Q2 2026 Inspire Medical Systems Inc Earnings Call

August 3, 2026

Operator: 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 Q2 2026 Conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. I'll now hand the call over to your first speaker, Ezgi Yagci, Vice President, Investor Relations at Inspire. You may begin the conference.

Mike Kratky: 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 Q2 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. I'll now hand the call over to your first speaker, Ezgi Yagci, Vice President, Investor Relations at Inspire. You may begin the conference.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire.

Speaker #1: You may begin the conference.

Speaker #2: Thank you, Delemme, 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.

Ezgi Yagci: Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer, and Matt Osberg, Chief Financial Officer. Earlier today, we released financial results for the three months ended 30 June 2026. A copy of the press release is available on our website. On this call, management will make forward-looking statements within the meaning of the federal securities laws. All forward-looking statements, including, without limitation, those relating to our operations, financial results and financial condition, investments in our business, full year 2026 financial and operational outlook, and changes in market access and different aspects of coding or reimbursement, are based upon our current estimates and various assumptions. Forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements.

Speaker #2: Earlier today, we released financial results for the three months ended June 30, 2026. A copy of the press release is available on our website.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 Form 10-Q, as well as the Form 10-Q we filed this afternoon with the SEC for the quarter ended June 30, 2026.

Ezgi Yagci: 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 30 June 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, 3 August 2026. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Speaker #2: 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.

Speaker #2: This conference call contains time-sensitive information and speaks only as of the live broadcast today, August 3, 2026. With that, it is my pleasure to turn the call over to Tim Herbert.

Speaker #2: Tim?

Speaker #3: Thank you, Ezgi. And thanks, everyone, for joining us today. On the call today, I will provide some key takeaways from our second quarter results and updated outlook, before providing an update on coding and reimbursement.

Tim P. Herbert: Thank you, Ezgi, and thanks, everyone, for joining us today. On the call today, I will provide some key takeaways of our Q2 results and updated outlook before providing an update on coding and reimbursement. I'll turn the call over to Matt, who will provide additional insights on our Q2 and full year financials. We will open the call up for questions. Prior to discussing the operations of the quarter, we always highlight that the focus of the Inspire Medical Systems team, as well as healthcare professionals, is to deliver the highest possible patient outcomes. During this call, we will highlight the impressive safety and efficacy of the Inspire 5 system and also the emerging data demonstrating long-term cardiovascular health associated with the use of Inspire therapy. We are pleased to have delivered results ahead of our expectations for the Q2.

Tim Herbert: Thank you, Ezgi, and thanks, everyone, for joining us today. On the call today, I will provide some key takeaways of our Q2 results and updated outlook before providing an update on coding and reimbursement. I'll turn the call over to Matt, who will provide additional insights on our Q2 and full year financials. We will open the call up for questions. Prior to discussing the operations of the quarter, we always highlight that the focus of the Inspire Medical Systems team, as well as healthcare professionals, is to deliver the highest possible patient outcomes. During this call, we will highlight the impressive safety and efficacy of the Inspire 5 system and also the emerging data demonstrating long-term cardiovascular health associated with the use of Inspire therapy. We are pleased to have delivered results ahead of our expectations for the Q2.

Speaker #3: I'll then turn the call over to Matt, who will provide additional insights on our second quarter and full-year financials. We will then open the call up for questions.

Speaker #3: Prior to discussing the operations of the quarter, we always highlight that the focus of the Inspire team, as well as healthcare professionals, is to deliver the highest possible patient outcomes. During this call, we will highlight the impressive safety and efficacy of the Inspire 5 system, and also the emerging data demonstrating long-term cardiovascular health associated with the use of Inspire therapy.

Speaker #3: We are pleased to have delivered results ahead of our expectations for the second quarter. During the quarter, we continued to make progress working with our sales team and customers to navigate the evolving coding and reimbursement environment, and delivered adjusted operating income and positive cash flow ahead of expectations through continued disciplined cost management.

Tim P. Herbert: During the quarter, we continued to make progress working with our sales team and customers to navigate the evolving coding and reimbursement environment and delivered adjusted operating income and positive cash flow ahead of expectations through continued disciplined cost management. Given our performance, we are increasing our 2026 outlook for revenue, adjusted operating margin, and adjusted earnings per share. I'd like to start by providing an update on coding and reimbursement. Let me address this across the short, mid, and long terms. In the short term, we are continuing our efforts to provide Inspire 5 coding and reimbursement education and support to our customers. As we are starting with our highest volume centers, these represent disproportionately higher percentages of our revenue.

Tim Herbert: During the quarter, we continued to make progress working with our sales team and customers to navigate the evolving coding and reimbursement environment and delivered adjusted operating income and positive cash flow ahead of expectations through continued disciplined cost management. Given our performance, we are increasing our 2026 outlook for revenue, adjusted operating margin, and adjusted earnings per share. I'd like to start by providing an update on coding and reimbursement. Let me address this across the short, mid, and long terms. In the short term, we are continuing our efforts to provide Inspire 5 coding and reimbursement education and support to our customers. As we are starting with our highest volume centers, these represent disproportionately higher percentages of our revenue.

Speaker #3: Given our performance, we are increasing our 2026 outlook for revenue, adjusted operating margin, and adjusted earnings per share. I'd like to start by providing an update on coding and reimbursement.

Speaker #3: Let me address this across the short, mid, and long terms. In the short term, we are continuing our efforts to provide Inspire 5 coding and reimbursement education and support to our customers.

Speaker #3: As we are starting with our highest volume centers, these represent disproportionately higher percentages of our revenue. We have continued to see improved trends in key data points, such as prior authorization submissions, and we will continue our support efforts in the second half of the year.

Tim P. Herbert: We have continued to see improved trends in key data points, such as prior authorization submissions, and we will continue our support efforts in the H2 of the year. The bottom line is enhanced coding and billing clarity for all payers, be it commercial, Medicare Advantage, or government Medicare. Each of the payer groups has coverage policies that clearly identify the coding to be used for Inspire procedures, and the confusion created early in the year is being effectively managed. Let me provide a little more detail. The previously announced C-codes are now in place, and importantly, hospital and ASC reimbursement rates remain unchanged. These C-codes have also been adopted into the WISeR system for the 6 applicable states. We believe these changes should significantly reduce any uncertainty regarding the appropriate codes that customers should use for the Inspire 5 procedures.

Tim Herbert: We have continued to see improved trends in key data points, such as prior authorization submissions, and we will continue our support efforts in the H2 of the year. The bottom line is enhanced coding and billing clarity for all payers, be it commercial, Medicare Advantage, or government Medicare. Each of the payer groups has coverage policies that clearly identify the coding to be used for Inspire procedures, and the confusion created early in the year is being effectively managed. Let me provide a little more detail. The previously announced C-codes are now in place, and importantly, hospital and ASC reimbursement rates remain unchanged. These C-codes have also been adopted into the WISeR system for the 6 applicable states. We believe these changes should significantly reduce any uncertainty regarding the appropriate codes that customers should use for the Inspire 5 procedures.

Speaker #3: The bottom line is enhanced coding and billing clarity for all payers, be it commercial, Medicare Advantage, or government Medicare. Each of the payer groups has coverage coding, to be used for Inspire procedures, and the confusion created early in the year is being effectively managed.

Speaker #3: Let me provide a little more detail. The previously announced C codes are now in place, and, importantly, hospital and ASC reimbursement rates remain unchanged.

Speaker #3: These C codes have also been adopted into the Wiser system for the six applicable states. We believe these changes should significantly reduce any uncertainty regarding the appropriate codes that customers should use for the Inspire 5 procedures.

Speaker #3: For surgeon reimbursement, the majority of the Medicare Administrative Contractors, or MACs, do not require use of a -52 modifier when billing CPT code 64582 for Inspire V procedures.

Tim P. Herbert: For surgeon reimbursement, the majority of the Medicare Administrative Contractors, or MACs, do not require use of a Modifier 52 when billing CPT code 64582 for Inspire 5 procedures. 2 MACs, however, currently require the modifier. Based on available data, the payment reduction applied by those MACs has ranged from 0% to 30% of the current national average Medicare payment of $723. We have placed significant emphasis on educating customers regarding the documentation requirements and related considerations for reporting Inspire 5 procedures using CPT code 64582 with the Modifier 52. Turning to midterm actions, CMS has issued its proposed 2027 OPPS and PFS reimbursement rates. For Medicare facility reimbursement, CMS has proposed increasing hospital outpatient reimbursement for the Inspire 5 procedure to $35,414, an increase of approximately $3,900, or 12% over 2026 rates.

Tim Herbert: For surgeon reimbursement, the majority of the Medicare Administrative Contractors, or MACs, do not require use of a Modifier 52 when billing CPT code 64582 for Inspire 5 procedures. 2 MACs, however, currently require the modifier. Based on available data, the payment reduction applied by those MACs has ranged from 0% to 30% of the current national average Medicare payment of $723. We have placed significant emphasis on educating customers regarding the documentation requirements and related considerations for reporting Inspire 5 procedures using CPT code 64582 with the Modifier 52. Turning to midterm actions, CMS has issued its proposed 2027 OPPS and PFS reimbursement rates. For Medicare facility reimbursement, CMS has proposed increasing hospital outpatient reimbursement for the Inspire 5 procedure to $35,414, an increase of approximately $3,900, or 12% over 2026 rates.

Speaker #3: Two MACs, however, currently require the modifier. Based on available data, the payment reduction applied by those MACs has ranged from 0% to 30% of the current national average Medicare payment of $723.

Speaker #3: We have placed significant emphasis on educating customers regarding the documentation requirements and related considerations for reporting Inspire V procedure 64582 with the DASH 52 modifier.

Speaker #3: Turning to midterm actions, CMS has issued its proposed 2027 OPPS and PFS reimbursement rates. For Medicare facility reimbursement, CMS has proposed increasing hospital outpatient reimbursement for the Inspire 5 procedure to $35,414.

Speaker #3: An increase of approximately 3,900, or 12% over 2026 rates. CMS has also proposed increasing ASC reimbursement to $31,722, which is an increase of approximately 4,200, or a 15% increase over 2026 rates.

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

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

Speaker #3: While these proposed increases are very encouraging, we are not making any assumptions regarding future reimbursement levels and will wait until CMS publishes its final rates in November.

Speaker #3: On the physician fee schedule, CMS has proposed 2027 physician reimbursement of approximately $699 for CPT code 64582. This represents a year-over-year decrease of approximately 4%, driven primarily by a reduction in the physician RVU rate.

Speaker #3: As with the physician reimbursement proposals, the final physician reimbursement rates will be published in November. Looking further ahead, we are focused on supporting the development of a new Category I CPT code for a single lead Inspire system.

Speaker #3: As a reminder, our initial application was not approved at the April AMA CPT Editorial Panel meeting. Following that decision, we met with reimbursement experts to better understand how we could improve the application and have incorporated that guidance into a revised application, which will be reviewed at the September CPT Editorial Panel meeting.

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

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

Speaker #3: The revised application addresses three key areas. First, it corrects several coding issues related to subcodes for replacement procedures. Second, it is being submitted jointly with another participant in the industry, demonstrating broader stakeholder support.

Speaker #3: And third, it includes additional clinical evidence that was not presented in the initial submission. If the revised application is approved, the process moves to code valuation and reimbursement review, keeping the proposed new CPT code on track for implementation on January 1, 2028.

Speaker #3: With coding clarification improving, we feel we can more aggressively refocus our efforts on improving patient flow and revenue growth. As such, in aligning with our earnings results, we are announcing a strategic growth plan called Project Horizon, which is intended to accelerate revenue growth by investing in initiatives designed to enhance patient flow.

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

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

Speaker #3: We are creating this capacity by optimizing our organizational structure to better align resources with revenue growth initiatives. In addition, we are optimizing our supply chain by consolidating production to support quality, scale, and efficiency.

Speaker #3: Through the actions of Project Horizon, we expect to create $30 million of annualized growth investment capacity, which we intend to invest in areas that we believe have the largest growth opportunities for us to further penetrate the OSA market.

Speaker #3: Our primary area of focus will be expanding patient access to care, improving patient education and engagement, and helping appropriate patients navigate the treatment journey with the information they need to make informed decisions about Inspire Therapy.

Speaker #3: Although Project Horizon is still in its early stages and we are continuing to refine our growth investment priorities, one area where we have already seen encouraging results is the addition of prior authorization support capabilities within the SleepSync platform.

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

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

Speaker #3: These tools help support patients as they navigate the coverage approval process and have been very well received during the pilot phase. Based on that early success, we are increasing our investment in this initiative to further facilitate patient access to therapy.

Speaker #3: Another example is Inspire Connect, a program designed to enhance the post-implant patient experience by providing patients with timely education and support through all three Inspire journeys.

Speaker #3: The program is intended to help standardize key aspects of the patient experience by engaging with patients at appropriate intervals following implant, to ensure that they have the information and resources needed to understand what to expect during activation and the acclimation process.

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

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

Speaker #3: We believe this additional support can improve patient confidence and preparedness, helping patients make informed decisions and navigate their therapy journey more effectively. As we move forward with Project Horizon and our efforts to reinvigorate revenue growth, I look forward to providing additional updates on these and other initiatives as investments that will support our long-term growth strategy.

Speaker #3: Switching to patient outcomes, we remain excited about the clinical outcome data on Inspire 5. At the recent American Academy of Sleep Medicine conference in Baltimore in June, we presented the full results from the Inspire 5 trial conducted in Singapore.

Speaker #3: While we have previewed some of the early data points, including inspiratory overlap, this was the first time we showed the full trial results including the ability of the new accelerometer-based sensing technology and the safety and efficacy of the Inspire 5 implant.

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

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

Speaker #3: In addition, multiple presentations highlighted the growing body of evidence supporting Inspire therapy, particularly in improving cardiovascular risk markers. Separately, Inspire highlighted additional research at its exhibit booth, including recent peer-reviewed articles on hypoxic burden and cardiovascular outcomes.

Speaker #3: The first article I want to highlight was a secondary analysis from the STAR trial that demonstrated significant reductions in hypoxic burden, a key measure of the total impact of oxygen desaturation events during sleep.

Speaker #3: Integrating the depth, duration, and frequency of these events to quantify sleep apnea severity. These findings reinforce hypoxic burden as an emerging and clinically relevant endpoint, in line with the growing number of studies evaluating cardiovascular outcomes in patients treated with Inspire Therapy versus continuous positive airway pressure and untreated populations.

Tim P. Herbert: These findings reinforce hypoxic burden as an emerging and clinically relevant endpoint and align with a growing number of studies evaluating cardiovascular outcomes in patients treated with Inspire therapy versus continuous positive airway pressure and untreated populations. Another article compared clinical outcomes between hypoglossal nerve stimulation and CPAP in OSA patients using data from the TriNetX database and compared a matched group of 3,525 patients in each group. The findings demonstrated that the hypoglossal nerve stimulation cohort had significantly lower odds of several factors, including stroke, myocardial infarction, atrial fibrillation, hospitalization, acute heart failure, and others. The conclusion was that hypoglossal nerve stimulation may offer systemic benefits and reduce healthcare burden compared to CPAP. We also are excited to announce the publication of the PREDICTOR study, which identified body mass index and neck circumference as predictors of complete concentric collapse.

Tim Herbert: These findings reinforce hypoxic burden as an emerging and clinically relevant endpoint and align with a growing number of studies evaluating cardiovascular outcomes in patients treated with Inspire therapy versus continuous positive airway pressure and untreated populations. Another article compared clinical outcomes between hypoglossal nerve stimulation and CPAP in OSA patients using data from the TriNetX database and compared a matched group of 3,525 patients in each group. The findings demonstrated that the hypoglossal nerve stimulation cohort had significantly lower odds of several factors, including stroke, myocardial infarction, atrial fibrillation, hospitalization, acute heart failure, and others. The conclusion was that hypoglossal nerve stimulation may offer systemic benefits and reduce healthcare burden compared to CPAP. We also are excited to announce the publication of the PREDICTOR study, which identified body mass index and neck circumference as predictors of complete concentric collapse.

Speaker #3: Another article compared clinical outcomes between hypoglossal nerve stimulation and CPAP in OSA patients using data from the TrinetX database and compared a matched group of 3,525 patients in each group.

Speaker #3: The findings demonstrated that the hypoglossal nerve stimulation cohort had significantly lower odds of several factors, including stroke, myocardial infarction, atrial fibrillation, hospitalization, acute heart failure, and others.

Speaker #3: The conclusion was that hypoglossal nerve stimulation may offer systemic benefits and reduce healthcare burden compared to CPAP. We also are excited to announce the publication of the predictor study, which identified body mass index and neck circumference as predictors of complete concentric collapse.

Speaker #3: These findings suggest that many patients may be screened for Inspire Therapy eligibility without requiring drug-induced sleep endoscopy, potentially reducing diagnostic burden, time to treatment, and healthcare costs.

Tim P. Herbert: These findings suggest that many patients may be screened for Inspire therapy eligibility without requiring drug-induced sleep endoscopy, potentially reducing diagnostic burden, time to treatment, and healthcare costs. A big contributor to our strong body of clinical evidence is our dedication to be at the forefront of innovation in OSA. As such, we continue to make progress with our research and development efforts in 2026, with ongoing work on Inspire 6. Before I wrap up, I want to thank Casey Tansey for over 18 years of service on our board of directors. Casey was one of the first venture investors to recognize the potential impact of Inspire therapy, led the Series A financing back in 2007, and has provided years of valuable mentorship, leadership, and perspective. At the same time, we are excited to welcome Mike Carroll to our board of directors.

Tim Herbert: These findings suggest that many patients may be screened for Inspire therapy eligibility without requiring drug-induced sleep endoscopy, potentially reducing diagnostic burden, time to treatment, and healthcare costs. A big contributor to our strong body of clinical evidence is our dedication to be at the forefront of innovation in OSA. As such, we continue to make progress with our research and development efforts in 2026, with ongoing work on Inspire 6. Before I wrap up, I want to thank Casey Tansey for over 18 years of service on our board of directors. Casey was one of the first venture investors to recognize the potential impact of Inspire therapy, led the Series A financing back in 2007, and has provided years of valuable mentorship, leadership, and perspective. At the same time, we are excited to welcome Mike Carroll to our board of directors.

Speaker #3: A big contributor to our strong body of clinical evidence is our dedication to being at the forefront of innovation in OSA. As such, we continue to make progress with our research and development efforts in 2026, with ongoing work on Inspire 6.

Speaker #3: Before I wrap up, I want to thank Casey Tanzi for over 18 years of service on our Board of Directors. Casey was one of the first venture investors to recognize the potential impact of Inspire Therapy, led the Series A financing back in 2007, and has provided years of valuable mentorship, leadership, and perspective.

Speaker #3: At the same time, we are excited to welcome Mike Carroll to our Board of Directors. Mike is a veteran of the medical device industry with significant executive leadership and board experience, and we look forward to his guidance and contributions to our Board.

Tim P. Herbert: Mike is a veteran of the medical device industry with significant executive leadership and board experience, and we look forward to his guidance and contributions to our board. In closing, 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. We remain focused on investing in our growth and providing the best therapy for patients and helping our customers navigate what we believe will be a temporary market disruption related to coding and reimbursement. We are actively addressing the challenges posed by this disruption. We remain excited about our product and the market opportunity to improve the lives of our patients, as we've already done for over 140,000 patients since our inception.

Tim Herbert: Mike is a veteran of the medical device industry with significant executive leadership and board experience, and we look forward to his guidance and contributions to our board. In closing, 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. We remain focused on investing in our growth and providing the best therapy for patients and helping our customers navigate what we believe will be a temporary market disruption related to coding and reimbursement. We are actively addressing the challenges posed by this disruption. We remain excited about our product and the market opportunity to improve the lives of our patients, as we've already done for over 140,000 patients since our inception.

Speaker #3: In closing, we continue to believe that there is a large, untreated population of people struggling with sleep apnea who can benefit from Inspire therapy, and we continue to be encouraged by the strong adoption of Inspire 5 and the positive data we continue to collect.

Speaker #3: We remain focused on investing in our growth, providing the best therapy for patients, and helping our customers navigate what we believe will be a temporary market disruption related to coding and reimbursement.

Speaker #3: We are actively addressing the challenges posed by this disruption, and we remain excited about our product. The market opportunity to improve the lives of our patients is significant, as we've already done for over 140,000 patients since our inception.

Speaker #3: We will continue to take actions to position the company for long-term profitable growth and believe that we have the right strategies in place to drive long-term stakeholder value.

Tim P. Herbert: We will continue to take actions to position the company for long-term profitable growth and believe that we have the right strategies in place to drive long-term stakeholder value. I will now turn the call over to Matt.

Tim Herbert: We will continue to take actions to position the company for long-term profitable growth and believe that we have the right strategies in place to drive long-term stakeholder value. I will now turn the call over to Matt.

Speaker #3: I will now turn the call over to Matt.

Speaker #2: Thank you, Tim, and good afternoon, everyone. First, I'll begin with the review of the second quarter results, then follow with some further details on Project Horizon, and finish with commentary on our outlook for the remainder of the year.

Matt Osberg: Thank you, Tim, and good afternoon, everyone. First, I'll begin with a review of the Q2 results, then follow with some further details on Project Horizon, and finish with commentary on our outlook for the remainder of the year. Looking at the Q2 results, we are pleased with our sales execution, continued cost discipline, and focus on spending priorities, which helped us to deliver profitability ahead of our expectations. Revenue decreased 7.6% to $200.6 million, primarily reflecting the impact of coding and reimbursement disruption, including the impact of the trend of declining pre-authorizations that we saw in the Q1. Operating margin improved, primarily driven by gross profit expansion due to a higher mix of Inspire V and lower stock-based compensation costs due to an accelerated stock-based compensation charge recognized in the prior year.

Speaker #2: Looking at the second quarter results, we are pleased with our sales execution, continued cost discipline, and focus on spending priorities, which helped us to deliver profitability ahead of our expectations.

Speaker #2: Revenue decreased 7.6% to $200.6 million, primarily reflecting the impact of coding and reimbursement disruption, including the impact of the trend of declining preauthorizations that we saw in the first quarter.

Speaker #2: Operating margin improved, primarily driven by gross profit expansion due to a higher mix of Inspire 5, and lower stock-based compensation costs due to an accelerated stock-based compensation charge recognized in the prior year.

Speaker #2: Adjusted operating margin declined, primarily driven by unfavorable leverage from lower sales, partially offset by gross profit improvement due to a higher mix of Inspire 5.

Matt Osberg: Adjusted operating margin declined, primarily driven by unfavorable leverage from lower sales, partially offset by gross profit improvement due to a higher mix of Inspire V. Adjusted operating income was favorable to our expectations, primarily driven by continued spending discipline, favorable volume and rate impacts in gross profit, and the timing of some planned spending shifting into the H2. The effective tax rate was 89.9%, primarily driven by the tax impacts of stock-based compensation and executive compensation limitations. Additionally, in the prior year period, we maintained a full valuation allowance against federal and state deferred tax assets. The adjusted effective tax rate was 41.2%. Given our pre-tax income is a relatively small base, certain tax charges can have a material impact on our tax rate. Additionally, the tax impact of stock-based compensation can be material and may have significant variability from period to period.

Speaker #2: Adjusted operating income was favorable to our expectations, primarily driven by continued spending discipline, favorable volume and rate impacts in gross profit, and the timing of some planned spending shifting into the second half of the year.

Speaker #2: The effective tax rate was 89.9%, primarily driven by the tax impacts of stock-based compensation and executive compensation limitations. Additionally, in the prior year period, we maintained a full valuation allowance against federal and state deferred tax assets.

Speaker #2: The adjusted effective tax rate was 41.2%. Given our pre-tax income is a relatively small base, certain tax charges can have a material impact on our tax rate.

Speaker #2: Additionally, the tax impact of stock-based compensation can be material and may have significant variability from period to period. Diluted EPS was $0.01 and adjusted diluted EPS was $0.14 for the quarter.

Matt Osberg: Diluted EPS was $0.01, and adjusted diluted EPS was $0.14 for the quarter. Our adjusted EBITDA margin, which excludes the impact of stock-based compensation, declined 90 basis points to 19.4%, primarily due to the decrease in adjusted operating margin. Turning to cash flow and the balance sheet, operating cash flow was $23.2 million for the quarter and $36.1 million for the year-to-date period, an improvement of $40 million compared to H1 of the prior year, primarily driven by improved working capital. Our balance sheet remains strong, with no debt and $415 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. As Tim mentioned, we announced a strategic growth plan called Project Horizon, which is intended to create additional capacity to invest in initiatives to drive revenue growth.

Speaker #2: Our adjusted EBITDA margin, which excludes the impact of stock-based compensation, declined 90 basis points to 19.4%, primarily due to the decrease in adjusted operating margin.

Speaker #2: Turning to cash flow and the balance sheet, operating cash flow was 23.2 million dollars for the quarter and 36.1 million dollars for the year-to-date period.

Speaker #2: An improvement of $40 million compared to the first six months of the prior year, primarily driven by improved working capital. Our balance sheet remained strong, with no debt and $415 million in cash and investments at the end of the quarter.

Speaker #2: Our strong cash position allows us to remain focused on making investments to drive profitable growth. As Tim mentioned, we announced a strategic growth plan called Project Horizon which is intended to create additional capacity to invest in initiatives to drive revenue growth.

Speaker #2: We expect to incur a total of 20 million dollars to 25 million dollars of pre-tax restructuring charges in connection with Project Horizon with approximately 90% of the charges expected to be recognized in the third quarter.

Matt Osberg: We expect to incur a total of $20 million to $25 million of pre-tax restructuring charges in connection with Project Horizon, with approximately 90% of the charges expected to be recognized in Q3. Approximately $16 million to $20 million of these charges are expected to be non-cash impairment charges related to production equipment at vendors that will no longer be used as we consolidate our supply chain, with the balance of the charges relating to employee separation costs. The actions of Project Horizon are expected to generate approximately $30 million of annualized growth investment capacity, which we expect to direct to our highest revenue growth initiatives. We expect the majority of actions related to the restructuring plan to be completed in Q3 and all actions to be substantially complete by the end of the year.

Speaker #2: Approximately $16 million to $20 million of these charges are expected to be non-cash impairment charges related to production equipment at vendors that will no longer be used as we consolidate our supply chain, with the balance of the charges relating to employee separation costs.

Speaker #2: The actions of Project Horizon are expected to generate approximately 30 million dollars of annualized growth investment capacity which we expect to direct to our highest revenue growth initiatives.

Speaker #2: We expect the majority of actions related to the restructuring plan to be completed in the third quarter, and all actions to be substantially complete by the end of the year.

Speaker #2: Turning now to our 2026 outlook, we are revising our full-year revenue outlook to be in the range of $835 million to $875 million.

Matt Osberg: Turning now to our 2026 outlook, we are revising our full year revenue outlook to be in the range of $835 million to $875 million. This range incorporates our Q2 revenue performance and our expectations for coding and reimbursement disruption for the remainder of the year. We estimate that our Q2 results were adversely impacted by coding and reimbursement challenges and the WISeR program by approximately $40 million. We expect the adverse impact of these items to decrease sequentially as we move into Q3 and Q4 as we continue our education efforts and our customers build experience with coding and billing processes. For the full year, we are currently estimating the total impact of these items to be in the range of $120 million to $130 million.

Speaker #2: This range incorporates our Q2 revenue performance and our expectations for coding and reimbursement disruption for the remainder of the year. We estimate that our second quarter results were adversely impacted by coding and reimbursement challenges and the Wiser program by approximately $40 million.

Speaker #2: We expect the adverse impact of these items to decrease sequentially as we move into the third and fourth quarters, as we continue our education efforts and our customers build experience with coding and billing processes.

Speaker #2: For the full year, we are currently estimating the total impact of these items to be in the range of $120 million to $130 million.

Speaker #2: The estimated impact of these items on our results reflects high-level assumptions based on currently available data and incorporates inherent uncertainty related to quantifying how these items impact customers, physicians, and patients.

Matt Osberg: The estimated impact of these items on our results reflects high-level assumptions based on currently available data and incorporate inherent uncertainty related to quantifying how these items impact customers, physicians, and patients. 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 4% to 6%, diluted EPS in the range of a loss of -$0.42 per share to earnings of $0.17 per share. Adjusted diluted EPS in the range of $1.05 to $1.45. The changes to the adjusted profitability metrics primarily represent the impact of operating performance in Q2, while the forecasted impact of restructuring charges is expected only to impact the GAAP metrics. Our updated outlook assumes an effective tax rate of 95% to 100% and an adjusted effective tax rate of 30% to 35%.

Speaker #2: 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 4 to 6 percent, diluted EPS in the range of a loss of 42 cents per share to earnings of 17 cents per share and adjusted diluted EPS in the range of a dollar 5 cents to a dollar 45 cents.

Speaker #2: The changes to the adjusted profitability metrics primarily represent the impact of operating performance in Q2, while the forecasted impact of restructuring charges is expected only to impact the GAAP metrics.

Speaker #2: Our updated outlook assumes an effective tax rate of 95% to 100% and an adjusted effective tax rate of 30% to 35%. The increase in the forecasted effective tax rate as compared to our previous outlook primarily relates to lower pre-tax income driven by forecasted Project Horizon restructuring charges and incremental impacts of stock-based compensation and executive compensation limitations.

Matt Osberg: The increase in the forecasted effective tax rate as compared to our previous outlook primarily relates to lower pre-tax income driven by forecasted Project Horizon restructuring charges and incremental impacts of stock-based compensation and executive compensation limitations. Our outlook assumes estimated weighted average diluted shares outstanding of approximately 29.4 million and capital expenditures between $35 million and $40 million. Looking at the cadence of the year for Q3, we are forecasting an 8% to 10% year-over-year revenue decline, primarily due to the expected ongoing impact of coding and reimbursement. Additionally, we expect to deliver approximately break even adjusted operating income for Q3 as the operating income impact of the forecasted sequential increase in revenue is offset by an expected sequential step-up in marketing expense.

Speaker #2: Our outlook assumes estimated weighted average diluted shares outstanding of approximately 29.4 million, and capital expenditures between $35 million and $40 million. Looking at the cadence of the year, for the third quarter we are forecasting an 8% to 10% year-over-year revenue decline, primarily due to the expected ongoing impact of coding and reimbursement.

Speaker #2: Additionally, we expect to deliver approximately break-even adjusted operating income for the third quarter, as the operating income impact of the forecasted sequential increase in revenue is offset by an expected sequential step-up in marketing expense.

Speaker #2: In closing, despite the top line pressure in the first half of the year, I am pleased with our spending discipline and focus on prioritizing investments in revenue generating activities.

Matt Osberg: In closing, despite the top-line pressure in H1, I am pleased with our spending discipline and focus on prioritizing investments in revenue-generating activities. The additional growth investment capacity created as a result of Project Horizon will enable us to make further investments to accelerate our growth. Our team remains committed to providing strong patient outcomes and supporting our customers to expand the adoption of Inspire therapy while delivering value for our shareholders. This concludes our prepared remarks. Dilem, you may now open the line for questions.

Speaker #2: The additional growth investment capacity created as a result of Project Horizon will enable us to make further investments to accelerate our growth. Our team remains committed to providing strong patient outcomes and supporting our customers to expand the adoption of Inspire therapy, while delivering value for our shareholders.

Speaker #2: This concludes our prepared remarks. Dilem, you may now open the line for questions.

Speaker #1: Thank you, sir. As a reminder, to ask a question, you will need to press star one-one on your telephone. To withdraw your question, please press star one-one again.

Operator: Thank you, sir. As a reminder, to ask a question, you will need to press star one one on your telephone. To withdraw your question, please press star one one again. Due to the essence of time, we ask that you please limit yourselves to one question and one follow-up. Please stand by while we compile the Q&A roster. I show our first question comes from the line of Jon Block from Stifel. Please go ahead.

Speaker #1: Due to the essence of time, we ask that you please limit yourselves to one question and one follow-up. Please stand by while we compile the Q&A roster.

Speaker #1: And I'll show our first question. It comes from the line of John Block from Stifel. Please go ahead.

Speaker #3: Great, thanks, guys. Good afternoon. Tim, maybe you can talk a little bit about what you're seeing in those two MAC regions that have the 0% to 30% doc fee cut.

Jon Block: Great. Thanks, guys. Good afternoon. Tim, maybe you can talk a little bit about what you're seeing in those two MAC regions that have the 0% to 30% doc fee cut from a utilization standpoint, is there really a big delta versus the other regions? Then also sort of a tack on, can you update us on what % of your overall centers are, call it, up to speed with these billing changes? I don't know if you want to give it as a % of overall centers or maybe as a % of revenue exposure. Thanks, guys.

Speaker #3: You know, from a utilization standpoint, is there really a big delta versus the other regions? And then also, sort of to tack on, can you update us on what percent of your overall centers are caught up to speed with these billing changes?

Speaker #3: And I don't know if you want to give it as a percent of overall centers or maybe as a percent of revenue exposure. Thanks, guys.

Speaker #4: Thanks. Hi, John. I'll start with number one. When we looked at the two regions of the two MACs, and generally, when surgeons provide the billing with the materials to describe the reduction in services, they are able to minimize any kind of reduction.

Tim P. Herbert: Thanks. Hi, Jon. Start with number one, generally, when surgeons provide the billing with the materials to describe the reduction in services, they are able to minimize any kind of reduction. Some of the hospitals, when they bundle the billing along with the payment, tend to just submit in, and that's where you see the greatest amount of reduction. We believe that we'll continue to educate and make sure that centers and surgeons provide the requested information, and by providing that information, we've been able to see reductions being minimized. We'll continue to build on that data set. Again, we're comfortable with where we are today, and we'll continue to provide further education on that.

Tim Herbert: Thanks. Hi, Jon. Start with number one, generally, when surgeons provide the billing with the materials to describe the reduction in services, they are able to minimize any kind of reduction. Some of the hospitals, when they bundle the billing along with the payment, tend to just submit in, and that's where you see the greatest amount of reduction. We believe that we'll continue to educate and make sure that centers and surgeons provide the requested information, and by providing that information, we've been able to see reductions being minimized. We'll continue to build on that data set. Again, we're comfortable with where we are today, and we'll continue to provide further education on that.

Speaker #4: Some hospitals, when they bundle the billing along with the payment, tend to just submit it, and that's where you see the greatest amount of reduction.

Speaker #4: So we believe that we'll continue to educate and make sure that centers and surgeons provide the requested information, and by providing that information, we've been able to see reductions being minimized.

Speaker #4: So, we'll continue to build on that data set, but again, we're comfortable with where we are today, and we'll continue to provide further education on that.

Speaker #4: As far as the percent of centers going through, as we talked earlier, we have an active program to start with our highest level of centers and work through that entire list as we work from high to low.

Tim P. Herbert: As far as % of centers going through, as we talked earlier, we have an active program to start with our highest level of centers and work through that entire list as we work high to low. The number of centers that we're training to date tend to be the top 25%. We're working through the majority of those and tend to be into the next wave, and we'll be able to educate most of them in Q3.

Tim Herbert: As far as % of centers going through, as we talked earlier, we have an active program to start with our highest level of centers and work through that entire list as we work high to low. The number of centers that we're training to date tend to be the top 25%. We're working through the majority of those and tend to be into the next wave, and we'll be able to educate most of them in Q3.

Speaker #4: So the number of centers that we're training to date tended to be the top 25 percent. We're working through the majority of those and tend to be into the next wave, and we'll be able to educate most of them in the third quarter.

Speaker #1: Thank you. And our next question in the queue comes from the line of Adam Nader from Piper Sandler. Please go ahead.

Operator: Thank you. I show our next question in the queue comes from the line of Adam Maeder from Piper Sandler. Please go ahead.

Speaker #5: Hi. Good afternoon. Thank you for taking the question and congrats on the progress. Maybe I could ask about the strategic growth plan. I think you're calling it Project Horizon.

Adam Maeder: Hi, good afternoon. Thank you for taking the question and congrats on the progress. Maybe I could ask about the strategic growth plan. I think you're calling it Project Horizon. Just wanted to, I guess, better understand exactly what that entails. It sounds like there's some restructuring there. You're freeing up $30 million of capacity for redeployment. Mostly, that has to do with the supply chain. Can you just help us better understand exactly how those funds are going to be redeployed, how they're going to drive growth going forward? Is that something that could impact the business in the back half of 2026, or is it more 2027? Thank you.

Speaker #5: Just wanted to, I guess, better understand exactly what that entails. So it sounds like there's some restructuring there. You're freeing up $30 million of capacity for redeployment.

Speaker #5: Mostly, that has to do with the supply chain. But can you just help us better understand exactly how those funds are going to be redeployed?

Speaker #5: How are they going to drive growth going forward? And is that something that could impact the business in the back half of '26, or is it more 2027?

Speaker #5: Thank you.

Speaker #4: Sure. We've grown very fast over the years, and the organization has grown quickly to be able to handle the level of demand for Inspire.

Tim P. Herbert: Sure. We've grown very fast over the years, and the organization has grown pretty quickly to be able to handle the level of demand for Inspire. We've taken the opportunity with Project Horizon to really look at areas where we can be more efficient. With that, we've been able to identify the areas of savings. We will be implementing several of those new tasks. Currently, we believe the majority of these are targeting patient flow, which you'll see more in 2027. As Matt kind of laid out

Tim Herbert: Sure. We've grown very fast over the years, and the organization has grown pretty quickly to be able to handle the level of demand for Inspire. We've taken the opportunity with Project Horizon to really look at areas where we can be more efficient. With that, we've been able to identify the areas of savings. We will be implementing several of those new tasks. Currently, we believe the majority of these are targeting patient flow, which you'll see more in 2027. As Matt kind of laid out

Speaker #4: So, we've taken the opportunity with Project Horizon to really look at areas where we can be more efficient, and with that, we've been able to identify the areas of savings.

Speaker #4: So we will be implementing several of those new tasks currently. We believe the majority of these are targeting patient flow, which you'll see more in '27 and as MAC kind of laid out what we expect to see in the latter half of '26.

Tim P. Herbert: what we expect to see in the latter half of 2026. More to come on the specific projects, again, we believe this is really going to help us reenergize growth, particularly in 2027 and beyond.

Tim Herbert: what we expect to see in the latter half of 2026. More to come on the specific projects, again, we believe this is really going to help us reenergize growth, particularly in 2027 and beyond.

Speaker #4: So, more to come on the specific projects, but again, we believe this is really going to help us reenergize growth, particularly in 2027 and beyond.

Speaker #1: Thank you. And I'll show our next question. It comes from the line of Robbie Marcus from JP Morgan. Please go ahead.

Operator: Thank you. Our next question comes from the line of Robbie Marcus from JPMorgan. Please go ahead.

Speaker #5: Great. Two for me. Maybe just to follow up on the last question—Tim, you talked about part of the restructuring was around manufacturing. I just want to make sure.

Robbie Marcus: Great. Two from me. Maybe just to follow up on the last question. Tim, you talked about part of the restructuring was around manufacturing. I just want to make sure, are you eliminating any dual source manufacturing? Are you going to single source to save money? Maybe just elaborate there. It's interesting. We don't usually hear manufacturing as part of the cost savings. Just love to hear more. Thanks.

Speaker #5: Are you eliminating any dual-source manufacturing? Like, are you going to single-source to save money? Maybe just elaborate there. It's interesting—we don't usually hear manufacturing as part of the cost savings.

Speaker #5: So, I'd just love to hear more. Thanks.

Speaker #4: We'll be able to provide more information in the near future. Right now, our products are single sourced, and so we're looking to build the quality and responsibility of having a strong supply chain. We will be building efficiencies into that as we look to bring other manufacturing sites on, which provides opportunities there.

Tim P. Herbert: We'll be able to provide more information in the near future. Right now, our products are single-sourced, we're looking to build the quality and responsibility or having a strong supply chain, we will be building efficiencies into that manner as we are looking to bring other manufacturing sites on. It provides opportunities there. We'll provide greater detail into that, but we want to make sure that we have a secure supply as we progress and improve our ability to scale with quality.

Tim Herbert: We'll be able to provide more information in the near future. Right now, our products are single-sourced, we're looking to build the quality and responsibility or having a strong supply chain, we will be building efficiencies into that manner as we are looking to bring other manufacturing sites on. It provides opportunities there. We'll provide greater detail into that, but we want to make sure that we have a secure supply as we progress and improve our ability to scale with quality.

Speaker #4: We’ll provide greater detail on that, but we want to make sure that we have a secure supply as we progress and improve our ability to scale with quality.

Speaker #1: Thank you. And I'll show our next question. It comes from the line of Anthony Petroni from Mizuho Americas. Please go ahead.

Operator: Thank you. Our next question comes from the line of Anthony Petrone from Mizuho Americas. Please go ahead.

Speaker #5: Thanks. Maybe Tim, one on just how backlog is trending and then one on why is it real quick. When 64568 sort of went away and you had to use sort of the or at least the thought of the C codes plus modifiers, it just kind of froze the channel and it sounds like certainly certain centers just kind of punted on doing cases.

Anthony Petrone: Thanks. Maybe Tim, one on just how backlog is trending, then one on WISeR real quick. When 64568 sort of went away and you had to use sort of the, or at least the thought of the C-codes plus modifiers, it just kind of froze the channel and it sounds like certainly certain centers just kind of punted on doing cases. Is there anything you can share as to where you think maybe the backlog sits as we sit here in early August from this warehousing effect? Then real quick on WISeR, we picked up from just some channel checks that potentially it can go away, that it's being contemplated down in DC, that there's a push to potentially just do away with WISeR. Have you heard that?

Speaker #5: So is there anything you can share as to where you think maybe the backlog sits as we sit here in early August from this warehousing effect?

Speaker #5: And then real quick on Wiser, we picked up from just some channel checks that potentially it can go away, that it's being contemplated down in D.C., that there's a push to potentially just do away with Wiser.

Speaker #5: Have you heard that, and if that's the case, what do you think the probability is that Wiser goes away, say, early next year? Thanks.

Anthony Petrone: If that's the case, what do you think the probability that WISeR goes away, say, early next year? Thanks.

Speaker #4: Sure. Hi, Anthony. The backlog is really focused on those patients that are trying to get into the process, but unfortunately, centers had to take a little bit of a pause, and we saw that when we discussed the submission of the number of prior authorizations that we saw earlier in the year and knew that that would have an impact.

Tim P. Herbert: Sure. Hi, Anthony. The backlog is really focused on those patients that are trying to get into the process, but unfortunately, centers had to take a little bit of a pause, and we saw that when we discussed the submission of the number of prior authorizations that we saw earlier in the year and knew that that would have impact in Q2. We are seeing improvements in the trends, including increase in the number of prior authorization submissions. Centers are getting comfortable with the coding and they're getting experience with it to see that they are receiving proper reimbursement levels and that they're able to start to get back to their utilization levels. We can start working through that backlog as we move forward.

Tim Herbert: Sure. Hi, Anthony. The backlog is really focused on those patients that are trying to get into the process, but unfortunately, centers had to take a little bit of a pause, and we saw that when we discussed the submission of the number of prior authorizations that we saw earlier in the year and knew that that would have impact in Q2. We are seeing improvements in the trends, including increase in the number of prior authorization submissions. Centers are getting comfortable with the coding and they're getting experience with it to see that they are receiving proper reimbursement levels and that they're able to start to get back to their utilization levels. We can start working through that backlog as we move forward.

Speaker #4: In the second quarter, and as you mentioned in our prepared remarks, we are seeing improvements in the trends, including an increase in the number of prior authorization submissions.

Speaker #4: So centers are getting comfortable with the coding, and they're gaining experience with it to see that they are receiving proper reimbursement levels, and that they're able to start to get back to their utilization levels.

Speaker #4: And we can start working through that backlog as we move forward. As far as Wiser goes, yeah, we hear the same commentary. Although we need to continue to work that, it's going to not only exist in those six states, but it could expand into additional states.

Tim P. Herbert: As far as WISeR goes, yeah, we hear the same commentary, although we need to continue to work that it's going to not only exist in those six states, but that it could expand into additional states. We don't want to wait to see what the final resolution will be. The point is, we did see that the C-codes are now incorporated into WISeR. We continue to learn how to operate in a WISeR environment, and we're prepared to move forward in the rest of the year so it doesn't have as much of a disruptive effect as it did in H1.

Tim Herbert: As far as WISeR goes, yeah, we hear the same commentary, although we need to continue to work that it's going to not only exist in those six states, but that it could expand into additional states. We don't want to wait to see what the final resolution will be. The point is, we did see that the C-codes are now incorporated into WISeR. We continue to learn how to operate in a WISeR environment, and we're prepared to move forward in the rest of the year so it doesn't have as much of a disruptive effect as it did in H1.

Speaker #4: And so we don't want to wait to see what the final resolution will be, but the point is, we did see that the C-codes are incorporated into Wiser. We continue to learn how to operate in a Wiser environment.

Speaker #4: And we're prepared to move forward in the rest of the year, and so it doesn't have as much of a disruptive effect as it did in the first half of the year.

Speaker #1: Thank you. And our next question comes from the line of Larry Beagleson from Wells Fargo. Please go ahead.

Operator: Thank you. Our next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Speaker #6: Good afternoon. Thanks for taking the question. Matt or Tim, it looks like, if I'm doing the math right here, you're expecting Q3 on a year-over-year basis to be slightly worse than Q2, despite some of these trends getting better.

Larry Biegelsen: Good afternoon. Thanks for taking the question. Matt or Tim, if I'm doing the math right here, it looks like you're expecting Q3 on a year-over-year basis to be slightly worse than Q2, despite some of these trends getting better. Why is that? Related, Matt, the guidance range is very wide. It implies down 13% at the low end and down 5%, I think, at the high end. What's assumed at the low and the high end? Thanks for taking the question.

Speaker #6: So why is that, and related to that, Matt? The guidance range is very wide. It implies, like, down 13% at the low end and down 5% at the high end.

Speaker #6: What's assumed at the low end and the high end? Thanks for taking the question.

Speaker #4: Yeah, I'll start with that. Thanks for the question, Larry. So from a Q3 perspective, you're right—it's a larger year-over-year decline, but sequentially, we're looking at higher revenue between Q2 and Q3.

Matt Osberg: Yeah, I'll start with that. Thanks for the question, Larry. From a Q3 perspective, you're right. It's a larger year-over-year decline, but sequentially, we're looking at higher revenue between Q2 and Q3. Looking at continuing to build some momentum on the top line, although year-over-year it's still down more than in Q2. The range is really just reflecting that we've had a lot of volatility during the year. There's been a lot of action. We were very happy with how we performed in Q2, and we just want to be cautious about narrowing the range as we look out for the rest of the year, and we're focused on delivering within that range.

Speaker #4: So looking at continuing to build some momentum on the top line, although year-over-year it's still down more than in Q2. And then the range is really just reflecting that we've had a lot of volatility during the year.

Speaker #4: There's been a lot of action. We were very happy with how we performed in Q2, and we just want to be cautious about narrowing the range as we look out for the rest of the year. We're focused on delivering within that range.

Speaker #1: Thank you. And I'll show our next question. It comes from the line of Travis Steed from Bank of America. Please go ahead. Travis, if you have your phone on mute, please unmute your line.

Operator: Thank you. Our next question comes from the line of Travis Steed from Bank of America. Please go ahead. Travis, if you have your phone on mute, please unmute your line.

Travis Steed: Thanks for taking the question. The coding impact went from 120 to 150 to 120 to 130, so lower. I think that implies H2 better, but the revenue guys guide for the full year didn't change. Just want to make sure I understand that. When you think about 2027, before you were saying kind of return to growth. Just kind of curious about how your visibility in 2027 is shaping up at this point, and any color you'd give on 2027.

Speaker #6: Thanks for taking the question. The coding impact went from 120 to 150, then to 120 and 130, so lower. I think that implies the second half is better, but the revenue guys' guide for their full year didn't change.

Speaker #6: So, just want to make sure I understand that. And then, when you think about 2027—before you were saying kind of a return to growth—just kind of curious about how your visibility in 2027 is shaping up at this point, and any color you'd give on '27.

Speaker #4: Hey, Travis. Matt, I'll jump in on the first one. Yeah, you're right. The real reduction in that range was primarily due to what we saw in the second quarter. We had originally thought a $40 to $50 million impact from reimbursement impacts, and that was on the low end of the range.

Matt Osberg: Hey, Travis, it's Matt. I'll jump in on the first one. Yeah, you're right. The real reduction in that range was primarily due to what we saw in Q2. We had originally thought a $40 to $50 million impact from reimbursement impacts, and that was on the low end of the range, that helped really bring down that range for the year. Slightly better in H2 of the year, but most of that benefit was in Q2. From a 2027 perspective, Tim, I don't know if you want to-

Speaker #4: So that helped really bring down that range for the year—slightly better in the second half of the year, but most of that benefit was in the second quarter.

Speaker #4: From a 2027 perspective, Tim, I don't know if you want to.

Tim P. Herbert: Yeah, sure, Travis. Hi. In 2027, we see opportunity that we're still evaluating. Number one, with Project Horizon, we're able to increase investments into our growth initiative. We have already been investing in our initiatives and will continue to do that, driving growth. We continue to see improvements with the coding environment and comfort around the coding levels, and we're further encouraged with the proposed rules from CMS on facility reimbursement, although we need to wait till November to see where those numbers come out. In that, we have to wait. We don't want to make comments on guiding on 2027 yet, but we like what is coming together and really want to lean into the clinical evidence that we're seeing with Inspire V and more importantly, getting a new support from cardiovascular health with clinical evidence being focused on that front.

Tim Herbert: Yeah, sure, Travis. Hi. In 2027, we see opportunity that we're still evaluating. Number one, with Project Horizon, we're able to increase investments into our growth initiative. We have already been investing in our initiatives and will continue to do that, driving growth. We continue to see improvements with the coding environment and comfort around the coding levels, and we're further encouraged with the proposed rules from CMS on facility reimbursement, although we need to wait till November to see where those numbers come out. In that, we have to wait. We don't want to make comments on guiding on 2027 yet, but we like what is coming together and really want to lean into the clinical evidence that we're seeing with Inspire V and more importantly, getting a new support from cardiovascular health with clinical evidence being focused on that front.

Speaker #7: Yeah, sure. Travis, hi there. In 2027, we see opportunity that we're still evaluating. Number one, with Horizon, we're able to increase investments into our growth initiatives.

Speaker #7: We have already been investing in our initiatives, and we'll continue to do that, driving growth. We continue to see improvements with the coding environment and increased comfort around the coding levels.

Speaker #7: And we're further encouraged with the proposed rules from CMS on facility reimbursement, although we need to wait till November to see where those numbers come out.

Speaker #7: So, in that, we have to wait. We don't want to make comments on guidance on '27 yet, but we like what is coming together and really want to lean into the clinical evidence that we're seeing with Inspire V and, more importantly, getting new support from cardiovascular health with clinical evidence being published on that front.

Speaker #1: Thank you. And I'll show our next question comes from the line of Richard Newider from Truist Securities. Please go ahead.

Operator: Thank you. Our next question comes from the line of Richard Newitter from Truist Securities. Please go ahead.

Richard Newitter: Hi. Thanks for taking the questions. Maybe the first, just this has come up a couple of times, you've had varying responses quarter-to-quarter, but where are we on kind of GLP-1 impact from as best as you can see, and how the trend is going on the business? Also the second item there is capacity. I'm not sure if the $30 million in reinvestment to growth initiatives, to what extent are those things that will help increase capacity or getting more or new types of physicians to kind of come in and be able to do the procedure to drive higher utilization? Would love any insights on that. Thank you.

Speaker #5: Hi. Thanks for taking the question. Maybe the first just this has come up a couple of times just you've had varying responses quarter to quarter but where are we on kind of GLP-1 impact from as best as you can see and how the trend is going on the business?

Speaker #5: And then also, the second item there is capacity. I'm not sure if the $30 million in reinvestment into growth initiatives—to what extent are those things that will help increase capacity or get more or new types of physicians to come in and be able to do the procedure to drive higher utilization.

Speaker #5: Would love any insights on that. Thank you.

Speaker #4: Okay, Rich. GLP-1 trends. Well, GLP-1s have been around for a longer period of time with the positive indication for sleep apnea, so we're seeing more sleep physicians being able to prescribe that.

Tim P. Herbert: Thanks, Rich. GLP-1 trends. Well, GLP-1s have been around for a longer period of time with the positive indication for sleep apnea. We're seeing more sleep physicians being able to prescribe that. Again, I don't think it really changes our overall demand for Inspire therapy as we move forward. We believe, and continue to believe that GLP-1s will be a long-term benefit to help people lose weight, to get them to qualify for Inspire therapy. We continue to track our inbounds and track patients looking to get appointments with healthcare providers, and we see the increase in prior authorization. We do see capacity returning. The data looks strong, and we do believe long-term GLP-1s will help.

Tim Herbert: Thanks, Rich. GLP-1 trends. Well, GLP-1s have been around for a longer period of time with the positive indication for sleep apnea. We're seeing more sleep physicians being able to prescribe that. Again, I don't think it really changes our overall demand for Inspire therapy as we move forward. We believe, and continue to believe that GLP-1s will be a long-term benefit to help people lose weight, to get them to qualify for Inspire therapy. We continue to track our inbounds and track patients looking to get appointments with healthcare providers, and we see the increase in prior authorization. We do see capacity returning. The data looks strong, and we do believe long-term GLP-1s will help.

Speaker #4: But again, I don't think it really changes our overall demand for Inspire Therapy as we move forward. And we believe, and continue to believe, that GLP-1s will be a long-term benefit to help people lose weight to get them into the, and to qualify for, Inspire Therapy.

Speaker #4: But we continue to track our inbounds and track patients looking to get appointments with healthcare providers, and we see the increase in prior authorizations.

Speaker #4: So, we do see capacity returning. The data looks strong, and we do believe long-term GLP-1s will help. Capacity is always a key factor, and now that we're getting more comfort with the coding and the reimbursement aspects—and clarity is starting to gain with each payer—we're able to lean in on that.

Tim P. Herbert: Capacity is always a key factor. Now that we're getting more comfort with the coding and the reimbursement aspects, clarity is starting to gain with each payer, that we able to lean in on that. Inspire V can help with capacity in itself because ENT surgeons are comfortable performing that procedure. We are looking to expand, not only with centers, but also with additional surgeons. We're going to lean into that, and that will be an initiative that we'll lean into in the future.

Tim Herbert: Capacity is always a key factor. Now that we're getting more comfort with the coding and the reimbursement aspects, clarity is starting to gain with each payer, that we able to lean in on that. Inspire V can help with capacity in itself because ENT surgeons are comfortable performing that procedure. We are looking to expand, not only with centers, but also with additional surgeons. We're going to lean into that, and that will be an initiative that we'll lean into in the future.

Speaker #4: Inspire 5 can help with capacity in itself, because ENT surgeons are comfortable performing that procedure. But we are looking to expand, not only with centers but also with additional surgeons.

Speaker #4: And so we're going to lean into that, and that will be an initiative that we'll lean into in the future.

Speaker #1: Thank you. And I'll show our next question. It comes from the line of Michael Polark from Wolfe Research. Please go ahead.

Operator: Thank you. Our next question comes from the line of Michael Polark from Wolfe Research. Please go ahead.

Speaker #8: Hey, good afternoon. Just two items for me. Territory count in the quarter—if you said it, I missed it. I’d welcome that update, and the related piece of that is kind of direction of travel for that count.

Michael Polark: Hey, good afternoon. Just two items for me. Territory count in the quarter. If you said it, I missed it. I'd welcome that update. The related piece to that is kind of direction of travel for that count as Project Horizon gets implemented further down, or is it reaching a stable level? The second thing I'm interested in learning more about is Inspire IV versus Inspire V mix, either in the Q2, where are we, and what's contemplated for the H2 on that metric? Thank you.

Speaker #8: As Project Horizon gets implemented, is it trending further down or is it reaching a stable level? And the second thing I'm interested in learning more about is the Inspire 4 versus Inspire 5 mix.

Speaker #8: Either in the second quarter, where are we and what's contemplated for the back half on that metric? Thank you.

Speaker #4: Thanks, Mike. Territory managers, territories that we talk about—we're still at 280 and pretty stable on that end. We haven't increased the number of field clinical representatives.

Tim P. Herbert: Thanks, Mike. Territory managers, territories that we talk about, we're still at 280 and stable on that end. We have increased the number of field clinical representatives. That was a strategy that we implemented previously to get that ratio back to one to one. We've actually surpassed that. We actually have 301 FCR areas that we're looking at. A little bit higher than the one to one ratio because we think this can drive efficiencies in each of the territories and help us as we grow capacity and handle the demand from the patients.

Tim Herbert: Thanks, Mike. Territory managers, territories that we talk about, we're still at 280 and stable on that end. We have increased the number of field clinical representatives. That was a strategy that we implemented previously to get that ratio back to one to one. We've actually surpassed that. We actually have 301 FCR areas that we're looking at. A little bit higher than the one to one ratio because we think this can drive efficiencies in each of the territories and help us as we grow capacity and handle the demand from the patients.

Speaker #4: That was a strategy that we implemented previously to get that ratio back to one-to-one. We've actually surpassed that, and we currently have 301 FCR areas that we're looking at.

Speaker #4: So a little bit higher than the one-to-one ratio, because we think this can drive efficiencies in each of the territories and help us as we grow capacity and handle the demand from the patients.

Speaker #4: As far as Inspire 4 and 5 ratios in the field, Inspire 5 is by far and away the majority of the implants performed in the second quarter, and we expect that to continue as we move into the rest of the year in '27.

Tim P. Herbert: As far as Inspire IV and V ratios in the field, Inspire V is by far and away the majority of the implants performed in Q2, and we expect that to continue as we move into the rest of the year in 2027. We do still have customers that utilize the Inspire IV technology based on CMS reimbursement for their Medicare cases. As you know, that Medicare and 64582 is adjusted for both geographic, as well as academic centers. In those territories where the reimbursement isn't as high, there are some centers that continue to use Inspire IV, but the majority of centers have transitioned over to Inspire V.

Tim Herbert: As far as Inspire IV and V ratios in the field, Inspire V is by far and away the majority of the implants performed in Q2, and we expect that to continue as we move into the rest of the year in 2027. We do still have customers that utilize the Inspire IV technology based on CMS reimbursement for their Medicare cases. As you know, that Medicare and 64582 is adjusted for both geographic, as well as academic centers. In those territories where the reimbursement isn't as high, there are some centers that continue to use Inspire IV, but the majority of centers have transitioned over to Inspire V.

Speaker #4: We do still have customers that utilize the Inspire 4 technology based on CMS reimbursement for their Medicare cases. As you know, Medicare and 64582 are adjusted for both geographic as well as academic centers.

Speaker #4: So, in those territories where the reimbursement isn't as high, there are some centers that continue using Inspire 4, but the majority of centers have transitioned over to Inspire 5.

Speaker #1: Thank you. And our next question comes from the line of David Rescott from Baird. Please go ahead.

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

Speaker #5: Great, thanks for taking the question. I wanted to ask about the predictor and the cardio data that you had at sleep, and I'm more curious along the lines of if, when, why, and how you would expect to be able to leverage that, either to drive increasing utilization or potentially extend the reach beyond the core channel you're in today.

David Rescott: Great. Thanks for taking the question. I wanted to ask about the PREDICTOR and the cardio data that you had at Sleep, and more curious along the lines of if, when, why, and how you would expect to be able to leverage that, either to just drive increasing utilization or potentially extend the reach beyond the core channel you're in today. Is that something where you now have the data in place, and it's something that could begin to benefit as early as 2027? Are there further publications that we'd be expecting to see? Maybe it's a, hey, reimbursement's in place by 2028, and that's really when you start to hump the investment behind that. Thank you.

Speaker #5: Is that something where you now have the data in place, and it's something that could begin to benefit as early as 2027? Or are there further publications that we'd be expecting to see, and maybe it's a, "Hey, reimbursement's in place by 2028, and that's really when you start to pump the investment behind that." Thank you.

Speaker #4: Thanks, David. Two different answers coming out—yeah. So, from a predictor standpoint, yes, with the publication, we can pursue this a little bit more aggressively.

Tim P. Herbert: Thanks, David. Two different answers coming at you. From a PREDICTOR standpoint, yes, with the publication, we can pursue this a little bit more aggressively. I think there are patients that will be able to go through the prior authorization process with their BMI less than 32, along with a neck circumference measurement where they won't need a DISE procedure. Again, the algorithm in the publication is patients with a BMI above 32 are more susceptible to complete concentric collapse and probably should continue to receive a drug-induced endoscopy prior to Inspire. We're going to start pursuing this and target areas up front and be able to report back on that. We're very happy that we have the publication in place. Cardiovascular data is going to continue to grow. Hypoxic burden is real, and it's correlated to cardiovascular health.

Tim Herbert: Thanks, David. Two different answers coming at you. From a PREDICTOR standpoint, yes, with the publication, we can pursue this a little bit more aggressively. I think there are patients that will be able to go through the prior authorization process with their BMI less than 32, along with a neck circumference measurement where they won't need a DISE procedure. Again, the algorithm in the publication is patients with a BMI above 32 are more susceptible to complete concentric collapse and probably should continue to receive a drug-induced endoscopy prior to Inspire. We're going to start pursuing this and target areas up front and be able to report back on that. We're very happy that we have the publication in place. Cardiovascular data is going to continue to grow. Hypoxic burden is real, and it's correlated to cardiovascular health.

Speaker #4: I think there are patients who will be able to go through the prior authorization process with their BMI less than 32, along with a neck circumference measurement, where they won't need a DICE procedure.

Speaker #4: Again, the algorithm in the publication is: patients with a BMI above 32 are more susceptible to complete concentric collapse and probably should continue to receive a drug-induced sleep endoscopy prior to Inspire.

Speaker #4: So we're going to start pursuing this and target areas up front, and be able to report back on that. But we're very happy that we have the publication in place.

Speaker #4: Cardiovascular data is going to continue to grow. Hypoxic burden is real, and it's correlated to cardiovascular health. We already know of numerous publications in the works and additional research being performed independently by some of our leading academic institutions in the United States.

Tim P. Herbert: We already know of numerous publications in the works and additional research being performed independently by some of our leading academic institutions in the United States. We'll continue to build on that and communicate that with the cardiovascular physicians and societies to show the benefits that Inspire therapy can bring to their patients in the long run. A whole different channel that we're looking at to educate on the benefits of Inspire therapy and a lot more publications coming on that front.

Tim Herbert: We already know of numerous publications in the works and additional research being performed independently by some of our leading academic institutions in the United States. We'll continue to build on that and communicate that with the cardiovascular physicians and societies to show the benefits that Inspire therapy can bring to their patients in the long run. A whole different channel that we're looking at to educate on the benefits of Inspire therapy and a lot more publications coming on that front.

Speaker #4: And we'll continue to build on that and communicate that with the cardiovascular physicians and societies to show the benefits that Inspire Therapy can bring to their patients in the long run.

Speaker #4: So, a whole different channel that we're looking at to educate on the benefits of Inspire therapy, and a lot more publications coming on that front.

Speaker #1: Thank you. And our next question comes from the line of Michael Ciccone from Jefferies. Please go ahead.

Operator: Thank you. Our next question comes from the line of Michael Sarcone from Jefferies. Please go ahead.

Speaker #6: Hey, good afternoon, and thanks for taking the question. So, two for me. One, Tim, maybe can you comment on the competitive environment and kind of what's the latest and greatest there, and the trends you're seeing?

Michael Sarcone: Hey, good afternoon, thanks for taking the question. Two for me. One, Tim, maybe can you comment on the competitive environment and kind of what's the latest and greatest there and the trends you're seeing? Then in terms of Project Horizon and redeploying some of the saves into growth initiatives, how are you thinking about that in the context of DTC spending? Thanks.

Speaker #6: And then, in terms of Project Horizon and redeploying some of the savings into growth initiatives, how are you thinking about that in the context of DTC spending?

Speaker #6: Thanks.

Speaker #4: Very good, Michael. From a competitive standpoint, I think we just focus on the Inspire procedures. We focus on making that available to the patients demanding therapy and coming to our website.

Tim P. Herbert: Very good, Michael. From a competitive standpoint, I think we just focus on the Inspire procedures. We focus on making that available to the patients demanding therapy and coming to our website. We know that there are centers who will trial competitive devices, we don't see a significant impact of that at this point. We know another company that's approved, still working on preparing for launch and they obviously don't have a presence because they haven't launched their product yet. Again, we think that we need to just focus on Inspire V and the benefit that that brings to our potential patients. As far as Horizon, we look at DTC as one of our tools, we don't want to say that we're going to fully increase DTC to the full level.

Tim Herbert: Very good, Michael. From a competitive standpoint, I think we just focus on the Inspire procedures. We focus on making that available to the patients demanding therapy and coming to our website. We know that there are centers who will trial competitive devices, we don't see a significant impact of that at this point. We know another company that's approved, still working on preparing for launch and they obviously don't have a presence because they haven't launched their product yet. Again, we think that we need to just focus on Inspire V and the benefit that that brings to our potential patients. As far as Horizon, we look at DTC as one of our tools, we don't want to say that we're going to fully increase DTC to the full level.

Speaker #4: We know that there are centers who will trial competitive devices, but we don't see a significant impact from that at this point. We know another company is approved but still working on preparing for launch, and obviously, they don't have a presence because they haven't launched their product yet.

Speaker #4: So again, we think that we need to just focus on Inspire 5 and the benefit that that brings to our potential patients. As far as Horizon, we look at DTC as one of our tools, but we don't want to say that we're going to fully increase DTC to the full level.

Speaker #4: We think there are other areas that we really want to focus on in regards to patient flow, which includes helping patients, once they come to our website, to make a connection with a healthcare professional and, that way, be able to streamline that process.

Tim P. Herbert: We think there's other areas that we really want to focus on in regards to patient flow, which includes helping patients once they come to our website to make a connection with a healthcare professional, and that way we will be able to streamline that process. We did mention predictors, potential avenue, and really going back and highlighting the data that we have around cardiovascular health. There's a lot of different areas that we want to go down, not just immediately dump it into DTC.

Tim Herbert: We think there's other areas that we really want to focus on in regards to patient flow, which includes helping patients once they come to our website to make a connection with a healthcare professional, and that way we will be able to streamline that process. We did mention predictors, potential avenue, and really going back and highlighting the data that we have around cardiovascular health. There's a lot of different areas that we want to go down, not just immediately dump it into DTC.

Speaker #4: We did mention predictors as a potential avenue, and really going back and highlighting the data that we have around cardiovascular health. So there's a lot of different areas that we want to go down, not just immediately dump that into DTC.

Speaker #1: Thank you. And our next question comes from the line of Brett Fishbin from KeyBanc Capital Markets. Please go ahead.

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

Speaker #7: All right. Hey, thanks for taking the question. You mentioned in the prepared remarks that one of the items the revised CPT application addresses is in regards to subcodes for replacement procedures.

Brett Fishbin: All right. Hey, thanks for taking the question. You mentioned in the prepared remarks that one of the items that the revised CPT application addresses is in regards to subcodes for replacement procedures. I wanted to just follow up on that topic and ask about the volume of replacement procedures you are currently seeing and whether this is starting to become a material part of the overall revenue mix in 2026. Then just if so, how should we think about the impact on ASPs for the company per procedure and if there's like a margin impact from procedures starting to shift to replacements from new patients? Thank you.

Speaker #7: I just wanted to follow up on that topic and ask about the volume of replacement procedures you're currently seeing, and whether this is starting to become a material part of the overall revenue mix in 2026.

Speaker #7: And then, just if so, how should we think about the impact on ASPs for the company per procedure, and if there's a margin impact from procedures starting to shift to replacements from new patients?

Speaker #7: Thank you.

Tim P. Herbert: Absolutely, Brett. You got about four questions in there. Let me go through these. The CPT, when the application went in, there was already subcodes there for the replacement revisions. There was a juggling during the meeting that caused confusion and disruption. That's all been cleared up now. The subcodes in the application are now clear and defined, and we addressed that right up front. You do bring up the next key point, which is we are many years since approval back in 2014 from the FDA. With our average battery life of 11 years, we are starting to see patients come around for their replacement devices. What has been overshadowed by the coding and reimbursement is that the reimbursement CPT code for a replacement Inspire 5 device was actually moved to a level 5 APC, ambulatory procedure classification, from a level 4.

Tim Herbert: Absolutely, Brett. You got about four questions in there. Let me go through these. The CPT, when the application went in, there was already subcodes there for the replacement revisions. There was a juggling during the meeting that caused confusion and disruption. That's all been cleared up now. The subcodes in the application are now clear and defined, and we addressed that right up front. You do bring up the next key point, which is we are many years since approval back in 2014 from the FDA. With our average battery life of 11 years, we are starting to see patients come around for their replacement devices. What has been overshadowed by the coding and reimbursement is that the reimbursement CPT code for a replacement Inspire 5 device was actually moved to a level 5 APC, ambulatory procedure classification, from a level 4.

Speaker #4: Absolutely, Brett. You got about four questions in there. Let me go through these. So, with the CPT, when the application went in, there were already subcodes in place for the replacement revisions.

Speaker #4: There was a juggling during the meeting that caused confusion and disruption, and so that's all been cleared up now. The subcodes in the application are now clear and defined.

Speaker #4: And we addressed that right up front. But you do bring up the next key point, which is, we are many years since approval back in 2014 from the FDA.

Speaker #4: And with our average battery life of 11 years, we are starting to see patients come around for their replacement devices. What has been overshadowed by the coding and reimbursement is that the reimbursement CPT code for a replacement Inspire V device was actually moved to a Level 5 APC.

Speaker #4: Ambulatory procedure classification from a Level 4, so that reimbursement has gone up appropriately to support replacements. And the ASP for that device is commensurate with the combination of the pressure-sensing lead and the old Inspire IV neurostimulator.

Tim P. Herbert: That reimbursement has gone up appropriately to support replacements and the ASP for that device is commensurate with the combination of the pressure-sensing lead and the old Inspire 4 neurostimulator. In a pretty good position from that. We should be okay with margin on that. Again, we're starting to ramp the number of patients coming in. Again, a relatively small part of our overall business dating back to 11 years back to implants in 2014, 2015, and 2016.

Tim Herbert: That reimbursement has gone up appropriately to support replacements and the ASP for that device is commensurate with the combination of the pressure-sensing lead and the old Inspire 4 neurostimulator. In a pretty good position from that. We should be okay with margin on that. Again, we're starting to ramp the number of patients coming in. Again, a relatively small part of our overall business dating back to 11 years back to implants in 2014, 2015, and 2016.

Speaker #4: So we're in a pretty good position from that, and we should be okay with margin on that. But again, we're starting to ramp the number of patients coming in.

Speaker #4: But again, a relatively small part of our overall business, dating back to 11 years ago, to implants back in 2014, '15, and '16.

Speaker #1: Thank you. And I'll show our next question. It comes from the line of Daniel Markovitz from Evercore ISI. Please go ahead.

Operator: Thank you. I show our next question comes from the line of Daniel Markowitz from Evercore ISI. Please go ahead.

Speaker #5: Good afternoon. Thanks for taking my question. I wanted to ask, in terms of the program to work with centers and improve billing certainty, can you talk about what you've seen early on?

Daniel Markowitz: Good afternoon. Thanks for taking my question. I wanted to ask, in terms of the program to work with centers and improve billing certainty, can you talk about what you've seen early on? It'd be helpful to know how many centers you've worked with thus far and what you've seen in terms of activity levels before versus after. Then if I could squeeze one really quick one in. International isn't a huge part of the business, if I'm looking at the numbers, there was a really nice step up internationally. Can you talk a little bit about what caused that?

Speaker #5: It'd be helpful to know how many centers you've worked with thus far, and what you've seen in terms of activity levels before versus after.

Speaker #5: And then, if I could squeeze one really quick one in: International isn't a huge part of the business, but if I'm looking at the numbers, there was a really nice step-up internationally.

Speaker #5: Can you talk a little bit about what caused that?

Tim P. Herbert: Absolutely, Daniel. When we look at the centers, as we mentioned in the prepared remarks, we start with the highest volume centers. Educate through that process. There are many centers that are comfortable with just receiving the material, they were able to gain confidence in the coding that they were able to get reimbursement back and thereby get back to their volumes. Other centers want one-on-one meetings to walk through the coding, understanding the C-codes, what that means, how does that play with commercial payers versus Medicare Advantage versus fee for service Medicare. We're able to sit down and work with them. As we mentioned earlier, we're working through that top 25%, then actively in the next group of centers. We can see confidence in being able to be reimbursed, we start to see their volumes come back as such.

Tim Herbert: Absolutely, Daniel. When we look at the centers, as we mentioned in the prepared remarks, we start with the highest volume centers. Educate through that process. There are many centers that are comfortable with just receiving the material, they were able to gain confidence in the coding that they were able to get reimbursement back and thereby get back to their volumes. Other centers want one-on-one meetings to walk through the coding, understanding the C-codes, what that means, how does that play with commercial payers versus Medicare Advantage versus fee for service Medicare. We're able to sit down and work with them. As we mentioned earlier, we're working through that top 25%, then actively in the next group of centers. We can see confidence in being able to be reimbursed, we start to see their volumes come back as such.

Speaker #4: Absolutely, Daniel. When we look at the centers, as we mentioned in the prepared remarks, we start with the highest-volume centers and educate through that process.

Speaker #4: There are many centers that are comfortable with just receiving the material, and they were able to gain confidence in the coding, that they were able to get reimbursement back, and thereby get back to their volumes.

Speaker #4: Other centers want one-to-one meetings to walk through the coding—understanding the C codes, what that means, how that plays with commercial payers versus Medicare Advantage versus fee-for-service Medicare.

Speaker #4: So we’re able to sit down and work with them. As we mentioned earlier, we’re working through that top 25%. Then, actively in the next group of centers, we can see confidence in being able to be reimbursed when we start to see their volumes come back. As such, that is one of the trends, along with prior authorization numbers, that gives us confidence for the second half of the year.

Tim P. Herbert: That is one of the trends along with prior authorization numbers that gives us confidence for the H2 of the year. International had a very good Q2. I think that it's about focus and the growth that the international team is working and basically primarily the core continental Europe, as we're seeing the greatest amount of growth and teams being very focused in those areas with upstarts in France because they just recently got countrywide reimbursement. We know that that's going to continue to grow along with the mainstay with Germany, Austria, Switzerland, Netherlands, Belgium, and contributions from the UK and some other contributions from overseas with Japan and Singapore as well. Good quarter for the international team. They're doing a very good job with their growth.

Tim Herbert: That is one of the trends along with prior authorization numbers that gives us confidence for the H2 of the year. International had a very good Q2. I think that it's about focus and the growth that the international team is working and basically primarily the core continental Europe, as we're seeing the greatest amount of growth and teams being very focused in those areas with upstarts in France because they just recently got countrywide reimbursement. We know that that's going to continue to grow along with the mainstay with Germany, Austria, Switzerland, Netherlands, Belgium, and contributions from the UK and some other contributions from overseas with Japan and Singapore as well. Good quarter for the international team. They're doing a very good job with their growth.

Speaker #4: International had a very good Q2, and I think that it's about focus and the growth that the international team is working on. Basically, primarily the core continental Europe is receiving the greatest amount of growth.

Speaker #4: And teams being very focused in those areas, with upstarts in France because they just recently got countrywide reimbursement. We know that that's going to continue to grow.

Speaker #4: Along with the mainstay with Germany, as to Switzerland, Netherlands, Belgium, and contributions from the UK, and some other contributions from overseas with Japan and Singapore as well.

Speaker #4: So, good quarter for the international team. They're doing a very good job with their growth.

Speaker #1: Thank you. And I’ll show our next question. It comes from the line of Keith Hinton from Freedom Capital Markets. Please go ahead.

Operator: Thank you. I show our next question comes from the line of Keith Hinton from Freedom Capital Markets. Please go ahead.

Speaker #5: Great, thanks. Just one from me—around the assumptions to get to the top and the low end of the operating margin guide. I just want to understand, in terms of timing, could we expect to see the reinvestment of those cost savings right away, or could there be a small timing issue where costs temporarily drop and then step back up?

Keith Hinton: Great, thanks. Just one for me around the assumptions to get to the top and the low end of the operating margin guide. I just want to understand in terms of Project Horizon, could we expect to see kind of the reinvestment of those cost savings right away, or could there be a small timing issue where costs temporarily drop and then step back up? Kind of how should we think about that from an OpEx perspective?

Speaker #5: How should we think about that from an opex perspective?

Speaker #4: Yeah, I would expect there might be a little bit of favorability in the third quarter, but offsetting that as we start to move into the fourth quarter and ramp up some of those investments.

Matt Osberg: Yeah, I would expect there might be a little bit of favorability in Q3, offsetting that as we start to move into Q4 and ramping up some of those investments. That's incorporated into the outlook that we provided.

Speaker #4: And that's incorporated into the outlook that we provided.

Speaker #1: Thank you. One moment for our next question. And I show a last question in the queue. It comes from the line of Mike Kratky from Learning Partners.

Operator: Thank you. One moment for our next question. I show our last question in the queue comes from the line of Mike Kratky from Leerink Partners. Please go ahead.

Speaker #1: Please go ahead.

Speaker #6: Hey everyone, thanks for taking my question. Just one from me, but can you talk about how US implant volumes, prior ops, and procedures trended sequentially on a monthly basis over Q2?

Mike Kratky: Yeah, everyone. Thanks for taking our questions. Just one from me, can you talk about how US implant volumes, prior auths, and procedures trended sequentially on a monthly basis over Q2? What have you seen so far in July to help inform your outlook?

Speaker #6: And what have you seen so far in July to help inform your outlook?

Speaker #4: Well, I think that early on, we talked about prior authorizations as kind of being a leading indicator, where we're seeing the trend increase from that standpoint.

Tim P. Herbert: Well, I think that early on we talked about prior authorizations as kind of being a leading indicator where we're seeing trends increase from that standpoint, not necessarily going to comment too much on implants in July. Typically, we do see implants continue to progress as we go through a quarter. Again, the positive trends that we're seeing, we're gaining comfort around prior authorization submissions as our leading indicator.

Tim Herbert: Well, I think that early on we talked about prior authorizations as kind of being a leading indicator where we're seeing trends increase from that standpoint, not necessarily going to comment too much on implants in July. Typically, we do see implants continue to progress as we go through a quarter. Again, the positive trends that we're seeing, we're gaining comfort around prior authorization submissions as our leading indicator.

Speaker #4: I'm not necessarily going to comment too much on implants. In July, typically, we do see implants continue to progress as we go through the quarter.

Speaker #4: But again, the positive trend that we're seeing is that we're gaining comfort around prior authorization submissions as our leading indicator.

Speaker #6: Thanks very much.

Mike Kratky: Thanks very much.

Speaker #4: Thank you. So, as always, Dilem, thank you. But 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.

Tim P. Herbert: Thank you.

Tim Herbert: Thank you.

Operator: Thank you.

Tim P. Herbert: Well, as always, Dileep, thank you. 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 of 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.

Tim Herbert: Well, as always, Dilem, thank you. 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 of 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.

Speaker #4: The team's commitment to patients remains unmatched and is the most important element of our success. For all of you on the call, we appreciate your continued interest and support.

Speaker #4: We look forward to providing you with further updates in the months ahead.

Speaker #1: This concludes today's conference call. You may now disconnect.

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

Tim P. Herbert: Thank you.

Tim Herbert: Thank you.

Q2 2026 Inspire Medical Systems Inc Earnings Call

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