kind of as confidence in their coding. Once they have a methodology and said they have a good pathway with the bridge that we're establishing to the new CPT code. And if we have some consistency there, we can really ramp up. And I guess it's simply having experience with positive experience with their coding processes. .

The only thing I'd add to add is a lot of what in our customers, it's fairly unique. So it's really understanding what their challenge is and how we can help them. It's not a kind of a broad, one-size-fits-all solution across our customer base. So it's really for us, it's important. We work with our customers and help them in the challenges that they're having. .

Our next question comes from the line of Brett Fishbin from KeyBanc Capital Markets. .

Was just hoping you could address the competitive landscape mainly with a competitor now being launched for a few quarters here in the U.S. Just wondering if you're seeing maybe an impact from centers filing the new device or shifting their mix in any tangible way? And then how you've updated the guidance to account for any changes there? .

Definitely, Brett. I think that when we did our initial guidance out there, we made note that, yes, there is a competitive presence out there. I think with the coding and the reimbursement uncertainty and then certainly in the 6 states with the Wiser accounts, I think we're really focused on addressing those 2 key challenges, and that predominantly drives the actions of the centers, much less having the ability to introduce a new topic. So I think all the centers are really focused on that as our team is, and we're going to continue to stay there as we work through the second quarter and through the duration of the year. .

And Brett, I would say we didn't introduce anything new in terms of some of the revised outlook, specifically related to competition .

Our next question comes from the line of Daniel Markowitz from Evercore ISI. .

I just wanted to follow up on the question on what will it take for Centrus to feel like they have a handle on this. I guess what gets you confident that we can get to the point that these centers are comfortable before there's coding uniformity across payer types. And then just a brief follow-up on that. Could we possibly see some pent-up as we potentially return to hopeful growth in 2027, just given that the number of procedures have been sort of put on hold? .

Yes. Let me answer the last 1 first and kind of work back to getting confidence with centers. I do think that centers understand when they are able to do Inspire V procedures, the benefits that, that may have and their ability to take care of more patients as the procedure is more comfortable for ENT surgeon as compared to Inspire IV. And again, we haven't had the ability to really lean in on that and really push the clinical evidence that comes with the Inspire V procedure.

And I think that, that will be in the future. And I think that will kind of help with the growth in '27 and beyond, certainly, -- but again, it's just experience with centers to be able to submit cases and see positive acceptance of prior authorizations, positive acceptance of billing using the new coding methodology and then certainly receiving expected payment or expected reimbursement, and that will continue to grow confidence and that led us to open the gates more and continue to increase volume.

I show our last question in the queue comes from the line of Mike Kratky from Leerink Partners. .

Maybe just to drill down on rest of your cadence and growth implications. I mean you provided some helpful color on the second quarter and the dollar impact from reimbursement in Wiser. So what are going to be the key points of sensitivity that could get you to the high end versus low end of the range in 3Q and 4Q? .

Yes. I think the main thing, as we've been talking about is how quickly that we can move customers through their challenges with coding and reimbursement, right? So if some of those remain for longer periods than you're looking at the higher end of the range if customers are able to move through that quickly, more quickly than you're looking at the lower end of the range. .

Thanks, Mike. Thanks all for joining the call today. As always, I'm grateful to our team of dedicated employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to patients remains unmatched and is the most important element to our success. For all of you on the call, we appreciate your continued interest in and support and look forward to providing you with further updates in the months ahead. .

Thank you. This concludes today's conference call. You may all disconnect.

All right. Welcome back, everyone. My name is Brett Fishbin, Senior MedTech analyst, and I'm pleased to be joined today by Inspire Medical, who is represented by CEO, Tim Herbert; CFO, Matt Osberg; and VP of Investor Relations, Ezgi Yagci.

So I'll start us off, and this will be a 100% Q&A session. [Operator Instructions]

But before we talk about some of the recent news, just wanted to start off by welcoming Matt to the conference. And I was hoping you could just kick off a little bit by discussing the start of your tenure here at Inspire, how the first couple of months have gone so far? And then maybe like a couple of your top priorities during this first year and what you hope to bring to the table.

Yes. Thanks, Brett. And I'm excited to be with Inspire and excited to be at the conference today, and thanks very much for hosting us. What drew me to Inspire was being part of a company that has already experienced so much success but still has the opportunity for so much more. You look at the incredible growth of the company, the continued market opportunity that we have to penetrate the market and the further growth of that market that I think will come as people learn more about OSA and the potential related health impacts. To address that, we've got incredible product, and that product has continued to improve over time with each new generation we've released and it's really enhanced our ability to treat patients, and we expect to be able to continue to invest in that kind of R&D and improve as we go forward.

Financially, we have an opportunity to continue to drive profitable growth while still making strategic investments in our products and capabilities that are going to support our future. And finally, we've got a great team that's committed to improving patient outcomes and driving shareholder value.

The past few months have flown by but I've spent a lot of time learning, learning the business and industry, working with our executives to understand what are the key strategic initiatives and then spending time with my finance team to better understand what our capabilities and processes are today. And I'm looking forward to continuing to learn and be able to add more value to the organization in the future.

All right. Super. And then let's shift a little bit to the most recent earnings call, and we'll ask a couple of questions about some of the reimbursement dynamics. But just thinking about 4Q '25 you guys closed with a pretty strong end of the year close to mid-teens revenue growth for the year and substantial earnings growth as well. But maybe specifically to 1Q '26, I think there are some reimbursement items that were weighing on the outlook, and you're pointing something closer to flat growth in 1Q just given some of the noise. So maybe just a little bit of an update on how you guys thought you ended the year in terms of overall underlying momentum? And then if trends in 1Q are moving kind of in line with what you expected during the earnings call?

Sure. Well, thanks for having us. It's great to be on with you again and for hosting us on the call today. Let me make a couple of comments and then have Matt kind of jump in as well. We did -- back in our earnings call, we talked that reimbursement will have an impact on 2 fronts really in the first quarter and primarily with the coding issue but also with the WISeR program. We'll get into the details, obviously, with each. But despite these impacts, we believe the underlying patient demand remains healthy, and we are taking actions to overcome these challenges.

So what's key to reimbursement has certainly been the primary topic for Inspire creating confusion amongst the centers and physicians and many have slowed or delayed procedures as a result. So I kind of want to -- I know you got follow-up questions, too, thought maybe we could just kind of walk through a couple of them kind of set the stage here. And we've had active discussions with all the parties from the AMA, CPT, CMS, the MACs as well as the physician society with the AAO. And all parties are active participants in driving to resolution for the patients. And that's really the good news.

Touching base a little bit on the coding front. First off, the long-term solution, a new CPT code application was submitted. It has been through the editing process with the AMA CPT. It is on the agenda for the May 1 meeting, and it is in line with another submission from the AMA CPT on line or Item 12, via Item 13. And really, what it's about is cleaning up 64568 but really establishing a new code for the Inspire V procedure. So hopefully, it will be discussed at the May 1 meeting. And if approved, it will go through the RUC process, and that will be available for use ideally January 1, 2028.

So in the interim, we need to develop a bridge and CMS started it out. And CMS recently issued C-codes that are very specific for the Inspire V procedure and really differentiates from 64582, which is the code for Inspire IV. Just last Friday, as part of the process, they identified the payment associated with that, and it does map to the same Level 5 APC as 64582, and that's really good news. And so the C-codes take effect April 1. That means they're online ready to use. They are retroactive to January 1, 2026. And remember, last year, we dealt with this with the Inspire V launch on July 1, same approach. So these will be available April 1 for centers to be able to use and the payment is going to be consistent with what they already paid.

In other words, for hospital, the national average Medicare payment will continue to be $32,000 and for ASCs continue to be about $27,000. So it provides good clarity with the C-code for Inspire V and takes care of the first bucket. The next step is working on the professional and surgeon reimbursement. Now the direction we've been providing centers at this point is to bill the policy and the policy states, bill 64582 without modification. And that's what we've been instructing centers to do. Centers have been doing so, and they have been receiving payment, albeit it does cause confusion because if you look at the certified coders and they look at the descriptions of 64582, it doesn't necessarily read across to the Inspire V procedure. And they asked the questions about modification.

So it's important that we work with the MACs to say we'd like to see some clarification. As they go around and update the LCDs to incorporate the C-codes, we're asking them to make a statement as well to clarify the surgeons that they should be billing 64582 without a modifier or to provide clarity so people understand the process going forward. And this is going to be our bridge to January 1, 2028.

The last thing I know we'll get into a little bit more is the WISeR project. It's new this year. It's in effect in 6 states, and it's the -- where the centers must submit to the WISeR program to gain prior authorization for Medicare cases in those 6 states. And initially at the beginning of the year, we had a little bit of challenges with the coding aspect, not uncommon with the other Medicare cases in other states. But we also have the technical issues with the prior authorization, and we're learning from that. And we're getting greater experience. So if a case gets denied, we can understand why to make sure that information is included and other prior authorizations to help streamline this process.

So it has caused delays and frustration for the centers in those 6 states but we're working through it. We're gaining experience to help them kind of understand what the minimum requirements they need in the prior authorizations. And as we move forward, we'll use that experience to kind of streamline this a little bit more forward.

I'll stop there. Matt, do you want to jump in?

I'd only add, Tim, as you mentioned clearly, these things are impacting our business in the first quarter, and we called some of that out when we talked about it. And what we're getting -- still getting new information up to, including last week. And as the kind of the time and manner of how this plays out to get further resolution, we're going to bake that into our forecasting process as we think about the rest of the year.

I think -- yes, I mean, I think all of that makes sense. Just given there was a lot there and a lot of like new news, I do want to unpack that a little bit more. But I think like high level, it makes sense, and it's also very fair to say that during the quarter, there were more changes than originally assumed. So I can definitely understand like just a little bit of like a period where everyone needs to figure it out.

But maybe just like specifically for the physician fee, the facilities you mentioned are back to billing 82 during the first quarter. And just curious like if you have any data points or like feedback on the potential use of 52 modifier in any cases? And like if you were able to get any data points around like what the change would look like if it was closer to 10% or 50% kind of like the range that you talked about on the last earnings call?

Yes. So, so far this year, we don't have a lot of experience with use of a modifier at all. Really, what the focus has been is bill a policy and bill a 64582 and all MACs have received and we've been paid with that procedure at this point. Again, that causes some confusion with the coders at the centers because of the descriptor of 64582. And so again, we're asking the MACs to -- as they update the LCDs with the new C-codes to also provide a little bit of guidance for the surgeons so they understand if it is going to be 64582 without a modification to so state or if they are going to be asking for modification if we can get consistency across the United States. So right now, it's continue to bill to policy, which is bill 64582 without a modifier.

And then I also just wanted to ask, I mean, you touched on the C-codes but I think this is the first time that you've had a chance to really talk about that. So maybe just like at a high level, what your impressions are of this, I call it, temporary measure before you go through the RUC and try and work towards the dedicated code. Just like your overall thoughts on this more specific C-code that matches the procedure versus using 82 in the interim period.

Sure. Well, again, CMS has been very active in the process. They've understand what happened. I mean, last year when we were using 64568 for 10,000 Inspire V procedures and people were accustomed to using that code. And the disruption, of course, with the New Tech APC. And so CMS looked at that. They really understand the issues, and they wanted to find a bridge to be able to get to the new CPT code. The C-code is a great tool for them to be able to introduce that. So the C-code description is really closely aligned with Inspire V. And that's why CMS did that. They also introduced several other C-codes as well. But what's important for us is we now have that bridge to be able to carry us forward until the time that a new CPT code is put in place.

But again, this is really for facilities, and it's up to the surgeons who will continue to bill the CPT codes in this case, 64582. The good news is we expected that when they come out with the C-code that they would map to the same Level 5 APC with the existing 64582. So not a lot of surprise there. But nice that we have that confirmation in hand right now, we can kind of lean in and work to get the clarification next on the surgeon payment and then finally go to work on the new CPT code on May 1.

No, it makes sense. And definitely, more clarity is good. But maybe just on that point, like I think I agree with the assessment that like the C-code description makes a lot of sense, and it's good that the facility payment is consistent with 82. But I guess like the one question I had is it seemed like with the transition to 2, we were kind of like moving into a more stable backdrop where like customers knew how to bill and like knew what was going on. So I'm just wondering if you think that like this additional change is likely to cause like material disruption as everyone kind of like has to figure it out again, like how to bill properly.

Well, I think it's something that we need to make sure centers are aware of and make sure that we communicate that with everybody. The good news is it's pretty consistent just going from 582 to the C-codes. They know what the reimbursement is going to be. So there's not a lot of surprises there. Maybe switching a little bit to commercial. I'm sure you'll have a question about that. But the commercial, believe it or not, is still using 64568 because we bill the policy, and that's what's in their policy. And -- but those again are prior authorized. And so for the most part with the centers, it's just for the Medicare cases to get them to transition to start billing the C-codes after April 1.

And then my other follow-up on the C-codes, you kind of started to talk about it a little bit, just like the impact on the physician fee coding, if you have any thoughts on like how that plays out? Like presumably, once everyone is on the same page, the facilities are billing to the new C-code, no change in facility reimbursement mapping to the same EPC. But like how does it work? Or how do you expect it to work with the physician fee coding?

Well, the MAC will go through and update their LCDs to add the C-codes in there. And again, our ask with the MAC is to please clarify for the physicians, the professional fee reimbursement should be built with 64582 to get commonality across the U.S. if they want to introduce a modifier right now, what would the reduction of that modification be. But again, right now, building the policy is 64582 without a modifier and that's been accepted and paid so far. We just would like the MAC to really kind of clarify that and be comfortable going forward because it does cause that little bit of confusion with the centers and the coders because the descriptors of the CPT codes don't really read across as well as they should. So that's our second key factor that we'll continue to work on right now.

All right. Perfect. And my last reimbursement question, you also kind of started to discuss and one of them was about the RUC process. And it sounds like that's still the preferred long-term route is establishing a Category 1 code that could become effective in 2028. So I guess I'll just like to ask the last 2 in 2 parts, if you have any additional thoughts on like that process and potential outcomes or timing.

And then the other question is on commercial because I was starting to think if the commercial payers are billing [ 68 ] then like does that lead to some level of like pull forward in 4Q? Or is there like an earlier time where the private payers could like realistically reassess their coding before 2027? So maybe if you have any thoughts on either of those 2, and then we can kind of move on.

Sure. Well, let's start with the CPT code application. That was submitted a while back, and we've been through the editing process to make sure that the application is complete. Right now, it's all for open comment period. And then when the comments are collected, they will be discussed at the May 1 AMA CPT Panel Meeting. And as I mentioned before, we're Tab 13 right after the AMA has an application to clean up the 64568 code in Tab 12. So you have the material in place to be able to go and review that. If approved, it will get turned over to run the RUC process, which is valuing that.

And that's when they will survey physicians to make sure they get the proper amount of work identified for the Inspire V procedure and generate the proposed RVUs, relative value units, such as when that code, if approved and becomes available on January 1, 2028, it comes with full reimbursement set. That really is the long-term solution and a code that's going to be specific for V. But as we mentioned before, the C-codes and the physician coding is really the bridge to get us to that point.

From a commercial standpoint, we worked really hard last year to get 64568 incorporated into all the commercial policies. It is there, and we continue to utilize 64568. Remember, commercial and Medicare Advantage cases are all prior authorized with the commercial payers, and we do submit that CPT code as part of the prior authorization process. So therefore, the centers have an authorization letter to move forward. Once the C-codes are in place, do we expect that the commercial payers will eventually transition over? Probably, and that's fine. We'll be able to pivot around that as well and just update and adjust the prior authorization submissions to the commercial payers. And again, those are all contracted rates. So it won't affect really the reimbursement for the centers or the physicians. And that we could stay with 64568. But I think eventually, they may go to the C-codes but they also know that in '28, they'll switch over to the new CPT code.

All right. Perfect. I think that was pretty comprehensive in terms of the reimbursement updates. And maybe just to kind of wrap this all up, just thinking about like the guidance and the flat expectation in 1Q, 4% to 10% for the full year. Just kind of wanted to ask the same question that came up on the earnings call, just about kind of like getting comfortable with the range given the level of change that's taking place? And maybe just like how you think about visibility through the year?

Yes. I mean, look, right now, as we stepped into the guide for the year, there was a lot of moving parts that were taking place. As we've gone through Q1, we're learning a little bit more. We've got hopefully some more data points that will come out here in the following weeks. And I think the biggest thing we look at is the timing and the manner of kind of what we get more clarity on the open items and coding can really change the outcome of this year. So we're watching that. We're watching our current trends. And then as we get into our forecast process, we'll take a look at the rest of the year.

But there's things happening to us from the external perspective. We're doing things internally as well. We have a lot of active programs on how do we continue to convert customers further through our pipeline more efficiently? How do we make sure our marketing dollars are spent really targetedly. So we're trying to do some things internally to take action where we can to be as efficient as possible. And then we're watching, of course, what's happening externally and then bake that all into our next forecast process.

Perfect. Yes. No, I think all makes sense to me. And let's shift gears a little bit and talk about Inspire V and some of the innovation and data that you guys are bringing to the market. I think we kind of had to touch on some of the reimbursement stuff but you mentioned that underlying patient activity is healthy, and there's a lot going on with the actual product launch. So let's kind of get into that. And hoping we could maybe just start with like an update on where you are in regards to the full -- like full market launch of Inspire V. If you have any updates on like what percentage of customers are live on SleepSync and just how like the overall, call it, like latter phase of this launch process is going?

We're fully launched in the United States. The acceptance of Inspire V has been very strong. And that's what's so encouraging for the team and the health care providers and watching the performance of V, the comfort that the ENT surgeons have in implanting Inspire V, especially not having that pressure sensing lead is a significant positive change for this platform. I think from the metrics we used to talk about from surgeons trained to contracts signed to SleepSync programmers, I think over 90% of the centers are all engaged with Inspire V. We have good inventory right now to be able to support the Inspire V implants and the launch is complete and we're moving forward.

And then I think also really interesting is over the past couple of quarters, you've started to publish an increasing amount of clinical data that directly speaks to Inspire V outcomes even compared to prior generations of the product. So you've had 2 different studies. And in the original Singapore study, one of the data points that you've talked about a little bit is the improved inspiratory overlap. And I was wondering if you had like any new thoughts on -- or just updated color from the customers or surgeons on just like how the improved sensing and respiratory overlap is translating to better patient outcomes.

Absolutely. let's kind of talk about a little bit of that data, too. We know that the airway collapses during the inspiratory period. So the design of the Inspire system is to be able to detect when patients are inhaled versus exhaled and timing or stimulation of the hypoglossal nerve during the inspiratory cycle of respiration. That is what we define as the inspiratory overlap.

I think before we kind of get into that, I just want to look at a couple of key things of the Singapore study that's so important. We use the same parameters as we have over the years. And the #1 measurement is the Sher criteria, Sher, S-H-E-R, doctor that identified the acceptable performance or a responder rate analysis. And what we saw in Singapore is a 79.5% responder rate. Now that means you have to have at least a 50% reduction in AHI, apnea-hypopnea Index and the result in AHI had to be less than 20%, 79.5% success in the responder rate. That compares directly to like our own STAR trial back in 2012, which reported a 60 -- actually 64% responder rate. That's the data for which you're saying competitors compare against.

So over the years, we've really kind of changed the patient selection criteria, the implant techniques now, of course, going to the fifth-generation device. What's key to driving the successful outcomes is the inspiratory overlap. And what we've shown with Inspire V using an accelerometer that's now inside the neurostimulator is we're able to get up to 87.1% coverage of a respiratory breath, inspiratory overlap. Are we providing stim when the patient inhales? That compares to the Inspire IV at 79.4%. So a statistically significant improvement even over the Inspire IV device, which was very, very effective. So really excited about that.

The second element to it is the surgeons don't implant the pressure sensing. As we all know, putting that lead in the intercostal muscles has always been a little bit of the uncomfortable part of the technique and not having that has really helped surgeons reduce the operating room time, make it more in their wheelhouse to be able to do the procedure and it has improved reliability because the #1 culprit and the reason patients have to have a revision is exactly that pressure sensing lead. So removing that, it's good for the patients with a little bit of improvements there.

So really excited about V. We have -- we no longer manufacture Inspire IV units. In fact, we're converting that line over to a second Inspire V manufacturing line. And so we have strong inventory to support our activity for the rest of the year.

All right. Great. And yes, I think it's important that we'll talk about the competitive landscape but it's important that everyone compares to the most recent data and most recent product on the market and not the original STAR trial. And then just maybe just continuing on the clinical data point, you've started to also release some of the findings like from the initial U.S. Inspire V procedures across the 11 centers that are originally participating. So maybe just unpack like some of the key findings that you reported from this cohort of patients. And I think like most interesting is around like the median AHI outcomes compared to baseline.

Well, I think the first one is in the U.S., we're able to use our SleepSync system and the patients are engaged with the patient app. And so we can closely track adherence to therapy, which is really important. If patients don't use therapy, they're not going to get benefit from it. And so what we're able to show is patients are using therapy 6.3 hours a night at 6 months. And that's really a tremendous usage, meaning the people are using the therapy every night, and that really has a significant impact.

AHI is improving across centers from on average AHI 30 to below 10 events per hour, which is really, really strong. And really the feedback from the surgeons is consistent with Singapore with reduced OR time, comfort and not having a pressure sensing lead and a significant reduction in -- or improvement in the revision rates and as well as expire rates because we track that on an annual basis as well. So we're going to keep trying to push to get a lot of this data to publication but we've been able to present that at a lot of the physician conferences over the last year.

Yes. I mean you also have talked more about some of the technical innovation and improvements with Inspire V and a couple of features that you reported to metrics on like the smaller step size adjustments and the ramp and start impulse. So you gave some metrics around like what percentage of cases are using those new features. So I guess like my question is, do any of the 3 that you're reporting on stand out as most incremental or you're getting the most positive feedback on? And then also, to what extent do you think these can be like better leveraged as the centers start to kind of get like a handle on some of the new improvements versus prior generations?

These are 3 examples. We have over 125,000 patients that received Inspire and we're able to kind of get feedback on what works and what areas we need to improve on. And when we talk about things like step size, when patients have their own remote and can turn their own therapy up, well, now we provide a little bit more specificity to it, and they can go up in smaller voltage steps. We have the ramp features that are really important. So instead of the device turning on, now it can turn on in a more gradual, more comfortable way for patient adherence. So really, it's about improving the patient experience just across the board. And I think as centers become more advanced and using these, you'll see those are pretty commonly used across the board.

Also wanted to ask software. It's something you've talked about in the past but just thinking about Inspire V as an upgradable system, that's something really new. And I think on the most recent call, you started to talk about some of the R&D activity taking place around software improvements. So maybe just dive in a little more to what some of the incremental features that you expect can be eventually upgraded on the same hardware. And maybe just like generally, how you think about potential cadence of the software updates for Inspire VI and eventually Inspire VII?

Yes. I think what's really excited about is Inspire V is a platform. It's not just onetime device. And so Inspire VI is a firmware upgrade to V5. And what we expect out of 6 is sleep detection. And so when a patient falls asleep, the device will turn itself on at night. And when they get up, it will shut itself off in the morning. And that's only firmware changes, and that's just the beginning of this. Eventually, we want to get into be able to determine if patients are having events and be able and eventually have a device that will auto titrate just like AutoPath. So we're years away.

But right now, 2026 is really a development year for Inspire VI and building the algorithms. And then, of course, we -- the FDA has a period of time to be able to review that. So we're in the development cycle for VI right now but we already have line of sight for several enhancements to follow right behind that.

I think it's exciting and probably something that can move to the forefront in future years as you get closer and some of the other topics hopefully stabilize a little bit. So definitely more to come there.

One other thing that has stood out to me in the presentations, and I don't know if it's been discussed much is the concept of therapy evolution built in, which is like different than just software. And I was hoping you could maybe touch on that. I think there was a point about multiple electrodes and new stimulation targets. So any like early thoughts on those items would be great.

Well, V again, is a platform. And in Inspire V, we have multiple output circuits today. We only use one port. But again, bringing GLP back in. GLP-1s are going to be effective but we are doing research on a high BMI device, if you will, which is a dual channel device that Inspire V is a platform that allows us to do multiple channel stimulation as just one example. And so we are conducting research on it right now to see if there's a different mechanism that can help pull down the strained muscles, help deal with the lateral walls associated with high BMI. So we're active with that development. And we continue to look for other alternative approaches to leverage our strong technology, and we'll report back on that in the future.

Yes, definitely more to come. I think net-net, it's exciting, and you talked about like 80% type of responder rates but there's still so much more to come in terms of they get better titration, like more specific detection of sleep, so better adherence and then the things you're looking at longer term. So we'll follow up on that in future years.

The last topic I wanted to ask about is really competition. So this is the first year that you're facing like an actual full year of new competition in the HGNS category with Nyxoah. So I just wanted to ask like kind of what you're seeing in the field and kind of like what you're thinking in terms of the impact on centers trialing the new device and just like how you think about that in the context of your guidance for the year?

Well, I think we incorporated a small amount in our guide just to certainly recognize that centers will trial new devices. It's their job to make sure they understand what's out there and the expectations are very high. And as we got them talking about the experience of Inspire V really puts expectations on any kind of new technology. So we know people are going to trial the device, and we're okay with that, and we kind of built that in but we make sure that they really understand that they can count on Inspire V. They know the outcomes they're going to get. They know the consistency with taking care of their patients and the support they're going to get from Inspire. So we stay in close contact. We monitor it closely. But again, not too heavy to date.

All right. Perfect. And then maybe in our last 2 minutes here, a question for Matt. Just thinking about profitability, which has improved significantly over the past couple of years and you're starting to progress to respectable operating margin. But just thoughts about like how you balance at a high level revenue growth and all these investments in product improvement with earnings growth? And maybe just kind of putting into context how big of a priority earnings growth is along with revenue growth. And if you guys had any other final thoughts to leave the group with, kind of sign off with that.

Yes. Yes. Thanks, Brett. Yes, I mean, definitely, we're looking to drive profitable growth. And the way we've gotten here is continue to make the right investments. And we talked about product development and make sure we've got the best product on the market. And then we've done some unique things in the patient journey and getting DTC, and we're going to continue to make those investments. We want to continue to drive growth but we do want to continue to improve our profitability, and that's going to be the balance of what we do here over the next year and beyond.

Brett, I'll grab a minute just to say we have the best product in a very large underpenetrated market. Our technology helps patients live better, healthier lives. And we're going to continue to show evidence that how Inspire when used is helping people reduce major cardiovascular risks. That was a big data point in 2025, we really want to kind of lean in on that. And we're going to work hard. We've got to be able to resolve the challenges with reimbursement and WISeR. We know that's our focal point right now. But the good news is we have a pretty strong technology and people to be able to weigh in once we get through the reimbursement challenges.

So again, thanks for hosting us again.

Yes. No, same to you. Thank you so much, all 3 of you for participating today. Thank you to everyone who's tuning in to listen and hope everyone's conference goes well for the rest of the day and tomorrow.

Great. Thank you.

Thanks, Brett.

Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions]

I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at INSPIRE. You may begin the conference.

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 3 and 12 months ended December 31, 2025. 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-K, which we expect to file later this week with the SEC for the fiscal year ended December 31, 2025. 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, February 11, 2026.

With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Thank you, Ezgi, and thanks, everyone, for joining our business update call for the fourth quarter and full year 2025. On this call, I will start by providing an update on reimbursement of our Inspire V system followed by some key takeaways of our fourth quarter and full year results. Then Matt will provide a financial review of our fourth quarter and full year 2025 results and our full year 2026 outlook. We will then open the call for questions.

The key challenge for our business since late last year is, of course, the coding of the Inspire V procedure. A few weeks ago at an investor conference, we shared that we were actively engaging with key government agencies and physician societies regarding the use of CPT code 64568 -- sorry, had a bug, versus CPT code 64582 with a -52 modifier for the Inspire V procedure. In the last week, we received clarification regarding the coding that should be used for the Inspire V procedure.

Currently, health care centers and physicians should bill the most recent health care policies, be it a MAC or a commercial payer. Based on the clarification, we believe the code will transition to CPT code 64582 for the Inspire V procedure, including the use of a -52 modifier. We estimate that the reduction to the professional fee associated with applying the -52 modifier could range from approximately 10% to 50% of the base rate. The actual reduction may vary by MAC, and we will not know the precise impact until sufficient claims data have been submitted and processed across payers. In any case, we believe that a significant decrease in the professional fee resulting from use of the -52 modifier will likely influence physicians' willingness to perform the Inspire V procedure and may limit the number of cases they choose to undertake.

We intend to address these challenges by focusing on short- and long-term initiatives. Over the short term, as we work through 2026, we plan to work with the appropriate stakeholders on initiatives intended to minimize the actual reduction applied to the professional fee as well as to drive consistency across the country. As an initial observation, we believe there is strong justification for applying a smaller reduction given the markedly higher surgical skill and complexity associated with implanting the stimulation lead compared to the sensing lead.

Furthermore, because of the excellent progress made with the launch of Inspire V to close out 2025, significant coding experience now exists for the Inspire V procedure. CPT code 64568 was used for approximately 10,000 Inspire V procedures in 2025, which provides a basis for professional reimbursement. The professional fee for CPT code 64568 is approximately 10% less than the reimbursement for CPT code 64582 used for Inspire IV procedures and reflects the reduced work associated with implanting the pressure sensing lead.

As a note, we are nearing the completion of manufacturing of the Inspire IV systems. However, we believe that we have sufficient inventory available for centers who may choose to remain with the Inspire IV system for the foreseeable future. Given this dynamic reimbursement landscape, we have revised and widened our full year revenue guidance for 2026 to reflect the broad range of possible impacts that we may experience throughout the year.

Over the long term, we will be focused on developing a new CPT code. With clarity on the coding of Inspire V procedures as well as hospital and ASC site of service reimbursement and an action plan to clarify the professional fee payment, we can return to patient care, and I will start by reiterating our commitment to put the patient first and deliver strong patient outcomes. Over the past few months, we had the privilege to show data from the Singapore study and the U.S. limited market release, and we are excited and energized by the strong performance of the Inspire V system.

Being more specific, the Inspire V system has demonstrated superiority over Inspire IV as the data has shown a reduction in surgical time with the Inspire V system Inspiratory overlap, which is the essential factor for closed-loop therapy has shown to be significantly improved with the Inspire V system. And the AHI in the Singapore study has demonstrated a 79.5% responder rate using the share criteria, which is far superior to the 66% responder rate demonstrated in the STAR Phase III pivotal trial in 2012.

Inspire system reliability continues to improve year-over-year, and the 2025 data to date has shown a 0.5% occurrence of device explants and a 1.5% occurrence of revisions. With respect to the Inspire V U.S. launch, the team has made significant progress in the fourth quarter, and we are excited to report that physician training is complete, contracting is over 95% complete for our centers and SleepSync onboarding is complete for over 90%, bringing the total to over 90% of our centers implanting Inspire V to date. We expect to have stable product inventory for Inspire V throughout 2026, and we anticipate transitioning the existing Inspire IV IPG line to Inspire V later in 2026.

Switching to our quarterly results. We are very pleased with the strong revenue performance and cost discipline we delivered in the fourth quarter, which enabled us to deliver positive operating income and earnings. We ended the year with 295 U.S. territories and 275 U.S. field clinical representatives. As we enter 2026, we are being more strategic in our approach to territory management and optimizing our model through targeted territory consolidation and increased field clinical reps. We hired seven field clinical reps in the quarter, consistent with our strategy to get the ratio closer to 1:1 territory manager to field clinical rep.

On patient marketing, we had a very strong finish to 2025 regarding patient demand for Inspire therapy, including a significant increase in the fourth quarter in social media activity. We believe that this increase is related to the incremental growth investments we made in the back half of 2025.

The WISeR program, which is a government initiative requiring prior authorization of Medicare cases in six pilot states kicked off in mid-January of 2026. To date, many Medicare cases have been submitted and approved. However, there have also been denials for multiple reasons, including medical criteria inconsistencies in the AI software as well as coding. We continue to provide prior authorization support to our centers as they work through the WISeR implementation, and we'll update you as we have more information. but the WISeR program has affected Medicare patient procedures in these six states in the first quarter.

With respect to our R&D initiatives, we recently began testing a prior authorization feature in SleepSync, which will provide a simplified uploading of patient data to support preparation of prior authorization submissions. We believe this is an important initiative to enhance patient access to Inspire therapy, and we continue to look for additional ways to increase the utility of SleepSync.

We are also excited to announce that we recently received FDA approval for 3 Tesla MRI compatibility. In addition, in 2026, one of our primary product development programs will be Inspire VI, which will include sleep detection and auto activation, meaning the device will turn itself on when the patient falls asleep and turn itself off when the patient awakens, maximizing therapy adherence.

In summary, we remain focused on the patient to continue the growth in the adoption of Inspire therapy. We will execute our growth strategy of driving high-quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients.

Our key strategies include training advanced practice providers, certifying additional surgeons qualified to implant Inspire therapy and driving the adoption of SleepSync and our digital tools all of which are embedded strategy in our commercial team's objective in enhancing patient access to Inspire therapy. Looking ahead, we are excited about our future, and we believe that we have the appropriate strategies in place to drive long-term stakeholder value, and we are focused on addressing reimbursement, as I described above. Looking beyond 2026, we continue to take actions to position the company for profitable growth.

As we close 2025, I would like to thank Rick Buchholz for his many years at Inspire. With the close of 2025, Rick will move on to his new opportunity, and we wish him well. He joined Inspire in 2014 and was a key contributor to bringing Inspire to where it is today.

With that, it is also my pleasure to introduce you to Matt Osberg for his initial earnings call at Inspire.

Thank you, Tim, and good afternoon, everyone. I'm excited to be part of the Inspire team, and I look forward to getting to know each of you in the coming months.

Now let's review our 2025 fourth quarter and full year financial results. Fourth quarter revenue increased 12% to $269 million and full year revenue increased 14% to $912 million, with both increases primarily driven by growth at existing centers and new center additions. Fourth quarter and full year operating margin improved primarily due to sales leverage and a higher sales mix of Inspire V systems. As expected, fourth quarter and full year income tax was a significant benefit, primarily driven by the previously disclosed release of the company's income tax valuation allowance of our net deferred tax assets in the fourth quarter of 2025. Fourth quarter net income per diluted share increased $3.51 to $4.66. Full year net income per diluted share increased $3.09 to $4.89. Fourth quarter adjusted net income per diluted share increased $0.51 to $1.65. Full year adjusted net income per diluted share increased $0.80 to $2.42. Fourth quarter operating cash flow was $52 million, bringing the full year total operating cash flow to $117 million. We completed $50 million of share repurchases in the fourth quarter, bringing the full year total to $175 million, and we ended the quarter with $405 million in cash and investments. Our strong cash position allows us to remain focused on making investments to drive profitable growth.

Turning to our 2026 outlook. We are revising our full year revenue outlook to be in the range of $950 million to $1 billion, representing 4% to 10% growth. This range reflects the expected impact on our first quarter from coding uncertainty as well as the range of outcomes that exist by adopting CPT code 64582 with the -52 modifier and the related physician reimbursement rates for the full year. The low end of our outlook contemplates a 50% discount to the physician fee, while the high end of our outlook contemplates a 10% discount.

As we progress through the first half of the year, we expect to gain further insights on the professional fee associated with the use of this modifier. Additionally, we expect adjusted operating margin in the range of 6% to 8%, net income per diluted share in the range of $1.23 to $1.81 and adjusted net income per diluted share in the range of $1.85 to $2.35. Our outlook assumes an effective tax rate of 44% to 49% and an adjusted effective tax rate of 26% to 28%.

As we are in a situation where our pretax income is a relatively small base, certain discrete tax charges can have a material impact on our tax rate. Due to the fact that we have a significant amount of stock-based compensation outstanding and due to the volatility of our stock price, the tax impact of stock-based compensation on our effective tax rate can be material and could have significant variability from year-to-year, including moving from a tax expense to a tax benefit between years. Therefore, we have excluded the tax impact of stock-based compensation in our adjusted income tax expense and our adjusted effective tax rate. The ultimate amount of tax impact will primarily be determined by the difference in the value of the stock at the grant date as compared to the vesting date for RSUs and PSUs or the grant date versus the exercise date for options. We expect the tax impact from stock-based compensation will be concentrated in the first quarter of the year as that is when the majority of the vesting of our RSUs and PSUs occur.

Our outlook assumes estimated weighted average diluted shares outstanding of approximately 29.4 million and capital expenditures between $45 million and $50 million. Looking at the cadence of the year, due to the expected impact on our first quarter for coding uncertainty, we expect revenue in the first quarter of 2026 to be approximately flat to prior year. Additionally, we expect a net loss in the first quarter due to our revenue expectation and forecasted year-over-year higher operating expenses. We expect sequential improvement in both our revenue and net income throughout the year with the fourth quarter having the highest levels of revenue and profit in the year.

Finally, in addition to revenue, we plan to focus more of our communications on measures such as operating income, operating margin and net income per diluted share as well as adjusted operating income, adjusted operating margin and adjusted net income per diluted share. These changes more closely align our reporting with our medical device peer group and give our shareholders a better understanding of our recurring operations.

As we have not previously reported on adjusted operating income and adjusted operating margin, we have included a reconciliation of these measures for each quarter and the full year 2025 in our press release and investor presentation. In closing, despite the dynamic reimbursement landscape, our team remained focused on the fundamentals to drive strong performance in the fourth quarter of 2025.

As we look ahead to 2026, we will continue to emphasize execution and remain focused on what we can control. I'm excited to be part of the Inspire team and excited about the opportunities we have to drive continued profitable growth and long-term shareholder value.

With that, our prepared remarks are concluded. Dilem, you may now open the line for questions.

Thank you, Sir. [Operator Instructions] And I show our first question comes from the line of Adam Maeder from Piper Sandler.

Apologies for the background noise. I wanted to start on reimbursement. And I guess the first question is just around the physician fee with Gen 5 using the 82 code and the -52 modifier. And the 10% to 15% reduction is obviously a wide range.

So the question is, when do you expect to have more clarity on exactly where that shakes out from the various payers? I think you said you have a strong pace of somewhat closer to the 10% haircut. So maybe just elaborate on that. And what can the company and the medical societies do from an involvement standpoint in those discussions?

Adam, thanks very much. I think from the first off, there's existing policies in place. So the step number one is for facilities and professionals to build to the current policy. So this evolution to -52 is going to be a little bit of a process as it kind of works forward. Number two, we want to be proactive, working initially with the MACs but then eventually also working with commercial payers, too. But initially with the MACs, we can describe the differences between Inspire IV and Inspire V, the history using Inspire V with CPT code 64568 in 2025 and document the reduction in the work performed in 64582 to be able to get alignment with the MACs and more importantly, to drive consistency.

So, yes, we expect that -- and we believe that we're going to work with the societies and with the physician groups to make sure that we can drive that consistency, so they have predictability to be able to move forward with implants.

Okay. That's helpful. And for the follow-up, I guess maybe just talk about kind of the pathway forward here in terms of Gen 5. And I think you mentioned you're pursuing a dedicated code, just key steps and time lines in that process. And I guess one question that I have, sorry, to take it on is why not push the Gen 4 system a little bit more aggressively just given that the reimbursement is, I'll call it, buttoned up with 64582 until we really have Gen 5 kind of fully situated.

I think a couple of things in that you talked about in that discussion. Number one, we do want to pursue a new CPT code for the simple reason there has been public discussions that using a -52 modifier is not a long-term solution. That is really used for special cases. And so that's important for us to be able to address that. Number two, if you look at the payers, they -- we believe that they are going to minimize that reduction because if they're going to pay for an Inspire V procedure of a 50% reduction, that could be $350-some compared to $700 for an Inspire IV. So, we think, calmer heads will prevail. We will. We believe that we can work with the payers and the societies to get alignment to be able to continue to offer Inspire V because that is a product that has shown effectiveness even as compared to Inspire IV.

That being said, to the last part of your discussion, we do have inventory of Inspire IV available to those physicians and those centers that wish to continue with that by submitting a CPT code now, the timing of that is such that, that would come online with the RUC process near January 1, 2028. So that is a two-year period. So it's important that we work through to minimize the reduction with the -52 modifier, but also have Inspire IV available.

And I show our next question comes from the line of Jon Block from Stifel.

Tim, I guess I'm just curious on the revision to the 2026 revenue guidance, what's specific to the new reimbursement landscape, the 82 code with the modifier versus what you're seeing with the WISeR program? Because you did call out just some early findings there, some headwinds. So is there a way to delineate one versus the other? Or how do we think that through?

John, I think the WISeR program is the government program to require prior authorizations in six pilot states. Now those six states are significant contributors of procedures. And so that's why we're working very diligently to solve the technical challenges with the portal that WISeR has implemented. And WISeR program didn't allow any implants until January 15 because I think there is awareness that there would be challenges as they fired up the program.

So we do see the WISeR will be able to get our arms around that and work with our centers to be able to get the prior authorizations once the portal is streamlined and we're able to work through the buck. So a little bit more of just a Q1 phenomenon with the WISeR.

The primary reason for a revenue reduction, though, is the coding uncertainty and the potential shift to the 52 modifier for the remainder of the year. WISeR is causing a little bit of disruption in those six states, but the bigger issue is the updated reimbursement guidance.

Okay. That's helpful context. I just wanted to -- to that last point, make sure that was all embedded in the revision. And then maybe just a quicker follow-up is, can you remind us in terms of the physicians, like what percent are salary based, what percent are RVUs? And I'm just curious, anecdotally, any feedback you're getting, right? For those that are billed and have billed and seen the modifier, like what you're hearing from the field, from the physicians or from the reps?

Sure. I think that majority of our physicians are private practice. Any physician who is associated with a large medical practice or a large hospital system would be salary-based. Physicians who are part of an academic center tend to be salary-based. So it doesn't have the same level of impact with them, but they also -- a lot of them are the key opinion leaders that help drive this process. So they will be working with us in detail to try and minimize this reduction of the reimbursement going forward.

What we've said, John, in the past is that, on average, 30% of our centers are academic centers. I think you can take that as a proxy for implanting surgeons.

And I show our next question comes from the line of Robbie Marcus from JPMorgan.

Just one for me. Tim, I imagine the first quarter guide of flat is based on what you're seeing so far in the quarter. I guess, how do you get comfort with the 4% to 10%, especially if the low end is a 50% cut with the 52 modifier. That would probably assume high single to close to double digit for the rest of the year. How do you get comfortable with that? And why couldn't it be even lower?

Got you. We ran our models and we -- based what Ezgi just kind of commented on the percent of our surgeons that are at academic or large facilities versus private practice, also looking at the timing of any implementation from both Medicare as well as commercial payers with the -52 modifier. And so when we ran through our models, we believe that we're comfortable with the range. And it's our desire to -- and we believe that if we can work with the MACs to minimize any reduction on that -52 modifier that we can be on the higher end of that range.

All right. I said one, but I got a follow-up. And I also apologize, Matt, welcome and congratulations. Look forward to working with you. Tim, just a quick follow-up to that. Does that guide 4% to 10% assume that something improves from here on out? Or if everything stays the same, do you feel comfortable you could still hit that? And I'll leave it there.

Well, I think really the -52 really hasn't modified right now, hasn't really kicked in right now. And so I think that that's where the range is kind of based on what we believe the impact would be given the variable situations in there with the reimbursement from 10% to 50%. Obviously, the WISeR is having a short-term impact in Q1 as we work through the logistics. But I think once we get more clarity, we'll get more comfort around this.

Yes. And Robbie, I'd just add to that. I think you heard in my prepared remarks, the bottom end of that range is more than 50% reduction and the top end as you get closer to that 10% reduction. So it kind of depends on how things play out within that range over the -- as we see things in the next few months.

And I show our next question comes from the line of Travis Steed from Bank of America Securities.

Just wanted to ask about the pathway to getting a new code. Is there a temporary code or miscellaneous code that you'd go to while transitioning and kind of what happens to the doc payment during that process and how you get comfort that the reimbursement payments couldn't go lower with a new code?

Sure. Good question. I think the new code application process is well documented. And I think the application will go in the near future, and that starts with the initial review with the AMA CPT panel. And if we get that approved, then it moves on to the RUC process to be able to do the valuation of it. And as you say, that's a valuation process to weigh the time it takes to do the procedure and they try to get an accurate measure.

But in the meantime, we will run with 64582, so we won't be using any kind of miscellaneous code or any kind of temporary code or any kind of Category III code. Right now, our intention is to go to a new Category I code through the full process, which includes a RUC. And with that, yes, there's always risk that the RUC would identify a lower payment from where 64582 is today.

Helpful. And on the kind of the ability to still kind of grow earnings and expand margins here with lower revenue growth, I assume it's probably a little harder to get leverage. And so just kind of thinking about like the puts and takes and how your ability to continue to grow earnings in a slower revenue environment.

Thanks. I think we've had good cost discipline over the last several quarters. We'll continue to do that. Again, we're going to be working the reimbursement as a priority to minimize that payment. And if we minimize that payment, we get to the higher end of our range, obviously, we're able to get leverage from those numbers. But we're going to be diligent with our spending and as we learn more about that reduction being able to be flexible.

And I show our next question comes from the line of David Rescott from Baird.

I heard the comments around the initiatives to minimize this actual reduction applied to the professional fee. And wondering if there's any appetite to minimize from your end, the impact that hospitals will see. I think pricing potentially could be a lever there. So, wondering if at all, that is something you're thinking about and generally how we should be thinking about device pricing in '26.

Great. Thank you, David. I think for pricing, I think with going back with 64582, it aligns pretty well with where our current pricing model is. So as it stands today that we believe we're going to just have consistent product pricing going forward, but that's certainly always something that is something that we can review.

Okay. And I think maybe midway through last year, when you lowered the '25 guide, there was a comment about maybe some newer centers that were meant to be coming online or getting trained on the system were getting delayed. So, wondering just how you're thinking about your installed base, we'll call it, of trained accounts on the Inspire system and how those progressed throughout 2025 and then how that impacts the ramp that you will see from a utilization perspective as some of the delays, we'll say, of newer centers coming online progress throughout 2025.

Great. As you recall, David, back last year, we held back on opening centers in the first half of the year and ramped that up more diligently in the second half of the year. And I think we're going to want to keep that rate moving forward. Obviously, it will have impact based on the reduction of the physician fee, but we want to be able to maintain that rate, if you will. But -- so the centers that came on late in the year, are brought on with the expectation to have strong utilization and be able to move forward.

And I show our next question comes from the line of Larry Biegelsen from Wells Fargo.

Welcome, Matt. Two for me. Tim, could you talk about the clarification you got this week or within the last week, who was it from? What did it say that led you to the conclusions you provided today? And I had one follow-up.

Really, we just have -- as we said before, we've been working with all the societies, all the agencies to be able to identify and gain clarity on the coding. We still contend that 64568 is a descriptor that most closely matches the Inspire V procedure. There's an economic discussion in there now that showed that that's not being supportive, especially with the number of procedures that we perform.

So without getting too specific into the details of who, when and how, we have got to the point that we know that 64582 will be the coast going forward, including with the -52 modifier.

Tim, can you talk about competition? We all saw the Nyxoah Q4 results. There was probably some stocking there, but we do see a lot of posts on LinkedIn. So what are you assuming in the guidance from the impact of competition? And just secondly, do you know if they're going to have to use the 52 modifier where there'll be any difference in their reimbursement?

Thanks, Larry. I will not comment on their coding strategy that you'll have the opportunity, I'm sure to ask both of those companies on their respective strategies. But -- as far as what we see out in the field, we have great confidence in our technology, especially the Inspire V and the data that we have seen both from Singapore and the limited market release and the early experience and the safety profile has been strong.

So, yes, you're seeing a one-off opening of a center here and there, but we did build a little impact into our guide for competition, but we still believe that we are in a very strong position from an overall market.

And I show our next question comes from the line of Chris Pasquale from Nephron Research.

Tim, could you talk about your expectation for commercial payers? You talked about providers billing with whatever the most recent guidance was. We obviously know the MACs have gone away from 68, but I would imagine that it varies on the commercial side. Do you expect some of the large payers to continue to allow cases to be submitted under 68? Or do you expect them also to go to 82 with a modifier?

No, I think currently, they do allow 64568, that is their policy, and we, of course, have to build to their policy.

Now the difference, Chris, with commercial payers, including Medicare Advantage, remember, these are all prior authorized. And so when they're prior authorized, we do have the specific CPT code in the prior authorization, including per their policy. So it's a little bit of a lesser impact on commercial payers initially. But in time, we do believe that they will transition over to 64582 and likely to include the -52 modifier. And at that point, we do have to work with them on their global contracts to make sure that they have the proper physician reimbursement.

Okay. And then your territory count is down by 40, I believe, from a year ago. How much of that was sort of intentional rethinking of the U.S. sales organization? And can you give us an update on the number of centers those reps are serving? Your rep-to-center ratio over time has stayed relatively stable. Did you expand your installed base in '25? Any numbers there would be great.

Got you. It is intentional. We know that as we are ramping up territories, we are more strategic with the numbers that you quoted to more closely align with strategic territories to allow improved utilization and improved use of the team. But with each of those decisions, we also are adding field clinical reps so we can have the field clinical reps work one-on-one with the centers on case management and training. and we can have the territory managers working outfront with referrals, adding centers, adding capacity and keeping the commitment of the surgeons and the practices.

So really kind of a focus on the role of the territory managers and an expanded role for the field clinical reps. So that is an intentional move that we made. And then, generally, it's maybe five centers per territory.

And I show our next question comes from the line of Anthony Petrone from Mizuho Americas.

I'll stay on topic here. Maybe, Tim, you mentioned there in your prepared remarks, you're going to need a certain level of claims data to make the determination on whether you're at the lower or upper end of the 10% to 50% pro fee cut. So I'm wondering like how much claims data do you need? Will you have that in hand by the end of 1Q? Or does that bleed into 2Q? Because then it kind of sets up a moving target in terms of guidance. And then I'll have one quick follow-up.

I think that it'd be nice to have some data by the time we get to the Q1 call, but it also is in regards to the policies getting updated with the MACs. And again, our leading statement is we need to build to the most current policy. So we'll be working with the MACs and some of those may not have the modifier in place yet.

So we're going to watch that to see how we can pick up that data and minimize the reduction in that surgeon fee, but we may not have full exposure to that by the time we get to the Q1 call.

I guess how many MACs already have the mapping to the 52 modifier? Is it -- I think it's three of seven. And I guess you're waiting on the other four to actually have that 52 modifier in place.

Anthony, currently in the policy, none of the MACs have a mapping to a -52. There is some commentary with one of the MACs, but currently, we're building 64582 with those MACs, and we're going to be working closely with them to communicate when or if they're going to implement the -52.

And then real quick, just a follow-up would be, you have some evidence here, initial observation that there should -- there could be a smaller reduction based on the surgical skill, you had that in the prepared comments. It almost reads like there's a dual path here that you'll pursue a new coding structure on one path and then sort of show evidence here that the reduction should be lower. Is that the right way to think about it? Or is this just a one track path that you're pursuing a new code?

You are absolutely correct. We are -- it's a dual path. There's a short-term address the current situation with 64582 and when the -52 modifier gets implemented. And then long term, it is going to a whole new Category I CPT code, but that code would be in place January 1, 2028.

And I show our next question comes from the line of Richard Newitter from Truist.

Maybe just the first, I guess it was asked earlier as to whether or not there was a CPT III code, maybe a dual track while you pursue your CPT I. And I'm curious as to why you're not pursuing that. The reason being, I would have thought that at least would have allowed you to pivot away from any modifier requirements and you get to go back to a stable appropriate payment system at least during 2027. So just help me understand why that isn't a viable or worthwhile path while you're pursuing the CPT I as well that doesn't go into effect until 2028. And then I have a follow-up.

Yes. I understand, Rich, thanks for that. a Category III code, if applied for and awarded could take effect on January 1, 2027. And the word I would remove from your description is the word stable. And what we would enter into at that point is an environment where we would not have defined reimbursement, and that would be variable across the board, introducing a new Category III code similar to if we were to use a miscellaneous code. So we made the choice to stay the course with a Category I code long term.

We know that we have clarity on facility reimbursement that if we went to a Category III code, we would not have that clarity. That's the most important part because that's how we get paid and the facilities get reimbursement from those centers. And we're looking at a range of reimbursement for the professional fee. And again, we're targeting to minimize that risk in the short term that will carry us through '27.

Okay. And then just did you guys provide a U.S., OUS breakout? I may have just missed it. I couldn't find it in the press release.

For the numbers.

It should be in the press release, but I'll have to check. It will be in the K when we file later this week, it's not in the press release. Next question?

And I show our next question comes from the line of Shagun Singh from RBC.

Just one for me. Do you think we could see a broader negative impact from this WISeR program? It does focus on Wasteful and Inappropriate Service Reduction that HNS is now a part of?

Yes. I think that we have a long history working with Medicare. And there's a parallel program with RAC audits. I think you maybe heard that term, where there is third parties that will come in to facilities, and they will audit their Medicare cases to make sure that they have the proper documentation and those patients that have received treatment are on label. So over the years, we've been very diligent at training all centers to make sure that they're prepared for RAC audits.

And so while the WISeR program has a little bit of a challenge getting started, we believe we will be in good shape because we've already have facilities that are very diligent in making sure they have proper documentation and proper patient selection to make sure that they are on-label candidates for Inspire.

[Operator Instructions] And I show our next question comes from the line of Danielle Antalffy from UBS.

Danielle, are you there? I think she fell off the line now. All right. We'll see if she comes back on. Let's go to the next question.

And I show our next question comes from the line of Michael Sarcone from Jefferies.

Really just one for me. Maybe you can give us the latest and greatest on what you're seeing in terms of GLP-1s and what, if any, headwinds you have baked into guide?

Absolutely. We do put a little basis into the guide if we track -- as we talked before, we had our survey from last year, and we look to continue to expand that knowledge, but we do know patients are trying GLP-1s for multiple reasons. The high BMI patients, we think that's really an important step because they can lose weight and qualify for Inspire. And the data is coming in a little bit to see what percentage actually resolves their sleep apnea.

So we still believe that GLP-1s will be a tailwind for us, and we work with our centers to make sure that they are taking care of their patients, keeping in contact with the patients and if appropriate, putting them on a GLP-1 to lose weight with a secondary benefit, which is a reduction in sleep apnea.

And I show our next question comes from the line of Danielle Antalffy from UBS.

Is this working now?

Yes, it is.

Okay. Sorry, I don't know what's going on today, but technology is not my friend. So I'm sorry about that.

I appreciate a lot of this call has been about reimbursement and impact there. But I'm actually curious about -- because it seems like an unfortunate situation to me where you've got what seems like a growing funnel of patients that want to get this procedure. And now if you don't have doctors that are as willing to do it, I'm just curious how you guys are working with whether it's your centers, the patients to manage these patients who are coming into the system, but maybe are finding this bottleneck of physicians that actually want to treat the patients because it feels like the front of the funnel is not necessarily slowing. So I'm just -- sorry, that's like a kind of convoluted question, but I'm just curious if you can comment on that.

Got it. Okay. So what drives us at Inspire is Inspire V is a rock-solid product. And we show the clinical evidence to it. We know the benefits that patients can have because we have clinical data both from Singapore as well as from our new product launch in the U.S. And so that's what drives the employees here in that we know that we have an ability to help patients with their disease.

Secondly, that we do know there's variability in the professional fee reduction with any -52 modifier. So as that transitions into the program, with the strength of the Inspire V data and with the experience of having 10,000 procedures performed with Inspire V in the year 2025, we have very good experience to work with the payers to minimize that reduction, but we need to put that in place. And even though we do have Inspire about four units available for those centers, we will continue to push by.

That being said, going back a little bit to a previous question, we do know centers that are able to continue to move forward. And so we will focus and lean in on those centers. And while we work with payers at some of the private practice to minimize the impact from the professional fee reductions.

So, yes, so Danielle, we keep up the fight. And what works is we have strength on the front end of the funnel, and we got a really good product to be able to work with.

Yes. Okay. I mean is there a scenario where you have centers that are willing to take more patients? I mean, I guess I'm just trying to understand what happens to the patient that gets referred to a physician and they're like, oh, we're not doing that anymore because we don't get paid enough. I mean I know that wouldn't be the conversation actually. But where does the patient go?

That's a valid statement because what's clear here with the clarity, we got clarity of coding and we got clarity in the facility reimbursement. And the reimbursement for the facility actually increased $1,000 from last year. So the reimbursement is strong at facilities. So in those centers where we may be a salary-based surgery, we believe that we can bring more patients to those facilities if some of the private practice physicians are more challenged based on the economics. But we're going to be -- we're going to work all avenues very diligently.

And I show our next question comes from the line of Daniel Markowitz from Evercore ISI.

Daniel, do we lose you?

Sorry, can you hear me on that?

Yes.

Sorry about that. I had two. The first is on the math. I'm curious the exercise you're running on the physician fee and how that could impact the business. Is it mostly survey work? Or how do you do this? I guess I'm just curious with the revenue guidance, there's a 6% delta between the low versus high end compared to on the physician fee, 10% to 50%, a potential 40% delta. So I guess how do you run the exercise of figuring out what physician fee cut leads to what type of impact on your business?

Sure. There will be a continuation and expansion of the last question. And Daniel, so we look at this saying, we know there are centers that will remain consistent, and we may be able to drive more patients to those centers because, as an example, the surgeon may be salary based, if you will. Academic centers aren't affected so much by the professional fee because they're salary-based. So we can continue working in those areas.

In some of the ASCs, if a surgeon is a partial owner, they are less dependent on the professional fee than they are the set of service fee. So there's avenues in there that we can continue to pursue. And the area that the surgeons that are at the greatest challenge are those private practice physicians who get their operating rights or privileges and get OR time from a large hospital, but they get paid on their own professional fee. Those are the surgeons that are at the most risk because we're asking them to do a procedure that doesn't pay them for their time spent on it.

Now that's why we have good argument and rationale to justify a lower reduction from the professional fee to be able to support those physicians. So it's not just a straight math equation across a reduction in the professional fee does not have the same impact across all centers.

The other thing I'd add to that, Daniel, is we called out that there is an impact on Q1 just for some of the coding uncertainty that we've seen that's compounding the range as well and making that a little bit wider.

Got it. That's helpful. And then my follow-up, as I look at the high end of the revenue guidance, can you help me understand what the cadence would look like in that scenario? Is it fair to assume we'd be exiting the year at something like mid-teens percent growth? And would that contemplate some sort of catch-up as you said, that some of the patients might be redirected to other centers? Or can you just help us understand how we get to the high end of the guidance?

I think you described it pretty good. Maybe we describe it more as comfort. And I think as we get additional clarity and it minimizes the risk, of reimbursement of what they're going to be paid once we have data, then we can get back into leaning in harder. So we would expect acceleration in the second half of the year. And we believe that if we can get the data that we'll be able to show improved reimbursement. And then we'll have the surgeons will be more comfortable making the determination to commit more of their time and more of their operating room time for Inspire.

And our next question comes from the line of Patrick Wood from Morgan Stanley.

Just two quick ones for me. First one, I know you guys don't guide to it, but just a sense for OUS. I understand why we've all been focused obviously on the U.S. at the moment, but the relative guide going forward and the sense of the contribution in '26 that you guys expect from OUS would be helpful.

Thank you. I know that -- go ahead, you want to jump, Ezgi.

I actually have the numbers for Rich's earlier question. To answer your question, Patrick, 4% to 5% OUS contribution roughly for the full year 2026. Q4 U.S. revenue was $256.9 million, 95% of revenue, OUS, $12.1 million, and full year was $872.1 million U.S., $39.9 million OUS.

Amazing. And then just really quickly, I know we sort of touched on the commitment to moving to Inspire V. But if you wanted to switch back a little more durably to Inspire V, let's say, for a little longer period of time, do you have things like the contracts set up like the manufacturing supply chain that's enabling you to do that if you chose to go down that pathway? Or is there something preventing you from doing that?

Well, I think that as you looked at our inventory numbers on the tables that you see, we do carry a significant inventory, the majority of that is Inspire IV. So we have the ability to carry forward with 4 and in the time it will take us to get to the new CPT code. But we don't believe centers in the U.S. will really go back to Inspire IV. I think once physicians and centers experience Inspire V, they are comfortable with the procedure, not putting in the pressure sensing lead to reduced work to do the Inspire V procedure and then the outcomes associated with Inspire V, I think people are going to be careful about going back to Inspire IV. But that being said, there were centers that are high volume that we're doing Inspire IV late in the year.

To answer your other question, our ability to go back and fire up the line and restart making piece parts associated with Inspire IV, it does get a little bit limited on parts obsolescence as we transition to 5. So we do have inventory to carry us forward. But yes, we want to transition over to full production on Inspire V.

And I show our next question comes from the line of Brett Fishbin from KeyBanc Capital Markets.

Welcome Matt. Just maybe switching gears a little bit here, just on the fourth quarter earnings number. I think maybe a little bit lost, you guys grew EPS over 40% and was really well above expectations and the implied guidance coming out of last quarter. So curious where you saw incremental expense leverage relative to what you were planning on with the full year guidance coming out of 3Q?

Yes, I'll start and Ezgi you might add in here. So I think what you saw in the fourth quarter was a beat in expectations kind of throughout the P&L. Revenue was better than we expected. Gross profit margin was better than we expected as we had a higher percentage of Inspire V.

And then as Tim said in his prepared remarks, we did have good cost discipline. We are thoughtful about our spending and spent less than we anticipated. So compile all that. Obviously, we've got the significant tax benefit, but even you adjust that out, that all of those contributed to the beat in Q4.

All right. Cool. And then just one follow-up on expenses for 2026. Just curious like how you're thinking about overall direct-to-consumer marketing this year relative to 2025. I'm sure as the year progresses, there may be some change based on the reimbursement status. But just in terms of like a base case, how you're thinking about that at this point? And then like where you're targeting the advertising in 2026 compared to '25?

Thanks for the question. Our current thinking is that it will still be flat to slightly up, but we're going to take a look at that as we go forward here. advertising mix will be mostly similar to what you've seen in the past, but I think greater focus on social media and more of those types of platforms. We'll still continue to run our TV advertising, but more focus on social media and digital.

And I think Tim said it earlier, we know we've got a wide range of outcomes on the top line. We're going to be thoughtful and flexible about our spending and just make sure that we're tracking that based on where we see revenue coming in.

And I show our last question in the queue comes from the line of Mike Kratky from Leerink Partners.

So, for instances where the MACs announced the removal of the 64568 code for OSA back in December and then implants subsequently happened in January, can you quantify what portion of the claims you've seen so far come in have been rejected versus not?

Yes. A little unknown. We have had procedures paid on 64568. We've had procedures paid on 64582. We've had some procedures actually get denied and require clarification. We've had notifications of centers receiving notification of payment at 64568 only to be followed up with an adjustment to the payment level of 64582. So, bottom line, it's all over the place. And I think now this is the -- this is the good news as we close the call here is we have the clarity of the code. And so facilities and ASCs know what the reimbursement is going to be. And it's no longer the unknown if it's going to be the new reimbursement is going to be to the improved 64582 with $1,000 increase.

So, again, so I think having clarity of the code, having consistency with reimbursement at the centers is really the solid thing. And then our next step is to really lock down on minimizing the professional fee. And we think that we're going to have a good audience with -- specifically with the MACs to discuss that with us.

Very good. Thanks very much. Hey, as always, I'm grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to the patient remains unmatched and is the most important element of our success. I wish to thank all of our employees as well as the health care teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe and Asia. For all of you on the call, we really appreciate your continued interest and support of Inspire and look forward to providing you with further updates in the months ahead. So, thanks very much, and Dilem, back to you.

Thank you, sir. This concludes today's conference call. You may now disconnect.

All right. Let's get started. I'm Robbie Marcus, the medtech analyst at JPMorgan. Very happy to introduce Tim Herbert, the CEO of Inspire for our next presentation. Tim will do some presentation followed by Q&A. Tim?

Very good. Thanks, Robbie, and thanks for having us here at JPMorgan for hosting us and give us a nice time here on Monday morning to get a chance to meet with everybody over the next couple of days. This is fantastic. This morning, we preannounced our Q4 and full year revenue, which reflects really a continued growth and adoption of the Inspire V system. We also provided initial revenue guidance for 2026 in this guide of 10% to 11% revenue growth is in line with our indication that we provided at our last earnings call.

Our initial revenue guidance does not include any contributions from the increased reimbursement at this time. We do view the recent reimbursement developments as a positive step. And we are working with all the relevant agencies to gain full alignment around that subject. We continue to believe 64568 best describes the Inspire V procedure, and 64568 has been associated with Inspire since our FDA approval back in 2014. 64568 was billed and paid for Inspire V procedures throughout 2025. And you'll recall the software update that happened midyear on July 1 was a key element to be able to launch the Inspire V device.

So as we learn more, we will certainly provide updates, including at our upcoming earnings call. Now what drives the team at Inspire is our mission and our positive persistence to deliver strong patient outcomes and overcoming challenges. And that is what the company is all about, and that's kind of where we kind of build from. I'm going to spend a few minutes running through some slides that talk about the core elements that bring us to where we are and what's going to be the keys to our success going forward.

First, let me show the chart. This is our full year guide. We're going to be approximately $912 million in 2025. The Inspire V neurostimulator system launch has gone very, very well. 100% of the physicians have been trained. Over 95% of the contracts have been executed and about 90% of the centers are on SleepSync program are very, very important. We presented significant data of the safety and efficacy of Inspire. I'm going to show you some of that data here as well. And you can see our initial revenue guidance, so proud to say of $1.003 billion to $1.013 billion, first time I had a chance to say that, and that's pretty exciting. As an overall summary, we still have a very large underpenetrated market.

Many publications already out there talking about the safety and efficacy of Inspire, and we continue to develop more as we go. 1,300 employees now delivering therapy to the employees with over 300 million covered lives in the United States. So we'll keep proceeding with growing the adoption of Inspire. And you can see that we've now exceeded over 125,000 patients with Inspire. So Inspire V solution is significant. And we're so proud of this product and the experience that we've had in 2025 really is what's going to be the key driver taking us forward. Obviously, you see the picture of the Inspire V neurostimulator only has one port. And that one port is for a stimulation lead because the sensing lead is now incorporated inside the device and using an accelerometer to detect respiration.

And the key to Inspire and the key to hypoglossal nerve stimulation is closed-loop stimulation. We know the airway is most susceptible to collapse during the inspiratory period. And so that sensing is a key element to be able to know when the patient inhales, exhales to be able to time that stimulation out. The Inspire V is now at a 30-, 45-minute procedure, a significant reduction from Inspire IV. That really helped us late in the fourth quarter because we're able to add additional cases, and we were scheduling cases even the last week of the year, had a significant number of implants done on New Year's Eve. These are the patients with the high deductible insurance plans that really need their procedure done before their high deductible resets the next day. So really a busy time in the last couple of weeks, but the Inspire V and the lower procedure times really allows us to be able to capitalize on that.

A couple of things about Inspire V. It's not only a nice initial program, but it's also our platform moving forward. So Inspire VI is going to be our key development project that we're working on this year, and it's really a software upgrade. And what we are looking to introduce is sleep detection. And so when a patient falls asleep, the device turns itself on. They no longer need the remote that you see there to turn the device on at night. They get up in the morning or they get up during the middle of the night. It will pause itself and turn itself back on when the patient goes back to sleep. I want to talk a little bit about some of the data that we generated. And we did a clinical study in Singapore, and this has been published earlier. It was on 44 patients, but this is now upgraded or updated to show the latest clinical data.

Here, we again show the respiratory waveform with -- I don't think you can see the mouse right there that you can see as patient inspires, we want to time that and provide stimulation throughout the inspiratory phase of respiration. And we can do that. And we measure that with a parameter called inspiratory phase overlap percentage. The Inspire IV device was good. It had 79% of the breath the inspiratory cycle was covered. But going to an accelerometer, we get an improved respiratory sensor, and we've taken that up to 87% of the breath we can capture. That's significant in driving overall outcomes. As you can see from the apnea-hypopnea index, we're going from -- I can't read that, 38 down to 8.4 events per hour.

If you took that in terms of response rate or the famous share criteria, that's a 79%, almost 80% responder rate. That's significantly better than where we were back in 2012, and it kind of sets the bar for comparison of where people need to be going forward. 100% successful implants, right? 20% reduction in surgical time. Therapy adherence is very important, averaging 6 hours per night at 6 months. That's really profound. What we need to do is take that a little bit higher. And the way we're going to do that is Inspire VI. Inspire VI is going to take adherence to as high as we can get it because the device will turn itself on when the patients fall asleep.

We also measured our own results with our Inspire V limited market release in the U.S. And you can see the same benefit, 6 hours a night, 80% of the night used. We have 3 other functions that we add in small step-size start impulse, meaning it just doesn't turn on, it kind of turns on with a ramp. And you see people are starting to take advantage of those key features as well. So very important, strong safety, and we're currently tracking 49 patients. What you're seeing here is that the data from the first 49 patients who have crossed over their 6-month time frame and very, very strong outcome. SleepSync was a part of the Inspire V launch. We got -- made that a key part of centers. And so they can use SleepSync to not only initiate and track their patients, but to track their performance long term.

What's key is we also can monitor that data, make sure we know that patients are getting the best care to make sure that we can track what centers are doing really well, what centers might need a little bit of additional training. So really kind of a key feature. Now that we have centers on SleepSync, we can start building utility to this. One example is today, prior authorizations are done by [ eFax ], right? But we are now testing a feature. It's in a limited release test right now that SleepSync is used to provide the information to our reimbursement team to prepare the prior authorization submissions. We can start tracking patients now from when they go to Advisor Care Program through their whole pathway through implant and, of course, for long-term follow-up.

So SleepSync is going to continue to grow to become a very important part of the -- an important tool as we go forward. At Inspire, everything we talk about is for the patient and to make sure we have continuous improvement in our safety and making sure we have a positive experience for all the patients. Two measures that we use to measure this is what is the percent of patients who can survive from a device explant, if you will. And go back all the way to 2018, 6% of the patient had a chance of having an explant, and you can see that is out at 90 months, right? But every year, we can show continuous improvement going forward. 2020, the COVID year is always an anomaly. But look where we are right now, less than a 1% chance of having an explant. That's consistent improvement.

And that's been very strict in the operating room, driving sterilization with the team right there, making sure that we have strong outcomes and so patients don't choose or elect to have their device removed. On the right-hand side is the survivability for revisions, right? And the revision rates have gone from 10% back in 2018 to look where we are right now, 1%, 1.5%.

And a key to this is the majority of the revisions were attributed to the pressure sensing lead, which no longer exists. So we have a significant improvement, again, to be able to take this, we would love this to be 0. And we know that's very difficult to do, but that doesn't mean we're not going to continue to keep pursuing this. Here's the big breakthrough for the year. Three independent universities went and looked at the TriNetX database, large government database tracking, sleep apnea, Virginia Commonwealth, Thomas Jefferson, University of Texas Medical Branch. What we have found is use of Inspire has shown long-term cardiovascular benefits as compared to CPAP and of course, as compared to no treatment. And these are statistically significant numbers. This is going to only be enhanced as we start going forward. Not only is Inspire going to show that we're treating just the symptoms and severity of sleep apnea in AHI, the apnea-hypopnea index, but now we're going to start showing key changes in cardiovascular health.

That's what this is all about. That's going to really make a strong impact on patients' lives, both now and into the future. You're going to see a lot more as we kind of really lean in on additional data collection from the cardiovascular side. So as we continue to grow over the years back in -- founded in 2007, right, and shout out to my original Board person, Dana, right here in front and still on the Board today, right? And we have been really focused on patient outcomes. And if you put the patient first, we'll never lose our way. We'll always keep driving forward in the right direction. We're always going to have challenges, right, whether it's going to be external environments, whether it's going to be reimbursement, whether it's going to be whatever. But the team is positioned to be able to address those with positive persistence be able to just overcome those as we will today with the challenges that we have.

But now we're up over 125,000 patients with Inspire, and we're just getting started. We have quite a ways to go. We still have a significant untapped market. And even though we're talking about 125,000 patients with Inspire, there's 0.5 million people per year that are capable of receiving Inspire and benefiting from it. So as I -- we always do at JPMorgan, we ramped up our direct-to-consumer efforts when we came after the launch, so in the beginning of the third quarter. And so we created new content because we want to get the message out there that now we're really showing improvements in the sleep quality.

And so what we've done says you can sleep so good, you can now dream again. So we always love coming here. We always show some of our new commercials. It's kind of fun that we like to do because sleep apnea is still a disease that really sets up for direct communication with patients. They want to be a part of their process. And so our outreach programs continue to grow, and we continue to show a strong yield in helping patients come in, see their physician, see if they're available or a good candidate for Inspire and then benefiting from it. So this is the living room rescue, all right? Wait, back up. Do you guys have to help me?

[Presentation]

This is how I run out the clock, Robbie, so you can't answer any -- ask questions. Okay. What's important there. We got a lot of feedback before that when people start commercials, they didn't really understand what it was. So you see the little image of the neurostimulator, they can start to understand now that it is a procedure. It's not just something. So when they come in, it kind of helps bring that forward. That was one of the feedbacks that we heard. So we also brought a little holiday to it and [ Scrooge has ] sleeping challenges, obviously, right, and he dreams.

So we got to make a little fun with this. We ran these ads during the holidays. That's kind of fun.

[Presentation]

That's [indiscernible] really well. So then every now and then, you -- as we continue to grow, we're going to attract people. So I'm sure everybody is a fan. I was talking to [indiscernible] last night. He's a big fan of The Golden Bachelor or The Golden Bachelorette. So The Golden Bachelorette had 2 people to choose from, and they do the overnight thing, whatever that's called, and one person snored and one did not. The one that did not one, it just so happened, Chock happened to have Inspire. So what do we do? We will contract with Chock, and we started -- we filmed some commercials. There's also -- I can't remember his wife's name, but that we also filmed commercials with her, too.

And so these have been running, especially when we do the Golden Bachelor.

[Presentation]

That's pretty cool. That's our venture in real people. So all right. So I'll grab one more slide, and then as I said, we're going to go half and half. So really proud to announce Matt Osberg has joined Inspire as new CFO. He's going to be starting later in January. He comes to us from a host of experience from Apogee to Helen of Troy to Best Buy. He is an early EY guy and has many years of experience. He is from Minneapolis, although he's traveled the world with his career and really not a medtech person, but we searched the world to find the right individual. We know medtech. We weren't necessarily focused on a medtech person. We want somebody who could really bring in and help us go to the next level. So very exciting from that standpoint.

Inspire V fully launched, very good adoption, significant improvement in surgical time, patient outcomes and really the key driver to the momentum that we saw in the fourth quarter to close the year and exciting to start the new year. SleepSync is now broadly adopted. That was a key part of the Inspire V launch. And now we can continue to build the utility and build tools that can really help the sleep physicians manage more patients. And now we're working with overall health outcomes. That's going to be really a key driver going forward. So did provide the revenue guidance of $1.003 billion to $1.013 billion. And this all that, of course, does not include any contribution from increased reimbursement. And we are working on the reimbursement. We view this as positive.

We have to get all the parties together to get a good clarification, get good alignment from all the agencies to really provide clarifications, and we'll continue to report back as we make progress there. So at that, we are right there. I'll invite up Robbie Marcus to join us on stage.

Great. Tim, maybe a lot to talk about. Maybe we could start with fourth quarter. You beat by, I think it was $7 million.

Maybe just talk through some of the trends you saw in the quarter. Inspire V is now in full launch, what you saw there, and we'll get to reimbursement. But was there any stocking or bolus of procedures in the fourth quarter with some of the confusion around reimbursement?

Right. Back in the third quarter earnings call, we always looked at there's going to be a big step-up in Q4. We always have a big step-up from Q3 to Q4. Q4 is our high seasonality quarter, again, back with the high deductible insurance plans and patients demanding that they get their [ patient ] in December before the end of the year. So yes, really a good momentum going forward. And that's helped out quite a bit with Inspire V because of the reduced time to -- surgical time allowed centers to be able to do additional cases.

And as I mentioned earlier, that we were scheduling cases the last week of the year, and that's kind of unheard of in the past because they knew that their reduced time, they could slot in 1 or 2 more cases to help those patients out. So good momentum with V to drive it kind of just above where we set our guide to be and good momentum with Inspire V. So really exciting to be able to keep moving into the new fiscal year.

Okay. As we think about 10% to 11% revenue guide for 2026, that's reiterating what you said on the third quarter call. That doesn't include any uplift in price in 2026. As you think about sort of the trends coming out of 2025, stabilization, Inspire V launch now in full swing, what does the 10% to 11% assume? And what has to change from current trends to get you there?

Got it. I think what we want to do is continue to focus on the adoption of V and really leverage the new data that we have, the new outcomes that we have. Can't underestimate the impact of not having the sensing lead in the chest wall for an ENT to do that part of the procedure. That's one of the key feedbacks that we've been getting from the ENTs is really simplifying the procedure, yet improving the outcomes by having an accelerometer with the sensing.

So those are the key elements that we'll be able to keep driving utilization. We leverage our direct-to-consumer to build awareness, including with Inspire V and really keep doing what we do to keep growing the adoption. And we're so untapped. Our market is -- the penetration is so low. It just creates an opportunity for us to continue to open more centers, but really focus on growing utilization at same-store sales or at existing centers.

Talking about data, you had some up on the slides with pretty good cardio data. Is there any way to differentiate Inspire on the label versus CPAP using some of that?

I think this is the first year that data has come out. So we're going to keep leaning in on that. We're also going to be trying to collect some more prospective data to be able to help leverage that and go back to FDA to see if we want to have a discussion and what we can do to be able to look at labeling and marketing claims associated with that, but it's really a profound change to be able to have a cardiovascular benefit. That's something that people have been asking for since 2007 when we launched, not just AHI, but does it really help with outcomes, and that's going to be a key factor for reimbursement down the road.

So in November, reimbursement, the final outpatient ruling affirmed that Inspire should be billed under 64568 and came along with nearly a 50% premium versus the older code of 64582. Then there were some MACs that came out in December and said, no, we're -- Inspire may not be applicable for that newer higher reimburse code. What's the current status in your view today of reimbursement? What doctors should be billing for? And what's Inspire doing to clarify that amongst the implanting community?

Sure. It will go all the way back to 2014 when we got approval. And we always had challenges back then with the first code. What should Inspire be billed under? And in the end, we stuck to our guns and 64568 was the code we used back in 2014. And we stayed this with that. We had to develop an add-on code for the pressure sensing lead. And that's how we operated until just several years ago when we came out with 64582, which is a full system description that included stimulation lead, sensing lead and a neurostimulator. So it's a 2-wire system, and that's still in existence today, and Inspire IV is still used to bill that.

As we developed Inspire V, it's -- when we go to the certified coders and we look at what code best describes that procedure, it's 64568. And we implemented that at this meeting last year, we talked about that, and that was put in place. And we had been billing 64568 for the whole year, including one of the limitations I mentioned earlier about the software not being updated to allow online billing for centers for Medicare and that was updated on July 1 to allow 64568 for Inspire V, and that was part of the key momentum going all the way through the whole year. So really from a descriptor and from a coding, nothing's really changed.

And I think that the surprise to everybody is when CMS was really smart and they came up with the new tech APC because they just weren't ready to go to a Level 6 ambulatory payment classification yet. So when they came out with the 1580 or the new tech APC, I think that is just a big change and it caught everybody by a little surprise. And I think what you're seeing is a little bit of a reaction from that. So what our job is get all the parties together. So we're communicating with everybody, all the agencies to make sure they're communicating. Obviously, the societies are heavily involved in this as well.

We get all the parties together, everybody just kind of take a breather, slow down a little bit and thus get the clarification laid out so everybody can understand what's the proper way to do this. We continue to bill 64568 into the new year. Obviously, it's very early in the year, so we don't have results on payment yet. But we're staying very active with it, and we're being very open and providing all the information that all the appropriate parties need to have to be able to get clarification across the board.

Do you have a time set up for a meeting with all of the relevant parties?

We have been meeting with all the relevant parties for some time now, as you can imagine, the key is going to be what's the timing to be able to get full alignment with all the parties. That's what we don't have. So we're going to keep working. People know time is of the essence. People know the impact that this has have for Medicare patients across the United States. And so I think that agencies are working it diligently, and we'll keep providing updates, and we do have an update on our earnings call coming up in just a few short weeks.

So you said you're still billing the newer higher code into the new year here. We're 12 days in -- probably half of that in business days. So you don't have an answer yet, I imagine, on if it's getting reimbursed. But maybe we could think about into 2026. You have the full year guidance sometimes at this conference, you'll comment on first quarter. How do you want the Street to think about first quarter, given there might be a little confusion in the market and maybe some push out of procedures if it's not resolved soon?

Sure. I think that we look at it as kind of -- when we did our initial indication, we had our plans set up to run our game in 2026. And I think that we want people to kind of just think about that. That would be a good way to look. So when we started talking about cadence of the quarters, I think that the way consensus is right now, we're probably comfortable with that today, and we'll keep running our programs. And if we can get alignment and resolution, then we can come back and revisit that.

Okay. Maybe another reimbursement one. I believe it was one of the MACs was referring people to maybe implant with the old code with the 52 modifier, which has lower reimbursement for physicians. Any comment on that? And is that what you're hearing doctors doing in that MAC region?

We just need to kind of get all the parties come back and work on that. We don't agree that that's the right way to go, right? That goes back where we were here a year ago, right? And the MACs, including that MAC had been covering 64568 all through 2025. So that's part of the overall discussion with all the parties. And so that's one that we have to report back on.

Maybe moving on, one of the bright spots for Inspire the past several years has been the earnings and the leverage you've gotten down the P&L, and you have a very low share count. So every $1 million is a nice addition to earnings per share. A bit of a reset last year, but still great leverage in third quarter. We'll wait for fourth quarter to see what EPS does. I imagine with the beat, we'll see a good quarter. How are you thinking about spending and margins in 2026, especially perhaps with some upside from Inspire V and the ability to continue to drive margins and EPS up?

So let's kind of work backwards and through that. So yes, Inspire V does provide some improvements in margin. We demonstrated that in the third quarter and look forward to providing data that's currently in audit, and we'll do that -- give the EPS update at the earnings call in a couple of weeks. But we do see that benefit moving forward into 2026. But we're going to continue to spend as well. We're -- as I mentioned, our top priority right now is working on Inspire VI as a development project. We're going to keep continuing to build our team in the field.

We're going to keep working internationally. And we're going to continue on with our direct-to-consumer. So we're not slowing down our approach to growth and continue to keep pushing and investing in the company going forward. But with our gross margin, we do have the benefit to be able to be profitable. And that's a nice change and especially as we're getting to a point now that we can provide revenue guidance over $1 billion to be able to come back and talk about that at the earnings call of being profitable with it as well. So really look forward to providing that input coming forward. But yes, we're going to keep investing in the company, no question about it.

Just see anybody with questions in the room?

Could we call on people?

Sure.

[indiscernible].

I'll just -- let me repeat the question. What's the impact of GLP-1s, if any? And how are you thinking about that moving forward?

Right. With the other discussion, I'm not sure we're going to have GLP-1 discussions today, but no, thank you for asking that. A very important part of our business. And we do think long term, it's going to be a tailwind for us. And I think there's a significant population with a high BMI that we simply just cannot treat because of the lateral wall collapse that I've talked about many times and associated with a very large neck circumference. The GLP-1s are really helping people lose weight and reduce that neck circumference and to leave the lateral wall collapse, so we can treat the tongue base collapse.

And I think that when we did our survey 1.5 quarters ago and looked at our sleep physicians, half of them now have established weight management programs where they are prescribing GLP-1s and they are managing patients on GLP-1s. What's key for them to maintain insurance is they have to track utilization of the GLP-1 or adherence to GLP-1s, they have to track improvements in weight loss and improvements in sleep apnea. But I think what we'll see is people will be losing weight, and there will still be people with residual AHI that requires treatment, and that's where the tailwind starts. So I think we're just at the beginning of starting to see the patients lose weight.

We do have some evidence showing people losing weight and then receiving Inspire. Now the trick is they got to stay on the GLP-1 or they've got to maintain that weight loss because they put the weight loss back on and the lateral wall comes back. So that being said, we do believe that GLP-1s may not solve the world's problems. And so we do have our own development program to be able to treat high BMI patients. So we're actively pursuing that. We call that a dual channel device. So another key research program that we have going on this year to really address the lateral wall collapse and have a different mechanism to be able to stim to treat that. So we're addressing that in twofold, multiple ways.

But we'll keep tracking the GLP-1s closely. We know that it really is a benefit for the overall sleep market. GLP-1s has just created this awareness. And people come into their family doctors saying, I want a GLP-1 because I want to lose weight. I want to feel better. I want to look better. And they say, well, okay, let's do some tests. We want to check you for diabetes, for heart failure. Let's do a sleep study because if you have sleep apnea, you might get coverage with your insurance company. And sleep physicians, when they find a patient with moderate-to-severe sleep apnea, they are not just sending them back. They're going to treat those patients. And that's how they get captured in there, and we can -- it's going to only grow the overall sleep apnea market. So it's going to be a long-term benefit.

Tim, you talked a good amount on innovation. You spent a good amount on R&D. You're just launching Inspire V now. What is next? When should we expect Inspire VI? I believe that will have auto sleep detection, and that's more of a software than a hardware upgrade. How do we think about sort of the cadence of new innovation rolling out to patients?

Yes. I think what's just keep continually innovating and keep continually releasing new products that can take our outcomes to a higher level and just improve the patient experience even better. So we're actively -- and we divide it in 2. So we have the therapy side, and then we have the digital side. So on the therapy side, we're already actively working on Inspire VI to get to auto sleep detection and activation. We know we have programs beyond that with VII and VIII that's going to start to get to auto titration. In other words, having a device that will auto program itself.

Now that's years down the road. But with the sensing, we can be able to depict when patients are having events and not. We are looking at avenues right here on new indications such as high BMI and going to a dual channel device and really leveraging our technology to a whole new indication. On the digital side, we know that what we talk about is a limitation on the number of surgeons doing procedures. We just don't have the capacity to support the demand that we have. But eventually, we're going to solve that, and then we're going to push the burden to the sleep physicians who have to manage all these patients. So we need SleepSync as a tool to be able to help manage the significant number of patients that are available. So you'll see the utility of SleepSync just continue to grow as we move through the years.

And now we're at the point now with the core program out there across the U.S., now we can do just incremental changes as we go. Prior authorization is one that I already mentioned. So we're going to continue to keep pushing innovation hard because that's kind of what we're all about.

Maybe as I think about drivers of growth, it's probably at this point, you've talked about this on some of the past calls. It's not new centers as the biggest driver of growth or potential. It's the ability to drive better utilization within existing centers. Where do you stand in terms of the programs or what you're doing in the field? And how do you feel about the ability for Inspire to execute on that in 2026?

Great question. I got 1 minute to speed answer -- we get an extra time. So we're going to start upfront. And we have our direct-to-consumer program where we get people come to our Advisor Care Program, but we have to help them make that first appointment. So we're going to work diligently to be able to improve that conversion rate. And once they're at the center, we need to be really efficient with the ENT surgeons to optimize their time when they're in our office. So in other words, use a navigator, use advanced practice provider to educate the patients.

So when the patient sees the ENT, they're qualified and they can go straight to the OR. We already talked about V reducing the time to do a procedure that allows them to do more cases in a day and of course, make sure you have good partnership with sleep physicians on the back side to be able to manage the patients and make sure we optimize therapy outcomes from that standpoint, 321.

That was a good, fast answer with a little time. Tim, thank you very much.

Thank you very much.

Thanks, everybody, for coming.

All right. We're live here, so we're going to get going. Welcome to the 2025 Piper Sandler Healthcare Conference. My name is Adam Maeder. I'm one of the Med Tech analyst here at Piper. Very pleased to introduce the team from Inspire Medical.

With us, we have Tim Herbert, Chairman and CEO; and Ezgi Yagci, from Investor Relations. Thanks so much for joining us.

Thank you for having us. It's great to be back here again for the -- I don't even know how many years it's been.

It's been a couple.

You got to be pushing and getting close to 20. So that's great.

We're thrilled to have you. So maybe just to kick things off, I wanted to touch on the implied Q4 guidance. The Q3 print, nice bounce-back quarter, you beat the top line, you crushed EPS numbers. You did reaffirm the full year guidance for 2025 on revenue, which implies a decent step up quarter-over-quarter. And I guess the question is, it's not a typical year for Inspire. And so just how much visibility do you have in the business? Just give us some confidence that you're going to be able to achieve the Q4 implied guidance.

Very good. Yes, we are very happy with the third quarter. we knew the beginning of the year is always the challenge as we're launching Inspire V, and there's challenges with that, and we held back on opening new centers in the first half of the year kind of held back a little bit on direct-to-consumer and building awareness to give us time to get that product out. The Medicare challenges with 64568 got cleared up on July to allow for people to use that code with Inspire V. That really kind of kick started Q3, and we made very good progress in converting all the centers from Inspire IV to V. And then the fourth quarter is just a continuation of that and really cleaning up the transition of the rest of the centers, but we wanted to just reaffirm that revenue because we already had a significant step-up from Q3 to Q4 in revenue.

We also had some cleanup on the earnings per share, which was really positive as well as so we did increase our guide on earnings per share for the rest of the year. So team is working hard. We do have the visibility that we see. We know December is always the busiest month of the year for implants because everybody has their high deductible insurance plans that they want to make sure they get the procedure done by the end of the year before that high deductible or out-of-pocket resets on January 1. So yes, we continue to progress through the quarter and working hard.

Okay. Perfect. And Tim, inventory levels, how should we think about those in Q4? I think you're transitioning from the Gen 4 to the Gen 5 system, working through some inventory, is it net neutral in Q4? Is it a headwind? Is it a tailwind? Just kind of what's...

There are 2 different inventory things. What we're talking about is field inventory and inventory that people carry. I think it's going to be a little bit more net neutral. We will continue to burn down the Inspire IV inventory, but it tended to get replenish with Inspire V. So it tends to be a little bit of the net neutral. And I think, well, we should have most of that taken care of by the end of the year. There will be some carryover into next year, but I think that a pretty minor impact going forward. And and we've been pretty successful at transitioning everybody into V.

Yes. And that's a great segue into the next question, which is the transition for the Gen 5 system. You finished Q3 with more than 75% of U.S. accounts doing Gen 5 procedures. Where is that number today? Where do you expect to finish the year?

I think the training is complete with the surgeons in the United States. And then obviously, we'll continue to train additional surgeons as we go. I think the contracting is well over 90%. The SleepSync is over 80%. And so we're really able to kind of transition. I think the 2 key elements of this whole Inspire V launch, one, having proper inventory to support the launch and number two, getting that Medicare software or CMS software updated for 64568 with Inspire V was really kind of the key that let us get through the logistics of contracting training, SleepSync and transitioning. Once July 1 when CMS updated the software, then it's just go, and I was able to really kind of lean in and get that conversion. And that's why we're in pretty good shape right now as we finish out the year and transition next year. I don't know if this will really be a topic we'll be focused on V.

Okay. Fantastic. One other kind of temporal dynamic wanted to touch on patient warehousing. I can't recall if it actually came up on the Q3 call or not, but what is the status there of some of those patients that were maybe warehoused earlier in 2025? Have they been treated? Are they going to be treated? Or are they on the schedule? Just what's your take on the warehousing dynamics?

Bringing that back a little bit for everybody. When we talk about patient warehousing, we're talking about patients who are aware that the fifth generation is available. And they want to wait to receive therapy until they can get the Inspire V rather than receiving an Inspire IV. So we think that phenomenon is pretty well cleared up. I think the patients who wanted to wait are in the queue if they haven't already received the Inspire V device, and again, that's the second to left probably there will be time we'll be talking about this as well as we kind of work through the year, and that patient warehousing is pretty well complete.

Yes. Okay. Perfect. On the Q3 earnings call, you did give an early indication of top line growth for next year, 10% to 11%. Maybe just unpack that for us, walk us through the key puts and takes on that framework, both on the tailwind and headwind side of the business.

I think we wanted to put a message out there to kind of get everybody on the same page to be able to have a starting point for where we saw 2026. It wasn't our formal guidance, but we want to put out an early indication for what to expect, and then we did comment that at a competitor's conference earlier in the year, I think we'll come out and preannounce our revenue for the year and give full year guidance at that point. But we just want to make sure that we give our early indication for everybody to get consistency and a point to be able to move from.

Yes. Okay. Perfect. I feel obligated to move on to reimbursement, which is the subject du jour. So very nice reimbursement change for CPT code 64568 for calendar year 2026, double-digit bump for physician reimbursement, but the bigger change, the new Tech APC for the facility moving to 1580, 40% to 50% year-over-year increase for the facility reimbursement using round numbers for simplicity. How do you think about any potential impact to the business? What are you hearing from customers about the increase?

Well, the excitement. I think that's pretty important CMS and we're working on this for full year. And we just got done talking about how CMS was already transitioning Inspire V to 64568 and updating the software in July, Inspire V New Tech applies well into the New Tech APC. So not a lot of surprises. I think the end game, I think, is people want to have a Level 6 APC ambulatory procedure classification. Right now, it was in Level 5, but there's always a little bit of a cost differentiation that just didn't work. So -- but I also think that someone else was looking at it with Level 6, there wasn't enough data, enough volume to be able to justify that today. .

So the New Tech APC is a nice tool that allows a bridge to be able to collect additional data, to be able to kind of lean in and probably the end game several years down the road will be a Level 6 APC. But for the meantime, this new tech APC really works well. It's great for the hospitals. It's wonderful for the patients to be able to gain access to therapy and improve the economics with Inspire. So yes, we're very happy about it. Customers are happy about it. We're spending a lot of time now to make sure all the customers are aware of that as they update their contracts with the commercial payers and will have an effect across the board.

Yes. Fantastic. In pricing strategy, to ask it bluntly, does this change Inspire's pricing strategy? Will you look to increase price? Or is $25,000 still a good assumption for U.S. ASP?

I think that we know how the calculations work. And we know that we need to be supportive with that. So we know that there's going to be benefits to the hospitals, but the hospitals also understand how the economics work and when -- at the end of the year when they look at the number of procedures proposed or conducted in the past year at the different cost points. It affects that costing. So the team is looking at this very closely right now on what our strategy will be moving into next year, but this is obviously an opportunity, something that we need to look at closely. This does take effect January 1. So at times of the essence to make sure that we're leaning in on that and that we're already working the awareness with our sites. So more to come on that. But yes, we understand how the system works and where we need to be.

Okay. Fantastic. You mentioned this earlier, Tim. new tech APCs are kind of these are my words, but transitory vehicle collect additional data. How long do you expect to be in the New Tech APC? Where do you think reimbursement for your technology kind of shakes out over the long term?

Yes. I think it will stabilize over several years. I would expect us being in that New Tech APC for quite a period of time, at least 3 years probably before they established a Level 6 APC, and that's kind of the new thing, a new Level 6. So -- but it's been in the works for some period of time. And -- but I think it will be a while before the things kind of stabilize all to get the right reimbursement levels. And ideally, it's going to be right where it is right now.

Yes. Okay. Fantastic. Maybe just one more. commercial payer rates. Does the New Tech APC have any influence on kind of how your commercial payers pay for the technology, cover the technology?

I think a lot of the Medicare Advantage, which are the commercial payers are triggered off the Medicare payments, and a lot of the commercial payers are also just triggered off that as well. I think several of the hospitals will have to go and update their renewals with their own contracts with commercial payers, but it's up to us to make sure that they're aware what that medical reimbursement rate is to be able to work from. But everybody knows that commercial pay rates tend to be a multiple of Medicare. So it kind of ripples through the entire system.

So it sounds like it is fair to assume that commercial payer rates will likely increase.

Will likely increase as well, for sure.

Okay. Fantastic. Maybe switching topics here. Gen 5 utilization. You gave some statistics early in the year, I think it was the Q2 earnings call about the centers that adopted the Gen 5 device. They have seen 20% plus volume increases on a year-over-year like-for-like basis. Wondering if you have any updated figures, similar statistics that you can share as the rollout has continued to progress or even just any anecdotal color on the utilization topic.

Yes. I think that we plot that, we track that closely and we do see those centers that are fully transitioned to Inspire V do have increased growth over those, that are with IV. Now that also the higher utilizing centers are the ones that transition to V first, and they do see the benefit and can move forward with it. Let's talk about V though, the positive acceptance of Inspire V is pretty universal. And number one, it starts with a ear, nose, throat surgeon, not placing the pressure-sensing lead between Intercostal muscles. And that really is impactful part of the process. It makes it much easier for the surgeon to do the procedure. We've been showing a 20% reduction in surgical times from the data from the clinical studies that we've run with Inspire V. But more importantly, the outcomes with the Inspire V have been very solid as well. Not to mention the safety performance has always been very strong. So the acceptance of V across the board has really been universal. And now, of course, with the reimbursement, that really is a tool to be able to lean in on further.

Fantastic. And just a follow-up there would be new surgeons, trained. And I've always kind of thought about the low-hanging fruit for Inspire is to add a second or a third implanter at an existing center. Is Gen 5 helping with those efforts? Are you seeing progress there? How do we think about a number of kind of surgeons training going forward?

Yes. I think we'll look at this in a couple of different fashions. Number one, the reimbursement is going to have a positive impact, too, because of the margins that hospitals can receive for proper reimbursement. And that allows them to do more procedures and train more surgeons and kind of lean in. The challenge we've had with current reimbursement levels, it's very difficult to do Medicare cases in an ambulatory surgical setting. And when we have ear, nose and throat surgeons, a lot of the ENTs the private practice, they want to spend their time in the ASC, and they don't want to be in the hospital. So it's a whole new group that this reimbursement change brings into play.

Not to mention Inspire V not having that pressure sensing need it really yields itself for procedures done in the ASC. So we've already formed ASC Tiger team. It's going to be a big push next year to bring in new surgeons from private practice and those that have their own ASCs, now that we have a reimbursement level that can support that across the United States, not just in the higher paying geographic areas. So I think that we're going to really be looking to increase number of surgeons trained to drive utilization and really going to be a big push to kind of excite ASCs to kind of accelerate because today, it's only 20% of the procedures performed.

Right. And I know there was a lot of focus on ASCs in past years and maybe hasn't quite materialized and perhaps that's reimbursement related. This procedure seems very well tailored for an ambulatory surgery center. Where do you think that mix can kind of go over time? And would you expect ASCs to have higher throughput than hospital outpatient department?

Yes, and I think we can look at some of the comparables that we have in neurostim and we can see percentage is 40%, 50% of procedures done in an ASC. And I think that's achievable. And I think what kind of works for the surgeons because they're partial owners and they help control the schedule and they have just more flexibility in ASC. And some of our top sites will have 2 rooms, for Inspire procedures, where they're completing procedure as they clean that room, they go across the hall to a different room and going back and forth. And that's where we see sites doing double-digit procedures in a given day. And I think that as we go to ASCs that provides that flexibility to be able to really let them increase the utilization and obviously, the reimbursement really kind of opens the door to be able to go down that ASC pathway. And that's what's really so exciting about it.

That's great color. Switching topics again, replacement curve. I haven't -- have to admit I haven't taken a lot of questions on this recently, but you first commercialized in 2014, I believe. Batteries last maybe 10, 11 years, if I'm remembering correctly, how do we think about a replacement curve opportunity that's on the come -- patients coming in for a second device...

Kind of overshadowed by this reimbursement news, is the reimbursement for replacement devices actually went from a Level 4 to a Level 5 APC which is wonderful, right? And so that means when patients come in, they can -- most patients coming in now from 2014, '15, they have an Inspire II device, right? And they'll have that replaced with Inspire V device. We'll leave the sensing need behind and only the stimulation lead plugs in because naturally, the sensing is now incorporated as part of the Inspire V. We're already seeing replacements starting to tick up, and that's exciting, right? And we're still expecting a high replacement rate of up to 80% of patients who received therapy coming back and the battery life has been shown to last 10.5, 11 years. And so those patients from 2014 and '15 are just coming through right now, and that's just a new revenue stream that we'll continue to add as we continue forward.

Okay. Perfect. I feel obligated to ask the question on GLP-1s. So let's maybe tackle that. The Q2 earnings call, I think, was the first time I heard the company talk about GLP-1s impacting the funnel or maybe being a near-term transitory headwind. I thought the commentary on the Q3 call somewhere recently was a little bit more balanced, upbeat in terms of the impact on the funnel. Did I interpret your comments correctly? And what are you seeing in terms of the impact of the funnel today? Is it headwind, net neutral tailwind?

No, I think you interpreted it correctly. I think that after the Q2 call, we went out and did our own work, we went and interviewed all the sleep physicians and wanted to get a feel for how are they changing their practices around GLP-1s and other tools to treat sleep apnea. And that's kind of the nice environmental change that we see, is sleep physicians now have tools to be able to treat obstructive sleep apnea. People go to their family practice doctor to get a GLP-1 to lose weight and feel better, look better, right? .

But if they get a diagnosis of obstructive sleep apnea, the insurance company may pay for it. And so what the sleep physicians are seeing is an increased diagnosis rate of sleep apnea. Well, that's driving their business, right? They have more patients coming in. It's just expanding the overall pie for patients diagnosed and who need to be treated. And we know that these patients are not going to just get a GLP-1 and left on their own for a year to see if it takes care of the sleep apnea. They're going to be put on a CPAP at the same time they receive a GLP-1, and if they're not compliant to the CPAP, they're going to be looking for alternative therapies.

So I think it's going to be a strong favorable tailwind for Inspire in the future. Today, it's still in the early days of GLPs coming out and being prescribed and insurance companies reimbursing. But I think we're having overall transition period with Inspire V and we have a big backlog of patients that we're really not seeing too much of it right now. But I think that will turnaround near future and continue to be a tailwind. We already talked to our practices who are already seeing patients on GLP-1s, now receiving Inspire therapy. So we think that's really going to be a positive Going forward.

Yes. Okay. Fantastic color there. And maybe switching gears to the device competition. There is a second player on the market that's starting to launch their technology. What are you seeing from this new competitor? How do you think about competitive dynamics going forward? How are you thinking about any impact in '26?

Yes. I think centers will try the new technology. I think that's okay. I think that's their job to try new technologies. And we just make sure the expectations are there that they're going to have the same level of outcomes. When they implant Inspire they know that there's consistency there. They know what the procedure is. They know the expected outcomes, the safety is unmatched and that they know what to expect, they know the support that they're going to receive. We just put out new data from 2 independent universities that talked about the impact of cardiovascular health. And it showed over 4,500 patients over 10 years in a government database, TriNetX, that they showed improvements in health outcomes of Inspire over CPAP and certainly over nontreatment. That's probably a bigger impact than even the reimbursement impact.

When we can show true health outcomes and the impact that, that's going to have. And that just shows the stability that Inspire has, and we set the bar very high for what the expected outcomes are and what customers should expect out of Inspire or anybody else entering into the field and we're going to keep developing new technologies like Inspire V, we're already working on Inspire VI and beyond. The digital programs we have with SleepSync are making it much easier to manage the patients going forward. So yes, we're going to continue to set the bar very, very high and it's important that all the physicians have that same level of expectation for whatever therapy they prescribed delivers.

Fantastic. Ezgi, maybe one for you on the P&L. I'm going to kind of leave it a little bit open-ended here, but any quantitative or qualitative color that you want to share, whether it's gross margin, OpEx below the line items as we think about 2026.

Yes, absolutely. So I guess starting on the gross margin line, as you all know, the transition to Inspire V has been accretive to our gross margin. This is a -- we got rid of the pressure sensing lead, which was a very expensive and complicated SKU to make. So as we get rid of that, there's some upward bias on the gross margin line. When we think about OpEx, we will continue to support our DTC initiatives and most likely increase our DTC spend, but there are a lot of other areas where we're being much more disciplined. So you should anticipate that operating margins will increase next year on a GAAP basis.

Okay. Fantastic. About a minute left here, I'm going to try and get through 2 more questions. I guess the first is a long time CFO, Rick Buchholz, who is here somewhere, not on stage, but here somewhere, I think, the room or the building, stepping aside at the end of the year. Just any update on the CFO search and when we should expect that role to be filled?

No. We have several good candidates. We did a nationwide search to find somebody who has that experience to really take it to the next level. And we're in the interviewing process right now with several candidates, and we're really making a very good progress there and hope to make an announcement very soon.

One last one, pipeline. I wanted to ask about CCC because the competition -- emerging competition, it feels like they're kind of targeting these patients. with the respective technologies in one way or another. Inspire's contraindicated today, it's 20%, 30% maybe of patients with moderate to severe obstructive sleep apnea. What is the strategy for CCC? And how quickly can we get there?

Well, we're going to separate this out and talk -- complete concentric collapse. Really, what we're talking about is a combination of tongue-based collapse and lateral wall collapse. And Hypoglossal Nerver Stimulation moves a tongue forward and addresses tongue-based collapse, all competitors. And nobody addresses lateral wall. That's a different muscle group that you need to stimulate. And so we do have dual channel stimulation going to address not only tongue-based, but lateral wall. The good news is the GLP-1s do help patients lose weight and reduces the neck circumference, and that helps the lateral wall collapse. And I think that -- so that's why GLP-1s and Hypoglossal Nerver Stimulation work in concert with each other. But all the technology is still moving the tongue forward. But we're taking that to next step to go to a dual-channel device and we're making very good progress with that, and we look forward to reporting back on that.

We'll stay tuned. Well, we covered a lot of ground in 25 minutes, and we'll wrap there. But thank you again for joining us.

Very good. Thanks for having us.

Thank you.

All right. Good morning, everyone. Thank you so much for joining us. I'm Danielle Antalffy, the U.S. med tech analyst for UBS. Very lucky to have with us Inspire Medical Systems, Tim Herbert, President and CEO; Ezgi Yagci, Head of Investor Relations. So guys, thanks for joining.

Danielle, thanks for having us. It's so great to be here.

And I guess a good place to start. You did just report earnings, you had a good quarter. So maybe just some quick hits on the quarter and some of the drivers and then we can dig into Q&A.

It was a very important quarter for us to report back, and there's so much tension that we had after the end of the second quarter, that was quite a challenging quarter for us, working through the transition from Inspire IV to our next-generation Inspire V system. We made tremendous progress with that during the third quarter, had a very good pickup that showed with our results as well. But most importantly is we are able to report the patient outcomes associated with the new device, Inspire V, both in a clinical study that we ran in Singapore as well as the first commercial experience here in the United States. And that outcome state is so strong, and it really sets us up moving forward. We did work through quite a bit of the transition in the third quarter, getting the majority of the centers up and running.

I think we reported -- over 98% of our centers have been trained. And we talked about over 90% have completed the contracting portion of the transition. And 75% have completed the SleepSync portion of the preparation for Inspire V. So over 75% of our centers are ready to go on V. And we exited the quarter with the majority of centers doing V. So not only with strong numbers during the quarter, but very good progress with the transition of V.

Just on that point with the transition from IV to V, do you have a sense of how much IV inventory is still out there?

Yes. That was another big concern that we had as company exiting the second quarter that centers in the United States need to burn down their Inspire IV inventory as they ramp up V. And it's really neutral overall as they burn down one inventory, they'll supplement that with Inspire V. At the beginning of the third quarter, it was predominantly all Inspire IV inventory in the field. And as we exit the quarter, it's predominantly all Inspire V. So we've kind of done the transition. We'll continue to work through that here in the fourth quarter and look to clean most of that up. And -- but there will still be some sites that will continue to implant Inspire IV even going forward.

Okay. And then maybe talk a little bit about the physician experience for Inspire V because that's a key advantage relative to Inspire IV time of procedure, ease of procedure? And is Inspire V starting to break down some of the barriers and getting more ENTs to implants?

Yes, let's start with that one. I think that is the biggest feedback that we've heard universally. In a very important part of the Inspire system is you need to sense respiration and time stimulation with the patient inhales. And we're the only system that does that. And it's an essential part of the therapy to optimize the outcomes and the key is we use a sensing lead that would be placed between the intercostal muscles with Inspire IV and a significant technology jump going to Inspire V is we incorporated the sensor inside the neurostimulator. And so the ear, nose, throat surgeon no longer places a sensor in the intercostal muscle. And that was the one part of the procedure that was most uncomfortable for ENT.

And we think a factor on while many ENTs would not do the procedure or would not do many of the procedures. So now that V is out, and the clinical data did show a 20% reduction in surgical time that allows them to do more cases in the day. But I think with the 20% and without having the pressure sensing lead, we can go back to surgeons that we trained early on in the process and reenergize them saying, now without having that pressure sensing lead, it's time for them to start doing Inspire again. And for those surgeons who are used to doing Inspire, now they can stack more cases in a day, and they can grow their own volume. And when we enter talk to a new general ENT surgeons, it's a much different conversation, not having them operate outside of their comfort zone.

Yes. That makes sense. I guess one of the sort of gating factors to adoption has been ENT mind share, just getting these -- they're busy physicians. They have a lot of procedures to do. How are you guys working to continue to gain mind share amongst your current physician base? What's the playbook?

Well, I think the key is, number one, being obvious patient outcomes and positive experience. The safety profile is tremendous with 100% implants through the Inspire V with Singapore study as well as the limited market release in the United States. The confidence that when they prescribe this to a patient that, that patient is going to have a positive outcome is really the key driver to the whole thing. And so that experience a much simpler procedure kind of really takes it to the next step. But it's a competitive environment for them. And they have to take care of patients, a lot of our surgeons are oncologists, and you can't just walk away from the cancer patients. So we need to work with the surgeons so they have -- they optimize their practices, so they can spend their time in the operating room. One example is we train APPs, advanced practice providers, individuals who can communicate with the patients can provide them the guidance, the instruction of what to expect with Inspire and can be a navigator, can help them schedule the appointments they need to work through the process and thereby free up the -- so the surgeon can just focus on the surgical procedure and then the sleep physicians can do the post-op longitudinal management. So really optimizing around that. We talk a little bit about direct-to-consumer in this regard as well because patients come to the ENTs and they don't come just for Inspire, they will need numerous procedures. And so we're really bringing a patient population to these ENTs. So it's an opportunity for them to hone the rest of their skills as well and build their practice by absolutely focusing on Inspire.

Okay. And you guys have mentioned in the past sort of the service and support. So I'm asking this question less from a competitive perspective, we can talk about that later. But the service and support that you provide to these centers. So another friction point has always been reimbursement and just getting these payers aligned and regularly reimbursing less pushback. Can you talk a little bit about the handholding you are doing at these centers to help grease the wheels a little bit?

Well, we -- there's kind of 2 different avenues to that when we can talk about the support at centers, and we also need to talk about how we communicate and educate the payers as well. Maybe let's go on that pathway first because -- now that we have coverage by all the major players and Medicare and military and VAs, what's most important now is to drive consistency of the coverage policies. And if you go to all the different payers and the Medicare local coverage determinations are all pretty consistent. But there's just those little things out everything. So we want every policy that to really be uniform, so it's really consistent and makes it quite easier and so there's no confusion with -- from the physician side when they're going for coverage and identify what's important. The transition with Inspire V going to the new code, 64568, which is actually going back to the old code, as that transition has gone really well. We had challenges in the second quarter, as you all recall, with CMS not having that on their computer systems, but that was cleaned up on July 1 and has since it's really been streamlined. And most recently, that reimbursement has gone up.

On the physician side, we do provide service. We are in every surgical procedure and that's really a quality control for the patient. And we want to make sure that we provide the technical expertise to make sure that procedure goes well. That being said, the people that we prefer in there -- our field clinical reps, not necessarily the sales reps, not the territory managers, right? We want the territory managers running logistics out front, patient referrals, driving capacity at centers, making sure that we have the engagement of the C-suite, making sure that we're looking to add surgeons, add centers. And the field clinical reps who get paid less than sales rep, obviously, but their job is case coverage, individual coverage in the operating room, training the centers how to do the programming and the patient follow-up. So build the efficiencies into those practices as well, not only from our standpoint, but educating centers on how to be more efficient as well.

Yes, do you have sort of best-in-class centers that are already there from an efficiency perspective? And I guess, how easy is it to replicate center to center? Can you go into a center and be like, here's a case study of how they're doing it and how much the ROI is...

Just another comparison. Academic centers really have a lot of ENTs who are dual-boarded and sleep. And so these are the surgeons, sleep physicians who do everything themselves. And at academic centers, that's great because they do the clinical research, they do the early adoption, and they will grow, they will trial new devices. But those aren't the centers that drive the growth. The centers that drive the growth are the large and community-based hospital systems. When we all go to the doctor, we go to our community-based doctor. Those are the centers that have the teams. They have 1, 2 or 3 ENT surgeons, and the patients are managed by many sleep physicians in the community. So everybody knows the role. They come in, the patients are diagnosed. They have the Inspire procedure done by the surgeon, and then they immediately go to a sleep physician for their longitudinal management. And the whole team works together with SleepSync to collect all that data so all the players of the team can track the patients, they can see the benefits that these are providing, make sure they give the feedback to their referring physicians. And we make those case studies. We make those -- these are the centers of excellence, and this is what we want new centers to emulate. This works best. The centers that do the most procedures have the best outcomes. Not a surprise, their practice. They know how the system works. So yes, we certainly -- as we continue to grow, it's about community-based care. It's about emulating the most proficient centers.

But you do continue to add new centers. I appreciate you're not giving that number anymore. But when you look at the components of growth, new centers versus, call it, same-store sales, can you talk a little bit about what you're seeing or how that's changed over the last few years as you guys have gotten much bigger?

Sure. Back up to the Q2 call again, and we talked about that in the first half of the year, we knew the transition will start, we did not want to start a lot of new centers on Inspire IV. We're just holding them to start on V. We also held back on DTC in the first half waiting for the transition to happen. Third quarter, we opened up a number of centers back to what you would call normal because we had a built-up demand. I think you'll see the same thing in the IV. We'll continue to add center. That's going to be a very important part of the process, albeit with the number of centers that we have, it's a less of a major impact, right, as a percentage of the overall number of centers. But still very important to go back and open the centers and the centers that we open emulate what we just got them talking about. They start up with a full system, and they start up with an expectation of this is how many patients a month it takes to be efficient with Inspire and to make it work for everybody. And so I think we're a little bit more selective to kind of build practices in that realm.

And when you think about the number of potential surgeons to go after, can you talk about -- I know you've framed this before or in the past, a number of surgeons that are out there that could potentially be doing Inspire, and we have a ways to go, I think.

We'll make Ezgi jump in.

We do. So inception to date, we've probably trained a little over 1,600 patients -- 1,600 surgeons, ENT surgeons. We know that there are probably around 12,000 or so general ENTs out there. About 8,000 are head and neck specialists. And historically, that's been our bread and butter and who we tend to go after. To Tim's point, with Inspire V in the simplified procedure, we think we can continue to make headway with the head and neck specialists, but also start to target the general ENTs. There's also a very significant general surgeon opportunity where we haven't even scratched the surface longer term. So that will be -- there will be more to come on that probably next year and beyond, but very excited about what we're seeing so far.

Okay. Okay. And we've talked a lot about the sort of areas of friction, but let's talk about the tailwinds right now. And actually, like I know you guys have talked about GLP-1 maybe a little bit of a near-term headwind, but actually, it seems like it's just really increasing awareness of, I would say. You talk to SleepMed physicians, and their waitlist are just growing and growing and growing. So maybe talk about as best you can, like what you guys are seeing at the start of the funnel and how much bigger that has gotten over the last 2 years?

I can put a comment and hand off to Ezgi. I think what GLP-1s have done to the sleep market has really just changed the way sleep physicians conduct their practices. And that's what the real positive is. And if you just go back 5, 7, 10 years to a sleep physician, the world was a CPAP period. And if you're diagnosed, you're going on CPAP. If you don't use your CPAP, try harder, you can use your CPAP. And that was always a challenge that we had. With Inspire with the data that we've had, we started to change that and influence the sleep physicians to understand that patients are not going to be compliant, there is a viable option with Inspire. Now what GLP-1s have done with an indication for sleep apnea, now patients will go to their family practice doctor, and they want to have a GLP-1 because they want to lose weight. They want to feel better. But if they get a diagnosis of sleep apnea, they might get their insurance company to pay for it. So the sleep physicians are getting requests to do these sleep studies, but sleep physicians are not going to do that. They're going to make sure that these patients are taken care of. And they're bringing the patients in. They're conducting full assessments and doing sleep studies. And for those patients that have moderate-to-severe sleep apnea, they're not allowed to just go on a GLP-1 alone because it could take a year and the compliance isn't necessarily where it needs to be to show that it's going to be worth a while to make sure they properly take care of that moderate-to-severe sleep apnea. So they put them on CPAP concurrently. But in order to maintain the insurance coverage, you got to track those patients. So we're actually going to identify patients who are not compliant to CPAP sooner. And so this is a new phenomenon. What really is important about this is the sleep physicians now look at treating sleep apnea with an array of tools and not one favoring the other. They know that CPAP will go first, but they can look at what patients are good for Inspire. How do we get patients on the GLP-1 to lose weight to qualify for Inspire because we know they're not going to use the CPAP anyways. And so it really is going to come full circle, and that's what we're excited about. And I think it's really going to be a positive for the patients having access to the therapy, and we'll continue to lean in on that.

And one of the parts of the story that's always been compelling to me is the fact that I appreciate the ENT mind share, that's an issue, what have you. But if the patients are coming, and I hear that the patients actually, once they're in the funnel are very, very motivated to stay in the funnel and get their Inspire. You go to an ENT, that ENT is like, I don't have time for this, but they'll get treated somewhere, right? Like why is that these -- is that thesis wrong?

No, it is not. But the key to it is understand the baseline how they all started. And it's kind of -- you have to think about people who have sleep apnea. This is moderate-to-severe sleep apnea. They don't sleep well, they do not get restful sleep, right, and come to confidence. If you stay out too late, you're not going to get restful sleep. The key to it is they get diagnosed with sleep apnea, they try a CPAP. They feel better, they just can't benefit from CPAP long term. They are motivated to find a solution to their sleep apnea because they know when they feel good how well they can operate. And that's the premise of the whole therapy. When we do our outreach programs to patients, we rely on that. We rely on patients who are looking for a therapy. And then they come in, they go to the website, they get educated, and they can say, you know what this might be for me. So they find a way to a doctor. We like them to call the -- our ACP, Advisor Care Program, which is a call center because we can directly help them get an appointment with a health care provider. And a lot of times, patients will say, you know what, I can see what my family doctor is going to say, so they go to their family doctor first or they need a referral with their insurance, or they go to their family doctor. Many may have a sleep physician, so they go to their sleep physician, but they find their way, and they're motivated to get their way into the practice. Now this time of the year, you add the factor in that they may have a high deductible insurance plan and they just got through their payment. And so they want to get their procedure by the end of the year because their high deductible will reset. That's our seasonality period, and that's why we're so busy between Thanksgiving and New Year's is probably the busiest time of the year for implants, really to take care of those commercial cases before they reset. So patients are really motivated and then they hear more and more about Inspire and they hear about the ambassadors talking about the benefits and the positivity around the therapy. And yes, that kind of builds on itself.

So you did talk on the call. So with all that said, you talked on the call a little bit about how to think about top line growth for next year, you sort of level set everyone in the low double-digit range. I think you guys said 10% to 11%, but -- yes. So maybe talk about what the components of that are, given all the tailwinds we just talked about, but balanced with the headwinds from Inspire IV inventory still being out there and getting centers...

I think the keyword in that discussion is just balance. And I think that while we didn't provide early guidance, we did provide an early indication. And that's kind of important. We did say that we would provide guidance in January. But the -- we reaffirmed our revenue guide for the rest of this year and things are progressing very nicely. We love the transition that we have going on with Inspire V. There's a lot of questions about what about next year. And we know that, that was a debate that was on the street, both with the analysts kind of looking at what they should expect with a lot of investors and discussions. And we thought it was really important to kind of level set everybody and say let's give everybody an initial indication where everybody can zoom in on and we can grow from there and look at what are the puts and takes around each of those items, everything that we've just talked about with the benefits of Inspire V and how the GLP-1s are continue to evolve. Do we have any competitive threats? And so we kind of made sure that we kind of built that in. And as we finish the year and build our plan going into January when we come out with formal guidance, I think everybody is now kind of together now on a level set for that discussion.

And it sounds like that -- I don't want to put words in your mouth, but it sounds like that would be like worst case, that is base case for you guys not...

Well, again, we don't want to put out guidance now, and it's just an early indication. But I think we wouldn't necessarily want to go backwards, right?

Right.

And so we're going to be careful as we do our assessment to look at what it is that we want to do in 2026. We know our goal is just to continue to take care of patients, and we know we are so lightly penetrated in our overall TAM. So our opportunity is still in front of us.

Right. Right. Okay. And the other important point out of the call was on the OpEx and the spend and you guys really crushed the EPS number. And I guess one of the questions coming out of the call was in Q2, you cut EPS guidance. In Q3, you're raising EPS guidance. Maybe talk about -- a little bit about what changed between Q2 and Q3 to make you more comfortable with how you are spending, how efficiently you were spending and...

I think the key -- coming out of Q2, we just had a lot of onetime challenges that we had to address. And we got those all out on the table that did require us to back down our EPS guide. We have remained disciplined all year. That being said, we're investing in growth. We significantly increased our direct-to-consumer spend. We have a whole new ad campaign that we're running, that's really kind of fun helping patients sleep, they sleep so well they can dream again. And so we are continuing to invest in the future, but we're being disciplined in the rest of the organization. And we get a little bit of a gross margin boost when we go to Inspire V, I get back to that we don't have to make that pressure sensing lead anymore. So yes, a little bit of nice bump to EPS in Q3, and we did give us the ability to increase our guide for the rest of the year. And we're going to continue to be more disciplined with our spending, invest in growth and continue to remain profitable going forward.

Okay. Got you. And maybe talk a little bit about the commercial organization. You guys are also changing your approach to territory managers and how that is impacting the commercial execution side of things?

I think that the territory managers are what we call our sales reps, and they're really the high end. They're the front end of the practice. They represent us with the centers of physicians, and it's their job to drive capacity at centers to be able to make sure that we have sufficient number of surgeons, to make sure they have the system with the sleep physicians, make sure the referral networks are sound, make sure that if patients are coming through the call center to make an appointment, that doctors have appointments available in the practices. What we do not want those -- that group of people to do is do the case coverage, to do in the operating room, to do the training of titrations of individual patients. We have field clinical reps that we want to handle that. So the good news is what we're going to do is we're going to modify our field ratio. Right now, we're maybe 3 territory managers for every 2 field clinical reps, you're going to see that grow closer to 1:1. One example, on the Q3 call, we didn't bring in new territory managers. And we did promote some field clinical reps to territory managers, but we hired 9 field clinical reps to start to build that forward a little bit and then we are going to continue to have some more efficiencies in the field going forward to really leverage that. And if you think about the cost efficiencies with that, we get the proper care for the right part of the elements at centers in the field, yet we can do this in a next efficient manner and still don't leave any patients alone, make sure patient outcomes remain our #1 concern, but we have different individuals who can focus on what their jobs are and to grow the overall capacity of Inspire.

And on the capacity point, can you talk a little bit about ASCs and what role they play right today, but especially going forward because reimbursement is actually improving in the ASC?

We are still at the very beginning of ASCs and just probably 20% of our implants remain in an ASC setting today. If you look at what we were talking about earlier about looking to go on more general ENT surgeons, many of these private practice surgeons, they spend their entire time in an ASC because they own part of that ASC. They're part of the overall business. And they would love to do Inspire. It would be an important part of their business. It's got -- but it's got to make sense. And I think going to the new code 64568 really increases the reimbursement to ASCs. I think the national average Medicare reimbursement starting January 1 goes up to $28,000 with 64568, that creates an opportunity to really start leaning in a little bit more on ASCs. And especially within Inspire V back to not having the pressure sensing lead again, it makes it a more straightforward streamlined procedure that really lends itself to ASCs. So it's about time to really start looking at building a program and starting to lean in on that because that is the opportunity -- that's really the untapped opportunity that's still in front of us.

What would be the -- how is the go-to-market strategy different at an ASC versus a hospital? Or is it not different?

Well, it starts with outcomes, right? And the key to it is as long as you can show that you have the strong outcomes and the confidence conviction that when they introduce this practice that vis-a-vis what they can expect from a patient outcome and they're going to take your patients. That's always the check in the box no matter what. But two, it does get into the economics. And as long as we can show the Medicare economics are good, commercial economics are always far better than the Medicare reimbursement. And that makes a big difference. So we can combine those 2 key elements. It's a pretty cool procedure for ENT to conduct, right? It's not just general ENT surgery. It's bringing technology and it's taking it to the next level. That's always been the attractive part. We just had to make the economics work. And the new code kind of introduces that along with the simplicity of the Inspire V procedure as compared to IV.

Right. Okay. All right. Another question I get quite a bit is on the DTC advertising, how do you guys sort of measure ROI of your campaigns? And what are the metrics without you -- you want to give us -- if you want to give us the metrics [indiscernible] them, but...

Generally, how do we tackle it?

Yes.

We usually work backwards as we kind of look through. We know DTC campaigns. We know what kind of activity we're going to get on the web. From the web, we know how many patients will spend time to become kind of highly qualified leads. And then we kind of know also from that how many will reach out and attempt to make -- find an appointment either through the ACP or through one of the other referral channels. And we track that. With the ACP, we actually can track how many of those patients get an appointment, and we can extract how many of them go on to implant. So we know our conversion rates all the way through. And then what we can do is we can reverse back for the cost of acquired patients. So we do run our metrics that way, knowing that when we set our expectations or our guidance that we don't look back and we know what we want that DTC to be. We know with the Inspire V, we are reenergizing the awareness campaigns. We have the new campaign that has started out. And so we track that very, very closely.

Okay. Got you. So capital allocation, you guys did buy back some shares. How are you -- as you look ahead to ending this year, entering 2026, balancing share repurchase versus investment -- organic, inorganic investment. Maybe talk a little bit high-level strategy there.

Yes, absolutely. I mean our first priority is organic investment and you've seen we've continued to scale our sales organization and invest in both innovation and patient and medical education, all of which have been really important and have good returns for us. In addition to that, correct, we do have a $200 million -- well, we had a $200 million share repurchase authorization. We've completed $50 million of that, about $150 million is still remaining. We do believe that our stock is undervalued, and we'll be opportunistic about share repurchases going forward. In the past, you have seen us announced some partnerships that can help us accelerate the adoption of Inspire therapy. Usually, these are technology advancements that we can partner with to help either patient education or clinical efficiency. So I think you should anticipate that we have a very strong business development function that looks at everything that's out there and assesses the landscape. So I think you should assume that we're continuing to do that.

Okay. And this might -- this is kind of a long-term question. But as you think about the R&D and investment in technology, innovation, et cetera, where do you see Inspire therapy going? Like what is -- what are the next innovations from here? And I don't want to force you to talk too much about your pipeline just what you're comfortable sharing.

We're excited about our pipeline because it's about driving patient outcomes, making it more comfortable for the patient and making it more comfortable for the end user. And so what Inspire V is, how many times did I say pressure sensing lead removal today. That is really a significant change for the ENT surgeon make it such an easier procedure. What's so important, though, closed-loop stimulation is essential for high outcomes. That's #1 premise of Inspire therapy. You have to know when a patient is inhaling to provide stimulation synchronous with aspiration to optimize the outcomes. Inspire V sensing is better than Inspire IV and we showed statistical significance with our Singapore study that Inspire V is better than IV and our ability to synchronize with the respiration is up to 85%, if not higher. And that really makes a difference in patient outcomes. The next step is if we can get patients to use the therapy all night, every night, that just takes outcomes a step higher. Inspire VI is intended to have automation. So when the patient falls asleep, the device turns itself on. And when the patient wakes up, it will shut itself up. We're working on Inspire VI as we speak. Now we're going to have strong outcomes, and then we're going to take therapy adherence to the highest level. Think about CPAP. The challenge with CPAP, these people don't use it. Now if we have a device that can provide outcomes with high utilization, that's really important. One last point on this, at the ENT conferences, 2 papers came out, that showed significant improvement in cardiovascular health with patients using Inspire. This is a large database of over 4,500 patients and over a 10-year study, independent of Inspire. So these are independent centers doing this research. If we can show improvements in cardiovascular reduction in the comorbidities and improvements in cardiovascular health and ischemic stroke and there are several other elements in that paper, that's a game changer. Now you're driving health outcomes along with quality of life with treating obstructive sleep apnea. Now we're taking it to the next level.

And is that the kind of data that is going to help with payers and getting them more, like you said, uniformly covering this?

Well, 2 things. Payers always will say outcomes are first, but also there's always an economic element to it. Well, if you can show improvements in cardiovascular health, that's overwhelmingly powerful argument for the economic side as well. And as we have support today from payers, that only further reinforces that.

All right. We did it in time.

Good way to end on that one.

I know. I was going to ask you if you wanted to summarize, but we're out of time.

We just did it with cardiovascular health. Thanks, everybody. Thanks, Danielle.

Thank you.

Thanks, Danielle.

Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Third Quarter 2025 Conference Call. [Operator Instructions]

I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.

Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer; and Rick Buchholz, Chief Financial Officer. Earlier today, we released financial results for the 3 and 9 months ended September 30, 2025. 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 2025 financial and operational outlook and changes in market access are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ.

Accordingly, you should not place undue reliance on these statements. Please see our filings with the Securities and Exchange Commission, including our Form 10-Q, which we filed with the SEC earlier this afternoon for a description of these risks and uncertainties. Inspire disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 3, 2025.

With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Thank you, Ezgi, and thanks, everyone, for joining our business update call for the third quarter of 2025. I'll start by highlighting some key takeaways of our third quarter results. I'll then discuss our updated 2025 guidance, and Rick will provide a financial review. We will then open the call up for questions.

As always, I want to start by reiterating our commitment to put the patient first and deliver strong patient outcomes. We continue to invest in innovation and clinical evidence as we lead the way in hypoglossal nerve stimulation, and this was on display at the recent ENT Society meetings where Inspire V performance data were presented. The results of our Singapore clinical study of 44 patients demonstrated significant performance improvement as well as a 20% reduction in surgical times and early experience from our U.S. Limited-Market-Release of over 100 patients demonstrated clinically relevant reduction in disease severity with patients averaging over 6 hours of nightly device use.

Furthermore, we presented data showing Inspire's -- Inspire V 87% inspiratory overlap with the patient's breathing. As many of you already know, this is the foundation of our closed-loop stimulation system as the airway collapses during the inspiratory phase of respiration, synchronizing stimulation with inspiration is essential to optimize therapy. We are excited and energized by the strong performance of the Inspire V system and the clinical feedback on the simplified procedure and comfort settings has been tremendously positive.

In addition, Inspire-related publications led the discussions at the ENT meetings, and we were excited to see 2 academic centers independently found that Inspire is an effective treatment for both supine and non-spine dependent OSA and that Inspire provides clinical benefit regardless of sleep position. Multiple papers demonstrated Inspire's ability to improve long-term cardiovascular comorbidities, including a study from University of Texas Health that assessed over 4,500 patients over a 10-year period in the TriNetX database. This is a large multi-institutional electronic health record network. The study showed that Inspire offered advantages in reducing long-term cardiovascular morbidity and mortality in patients of OSA compared to CPAP treatment.

In another paper out of Thomas Jefferson University using the same database, Inspire was compared to CPAP and to no treatment. The study demonstrated that Inspire was associated with broadly improved non-apneic outcomes compared to CPAP and to no treatment. Specifically, they showed that Inspire therapy resulted in lower risk for myocardial infarction, cardiac arrest, ischemic stroke and depression, amongst others.

Together, these studies are the first evidence that Inspire can reduce cardiovascular morbidity and mortality in the most vulnerable patients, namely those who are unable to tolerate CPAP. These outcomes are a testament to the importance of diagnosing and treating OSA and validate the continued investments we are making in innovation, clinical evidence, medical education and patient marketing.

With respect to the Inspire V U.S. launch, the team made significant progress in the third quarter, and we are excited to report that physician training is over 98% complete. Contracting is over 90% complete for our centers and SleepSync onboarding is complete for over 75%, bringing the total to over 75% implanting Inspire V today. Given this progress and our strong momentum we are seeing, we are reiterating our full year revenue guidance of $900 million to $910 million, representing 12% to 13% growth compared to full year 2024.

Switching to our quarterly results. We are very pleased with the strong revenue performance and cost discipline we demonstrated in the quarter. Third quarter revenue totaled $224.5 million or a 10% increase compared to the prior year period. Including the increased investment we are making in patient marketing, we were able to deliver operating income of $9.6 million and earnings per share of $0.34. This strong performance gives us confidence to increase our earnings per share guidance to $0.90 to $1, up from $0.40 to $0.50 previously.

On patient marketing, we've started rolling out a new ad campaign, highlighting the fact that with Inspire, many patients report that they can dream again, complete with a holiday-themed ad featuring none other than Ebenezer Scrooge treating the sleep apnea. You may also have seen our new ad featuring a celebrity influencer partnership with Chock Chappele, the winner of last season's Golden Bachelorette, our real Inspire user since 2021, and we are encouraged by the early indications from these initiatives.

Regarding reimbursement, CMS recently finalized the 2026 physician fee schedule at approximately $660 or an 11% increase for CPT code 64568. As you know, for Inspire V, centers bill CPT code 64568, which has been accepted for plans covering over 90% of our 300 million covered lives, including Medicare. This change will take effect January 1, 2026. We are still awaiting the final OPPS rules to be issued by CMS.

As you are know -- as you are aware, in July, CMS proposed to increase the national average Medicare hospital reimbursement for CPT code 64568 to $32,000, up approximately $1,300 or 4% from 2025 and the ASC reimbursement to $28,000, up $1,300 or 5% compared to 2025. These positive reimbursement changes will take effect January 1, 2026, once approved. Following our last earnings call, we conducted our own survey of over 200 sleep physicians to better understand their treatment paradigm for OSA since the introduction of GLP-1s.

What we confirmed is that the GLP-1s are driving increasing interest in sleep health and bringing more patients into the clinic, if only to get their GLP-1s covered by insurance with an OSA diagnosis. Inspire welcomes this trend as it opens the door to alternatives beyond CPAP. Based on the survey results, about half the sleep physicians now prescribe and manage GLP-1s themselves, while the rest refer patients back to family practice due to the burden of managing these patients, whether it's insurance hurdles, challenging side effects or because weight management just is not their area of focus.

The survey also identified that sleep physicians are not comfortable prescribing GLP-1s alone, but prescribe concurrently with other treatment options initially CPAP. Patient monitoring, coupled with the insurance requirements to obtain refill prescriptions provide visibility into the patient's weight loss, adherence to CPAP and overall sleep health. These same physicians then understand the patient profile that may be recommended for Inspire therapy.

Overall, the survey confirmed that patients will try GLP-1 prior to surgery, but also the patient pool has been increasing with the availability of GLP-1s to treat OSA. This reinforces our confidence that GLP-1s make it possible for higher BMI patients to lose weight and become eligible for Inspire therapy and Inspire is excited to help even more patients access effective lasting care.

In summary, we remain focused on the patient to continue the growth and adoption of Inspire therapy. We will execute our growth strategy of driving high-quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include training advanced practice providers, certifying additional surgeons qualified to implant Inspire therapy and driving adoption of SleepSync and our digital tools, all of which are embedded strategies in our commercial team's objective to increase provider capacity.

Looking ahead, we are confident about our future and that we have the appropriate strategy in place to drive long-term stakeholder value. We have our arms around the headwinds that I have described and actions are already underway to accelerate adoption of Inspire V for the remainder of the year. And looking beyond 2025, we continue to take actions to position the company for strong profitable growth.

With that, I'd like to turn the call over to Rick for his review of our financials.

Thank you, Tim, and good afternoon, everyone. Total revenue for the quarter was $224.5 million, a 10% increase from the $203.2 million generated in the third quarter of 2024. U.S. revenue in the quarter was $214.4 million, an increase of 9% from the $195.8 million in the prior year period. Revenue outside the U.S. was $10.1 million, which was a 37% increase year-over-year.

Gross margin in the quarter was 85.8% compared to 84.1% in the prior year period. The year-over-year increase was primarily due to increased sales volume and increased sales mix of Inspire V, which is more cost effective to manufacture. Total operating expenses for the quarter were $183.1 million, an increase of 17% as compared to $156.5 million in the third quarter of 2024. This increase was primarily due to increased patient marketing expense and general corporate costs, partially offset by a reduction in R&D year-over-year.

Operating expenses included $1.3 million in legal fees related to a civil investigative demand from the Department of Justice and patent infringement lawsuits with a competitor. These legal fees do not reflect costs associated with our ongoing operations. Please refer to our earnings press release for a reconciliation of these items.

Interest and dividend income totaled $4 million in the quarter compared to $5.9 million in the prior year period. Operating income for the quarter totaled $9.6 million compared to an operating income of $14.3 million in the prior year period.

Net income for the quarter was $9.9 million compared to net income of $18.5 million in the prior year period. This represented diluted net income per share of $0.34 for the quarter compared to $0.60 in the third quarter of 2024. Adjusted EBITDA for the quarter totaled $44 million compared to $44.5 million in the prior year period. The adjusted EBITDA margin in the third quarter was 20% compared to 22% in the third quarter of 2024.

Adjusted net income per share totaled $0.38 compared to $0.60 in the prior year period. The weighted average number of diluted shares outstanding for the quarter was 29.6 million. Operating cash flow totaled $68.5 million for the third quarter, bringing the year-to-date total to $64.5 million. We completed $50 million of share repurchase in the third quarter, bringing the year-to-date total to $125 million, and we ended the quarter with $411 million in cash and investments. Our strong cash position allows us to remain focused on executing our growth strategies.

Moving on to 2025 guidance. As Tim mentioned, we are reaffirming our revenue guidance range of $900 million to $910 million, representing an increase of 12% to 13% compared to full year 2024 revenue. We continue to expect full year gross margin to be in the range of 84% to 86%. We now expect diluted net income for the full year 2025 will be $0.90 to $1 per share, an increase from our previous range of $0.40 to $0.50 per share.

We ended the quarter with 336 U.S. territories and 268 U.S. field clinical representatives. We are being more strategic in our approach to territory management and optimizing our model through targeted territory consolidation and increased field clinical reps. We hired 9 field clinical reps in the quarter, consistent with our strategy to get the ratio closer to 1:1 territory manager to field clinical rep. We now expect our reported tax rate in 2025 to be 25% as state minimum taxes are higher than expected.

Furthermore, in the fourth quarter, we will likely eliminate a large portion of the valuation allowance on our deferred tax assets. This will create a large onetime tax benefit that we will call out when we report our fourth quarter results. We expect the full year diluted shares outstanding to be approximately 30 million.

With that, our prepared remarks are concluded. Dilem, you may now open the line for questions.

[Operator Instructions] And I show our first question comes from the line of Travis Steed from Bank of America Securities.

Congrats on the progress with Inspire V. Just curious how you're thinking about some of the puts and takes on 2026 at this stage. And anything to call out in terms of cadence, first half, second half and '26?

Travis, yes. Great question. I know this is top of mind for everyone. Travis, right now, we're focused on finishing the fourth quarter strong. Now it's still early in our '26 planning process. So I will not -- while we're not providing specific guidance at this time, I want to reiterate the underlying trends we're currently seeing. The Inspire V launch, positive clinical feedback and strong patient flow driven by our increased DTC investment give us confidence in the durability of our growth heading into next year. We'll provide formal 2026 revenue guidance in January once we've completed our year-end results and planning.

Taking all into account and while not providing formal guidance, we can see accelerated growth from our third quarter and wish to provide an early indication of 10% to 11% growth for next year. In the meantime, our business fundamentals remain strong. We've seen and continue to see excellent momentum with Inspire V, both in physician adoption and patient outcomes. Our outreach campaign is generating record engagement. and our field organization is operating with greater focus and alignment than ever before, which is translating into more consistent execution.

We're also realizing operational benefits from tighter integration across marketing and therapy development, which will continue to support long-term profitability. As always, we're mindful of near-term factors such as the Inspire IV inventory transition, GLP-1 trialing and ongoing competitive activity. Overall, we're executing with discipline and have reaffirmed our 2025 guidance. With Inspire V scaling and continued operational focus, we expect continued revenue growth and improvements in operating leverage. And as far as cadence, at this point, we expect to return to our historic norms prior to 2025 and the Inspire V launch.

And I show our next question comes from the line of Adam Maeder from Piper Sandler.

I'll echo the congrats on the progress. Maybe to start, just kind of a little bit of a follow-up there, very helpful response, Tim, to Travis' question. But I wanted to just try and better understand some of the trends that we're seeing in the business for the month of October as well as kind of the visibility that you have going forward, November, December. I think you typically schedule cases several weeks out. So it would just kind of be helpful to understand some of the dynamics and what you're seeing as we try and reconcile the implied Q4 guidance? And then I had a follow-up.

Sure. I think the key to it is really the trends we see with Inspire V. And as we talked throughout the last earnings call with everything from Medicare to available product to the transition with SleepSync, really the field getting their arms around all that and working with individual centers and really seeing that transition really transpire mostly in the third quarter. And we have some additional work. But we know the majority of the inventory in the field today is Inspire V. So we're already working through that inventory transition from IV to V.

So we do see implants going forward. We know we always have our highest seasonality later in the year because of the high deductible insurance plans, and we're seeing those same trends now. And again, just to highlight, the marketing team is doing a great job with our new awareness campaign, and we are seeing the benefits of that as well.

That's helpful, Tim. I appreciate the color there. And just for the follow-up, I guess you're a little bit over 75% of accounts that are implanting the Gen V device today. How do we think about kind of bridging that figure to 100% of your accounts? Just want to better understand kind of the remaining gating items there. It sounds like SleepSync is maybe the biggest one, but wanted to confirm that. And just one kind of clarification. the accounts that are adopting Gen V, are they only implanting Gen V going forward? Are they still kind of carrying a mix of Gen IV and Gen V Hopefully, that made sense.

No, Adam, that's a good clarification that we want to make. I think the -- we focus on the centers that are the highest implanters, the top 100, top 200 centers, of course, and make sure we get the majority of those centers across the line and taking care of patients with V. But even those centers, to your last point, we'll continue to do Inspire IV at a limited amount. I also will highlight there are centers due to economics and where they are in the United States and the Medicare reimbursement that they will continue to implant Inspire IV units, and we will continue to make Inspire IV available into the future. So I think we'll continue to bridge most centers over to Inspire V. But again, there will still be some additional centers carrying over and staying with Inspire IV. But I think the great majority will be complete with their transition by year-end.

And our next question comes from the line of Robert Marcus from JPMorgan.

I wanted to ask more on expenses and R&D and OpEx came in a good clip below where we and the Street were thinking. Great expense control led to really good earnings power. How should we think about, I guess, a, what exactly you're pulling back on; and b, how sustainable that is?

Well, you also got to remember, not necessarily pulling back, but you also remember we're kind of in a launch period with Inspire V. And a lot of our focus is working on stabilizing the manufacturing line and getting a second line up and running and focusing on the digital side, specifically with SleepSync. So we're going to continue to invest in R&D. And I think we want to be more consistent with R&D as we move forward to focus on our opportunities with Inspire VI with our digital tools and keep pushing those elements to it. But I do think it will be more in line with what you're seeing right now.

Great. Maybe just a quick follow-up. Tim, if you could update us where you are in sort of the inventory conversion from IV to V. Was there any destocking or restocking in 3Q? What we should expect that's baked into the guide in 4Q? And is it all done exiting the year? Or is there still some more in '26? Appreciate...

As you recall, at the beginning of the third quarter was pretty much all Inspire IV inventory in the field. And now the majority of the inventory is already Inspire V, and that continues to change on a weekly basis. And we think that those centers transitioning over to Inspire V will work through their Inspire IV inventory predominantly by the end of the year. Again, Robbie, remember, there's a few centers that are going to stay with Inspire IV. So we'll continue to make that product available. But again, the reports and the success that people are having with Inspire V is really strong. And once people transition over, they want to continue to focus on that and increase the number of patients that they can treat.

And I show our next question comes from the line of Danielle Antalffy from UBS.

Congrats on the good progress in the quarter. I'll echo everyone else there. Just a question on thinking about ramping centers that are sort of lower to mid-volume. And -- and what you guys are doing around that? Because I do think ENT sort of mind share, I guess, I would say your capacity is still an important driver here, appreciating the benefits Inspire V brings. So just curious about what you guys are doing out in the field with these lower volume centers to get them higher and using on a more regular basis.

Thank you. A big initiative that we have ongoing there. We have formed a new team that is really focused on that group about reenergizing the ENT. And we're kind of using Inspire V as the catalyst to do that. Because remember, the difference between Inspire IV and V is you don't have to place the pressure sensing lead between the intercostal muscles, and that's always been a little bit of the uncomfortable part of the Inspire procedure for an ear, nose and throat surgeon.

So Inspire V lets us come back to those ENT surgeons and to new surgeons and to reengage with them, reenergize them around the benefits of Inspire V, the easier implantability of the device, if you will, and really focusing on that. So we have a long history and list of those centers that have started but not reached their potential, and we're going back and revisiting them with this team, but also going to centers and starting to recruit additional ENTs who now find this procedure more acceptable that they don't have to mess with the chest wall and the pressure sensing lead.

Are you -- and just a quick follow-up. Are you starting to see that? Or is this something -- it sounds like this is a relatively new initiative. So is this really something that is probably more contributing factor in '26 and beyond? Or is this already contributing?

Thank you, Danielle. I do think, yes, it's a contributing factor in '26 and beyond. But I do think we're going to see some activity with that in '25. And the key is getting surgeons to come in, let's try V. Let's get this transition to your center. Let's have you go in and do a couple of Vs. And we've already seen some evidence that, yes, this does work. And we can reenergize them and partner them up with a good sleep [ physician ] to build a strong system or a strong practice. And we've already seen early indications that we can excite the ENTs. So yes, we're going to continue this and work hand-in-hand with AAO, the American Academy of Otolaryngology, to make sure that we're running initiatives with the society as well.

And I show our next question comes from the line of David Rescott from Baird.

I wanted to follow up on some of the comments on the growth in the business and looking into 2026. The 2 big pieces, of course, that we all tend to track is utilization and these new center adds. I know last quarter, you talked about some of the pullback in spend impacting the opening of new centers. I think prior to 2025, you had a couple of centers that were deactivated each quarter. So just trying to get a sense for maybe where that center base or the trained center base stands today, whether or not we should assume that, that continues to be a factor behind growth next year or more so if utilization with Inspire V is going to be a bigger driver than growth -- than utilization has been growing.

Yes. Thanks, David. I think we got to combine those 2 comments, and the answer is yes. I think what we really like is the Inspire V is really the tool and the feature set there with, of course, the easier implantation of the device, the shorter implant times, but not only that, but the features that optimize outcomes and really increase the expectations for outcomes is really important. And so we don't see a lot of transition of centers away from Inspire over the last couple of quarters.

In fact, we significantly increased the number of centers. And we think going back to the last question with Danielle, that being able to excite additional ENTs to do the procedure now that it doesn't have the pressure sensing lead kind of gives us a little bit more impetus to increase the number of centers. So we're going to continue on the pathway of not only growing utilization at existing centers with reduced surgical time, but also with the improved performance of the device and the implantability of the device to be able to continue to train new surgeons at existing centers as well as open new centers.

Okay. That's helpful. And then maybe a follow-up to some of the comments on OpEx. I know you called out that there's going to be this higher tax benefit in Q4. I'm assuming or curious if that is implied in the $0.90 to $1 of EPS for the full year or if that gets backed out. Just trying to back into maybe what your exit rate on an OpEx basis and whether or not we should think about that as a jumping off point for 2026.

Yes, David, that potential tax benefit is not factored into our guidance. And so part of our improvement on the bottom line and operating margin, which I wanted to call out earlier was that we did have a 180 basis point improvement on gross margin. So that really helped drive our leverage in the third quarter, and that's because of the higher mix of Inspire V which drove higher gross margins.

And I show our next question comes from the line of John Block from Stifel.

Tim, the rough 10% to 11% revenue growth next year seems like a refined thought from the acceleration off of the 12% to 13% that you conveyed last quarter. And the quarter was good, and you talked about some of the facilities working down inventory. So maybe if you could just give some color what led to a little bit of a change in thought from 3 months ago to today? Is it just being a little bit more prudent? Or what do you see out in the field that led to the refined number?

No, I think that's it. We just have a little bit more experience, and it's early in our planning, too. And so I know it was top of mind for everybody, as we said on Travis' question that we needed to address that right upfront. But we did -- we weighed in on the progress making the Inspire IV inventory, as you discussed. We did talk about the GLP-1s a little bit as well as the -- any competitive effect that could be there. So we wanted to come out and just give an early indication. As we work through the fourth quarter and the rest of our planning, we'll come back with formal guidance in the January time frame.

Okay. That's helpful. And then maybe just a quick follow-up. Can you guys just talk to the inventory on your balance sheet? I think it was $142 million at the end of the quarter with about $111 million in finished goods, it's up a good clip really throughout the year, throughout '25. Like what's in there? Are those IVs? Are those Vs, if they're all Vs, does it sort of clean up for a lot of next year? Maybe you could provide some color there.

Yes. It's both. I think the key is we are winding down the manufacturing of Inspire IV. That being said, we are going to still have Inspire IV available in the United States, as we talked about, but we also have a long regulatory process in Europe and in Asia for Inspire V. So we need to make sure that we have sufficient supplies of Inspire IV to carry us through until we can do the full international transition of Inspire V. So there is a big element of Inspire IVs in there that will burn down over time.

That being said, we also are increasing our inventory of Inspire V. Now that we're getting stability with our manufacturing site. We're still operating with a single manufacturing site. And then also remember some of the piece parts that are shared between Inspire IV and Inspire V. So once we wind down IV, we'll be able to leverage some of that inventory into building additional units for Inspire V in the future.

And I show our next question comes from the line of Larry Biegelsen from Wells Fargo.

I guess, Tim, I was curious on the 10% to 11%, how are you thinking about the market growth with the new competitor coming into the market and what you're seeing from that new competitor so far? And I had one follow-up.

Sure. It's very early days right now. We -- they're just getting started. They got to work through all the reimbursement. So not a significant presence right now, but I think that we'll watch for that a little bit and continue to monitor that and come back and discuss that with greater detail when we give full guidance in January.

Okay. And then maybe for Rick, on the seasonality in 2026, I just want to make sure I heard correctly with Tim's comments similar to -- prior to 2025, '23 and '24 were pretty similar. But -- and I'm sure you've done the math, Rick, if hopefully, I'm doing it right, it would imply like $205 in Q1 or low single-digit growth increasing through the year. Is that directionally right? And why would Q1 be so low? And I apologize if I did the math on the fly wrong.

The last couple of years, Larry, our seasonality was 15% sequential down in beginning of '24 and down 16% in '25. So that's kind of the recent historical trend. So we would expect, as Tim mentioned, that our cadence throughout the year will be comparable to kind of prior to 2025 and earlier.

And I show our next question comes from the line of Anthony Petrone from Mizuho Americas.

Congrats on the progress in the quarter with the V. Maybe on the 10% to 11%, I appreciate, Tim, the comments on the survey work on GLP-1, but still this dynamic of how much is coming in from the high BMI dropping into the sweet spots for Inspire and how much is sitting on the sidelines as folks trial GLP-1. So in the 10% to 11%, how much was GLP-1 factored would be the first question. And a quick follow-up to that would be, if you do see indications that GLP-1 is resulting in combo therapy out of the gate, specifically with CPAP, that CPAP rate -- dropout rate is still quite high. So over time, do you think the new starts on CPAP can actually transition to a higher rate of new starts on hypoglossal nerve stimulation over time?

Absolutely. You laid that out nicely. I think the survey that we had, we learned quite a bit from that. And I think the -- it's just a significant number of patients coming into the sleep labs because they are getting increased phone calls to do a diagnosis for obstructive sleep apnea because they need that indication to be able to help with insurance coverage. Well, sleep physicians are reluctant to just do that. Sleep physicians are responsible and they're going to do the proper diagnosis and make sure that, that patient has proper care.

And if they have moderate to severe sleep apnea, they're not going to just wait a year to see if the GLP-1 works. They are going to put them on concomitant therapy as you talk about. They're going to start them on CPAP. They're going to start them on a GLP-1, but they're going to have to track those patients, too, because that's the requirement of the insurance companies. So now we have an increased number of patients in the facilities with the sleep physicians and when they become -- or if they become noncompliant to CPAP, yes, they're going to be looking for alternative surgery or alternative therapy.

And if they are of the right BMI, the sleep physicians know what patients do best with Inspire. And we would expect those to correctly be referred over to receive Inspire therapy and the sleep physicians will continue to manage those patients long term. So that is exactly the hypothesis of where we stand. We do believe that the GLP-1s can work in concert with Inspire can help people lose weight, reduce the lateral wall collapse and allow Inspire to treat those patients that have tongue-based collapse. So it's really 2 mechanisms of action that can work together.

And I show our next question in the queue comes from the line of Shagun Singh from RBC.

Tim, I wanted to go back to the 10% to 11% growth next year because consensus is currently at 14%. So that's a pretty big gap. And you called out Inspire V, you called out the inventory dynamics, GLP-1s competitive effect and you said competition is not a big headwind. I think GLP-1s, you are positive longer term. There could be some trialing. I guess I wanted to ask, are there other factors that need to be contemplated as we think about 2026? What gets you closer to consensus at 14%? Have you factored in anything on increased reimbursement? Or is that a headwind as you think about Inspire V adoption and utilization? And just even looking at Q4, I'm looking at a step down in growth on a [ stack 2-year ] basis and 6% exit rate. Can you just give us some commentary there on why that is? And you are talking about accelerating growth, but Q4 seems to be lower.

Yes, absolutely. You kind of laid out all those headwinds right there that we use to calculate, but there's also a lot of positives in there. And I think Inspire V performance and Inspire V acceptability is really strong. So once we complete the transition with V, that gives us great opportunity to kind of lean in and kind of reassess where we are with our guide. Now I know it's an early indication. It's not formal guidance, but we wanted to make sure that we put that out there. We know what we need to do to review that, and we're going to monitor that with Inspire with Q4 performance as well as when we come with full guide in January.

But yes, we've kind of laid out the headwinds that we see that are going to challenge us, but we also want to leverage the opportunities that are there for us. Even the OPPS rule that just came out showing an increase in physician reimbursement for Inspire V as an opportunity because it really closes the gap between the reimbursement with 64568 versus the old code, 64582. And so there's a lot of positives mixed in there. So yes, we have a lot of work to do to be able to kind of work through the details for when we come with full guide in January.

Shagun, I would just add, it's still very, very early. We're very happy to be able to give an early preview of 2026. But as Tim alluded to, there are quite a few puts and takes, and we're just trying to be prudent at this time.

Our next question comes from the line of Vijay Kumar from Evercore ISI.

This is Daniel Markowitz. So I had 2 questions. First, you noted about 75% of centers are ready to transition to the Inspire V, but that some continue to do Inspire IV for economic reasons. Can you just expand a little bit on those economic considerations? Are you hearing pushback to the physician reimbursement rate as it stands today? And would you expect this to change given the finalized 2026 physician fee schedule with an 11% bump to physician reimbursement?

No, it's really more -- a good question. It's more related to site of service or hospital reimbursement. And with Inspire IV and Inspire V, we can make Inspire IV available with an economic benefit to some of those centers to help them get back to doing implants. So there is some discounting on Inspire IV that can help us out. Inspire V, that's not true. So that's why some of these centers just choose to do IV based on the economics with the coding today. But as you saw, that doesn't affect our overall ASP or gross margin.

Got it. Okay. That's helpful. And then for the second one, as you look forward to 2026, do you have any initial thoughts on the trend in operating expenses, especially as it pertains to the new marketing campaign and DTC spend picking back up? I guess also, was DTC spend back at a normal run rate for 3Q? Or is that still being held down quite a bit?

No, I think it was pretty close. We wanted to do an increase there because we held back in the first half of the year on DTC spend. But as you kind of look at OpEx going forward, we're going to see maybe a slight increase in DTC, but again, more level with full year, but we don't expect that to grow with the same level of revenue.

And I show our next question comes from the line of Michael Sarcone from Jefferies.

I guess, I'll just ask both of mine upfront. You might have already answered kind of the second one, I'll ask Tim. But last quarter, you had mentioned that at the accounts that were converted to Inspire V, you were seeing about 20% same-store sales growth. Given the outlook for kind of 10% to 11%, at least early on right now for 2026, it seems like that's not carrying through. I just wanted to maybe get an update on how that 20% same-store sales has progressed as you've kind of opened up more accounts with Inspire V. And then is there any interplay there with the Inspire V reimbursement on the physician fee level being lower?

Mike, thanks for the question. So there's still absolutely a correlation between centers that have transitioned to Inspire V and faster volume growth that we saw through the end of Q3, which we're very, very pleased with. As we highlighted on our last earnings call, though, you shouldn't anticipate that 20% to continue for all centers. But we're very pleased with the correlation that we're seeing with Inspire V adoption and accelerated case volume. And again, as we noted on 2026, it's really early. There's still a lot of puts and takes, which we highlighted, and we just want to be prudent. But we're very, very pleased with what we're seeing with the Inspire V launch and experience to date.

And I show our next question comes from the line of Chris Pasquale from Nephron Research.

I wanted to understand the territory realignment a little better. Was there a corresponding reduction in the number of centers you're working with? Or are you just increasing the number of accounts the remaining reps are responsible for?

No, we're actually building efficiencies into our territory management. So what we want is, well, because you've been around for a long time, you know how we're kind of ramping and we started to ramp the number of field clinical reps as well. And we want to get that ratio closer to 1:1. So as we're doing that transition, we're doing some promotions of field clinical reps and territory managers and then come back and hire additional field clinical reps behind that, and that's going to be a trend going forward. I think we're finding greater efficiencies with larger territories with territory managers as long as they have the support staff like the field clinical reps to be able to do the case coverage and the training. So I think you'll see more of that in the future.

Chris, I would just add that we've always talked about having the average territory managers support on average 4 to 6 centers, and we're still very much in that range. We did add a healthy clip of new centers in Q3 after slowing that initiative down in the first half of the year.

Okay. And then I wanted to follow up on the question about margins and OpEx. The implied guidance implies that OpEx is going to grow at roughly twice the pace of sales in 4Q. That was obviously true in 3Q. And you guys signaled that in the near term, you would have elevated spending. But you're also talking about driving operating leverage next year, which would really seem to imply that spending is going to moderate given the top line growth you're signaling. So help me understand just the cadence here. Is this just a very temporary bolus that then really sort of changes as the calendar flips? Or how do those 2 things line up?

Yes. Chris, so yes, you're right on all your assumptions. Year-over-year OpEx growth for 2025 is going to be in that 16%, outpaces full year revenue growth, but we are going to have an improvement in operating margin sequentially into Q4. Still pretty early to talk about 2026, but the new guidance also implies full year operating margins in that 2.5% to 3%. And on a longer-term basis, we expect to improve that over time.

And I show our next question comes from the line of Richard Newitter from Truist Securities.

I just want to continue on Chris' question. I mean -- congratulations, it's great to see the expense control there this quarter. I guess what I'm just trying to understand is what -- we were all much higher. We thought your profit was going to preserve much better even with the revenue call down last quarter. I guess, I'm just trying to understand what's changed from the outlook that's causing kind of the $0.50 upward revision here.

And then I know you're not giving explicit guidance next year on operating expenses, but we're all just trying to understand what the right normalized spending rate is and significant cost controls here. But it's not clear whether that's in some way linked to some improved efficiency that's going to come as a result of the territory consolidation. I guess is the 10% to 11% growth rate just requires less investment than what it did when you were initially a 15% to 20% growth. Just help us think through kind of what's changed because the earnings is kind of whipsawing around quite a bit here.

Yes, I can start maybe. First and foremost, our revenue did outperform where consensus was modeling. So first and foremost, the revenue beat in the quarter is what's helping with some of the EPS. Below the line, yes, we did increase our investments on DTC, but we were very disciplined across other areas, and we will continue to look for those types of savings as we move forward.

Yes, there has been some consolidation of territories that's also driving some of that savings. But you're absolutely right. We're going to continue to support the business. We're going to continue to invest in R&D, in patient marketing and in medical education, but we're going to do it in a very methodical and disciplined way and make sure that we continue to show operating leverage going forward.

Okay. And then maybe just one second one. I'm curious, are you able to actually see more procedures per account in the accounts that have adopted or been fully trained in Inspire V? And can you quantify that?

We are seeing that. The math is getting -- I mean, it's -- a significant portion of our centers now are implanting Inspire V. It's over 75%. And yes, there is a correlation between accelerated volume growth and the use of Inspire V. We are seeing that for sure.

And I show our next question comes from the line of Brett Fishbin from KeyBanc.

A lot of questions already on next year. So I'll ask one a little bit more qualitative. I think during the quarter, you had the press release with some of the Limited-Market-Release information about Inspire V in the U.S. One thing that stood out to me was the anecdote on one of the KOLs performing 12 implants per day. I believe that compared to 9 with Inspire IV. So something like a 30% to 40% increase in efficiency, which was above the 20% reported from Singapore. So just curious kind of like what drove that kind of performance? And are there specific items that can maybe be applied to other centers that have struggled to see that type of efficiency either in the past or with Inspire V?

Brett, that was a key topic at the AAO meeting or the ISS meeting where the surgeon was actually on stage talking about that. And the key is how do they set up their center to be able to do that. Finding the number of patients, that's not the issue. We all know that the challenge is having capacity with surgeons to take care of the patients demanding therapy. But what this individual is able to do is have access to 2 operating rooms. And they kind of laid that out and talked through people of having the access to be able to -- it's competing the Inspire time versus the time it takes to clean a room to do multiple rooms in a day and the efficiencies that, that can bring.

And think about the efficiencies, not just from the surgeon performing multiple procedures, but there's a revenue bonus or benefit for the hospital to do that many procedures in a day. Think about Inspire. Think about what we're talking about with our OpEx and building efficiencies and us being able to have our field clinical rep there for a full day rather than doing a case having to drive across town with windshield time. So it's a win-win for everybody. And it really takes an experienced, efficient surgeon to do this. And so that drives the high quality surgeons that have experience doing numerous cases. So that is something that we really want to emulate across the board as the way to do that to set up surgical days to stack cases.

And I show our next question comes from the line of Michael Polark from Wolfe Research.

Question on 2025 revenue growth affirmed 12% to 13%. As you reflect on the year, do you think you'll be calling out kind of a net inventory headwind at customers? Is it similar to the question I asked last quarter? And maybe framed differently, in the 12% to 13% for your revenue growth, do you think Inspire procedures grew faster than that in 2025?

I'm going to come back and let me answer the first one and make you repeat the second one. I think the way we're planning it out, we are going to discontinue the manufacturing of Inspire IV, but we made sure that we did a forecast going forward. Remember, we have a 3-year shelf life on these products to look at what's going to be available to support Europe and Asia as well as centers in the United States who want to continue with IV. So we are budgeting our manufacturing to align with our forecast for IV going forward.

So what was your second question, Mike?

I'm just -- do you think are Inspire procedure volumes growing with the revenue in '25? Like is the rate of volume growth, 12% to 13% consistent with revenue? Or were the procedures potentially faster and the net impact of customers destocking IV and stocking up on V as the transition was affected, that was a slight headwind.

Go ahead.

I think that may have been a slight headwind at certain times over the course of the year. But for the most part, the implant to sales ratio has been pretty steady. I think we can take a closer look at that as we wrap up the year and figure out if it makes sense to disclose that on a onetime basis. But I would say, generally speaking, implant volumes have trended pretty closely to sales. So I don't know that, that would be necessary. And as Tim noted earlier, the vast majority of inventory in the field sitting on shelves today is already Inspire V. So that gives us confidence as we look ahead into Q4 and beyond.

And I show our last question in the queue comes from the line of Mike Kratky from Leerink Partners.

Congrats on a nice quarter. One clarifying question there. Really appreciate the color on the survey of sleep physicians and certainly encouraging. It seems like you're expanding the top of the funnel. But were there any cross currents that are worth calling out there? And did you get the sense among physicians surveyed to what extent they're seeing or expecting GLP-1s to have a positive or negative impact on their overall Inspire procedure volumes?

I think the sleep physicians are gearing up that GLP-1s are increasing their procedure volume. And again, I think family practice doctors are sending them to sleep to get a diagnosis, but the sleep physicians are being more responsible. They're not just going to do a study and send that patient back, they're going to want to make sure they do a proper diagnosis and make sure that they have the proper procedure or therapy, not just leave them on a GLP-1 or not just send them back.

So I think the survey kind of really showed that they're expecting an increase in their volume, but we also wanted to tease out what patients they refer for Inspire, and we're able to pick up that information as well. So we -- the knowledge base is there. They know what patients that can be helped with GLP-1s, and they know that if patients can lose weight, they can qualify for Inspire.

This concludes the Q&A session for the conference. I'd now like to turn the call back to Tim for closing remarks.

Thanks, Dilem. As always, I'm grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to patients remains unmatched and is the most important element to our success. I wish to thank all of our employees as well as the health care teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe and Asia. For all of you on the call, we really appreciate your continued interest in and support of Inspire and look forward to providing you with further updates in the months ahead. Take care all. Thank you.

This concludes today's conference call. You may now disconnect.

All right. Good morning. Welcome back. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. And it is my pleasure to host this fireside chat with the management team from Inspire Medical. With us, we have Carlton Weatherby, Chief Strategy and Growth Officer; and Ezgi Yagci, Vice President of Investor Relations.

The format Q&A, if anyone has a question in the audience, please raise your hand. We'll call on you. Carlton and Ezgi, thanks so much for being here.

Larry, thanks for having us as always.

It's our pleasure. So Carlton, let's dive into Inspire V. If you -- it would be great, please give us an update on the transition to Inspire V, where you are in the process today versus where you were on the Q2 call.

Happy to, and good morning, everyone. Larry, it's always an honor to share the stage with you. And as I expect Inspire V is the first topic, and we could spend the whole time on that. As you know, in our Q2 call, it was essentially the headline of the call and Inspire V is something we're incredibly excited about and the early signals on the impact of the product that is having in the local communities that it's in practice, has been very positive.

What we discussed on the Q2 call are the core elements of the launch process and what it required for accounts to begin purchasing and surgeons to begin implanting and managing patients with Inspire V and putting the 3 big buckets. The first bucket was surgeon training and certification. And on the call, we said that we had about 90% of our surgeons who have been certified or signed off to do Inspire V. A fairly low bar because the procedure is getting even more simple and efficient. It's essentially an online module for them to go through and get trained. And so I'm happy to say that, that 90% now is closer to 99%. So essentially all surgeons who have been trained on that specific step in the process.

The second step was the contract being amended and executed, which is more administrative. On the call, we said that we had about 70% of contracts that had gone through within our existing implanting accounts. And now we're at over 80%. And so showing progress on that step so that accounts can get to full readiness for Inspire V. The third step, which I'll call the longest pole in the rate limiting was our SleepSync programmer. And that requires software to be downloaded within health systems. And it's taking longer and was the piece that was behind the other 2 requirements. During the call, we said that about 50% of our implanting sites had gone through the step of getting the SleepSync programmer install or implemented and today, we're closer to 2/3.

So over 60%, closer to 65% of our implanting accounts that have gone through that step. And so I'm excited to share meaningful progress even over the last 6 or so weeks since our Q2 call and excited for the early signs we've seen for the implanting sites that are using Inspire V, that are showing higher throughput, higher volume and still a great outcome.

That's helpful. So when do you expect the transition from Inspire IV to Inspire V to be complete -- and does that mean the contracting has to go from 80, I think you said to 100, that the SleepSync implementation has to go from, call it, 66% to 100%. When is that process going to be complete?

We expect to be complete by the time we're exiting '25, so towing progress essentially through each quarter. So by the end of this quarter, getting closer to 80% versus the 2/3 I described in the SleepSync program. And by the end of the year, have all of these environments checked for all our implanting accounts. And so by the end of the year, having full adoption of the implanting accounts to able to purchase and implant Inspire V.

And you didn't mention the coding issue that came up on the call. Is that because that's basically behind you? .

Correct. Yes, the coding issue we described was tied to Medicare and ultimately a software update that they put in place in July, but approval we got in April that was retroactively applied to January. And so there may have been some confusion around that. But it wasn't until July 1 when I'll call it, there was full clearance for submissions to be run through the process and the software with Medicare. So that's behind us and no longer a headwind for us.

There were a couple of kind of big picture kind of, I guess, questions that came out of the Q3 call. Is it Q3 -- Q2 call, for some of us. And one was the magnitude of the guidance reduction? It was about 4.5% by my math in the second half, I think. And it was all driven by most of it, I think, by Inspire V. But if we talk to doctors they -- look, they see a benefit of Inspire V, don't get me wrong, okay, eliminating the center lead, but they still think Inspire IV is a good product, okay, and benefits patients. So why would the slower transition to Inspire V cause such a big reduction, it was basically like 4.5% for the year, about 9% for the second half. That was a little bit kind of I guess I'm unclear to me. .

Yes, a great question, and we agree Inspire IV is still a great product, and they still have access to that. What we saw and what we've seen since then is what we call this patient warehousing dynamic. And so patients essentially in the queue waiting for Inspire V, although Inspire IV is readily available. So we see the impact to what we call our patient funnel upstream. Because of that dynamic, as I said, we're not the full adoption of all of our accounts being ready and able to purchase Inspire V. And so while in some markets, accounts are waiting, patients are waiting as well. And so we saw an increase in that air pocket of patients waiting.

There was an element that we described as well in the back half of the year for destocking, which is a burning down of Inspire IV inventory, while waiting for the replenishment of Inspire V. And so both of those dynamics we called out on the Q2 call, which are real, but we expect to be abated as we go through the year and get all of our accounts essentially onboard in Inspire V. And so we call them near term or transient headwinds associated with the launch that will go away as we get the product fully adopted.

Is there a point which you'll quantify or you could quantify some of this warehousing and the inventory destocking. If you think it's going to be -- the warehousing is going to be abated by the end of the year, why wouldn't there be this catch up, which would result in less of a guidance reduction. If you kind of follow my logic. .

I follow the logic. And we think, again, there'll be catch up but that will continue through to '26.

It spills over to next year.

Notably, next year some of that. And then some of the what we called out on the Q2 call was also tied to the dynamic we're seeing with GLP-1 as well. We've always called this out as a tailwind over the long term, but we also mentioned on the near-term headwinds of patient warehousing associated with GLP-1 trialing as well, which is a relatively new dynamic and different than what we discussed and saw with our sleep providers a year ago. So that's another element that we expect to abate but not going away over the next 6 months.

Well, I had GLP-1s on my question list later, but I'll ask it now, I had an under competition, but since you mentioned it. I guess the big question in my mind is you said you think it will abate. How do we know it doesn't get worse? How are you thinking about the impact of GLP-1s going forward? As I have talked about this, we have 1 analoge, which is bariatric and it still hasn't stabilized?

Yes, it's still early. And so I don't want to create the illusion of precision around the impact and the timing of it. We call it kind of 2 sides. There's one side where we see patients coming into our funnel. Patients who were screened out because of high BMI and/or lateral wall collapse we're now getting on GLP-1, lose weight and now are eligible for Inspire therapy. We've seen that in real time in practice, mostly anecdotal and hard to quantify.

And then the other end of it is patients who are delayed in our funnel because they're trialing. And so the question as to how that continues to progress and win, whether it debates and whether it's net neutral or net positive over time, honestly, it's still too early for us to tell. And so getting a lot smarter as we get more data and have more conversations. But too early to commit to what that impact will be.

Maybe what are you -- what did you see in Q2? Maybe if you could talk about kind of what you're seeing? I think we all appreciate kind of how long term it could be a net positive. But what are you seeing initially? .

What we're seeing initially is those 2 dynamics. One, patients coming into our funnel because they now have gone on the GLP-1 and can go through the process to get Inspire Therapy as a way to treat the obstructive sleep apnea, but also patients who are being delayed or falling out of the funnel because they want to try this new drug that can give them some resolution to their OSA and obesity. And I say some because we know that it doesn't bring to a full resolution.

And so in many cases, it's being used in combination with CPAP but in any case, it's not going to lead to full resolution by itself. And if patients still are not able to benefit from CPAP, they would need an even alternative like Inspire, and that can be used in combination with the GLP-1 drug as well. And so again, patients coming in but also patients delaying or falling out of the funnel as the dynamic we're seeing in markets.

When do you think you could see more patients coming into the funnel from the BMI coming into the appropriate range? .

I think as GLP-1 become more broadly adopted, that could be a net positive, which is what we've spoken to as well. And so we expect that to continue to increase. There's broader awareness around not just OSA more broadly, but also GLP-1 as an option for patients to treat it in concert with CPAP and ultimately Inspire.

Back to my question on the warehousing and the Inspire IV inventory work down. Have you thought about -- I mean, I'm sure you have like -- help me quantify it so we can appreciate or have confidence in the ramp, especially Q3 to Q4. I mean, obviously, there's a lot of noise in the numbers right now. So it's kind of like a question mark, is the guidance, particularly the ramp in Q4 realistic, and it's hard to know without understanding some of these underlying dynamics. .

Yes. A lot of thought and conversation around it, still don't have perfect way of quantifying these different, I call it, building blocks, but how we think about the reduction in consensus forecast, knowing that all of these play a factor. Again, we've talked already about GLP-1s and the impact that has positive and negative. We've talked about Inspire V, the warehousing and then now the destocking. And so don't have, I'll call it, precision around what that can mean in terms of a true impact from a numbers perspective. I'm curious, Ezgi, anything to add in terms of how we think about that tied to our guidance .

No, absolutely. I do think destocking is one where we could be a little more precise if it makes sense to do so, and we'll take that under advisement. As to the other issues, they're still more anecdotal in nature we're trying to get smarter. So we can look at that and try to give us -- and we always do try to give as much visibility and transparency as we can, when we know for sure. But right now, a lot of this is still anecdotal.

Maybe talk about just kind of the second half ramp and kind of what you assume and just kind of level of confidence in that today, please? .

Yes, I look at the primary driver and I hate to be a bit of a broken record is Inspire V and getting that into more hands of more physicians in their local markets. And what we've seen is really positive outcomes. Really great boost in productivity. We mentioned on the Q2 call a cohort of accounts that have been implanting Inspire V and year-over-year growth of over 20% first half compared to last year. And as we continue to expand into more accounts, we've seen that rate continue. And so we expect that to continue to be a catalyst. And for the reason we've described, right, it's a more simplified procedure, which allows for more predictability and stacking up cases.

And so more cases being done during Inspire case days, which we're realizing greater throughput and productivity there, also opening the door for new accounts and more new surgeons, which we talked about in the Q2 call, ramping up those activities now that we have Inspire V brings more ENTs who are on the sidelines to now begin implanting, but also potentially allowing us to go into other specialties as well. And so we looked at Inspire V, really being the catalyst for us to go deeper into existing accounts to drive productivity here in the back half, but also open the door for new implanting surgeons and accounts as well.

We continue to expand our footprint. And so we'll be adding within our commercial organization, territory managers and field clinical reps, leaning more on the field clinical reps for clinical support both in the operating room and in the managing provider clinics. And so we'll continue to do that work as well. And then medical education is something that we continue to invest in across all specialties at every stage of the career. So early career program for residents and fellow in sleep and ENT but also training more surgeons as well as advanced practice providers. And we've talked quite a bit about that over the last several calls, the importance of the role that those mid-level professionals play, nurse practitioners and physician assistants, helping the management postoperatively and the longitudinally thinking about how do we make sure patients have the best outcome. And so medical education being another vector of growth for us in the back half.

Listen to everything I've heard so far, it sounds like everything is on track basically with the Inspire V that you articulated that you talked about on the Q2 call. I've heard everything sounds like it's in line with your expectations. .

Everything we discussed in the Q2 call in line with those expectations and really excited about the products we've made. And again, by the end of the year being through those steps the process, so that we can be full steam ahead and everyone having the output that we're seeing...

So no negative -- asking a different way, no negative surprises that we should be aware of in terms of since -- anything new that you would highlight, just everything kind of going as planned. .

Going according to plan since the call. Ezgi, anything that you'd add?

No. I mean the only other comment I would make, Larry, is, as you know, we do have seasonality in our business. So have many patients on high deductible health plans. So we tend to see an uptick in volumes in the fourth quarter, and that is captured in our guidance as we look here.

And I'll add Larry, we're also publishing data, right, to show what we said would be true with Inspire V in terms of safety, efficacy, objective adherence and we'll be showing data at upcoming conferences next week in Singapore to the World Sleep Conference, where we'll speak to the improvements we've seen in terms of the primary outcomes both clinically but also in terms of the operational efficiency, which is really positive.

Is that data embargoed? I'm asking is there -- could you give us a sneak preview? Is there an abstract in the public domain?

I won't give a sneak peek, but I'll just tell you, it'll be focused on how do we think about efficacy, how do we think about objective adherence, which is really important in terms of a nightly experience for patients to ensure that they're using it and then reductions in the objective disease burden at AHI. So more to come. I'm giving you a teaser, but you'll see more in the coming weeks.

Do we have to go to Singapore?

You don't have to go the same. We will have similar and more broader data at the upcoming ISSS conference as well in October. We're looking at potentially press releasing that information so you don't have to go but stay tuned.

Singapore is a great place for similar...

Singapore is a great place but you don't have to go.

And I ask you in the spirit of the question I asked about any kind of negative surprises is if I think back the past couple of quarters, there have been a few unexpected updates. And so that was kind of the spirit of why I asked that.

Larry, it's a fair question, and thank you for asking and we take full accountability for what may have been negative surprises. I'm glad you say that those are behind us. As we think about the Medicare complexity and now getting to full adoption with all the readiness criteria we describe for Inspire V. And so full steam ahead, and I'm excited about what we'll see.

I would say the first big question I asked about the magnitude of the guidance reduction. The second one was kind of the deleveraging. And I can go through all the numbers, but I won't, but you've talked about increasing the DTC spend. If we look at -- obviously, the EPS guidance came down. I mean, obviously, it looks like you're spending more to drive growth. Help us understand why that is? Maybe what changed? And you've heard these questions before. I assume this is not new. .

And it's a fair question. I think on the surface, a question around how much do we have to invest to grow has come up as we talked about, increasing DTC on the back half of the year, which actually started in the middle of Q2. A part of that is, I'll call it, timing and it's opportunistic spending with our biggest product launch in the company's history and ensuring that we put all of our muscle behind it, including broadening the direct-to-consumer advertising. We're doing a refresh of our marketing, the extension of our brand with new content and commercials coming on in the back half of the year, starting in a matter of weeks and increasing the volume and frequency to make sure we can touch as many patients as possible with the world the best closed-loop neurostimulator.

So some of that is truly just capitalizing on this unique opportunity with a new product launch, which means we're increasing that investment in DTC for sure. At the same time, over the long term, seeing this as an opportunity for leverage as well. And so I'm not losing sight of that and what we've committed to over the long term, seeing that increased leverage over time across a number of line items, including DTC marketing. Ezgi anything to add on that?

No, I think that's fair. We do think it's really important to put our full weight behind this launch and support the launch of Inspire V. Going back to your earlier discussion, GLP-1s are out there, Lilly's marketing. So I think it's really important for us to continue to drive awareness. But over time, we do see opportunity to get more operating leverage.

One question we hear is, have you guys hit the ceiling? Is the TAM smaller? I'm sure you've gotten that question. How -- what's your reaction to that? .

My take is that the TAM is actually larger. The TAM is growing partly because of other factors outside of our control, like GLP-1 bringing awareness to the importance of treating OSA. So an increase in the diagnosis rate that today is close to 20%, growing over time because of the work we're doing to build awareness, but also where other companies are doing, whether they're direct pure-play competitors or other potential therapy options as well as OSA being more prominent as an element of treatment guidelines for other conditions.

We've talked about that with pulsed field ablation for atrial fibrillation and new technologies like wearables that are bringing more awareness to sleep health. And so I firmly believe that the market is massive, but also growing far from contracting. And I think that the data supports that, and it's largely underpenetrated, which is why we continue to invest in building out and penetrating it more deeply.

Okay. All right. So let's transition. We tackled one potential competitor, GLP-1.

Sorry to jump ahead.

No, no. It's timing -- it was perfect. Obviously, you have a new -- the first hypoglossal nerve stimulator competitor on the market in the U.S. How are you thinking about competitive trialing impacting -- what did you embed in the; 25 guidance? How are you thinking about that going forward? .

I'll start by saying we respect and welcome competition, it's something that we've been expecting and waiting for some time as Inspire built this market. In some ways, it's a validation that there's attractive growth opportunity for people to join with us then. I look at the recent approval of FDA approval of Nyxoah Genio devices, an opportunity for us to continue to elevate our standard and an opportunity for others to come in and try to join us in this journey. We did include some modest but limited trialing into our guidance, mostly and likely in academic centers, which I believe they'll be publicly disclosed that it will be their area of focus, but still limited.

And again, it's early and FDA approval is one step in the process. As many of us know, there's multiple other steps, especially when you think of reimbursement with coding, coverage and payment. We spend a lot of time now that they have peer-reviewed data, dissecting what that data is and what it isn't and how it compares to what we've established as a standard of care for hypoglossal nerve stimulation and are increasingly confident around our position. As you look at the data that they've shown within their DREAM trial. They had a relatively high rate of dropout, meaning patients completing full study from enrollment to 12 months. The rate was about 25% of the patients that did not complete 12 months compared to what we had in our STAR trial of 2% of patients falling out.

Another area that's really important is safety. And when we look at the adverse event rate that they saw in their trial tied to device and procedure compared to ours, it was almost 4x. We had 2% of device or procedure-related adverse events, they had closer to 10%. And so there's elements of work to be done as you think about the data, and that gets really accepted by providers, patients and payers.

The other piece I'll call out is, as you look at the procedural time, we talked a lot about efficiency with Inspire V from IV, going from 60 to 90 minutes to now more like 45 to 60 minutes. What they showed in the DREAM trial was average of 132 minutes, so over 2 hours. And so again, we have set a high bar for safety, efficacy and efficiency that every incoming competitor is going to have to compete with. But we did, to your question, includes some modest trialing, mostly academic centers in our guidance reduction.

But why do you think their discontinuation rate was so much higher? .

I would likely tie that to adherence. And the adherence, meaning with our system, we have a simply -- simple nightly experience because it's a click of a button to activate the device. And what their is, it is an adhesive that must be put on every night to recharge the battery. And the question is are patients willing to do that every night when they're not willing to put on a mask and hose which is where patients are coming into this clinical hypoglossal nerve stimulation.

And so our strong belief is that they saw a high rate of dropout because patients were coming in off of CPAP device that required a lot of them every night to use it, to now try a new device that still requires that they put on essentially a patch to recharge the device, and it's shown that not every patient is willing to do that. And so still to be proven out, but that's some of what we're suggesting and hearing is likely led to the high dropout rate.

And the supine versus non-supine, you guys have shown some data, small data set. I think I saw showing that you're effective in both. Do you think you've kind of neutralized that marketing message from them? .

We believe so. And this is something we've had evidence to speak to going back to the beginning of Inspire's clinical evidence strategy. And so not new news to us, but something we wanted to reinforce with the market to show that this is something that we've demonstrated strong efficacy around as well. And hopefully, that neutralized the question as to whether this is a differentiator for a new competitor compared to Inspire, which the answer we believe is certainly no. But Ezgi, I'll ask anything to add.

I would just remind you that our patients are activated in the supine physicians so that we can confirm and ensure proper optimal therapy treatment regardless of sleep physicians. So I do think we have a good way to combat this. And to your point, Larry, we have showed data on this as well.

Okay. And I guess -- and CCC, they're doing this Access trial, is your approach that the PREDICTOR trail, is that basically how you're addressing CCC? .

I'd argue there's a few ways to address CCC, but I want to make sure we're all clear on what exactly that is. And when we think about hypoglossal nerve stimulation or stimulating the nerve to move the tongue forward and addressing what is anterior posterior obstruction. And any approach that stimulates the hypoglossal nerve is simply addressing that mechanism of action, not addressing the lateral wall collapsing. And so our belief is that anyone that is doing hypoglossal nerve stimulation will only be addressing that mechanism of action. And there's a lot to be desired to address the lateral wall closing.

Our approach to addressing that patient population is twofold. One is the PREDICTOR study you described, which allows us to get a sense of whether a DISE procedure is necessary for all patients based on their BMI in their next circumference. The other approach we've discussed publicly is an internal research project that we've begun with a dual channel device that is both stimulating the hypoglossal nerve as well as a different nerve bundle that actually addresses that mechanism of action of the lateral wall collapsing. And if you're not addressing that mechanism, we don't believe there's an effective treatment to that type of obstruction.

And so the question is, and as other competitors come in the space is whether they can address that type of obstruction being lateral wall collapse while stimulating the hypoglossal nerve. Our evidence, and again, we have over 100,000 patients that have been treated. and almost tens of thousands who have been in the clinical trials is that you cannot address that. And so it's still to be proven out. But we've heard that other competitors are trying to address that patient population. We believe it's going to take more than hypoglossal nerve stimulation to do that.

And last one, you alluded to it with coding reimbursement. And I know my guess is you're probably not -- there's not much you might say publicly, but it sounds they're trying to use the same code as you, and there's questions around that. Are you willing to opine on that, if you think that they're going to be able to use the same code as you?

We've heard that they plan on using the same code and I don't want to get into details of their strategy. But we know that it is a very detailed process and that the coding must match the descriptor of the actual product. And so with our code, it ties specifically to what our product is, with a stimulation electrode as well as an implantable pulse generator. And if the product form factor and description doesn't match the code, then it will be tough to get actual approval to use that code. So it's still to be determined, but we have a strong opinion that our code matches our technology and our product in ways that wouldn't match some of the incoming competition, including the Nyxoah Genio's device. But I think the jury is still out. Ezgi, anything to add?

No, I think you captured it all.

So let's transition to next year. You guys made some comments on the Q2 call about -- so the guidance this year is 12% to 13%. I think you said you expect growth to be -- to accelerate next year. The Street is at 14%, a little slight acceleration. I guess my questions are, what are the drivers of the acceleration? And is that a good starting point?

I'll start by saying we're still early in our annual operating planning process. But it'd be remiss to not to expect growth over the year and -- but still determining what that looks like. But the drivers starting with Inspire V, and I've talked quite a bit about that. Hopefully, for reasons people can appreciate that, that will be a vector of growth for the back half of the year, especially into '26, while all accounts are fully adopted there, both because it's implanting efficiency that drives more throughput, but also, again, adding more implanters into our existing base as well.

Then we'll have continued expansion of our footprint, so adding more centers, but also adding more of our field representatives who are driving the growth within their local markets, continuing to optimize and refine that commercial model as well, focus on productivity. Larry, we talk often about our utilization rate and how do we think about productivity and raising the bar from what is account -- 2 implants per month on average across all of our accounts to greater than that. And so focusing on driving that growth going deeper into existing accounts while also continuing to invest in patient and physician education as well and marketing. And so those are really the 3 drivers that I think about it for next year and with Inspire V continuing to be at the top of the list.

I mean it sounds like the warehousing spills a little bit into '26, you said earlier. So that should be a little bit of a tailwind as well. What I didn't hear you talk about was the Inspire IV destocking. And is that because the Inspire IV destocking that's happening is offset this year by Inspire V stocking? In other words, it's neutral in '25?

I think it's a question of timing, but yes, that's a great way to put it. As they burn down Inspire IV therapy and replenish that with V, where does that come within the quarter, end of the year, beginning of the year, is still...

Without being too precise, but you expect to be largely completed with the Inspire V transition this year.

That's exactly.

It's pretty much neutral this year.

That's the way I would think about it. The other tailwind that I'd touch on is, again, not formal approval, but we saw the proposed ruling for the fee schedule for next year. And the positives there is that we saw increases that were proposed for both the hospital and ASC reimbursement rate for our code for Inspire V, but also the physician rate as well. And that going from up almost 10%, a little above 10% from $600 to about $660 for the physician reimbursement for Medicare. And so that's another tailwind for Inspire V adoption as well.

Yes. I didn't ask about it earlier, so I'll ask now because you brought it up. So Inspire IV, $800 for the physician fee about, Inspire V, about $600, you said, and then it goes up to about $650 next year if the proposed rule is finalized. Is there any -- do you have any sense of the $800 to $600, if that's had any impact at all when we're teasing out all these dynamics that you've talked about, how do we know that the physician fee, at least going from $800 to $600 hasn't had any impact?

It's a conversation we're having actively with our customers. And what we've said is -- and what we've seen once they start implanting Inspire V, they call it themselves a game changer and well worth the time and energy. What we've said coming into this, and I remember standing on stage with you last year was that we see it being essentially net neutral, right, from a time-adjusted basis, going from $800 to $600 while going from on an average of 60 to 90 minutes to 45 to 60 minutes, about $10 per minute in both cases with room for even greater efficiency with Inspire V to make that gap even smaller.

Now with Inspire V reimbursement going up to $660, that's $10 per minute, if you use the same math becomes more like $12 to $13, which makes it more attractive for physicians to continue implanting Inspire V, if not increasing the volume there. So that's the nature of the conversation. But what we've seen is once they get it in their hands, they see it being not just a faster, more simple procedure, but less complex and even more fun. And so it's why we're so focused on driving the adoption and getting all these accounts to fully having full access to this great technology.

And you talked about Inspire V taking it to new specialties. Obviously, people have been asking about general surgeons. Is that the target -- the potential new target audience? Or are there others?

I consider that a potential new target audience. At the same time, we have almost 1,500 implanters trained predominantly that are ENTs, and we are far from fully penetrated in that ENT universe. About 8,000 head and neck surgeons that are ENT specialists that we have the opportunity to train. Many of them are on the sidelines because Inspire IV requires that step of the procedure where they're putting a sense lead into the intercostal muscles that we can now bring over to Inspire V. And so it does open the door for new specialties to be more broadly adopted, but we're not taking our eye off the core customer base of implanting ENTs because there are so many of them still addressable in our market.

And we didn't -- sorry to jump around, but back to '26, the -- you guys are making great progress on profitability. So we talked about the top line consensus at 14% versus the 12% to 13% guidance this year. Any color commentary on margin progression going forward?

I'll leave that to, Ezgi, but I think we're limited in what we'll share for 2026.

Yes. We're still -- we're just kicking off our planning process for next year. So it would be premature to comment. We are very focused on the top line. But as we've noted, we're also committed to profitability, and there will be operating leverage over time.

I mean Ezgi, I mean, you know the operating margin was about 4.5% in 2024. I'll just ask the question. Maybe I won't get an answer, but can you get back there next year?

There is absolutely a path to get there. But again, we have to take a look at where our investments are going, how much we're going to spend on DTC, what does our footprint expansion look like? What does our R&D pipeline look like. So there are a lot of puts and takes, and it would be premature to comment on whether we can get back there right now.

And Carlton, we did talk about international. 3% to 4% of sales has kind of been the historical trend. How much time do you -- the U.S. is a big market, obviously. How much time do you spend your role as Chief Growth -- Chief Strategy and Growth Officer. How much time do you allocate to international? And is there any potential inflection outside the U.S.?

Yes. First question, I spend the vast majority of my time focused on the U.S. opportunity because there's so much runway. And today, my peer and partner, Randy Ban, under his agreement has all the international business, and he's spending much more time than I am. But it is an area of focus for us today being 3% to 4% across about a dozen countries spanning Europe and Asia, making great traction, focused on regulatory reimbursement hurdles to go into new markets. We had big wins in France and Belgium with reimbursement that we're taking advantage of. We've seen great traction in Japan and Singapore as well as the U.K.

And so it is an area where we continue to invest and see growth, but not taking our eye off the ball, which is the domestic market where there's so much opportunity. And so I'll call it fairly limited in terms of my specifically direct time and energy, but something that we see as a potential inflection. Now whether 3% to 4% goes from 5% to 10% over the next 2 to 5 years, is still a question. we're balancing as part of our long-range planning process.

What's the gating factor? Is it reimbursement? Is it just resources, infrastructure that you have? What's the gating factor outside the U.S.?

Yes, I'll start with regulatory and reimbursement, but your comment about infrastructure is really important. As we built the market here in the U.S., we know what it takes to drive productivity across markets, and it requires the connection of implanting surgeon, predominantly ENT to a managing referring physician in sleep and having that symbiotic relationship where there's constant patient flow and support.

Building that infrastructure across multiple markets takes time, energy and resources. And so we want to make sure we have a viable market opportunity with reimbursement before we start putting those pieces into place. But over time, we plan on doing that for sure, because there is a great need across the world beyond the U.S. It's just a matter of, I'll call it, when, not if.

Okay. A little bit of time left. I wanted to give you the last word. Really appreciate both of you being here. So Carlton or Ezgi, if there's anything we didn't cover you want to highlight or if you just want to summarize, make some closing remarks, the floor is all yours, and feel free to go a little bit over.

I'll just summarize by saying, one, thank you again for the time, Larry. This is a great conference and really appreciate the opportunity to represent the great team at Inspire and thank for the Inspire team and all of our partners who allow us to do the great work we're doing, reinforce that the market opportunity that we've created is massive, growing and grossly underpenetrated. And with our focus on outcomes, but also continue to be fueled by innovation like Inspire V, but more to come. We're committed in Inspire to having an even greater impact in a larger pool of patients and truly believe we're just getting started, Larry. So excited for that continued growth opportunity and the opportunity to demonstrate that.

Thank you again.

Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Second Quarter 2025 Conference Call. [Operator Instructions] I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.

Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer; and Rick Buchholz, Chief Financial Officer. Earlier today, we released financial results for the 3 months ended June 30, 2025. 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 2025 financial and operational outlook and changes in market access are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ.

Accordingly, you should not place undue reliance on these statements. Please see our filings with the Securities and Exchange Commission, including our Form 10-Q, which we filed with the SEC earlier this afternoon, or a description of these risks and uncertainties. Inspire disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, August 4, 2025.

With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Thank you, Ezgi, and thanks, everyone, for joining our business update call for the second quarter of 2025. I'll start by highlighting some key takeaways of our second quarter results. I'll then discuss our updated 2025 guidance and provide additional context and rationale around the change then Rick will provide a financial review. We will then open the call for questions.

It has been an impressive start to the year 2025, and we have achieved many key milestones. That said, I want to provide some important context on the challenges we are facing in the commercial rollout of our Inspire V next-generation system, which began in May. As the quarter progressed, we encountered certain headwinds that slowed our efforts to transition customers to Inspire V. While we are disappointed with the elongated time frame we now expect for the rollout, we remain focused on advancing the transition of our customers to Inspire V.

To this end, we are taking concrete actions that we believe will allow us to complete this transaction in the next few quarters. Strong market demand, positive patient and surgeon feedback and favorable clinical results give us conviction in our platform and ability to make a difference in the lives of our patients with obstructive sleep apnea. I'd now like to provide some detail regarding the challenges faced during the quarter and the steps we are taking to actively address the factors at play.

First, in the second quarter, many centers did not complete the training, contracting and onboarding criteria required prior to the purchase and implant of Inspire V. Specifically, implementation of SleepSync has been the most challenging step to accomplish. Although not technically difficult, the approval process from our customers' IT departments has taken longer than expected.

Additionally, some centers have been delaying implementing SleepSync until their first patients are scheduled to receive the Inspire V device. To increase the rate of implementation of SleepSync by our customers, we began to continue to leverage our technical teams. To date, we have completed the implementation at over 50% of the U.S. centers. With these technical resources fully engaged, we expect to complete the vast majority by the end of the third quarter.

As an aside, most of the units sold in the second quarter were Inspire IVs. Therefore, we did not experience much inventory destocking in the second quarter. The burn down of Inspire 4 inventory will remain a headwind in the second half of 2025 as we continue to transition to Inspire V.

The second challenge related to adoption of CPT code 64568 for Inspire V for Medicare patients. The approval of the code change was announced in April with a retroactive effective date of January 1, 2025. However, the software updates for claims submissions and processing did not take effect until July 1. Thus, although traditional, Medicare and Medicare Advantage patients could receive Inspire therapy, implanting centers would not be able to bill for those procedures until July 1.

Given this dynamic, many centers continued to treat Medicare patients with Inspire IV. With this software update now complete, we anticipate centers will ramp up their efforts to transition to Inspire V. Certain patients opted to wait for the Inspire V device knowing its availability was imminent, instead of being treated with Inspire IV.

And as more centers transition to Inspire V into the third quarter, these patients should start receiving Inspire V therapy. Fourth, we intentionally held off on patient marketing and education spend and footprint expansion, namely new centers and territories in the first half of the year. This was a strategic decision given all the resources required for the Inspire V transition.

As we move into the second half of the year, we have ramped up both marketing and footprint expansion efforts to increase patient awareness and build capacity across the U.S. These investments have already started to be implemented and we have already experienced an increase in website activity, calls into our Advisor Care program and appointments to health care providers. We continue to leverage our ACP to connect patients interested in Inspire therapy with qualified physicians, including through the expansion of digital scheduling.

In addition, we are ramping our medical education and local community [indiscernible] efforts to promote the launch of Inspire V. These efforts should provide a tailwind into the second half of 2025 and beyond. Lastly, we believe some patients may be delaying Inspire therapy to try GLP-1. We are unable to quantify this and continue to believe GLP-1s present a tailwind long term as we do hear of patients losing weight to qualify and receive Inspire therapy. As an example, when a prospective patient fails the DISE procedure due to complete concentric collapse our centers work with the patients to help address their high BMI, including prescribing a GLP-1.

As a result of these headwinds, we are adjusting our full year revenue guidance to a range of $900 million to $910 million from our previous revenue guidance of $940 million to $955 million or a 4% reduction at the midpoint. The new revenue guidance reflects growth of 12% to 13% over 2024 revenue. We are also reducing our diluted net income per share to a range of $0.40 to $0.50 from our previous guidance of $2.20 to $2.30 per share to reflect this change in revenue guidance and to a lesser extent, the planned increase in patient marketing cost for the second half of the year.

I will now take a few minutes to highlight the success we have already seen with the Inspire V system and what to expect moving forward. The early results of our Singapore clinical study have been presented at the recent sleep meeting and demonstrated a 20% reduction in surgical [indiscernible]. This reduction will provide for increased capacity at centers. In fact, we have already noted that the U.S. centers that have completed the transition to Inspire V have experienced a more than 20% increase in patient implants in the first half of 2025 as compared to the same period in 2024.

From an efficacy standpoint, the accelerometer study we highlighted at recent investor conferences, suggested significantly improved sensing capability, including an 86% inspiratory overlap with the patient's breathing, synchronization with respiration is essential as the airway collapses during the inspiratory phase of respiration. The early review of AHI reductions appears very promising as well. And we plan to present this data at the upcoming [ ENT ] meetings in October.

Regarding reimbursement, CMS recently released the 2026 proposed OPPS rules, which, if approved, would provide positive increases for Medicare reimbursement for the Inspire system. As you know, for Inspire V centers will be building CPT code 64568, which has been accepted for plans covering over 90% of our 300 million covered lives, including Medicare. The national average Medicare hospital reimbursement for CPT code 64568 is proposed to increase to $32,000, up roughly $1,300 or 4% from 2024 and the ASC reimbursement is proposed to increase to $28,000, up $1,300 or 5% compared to 2024.

Finally, the surge in reimbursement for CPT code 64568 is projected to increase to $660, up 11% as compared to 2024. Should the proposed rules be finalized as expected in early November, the new reimbursement would take effect January 1, 2026. With respect to clinical evidence, we are very excited to have submitted the PREDICTOR manuscript to a leading journal and expected to be published later this year. As a reminder, the clinical evidence proposes an algorithm which uses BMI and neck circumference to determine a patient's eligibility, thereby eliminating the need for a DISE procedure for the vast majority of patients.

We are also excited to announce that we became a corporate champion of the American Academy of otolaryngology. The sponsorship positions Inspire as a leading voice in ENT innovation aligning with top thought leaders and decision makers. It also strengthens our brand and trust within the ENT community, which is vital for expanding Inspire's influence and adoption. It also provides a platform for collaboration and research and policy, thereby advancing Inspire's market leadership in hypoglossal nerve stimulation.

Before I turn the call over to Rick, I'd like to take a moment and discuss the personnel announcement we made today. No one has lived up to our commitment to delivering strong patient outcomes more than Randy Ban, our Executive Vice President, Patient Access and therapy awareness. Randy recently announced his intention to retire at the end of January 2026. As one of our earliest team members in a long time commercial leader at Inspire, Randy has paid a significant role in advancing access to Inspire therapy in building a strong mission-driven organization. He will remain fully engaged in his current role into early next year to support a smooth and thoughtful transition.

We are grateful to Randy for his many contribution and wish him the best in his well-earned retirement. At the beginning of this year, Carlton Wetherbee assumed the lead of the U.S. sales and marketing teams and we'll continue to build upon the robust history of growth in the adoption of Inspire therapy initiated by Randy many years ago.

In summary, we remain focused on the patient to continue the growth and adoption of Inspire therapy. We will execute our growth strategy of driving high-quality patient flow in increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include training advanced practice providers certifying additional surgeons qualified implants for our therapy and driving the adoption of SleepSync and our digital tools, all of which are embedded strategies and our commercial team's objective to increase provider capacity.

Looking ahead, we are confident about our future and that we have the appropriate strategy in place to drive long-term stakeholder value. We have our arms around the headwinds that I described and actions are already underway to accelerate the adoption of Inspire V in the latter half of the year. Looking beyond 2025, we continue to take actions to position the company for strong profitable growth. With that, I'd like to turn the call over to Rick for his review of our financials.

Thank you, Tim, and good afternoon, everyone. Total revenue for the quarter was $217.1 million, an 11% increase from the $195.9 million generated in the second quarter of 2024. The U.S. revenue in the quarter was $207.2 million, an increase of 10% from the $187.8 million in the prior year period. Revenue outside the U.S. was $9.9 million, which was a 23% increase year-over-year. Gross margin in the quarter was 84% compared to 84.8% in the prior year period. The year-over-year decrease was primarily due to a $2.1 million charge for excess Inspire IV subcomponents, which reduced gross margin by 100 basis points in the quarter. Total operating expenses for the quarter were $185.7 million, an increase of 15% as compared to $160.9 million in the second quarter of 2024.

This increase was primarily due to the expansion of our sales organization and increased general corporate costs, partially offset by a reduction in R&D year-over-year. In addition, operating expenses included accelerated noncash stock-based compensation expense of $11.2 million for employees who are now retirement eligible in accordance with the implementation of changes to the treatment of equity awards upon an employee's death, disability or retirement. Operating expenses also included $1.7 million in legal fees related to a civil investigative demand from the Department of Justice and a patent infringement suit that we filed against a potential competitor.

These items do not reflect costs associated with our ongoing operations. Please refer to our earnings press release for a reconciliation of these items. Interest and dividend income totaled $4.5 million in the quarter compared to $5.9 million in the prior year period. Operating loss for the quarter totaled $3.3 million compared to an operating income of $5.1 million in the prior year period. Net loss for the quarter was $3.6 million compared to a net income of $9.8 million in the prior year period.

This represented a loss per share of $0.12 for the quarter compared to a net income of $0.32 per share in the second quarter of 2024. Adjusted EBITDA for the quarter totaled $44.1 million, which is a 14% increase compared to $38.7 million in the prior year period. The adjusted EBITDA margin in the second quarter was 20% and consistent with the second quarter of 2024. Adjusted net income per share totaled $0.45 compared to $0.32 in in the prior year period or an increase of 40% year-over-year.

The weighted average number of diluted shares outstanding for the quarter was $29.5 million. We ended the quarter with $411 million in cash and investments. Our strong cash position allows us to remain focused on executing our growth strategies. Moving on to 2025 guidance. As Tim mentioned, we now expect full year revenue to be in the range of $900 million to $910 million, down from $940 million to $955 million, representing an annual increase of 12% to 13% compared to full year 2024 revenue.

We expect Q3 revenue to increase 1% to 3% sequentially from the second quarter as we continue the transition to Inspire V. We continue to expect full year gross margin to be in the range of 84% to 86%. We now expect Diluted net income for the full year 2025 will be $0.40 to $0.50 per share, a decrease from our previous range of $2.20 to $2.30 per share.

The reduction is primarily due to the revised revenue guidance and to a lesser extent, the planned increase in patient marketing costs for the second half of the year. We ended the quarter with 348 U.S. territories and 259 U.S. field clinical representatives. We continue to expect our reported tax rate in 2025 to be roughly 10%, primarily related to state and local taxes. We expect the full year diluted shares outstanding to be approximately $31 million. With that, our prepared remarks are concluded. Jolene, you may now open the line for questions.

[Operator Instructions] And I show our first question comes from the line of Adam Maeder from Piper Sandler.

A couple from me. I guess, the first 1 is on the revised guidance. And you guys outlined a handful of different headwinds that are facing the business here. I was just hoping to get a little bit more color there, if you could kind of put some force rank order around those different items or quantification around those items so we can kind of understand those different components and kind of how you're thinking about the potential impact in the second half of the year? And then I have a follow-up.

Great, Adam. Good to hear from you. I think when we laid out the 4 key items that we highlighted, the first 2 are really the predominant factors that we had. And the first one certainly being the number of centers that have completed their full training and adding fleet Sync to their systems to be able to use the Inspire V programmer.

And the second is really the concern over building Medicare, which is everybody was aware of it being approved but not being able to build it until July 1 is really put some centers in a tough spot, and so they chose to continue to implant Inspire IV. Those 2 factors really are the predominant drivers, and we really got our arms around both of those. Of course, the Medicare is now approved and centers are able to bill 64568 for Inspire V and we have a full team working to get all the other centers trained and up and running, as we mentioned, over 50% of the centers have already have access to sleep zinc. .

That's helpful color, Tim. And for the follow-up, I'm going to test my luck on 2026 and the rollout, obviously, going slower than expected with Gen 5 here this year, but you gave some kind of color around kind of how you're thinking about the trajectory in the back half of the year. maybe to ask it a little bit more directly, would you expect revenue in 2026 to accelerate over the 12% to 13% that you've guided to in FY '25?

We're going to provide our next year's guidance, of course, at a year end call. But we're making several investments as I've already mentioned, to get the sites up and running with Inspire V. We talked about the increased marketing with our direct to consumer spend, expanding our footprint, both with new centers, with surgeons, bringing back some of the surgeons who were doing as many procedures because of the pressure sensing lead with for -- and so yes, we would expect our revenue growth to exceed the 12 to 13 million we're talking about now. .

And our next question comes from the line of Travis Steed from Bank of America Securities.

I wanted ask about the EPS guide change. The numbers in the press release, the [ $2.20 to $2.30 ] went to $0.40 to $0.50. There was, I guess, a $0.57 onetime charge this quarter, but trying to get the bridge kind of back to the underlying EPS guide kind of on an adjusted basis, if you could kind of help walk how the guide change versus the $2.20 to $2.30 that you gave last quarter?

Sure.Travis. So the most significant item there is just the the gross margin that we're going to -- the reduced gross margin that we would obtain had we had higher revenue. So really, the biggest impact there is the reduction of the revenue guide from our previous midpoint of $948 million down to $905 million. So that's the majority of that.

But we are also increasing our DTC spend, too. So to a lesser extent, there's some impact there from continued investments. And the big driver there is that we expect to actually increase our DTC investments significantly now that we've got the launch underway. And so part of that launch is we want to take advantage of the launch with Inspire V to ensure that we're building patient awareness.

And so that growth, we had DTC at $95 million in 2024. Expect that to be over 20% growth, which implies about $115 million in 2025.

So the $0.40 to $0.50 EPS guide is excluding the $0.57 onetime charge this quarter, just to be clear.

No, that's included. It's GAAP EPS. It's inclusive of that.

Okay. So if I take the $2.20 versus $2.30 substract the $0.57 and that should be the underlying EPS guide, right?

Yes, because you have the original -- the underlying guide is a midpoint of $0.45, roughly $1.20 for the reduction in revenue and then the roughly $0.60 for the onetime items, yes. .

Correct. Okay. I just want to make sure that was clear since it's confusing for a lot of people. And then the second question I had was just on the Q3 guide and any kind of view on June, July trends that kind of helped inform that Q3 guide up 1% to 3% sequentially. .

Travis, No, I think the -- as we come out, it's always a little bit lower at the beginning of a quarter, especially when you're talking about the beginning of July. But we do see the patient flow that we're working through in the second quarter and be able to get a handle on where we are from a patient flow and expected implants to be able to guide a 1% to 3% step-up over the second quarter revenue. So those are just the early views that we see from the patient flow.

And I show our next question comes from the line of Danielle Antalffy from UBS.

Just want to make sure I understand what's happening here on underlying volume trends. Appreciate all the color you provided, Tim, but I guess it's a matter of like slower transition to Inspire V. Volumes seem to be lower than what will certainly than what you guys have been tracking over the last few years than what a lot of people expected. And so I guess some of that is patients choosing to wait.

But I guess I'm just curious like why you're still seeing such pressure on volumes. And I know it's hard to quantify like the GLP-1 impact, things like that. But anything you can say there to just give us some more confidence that this is truly temporary and not something structural in the market would be great. Sorry, I know that's an open ended question, and I'll just leave it at that.

Thanks, Danielle. I think, well, first off, in the second quarter, we did achieve expectations with our revenue and taking care of patients. And so we did have a good patient flow there to achieve what we said expectations are set guide to be in the second quarter.

But as we look forward, knowing the delay in getting all the centers up and running, that pushes our cases forward. And it also limited our ability to increase the footprint. So we didn't add as many centers in the second quarter as we're working on the transition. We didn't add as many territory managers as we noted in the script. We did increase the number of field clinical reps because that builds the capability to move forward.

And again, as Adam asked earlier on, the 2 key factors are getting the sites up and running to transition to V and really the ability to build Medicare centers really had a a difficult time building Medicare knowing that they wouldn't get billing accepted until July 1. The other one factors do play as well. Of course, with the patients who are expecting or waiting for Inspire 5, but until their centers are up and running, they certainly can't get in the queue to be able to get scheduled for that, but we know those patients are there. And then finally, with the majority of the units being sold in the quarter being Inspire IV, we still have a burn down of inventory that will carry forward moving forward.

So yes, we have strong confidence in our ability to move forward and that's really highlighted by the great performance that we're seeing with Inspire 5 device so far, both in the U.S. and again, as we mentioned, from the clinical study in Singapore, and we're going to be proud to present some more of those results at the upcoming ENT meeting. So yes, the team's got their head down. They're working hard. We think we've got our arms around the headwinds limiting the Inspire 5 transition. -- and have good confidence that we have the corrective actions in place to able to overcome those.

And I show our next question comes from the line of Robbie Marcus from JPMorgan.

Great -- 2 for me. First one, Tim, I appreciate you're not commenting on 2026. But would the expectation be, given this is a transient issue that you'd basically go back to your prior run rate in 2026, meaning you'd get back the $40 million to $45 million in revenue cut that you had here in '25 next year if it's not demand related. .

I think that that's what we're going to be targeting for. I think that we do think this is a short-term issue. And with the shift, limits our ability to work through Q3 and Q4, but it does set us up for a very promising 2026 and beyond. And we need to be focused to get all the sites transitioned over, but we already have -- the payers in place, as we mentioned, with the CPT coding, we have Medicare now in place, and we have seen positive experience from centers that have already implemented Inspire 5. So again, we're going to give the formal guidance when we move forward, but our intent is to bring the growth back absolutely. .

Great. Maybe just a follow-up. You've had approval for a long while now. You were in limited launch for many months. The launch isn't going according to plan. What would you say if you compare now versus on the first quarter call, which was partway into the second quarter? -- what exactly didn't go to plan? What was the biggest delta versus expectations? And do you plan to fix those shortcomings

I think it's -- this is the largest launch in the history of the company. There's no question about it. It's one of the largest launches in med tech based on where we are today. So there are challenges that go with it. At the beginning of the year, really we're focused more on making sure we have sufficient inventory to be able to even start the launch. And so we're really limiting the number of centers that could be exposed to Inspire V still being able to pick up enough data to have confidence moving forward in the rollout.

As we got to me May when we did the full launch and started to roll it out, we did have the opportunity with the extent of time to be able to get all the reimbursement in place, and we did have Medicare approved, although when they do their documentation, they do it twice a year. And of course, the -- we weren't a part of the January release knowing we had to wait until the July release had 1 issue. So that's a timing factor.

But then the SleepSync is really the big change, too, because that gives us the advantage to be able to capture the information when physicians do the device programming. So that's really a long-term opportunity to build the robustness of the Inspire system. And so it is a complex launch -- but I think now we have our arms around it. I think having inventory earlier would have allowed us to release this earlier, albeit we still would have been constrained from a Medicare standpoint. But yes, we do take it to heart and do look closely at a lot of the details. And when we go into our programs moving forward on what can we do to enhance that going forward and have some better planning to address some of the challenges that we've seen. Thanks, Ravi.

And I show our next question comes from the line of Richard Newitter from Truist Securities.

Just a couple here, and I'll list them all upfront. I'm curious if you could just parse out a little bit more clearly for us. Is this entirely Inspire execution related, it adapts the transient item that gives you confidence here for moving into 26. You did call out GLP-1 impact a little bit more concretely than you have in the past. So I'm just trying to understand between that and maybe capacity utilization what's potentially near-term transient? And what's related to those other items? And anything you can give us on kind of underlying demand trends since there is inventory in the channel?

And then, sorry, 2 more. Your accounts receivable stepped up. I just wanted to know kind of how that factors into some of these some of these considerations? And then lastly, you talked about a 20% increase for Inspire 5 users that have adopted in the first half. I'm just curious what's driving that, that patients that just aren't able to get Inspire that they found the few physicians who have them going there. Or is it actually throughput increases and physicians doing more procedures on their planned Inspire days?

You bet, Rich. Got it. Okay. Start with number one. Inspire V transition. And is that really the overriding element that's limiting patient flow. Again, I think we had good patient flow in the second quarter, and we achieved the expectations that we set forward but it was the continuation of the patient flow going into the third quarter. While the Inspire V is the leading issue there, there are underlying elements to it.

Well, obviously, the 4 items I talked about with the Inspire IV specifically sites being ready to go with 5, the Medicare, some patients waiting for the INSPIRE 5. And of course, the burn down of inventory. We also held back, remember a little bit on our DTC and a little bit on our footprint expansion, so not purposely going out and adding a lot of reps, making sure that the team stays in place focused with existing centers, get them transition to 5 and then turn around and really start to expand at that specifically is what we've started here in the third quarter, not just increased DTC, but an increased focus on building the footprint in the United States. And then we'll come back

that's going to grow capacity, no question about it. GLP-1 impact, we're going to keep watching that closely. We do think that as the indication has come out, we may see pockets of that with some of our centers of patients wanted to trial a GLP-1, and we've talked about that with you before. But again, we do think that's a real tailwind into the future. It's really about helping patients lose weight addressing their lateral wall collapse. So we don't think that's a significant impact, but we're watching that very, very closely.

I'm going to skip by [indiscernible] receivables to give that to Rick and go down to the third question, which is a 20% improvement in patient flow. with implants with our physicians, these are with our limited release sites. And this is patient implant. This is patient flow. Those are real numbers. We're tracking their implants during the first half of 25 versus the first half of '24. And these aren't new centers in '24. These are centers that had full year '24 as well. So it's a true apples-to-apples and it's a reduction in the surgical complexity of 5 that allows them to improve their capacity. But more importantly, Rich, it's about them not having to put in the pressure sensing lead because as we remember, that sensing lead into the thoracic [indiscernible] cavity to the intercostal muscles is part of the surgery that is just not the most comfortable part for ENTs and that really has been the #1 primary positive feedback. So that being said, I'm going to back to # 2 and ask Rick to comment on accounts receivable.

Yes, Rich, the accounts receivable increase is really a twofold item. The primary driver there is in May, we actually completed a transition to a new customer billing service. that helps automate and streamline our billing process, which is an upgrade from our previous manual billing process. And with that implementation of the new system, had a temporary delay in the delivery of customer invoices actually with the new portal and our new automated delivery process.

That temporary delay has been resolved, and we expect to have this fully remediated in the third quarter. So it's really just a timing. We'll get those collections here as we get into the third quarter. And then to a much lesser extent, too, is -- the second quarter was a little back-end loaded in the fact that we had a really strong June. And so that also contributed to the increase in accounts receivable balance at the end of the quarter.

And I show our next question in the queue comes from the line of David Rescott from Baird.

Great. Rick, you answered the question earlier, but I wanted to just made crystal clear the updated EPS guide for the year, the $0.40 to $0.50 that's now in the guide relative to the prior $2-plus guide. Is that $0.40 to $0.50 relative to the negative of net income per share or relative to the $0.55 of adjusted net income per share you've delivered year-to-date so far. And I guess based on that answer, are you expecting incremental stock-based comp for this retirement component in the back half of the year as well? And then I have a follow-up. .

Yes. To your first question, it's relative to the $0.02 earnings per share to address your first question, and then the implementation of the retirement policy was really a onetime charge, and we expect our stock-based compensation to revert back to traditional levels as a percentage of our revenue going forward..

Okay. 5 That's helpful. And then Tim, you called out 3 or 4, 4 or 5 components of this lowered outlook for the year. And I'm curious on if you can bucket it in so much as to the progress that those have recovered either in June, in the back half of the quarter or already in July and just based on kind of some of the trends you're seeing in the back half where we kind of stand from hey, are some of these headwinds bottoming out? Are they on the up at this point? Any color there would be helpful. .

Absolutely, David. So the first 2, the primary contributors, as we mentioned, the first 1 being the [indiscernible] and running. Remember, we had to do the training, contracting and implementation of sleep sync. And we mentioned SleepScas already adopted in 50% of the centers. Training is already complete because the training of surgeons is relatively straightforward, right? Don't implant the pressure sensing need anymore, and it's a little bit more streamlined and contracting is even above that of implementation of SleepSync. So we've really got our arms around those 3 elements that getting centers up and running.

So I think we're in a good position there with a strong focus from the team. Number two, of course, is Medicare, and that is complete, right? We do have the new code 64568 approved by Medicare. The documentation is complete, the software is updated and Medicare is accepting billing for Inspire procedures to that new code today. So that one is complete. The rest of them will keep coming as we keep expanding. And then beyond that, we are working diligently to increase the footprint again, add additional centers to train, additional centers and maybe those physicians who weren't as excited about implanting the pressure sensing lead, that creates an opportunity for us, and the team is really leaning in on that. So again, we think we have our arms around that as well. And look forward to continuing to report back on that.

And I show our next question comes from the line of Michael Sarcone from Jefferies.

I guess just first, Tim, to follow up on the Medicare billing and software update. You said that's been available since July 1. Could you give us any sense of what kind of uptick maybe you've seen since July 1 now that these centers are able to build Medicare.

Pretty limited early in this quarter so far. -- and that we had to get the sites up and running before they're in a position to build it. So a lot of sites weren't even going through the full implementation process until they're able to really step in. And so now that Medicare is in place, we can say that's no longer a barrier. Now we get to lean in with a lot of those centers. Has that's really kind of the push into the third quarter here that's driving a lot of the guidance changes. .

Great. That's really helpful. And then a follow-up on the growth in the accounts that did transition to Inspire 5, you said over 20% growth, 125 versus 12 -- can you just talk about the phenotype of those accounts and the characteristics? Is there any reason why we shouldn't expect that analog to hold for kind of the average account for Inspire?

good question. I think the key is when we look at the accounts that we're in our limited market release, obviously, these are accomplished centers. But when we can see that kind of growth in the accomplished centers, the high-volume centers already, yes, we want to use that to translate in across the board into other centers to be able to show that kind of growth going forward.

And we can use that as an example of centers to show that capacity increases by the reduced OR time and ease in doing the programming with these patients. So yes, we want to reflect that across other centers as well, and we'll communicate that to the centers and to our team. .

And I show our next question comes from the line of Shagun Singh from RBC.

I wanted to get a better sense of the implied Q4 guide assumed the substantial step up from Q3 to Q4 about 20% growth. And just what is your confidence in that number and that it won't be pushed into 2026.

Any assumptions you can quantify for that would be helpful. And then just on Q3, I think somebody asked question earlier, but can you give us a sense of volume growth that you've seen in July, specifically how many accounts have been converted? And lastly, just have you heard any pushback from customers around profitability.

I'll go backwards. No, we haven't really seen any pressure from centers on profitability. I think that the new Medicare rates, the OPPS rules coming out, that really helps that off quite a bit. And I think [ CPC CODEa little bit better reimbursement for ASCs. And again, that steps up again quite well going into 2026. So Really too much pressure from that standpoint. Second question was -- sorry, Shagun, what was the second question?

So I was just wondering if you can comment on the Q4 guide, any quantification you can provide? And then also on July, specifically, anything you can share on volume growth.

Yes. I'm not in a position to really comment too much on the early July as we're new into the quarter right now. We did talk with Michael on the last question in regards to really leaning in to really get the other centers kind of up and running. And then when we look at the fourth quarter, remember, that's our -- the big quarter. That's the 1 where we have our seasonality because of the high deductible insurance plans.

And so if you kind of look historically, we always get a pretty good step up from Q3 to Q4. And when we set our guide this time and we talked about the 1% to 3% step-up from Q2 to Q3 and then what we had expect Q3 to Q4 with that, that's how we set that overall guidance.

And I show our next question comes from the line of Anthony Petrone from Mizuho Americas.

I'm going to go into 3 quick ones, rattle them off on some of the headwinds here. One is capacity, and then you talked about SleepSync and the GLP-1. So on the capacity side, maybe just an idea of where general surgeons can be as a channel heading into on, SleepSync can it be fully up and running to all accounts by the end of the year? And if so, what does that do in terms of unlocking channel?

And then a failed DISE going to GLP-1, like how often does that happen? And in the experience so far, have you gotten any of those patients back at this point? .