Inspire Medical Systems Q2 Earnings Call Highlights

Key Points

• Second-quarter revenue fell 7.6% to $200.6 million as coding and reimbursement disruptions reduced procedure volumes by approximately $40 million; adjusted EPS was $0.14 and adjusted EBITDA margin was 19.4%.
• Despite the revenue decline, stronger profitability and cash flow led Inspire to raise its 2026 outlook to $835 million–$875 million in revenue, with adjusted diluted EPS of $1.05–$1.45. The company ended the quarter with $415 million in cash and investments and no debt.
• Inspire launched Project Horizon to generate about $30 million in annualized capacity for growth investments, while expecting $20 million–$25 million in pretax restructuring charges, mostly in the third quarter. Management expects reimbursement pressures to ease in the second half of 2026.

Inspire Medical Systems NYSE: INSP reported second-quarter revenue of $200.6 million, down 7.6% from a year earlier, as coding and reimbursement disruptions continued to affect procedure volumes. The company said results exceeded its internal expectations for profitability and cash flow, prompting it to raise its full-year outlook for revenue, adjusted operating margin and adjusted earnings per share.

Chairman and Chief Executive Officer Tim Herbert said the company has been working with customers to navigate changes in coding and billing for its Inspire V sleep apnea therapy system. He said improved trends in prior-authorization submissions and customer education efforts have provided greater confidence that the disruption will lessen during the second half of 2026.

Second-Quarter Results and Updated Outlook

Chief Financial Officer Matt Osberg said the revenue decline primarily reflected coding and reimbursement disruption, including the effect of declining prior authorizations observed during the first quarter. Diluted earnings per share were $0.01, while adjusted diluted EPS was $0.14. Adjusted EBITDA margin declined 90 basis points to 19.4%.

Operating cash flow totaled $23.2 million during the quarter and $36.1 million for the first six months of the year, an improvement of $40 million from the prior-year six-month period, which Osberg attributed primarily to improved working capital. Inspire ended the quarter with $415 million in cash and investments and no debt.

The company revised its 2026 revenue outlook to a range of $835 million to $875 million. It now expects adjusted operating margin of 4% to 6%, diluted EPS ranging from a loss of $0.42 to earnings of $0.17, and adjusted diluted EPS of $1.05 to $1.45.

For the third quarter, Inspire forecast an 8% to 10% year-over-year revenue decline, while expecting sequential revenue growth from the second quarter. Osberg said the company expects approximately breakeven adjusted operating income in the third quarter, as higher revenue is expected to be offset by a sequential increase in marketing expenses.

Management estimated that coding and reimbursement issues, including the WISER program, reduced second-quarter results by about $40 million. For the full year, the company estimates a total adverse effect of $120 million to $130 million, with the impact expected to decline sequentially in the third and fourth quarters.

Coding and Reimbursement Developments

Herbert said previously announced C-codes are now in place and have been incorporated into the WISER system for the six applicable states. Hospital and ambulatory surgery center reimbursement rates have remained unchanged, he said.

For physician reimbursement, most Medicare Administrative Contractors do not require a -52 modifier for Inspire V procedures billed under CPT code 64582. Two contractors require the modifier, however, and payment reductions in those regions have ranged from 0% to 30% of the national average Medicare payment of $723, according to Herbert.

He said surgeons that submit supporting documentation describing the reduction in services have generally been able to minimize reimbursement reductions. Inspire has focused its customer education efforts first on higher-volume centers, which management said account for a disproportionate share of revenue. The company is working through the majority of its top 25% of centers and expects to educate most of those facilities during the third quarter.

CMS has proposed 2027 outpatient reimbursement of $35,414 for Inspire V procedures, about 12% above 2026 levels, and ambulatory surgery center reimbursement of $31,722, about 15% higher. CMS also proposed physician reimbursement of roughly $699 for CPT code 64582, a decline of about 4%. Herbert said the company is not assuming those levels will take effect until final rates are published in November.

Inspire also submitted a revised application for a Category 1 CPT code for a single-lead Inspire system. The application, scheduled for review at the September AMA CPT Editorial Panel meeting, includes revised replacement-procedure subcodes, joint submission with another industry participant and additional clinical evidence. If approved, management said the code could remain on track for implementation Jan. 1, 2028.

Project Horizon Targets Growth Investments

The company introduced Project Horizon, a strategic plan intended to create approximately $30 million in annualized capacity for growth investments. The initiative includes organizational changes and supply-chain consolidation intended to support quality, scale and efficiency.

Osberg said Inspire expects to incur $20 million to $25 million of pretax restructuring charges, about 90% of which are expected to be recognized in the third quarter. Roughly $16 million to $20 million is expected to consist of non-cash impairment charges tied to production equipment at vendors that will no longer be used as the company consolidates its supply chain. The remaining charges relate to employee separation costs.

Management expects most restructuring actions to be completed in the third quarter and substantially all actions to be complete by year-end. Herbert said the majority of redeployed investments will target patient flow and are expected to have a greater effect in 2027 and beyond.

• Expanding patient access to care and helping patients navigate coverage approval.
• Increasing patient education and engagement through the Inspire Connect program.
• Building on prior-authorization support tools within the SleepSync platform.
• Expanding capacity through additional centers and surgeons.

Herbert said Inspire maintained 280 territories and increased the number of field clinical representative areas to 301. Inspire V represented the large majority of implants in the second quarter, although some centers continue to use Inspire IV for certain Medicare cases.

Clinical Data and Market Development

At the American Academy of Sleep Medicine conference in June, Inspire presented full results from its Inspire V trial in Singapore, including data on the safety and efficacy of the implant and its accelerometer-based sensing technology.

Herbert also cited a secondary analysis of the STAR trial showing reductions in hypoxic burden, a measure incorporating the depth, duration and frequency of oxygen desaturation events during sleep. Separately, he highlighted a TriNetX database analysis matching 3,525 hypoglossal nerve stimulation patients with 3,525 CPAP patients. The analysis found lower odds in the hypoglossal nerve stimulation group for several outcomes, including stroke, myocardial infarction, atrial fibrillation, hospitalization and acute heart failure.

The company also announced publication of the PREDICTOR study, which identified body mass index and neck circumference as predictors of complete concentric collapse. Herbert said the findings could allow some potential patients to be screened for eligibility without drug-induced sleep endoscopy, potentially reducing diagnostic burden and time to treatment.

Management said it continues to track GLP-1 adoption but does not believe the drugs have changed overall demand for Inspire therapy. Herbert said the company views GLP-1 medicines as potentially helping some patients lose weight and become eligible for Inspire treatment over the longer term.

About Inspire Medical Systems (NYSE:INSP)

Inspire Medical Systems, Inc is a medical technology company specializing in implantable neurostimulation devices for the treatment of obstructive sleep apnea (OSA). The company's flagship offering, the Inspire® system, delivers targeted stimulation of the hypoglossal nerve to maintain airway patency during sleep, providing an alternative therapy for patients who are intolerant of or inadequately managed by continuous positive airway pressure (CPAP) devices.

The Inspire system comprises an implantable pulse generator, a sensing lead that monitors breathing patterns, and a stimulation lead that activates the hypoglossal nerve.

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