Inspire Medical Systems, Inc.

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 third quarter 2025 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, Eski Yaja, the Vice President of Investor Relations at Inspire. You may begin the conference.

Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer, and Rick Buhl, Chief Financial Officer. Earlier today, we released financial results for the three and nine months ended September 30, 2025. A copy of the press release is available on our website. On this call, management will make forward-looking statements within the meaning of the federal securities laws. All forward-looking statements, including without limitation those relating to our operations, financial results and financial condition, investments in our business, full-year 2025 financial and operational outlook, and changes in market access are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. Please see our filings with the Securities and Exchange Commission, including our Form 10-Q, which we filed with the SEC earlier this afternoon, for a description of these risks and uncertainties. INSPIRE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 3rd, 2025. With that, it is my pleasure to turn the call over to Tim Herbert. Tim.

Thank you, Esgie. And thanks everyone for joining our business update call for the third quarter of 2025. I'll start by highlighting some key takeaways of our third quarter results. I'll then discuss our updated 2025 guidance and Rick will provide a financial review. We will then open the call up for questions. As always, I want to start by reiterating our commitment to put the patient first and deliver strong patient outcomes. We continue to invest in innovation and clinical evidence as we lead the way in hypoglossal nerve stimulation. And this was on display at the recent ENT society meetings where Inspire 5 performance data were presented. The results of our Singapore clinical study of 44 patients demonstrated significant performance improvements as well as a 20% reduction in surgical times. And early experience from our US limited market release of over 100 patients demonstrated clinically relevant reduction in disease severity with patients averaging over six hours of nightly device use. Furthermore, We presented data showing Inspire 5's 87% inspiratory overlap with the patient's breathing. As many of you already know, this is the foundation of our closed-loop stimulation system. As the airway collapses during the inspiratory phase of respiration, synchronizing stimulation with inspiration is essential to optimize therapy. We are excited and energized by the strong performance of the Inspire 5 system and the clinical feedback on the simplified procedure and comfort settings has been tremendously positive. In addition, Inspire-related publications led the discussions at the EMT meetings, and we were excited to see two academic centers independently found that Inspire is an effective treatment for both supine and non-supine dependent OSA. and that INSPIRE provides clinical benefit regardless of sleep position. Multiple papers demonstrated INSPIRE's ability to improve long-term cardiovascular comorbidities, including a study from the University of Texas Health that assessed over 4,500 patients over a 10-year period in the TRINETX database. This is a large multi-institutional electronic health record network. The study showed that INSPIRE offered advantages in reducing long-term cardiovascular morbidity and mortality in patients of OSA compared to CPAP treatment. In another paper out of Thomas Jefferson University, using the same database, INSPIRE was compared to CPAP and to no treatment. The study demonstrated that INSPIRE was associated with broadly improved non-apneic outcomes compared to CPAP and to no treatment. Specifically, they showed that Inspire therapy resulted in lower risk for myocardial infarction, cardiac arrest, ischemic stroke, and depression, amongst others. Together, these studies are the first evidence that Inspire can reduce cardiovascular morbidity and mortality in the most vulnerable patients namely those who are unable to tolerate CPAP. These outcomes are a testament to the importance of diagnosing and treating OSA and validate the continued investments we're making in innovation, clinical evidence, medical education, and patient marketing. With respect to the Inspire 5 US launch, the team made significant progress in the third quarter, and we are excited to report that physician training is over 98% complete, contracting is over 90% complete for our centers, and sleep-sick onboarding is complete for over 75%, bringing the total to over 75% implanting Inspire 5 today. Given this progress and our strong momentum we are seeing, we are reiterating our full-year revenue guidance of $900 to $910 million representing 12% to 13% growth compared to full year 2024. Switching to our quarterly results, we are very pleased with the strong revenue performance and cost discipline we demonstrated in the quarter. Third quarter revenue totaled $224.5 million, or a 10% increase compared to the prior year period, including the increased investment we are making in patient marketing, We were able to deliver operating income of $9.6 million and earnings per share of 34 cents. This strong performance gives us confidence to increase our earnings per share guidance to 90 cents to $1 up from 40 to 50 cents previously. On patient marketing, we've started rolling out a new ad campaign highlighting the fact that with Inspire, many patients report that they can dream again, complete with a holiday-themed ad featuring none other than Ebenezer Scrooge treating his sleep apnea. You may also have seen our new ad featuring a celebrity influencer partnership with Jacques Chappelle, the winner of last season's Golden Bachelorette, a real Inspire user since 2021. And we are encouraged. by their early indications from these initiatives. Regarding reimbursement, CMS recently finalized the 2026 Physician Fee Schedule at approximately $660, or an 11% increase for CPT code 64568. As you know, for INSPIRE V, centers bill CPT code 64568 which has been accepted for plans covering over 90% of our 300 million covered lives, including Medicare. This change will take effect January 1, 2026. We are still awaiting the final OPPS rules to be issued by CMS. As you know, as you are aware, in July, CMS proposed to increase the national average Medicare hospital reimbursement for CPT code 64568 to $32,000 up approximately $1,300 or 4% from 2025 and the ASC reimbursement to $28,000 up $1,300 or 5% compared to 2025. These positive reimbursement changes will take effect January 1st, 2026 once approved. Following our last earnings call, We conducted our own survey of over 200 sleep physicians to better understand their treatment paradigm for OSA since the introduction of GOP-1s. What we confirmed is that the GOP-1s are driving increasing interest in sleep health and bringing more patients into the clinic, if only to get their GOP-1s covered by insurance with an OSA diagnosis. INSPIRE welcomes this trend as it opens the door to alternatives beyond CPAP. Based on the survey results, about half the sleep physicians now prescribe and manage GLP-1s themselves, while the rest refer patients back to family practice due to the burden of managing these patients, whether it's insurance hurdles, challenging side effects, or because weight management just is not their area of focus. The survey also identified that sleep physicians are not comfortable prescribing GOP1s alone, but prescribe concurrently with other treatment options, initially CPAP. Patient monitoring, coupled with the insurance requirements to obtain refill prescriptions, provide visibility into the patient's weight loss, adherence to CPAP, and overall sleep health. These same physicians then understand the patient profile that may be recommended for Inspire Therapy. Overall, the survey confirmed that patients will try a GLP-1 prior to surgery, but also the patient pool has been increasing with the availability of GLP-1s to treat OSI. This reinforces our confidence that GLP-1s make it possible for higher BMI patients to lose weight and become eligible for Inspire Therapy, and Inspire is excited to help even more patients access effective lasting care. In summary, we remain focused on the patient to continue the growth and adoption of Inspire Therapy. We will execute our growth strategy of driving high quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include training advanced practice providers, certifying additional surgeons qualified to implant Inspire Therapy, and driving adoption of SleepSync and our digital tools, all of which are embedded strategies in our commercial team's objective to increase provider capacity. Looking ahead, we are confident about our future in that we have the appropriate strategy in place to drive long-term stakeholder value. We have our arms around the headwinds that I have described, and actions are already underway to accelerate adoption of Inspire 5 for the remainder of the year. And looking beyond 2025, we continue to take action to position the company for strong, profitable growth. With that, I'd like to turn the call over to Rick for his review of our financials.

Thank you, Tim. And good afternoon, everyone. Total revenue for the quarter was $224.5 million, a 10% increase from the $203.2 million generated in the third quarter of 2024. U.S. revenue in the quarter was $214.4 million, an increase of 9% from the $195.8 million in the prior year period. Revenue outside the U.S. was $10.1 million, which was a 37% increase year over year. Gross margin in the quarter was 85.8% compared to 84.1% in the prior year period. The year-over-year increase was primarily due to increased sales volume and increased sales mix of Inspire 5, which is more cost-effective to manufacture. Total operating expenses for the quarter were $183.1 million, an increase of 17% as compared to $156.5 million in the third quarter of 2024. This increase was primarily due to increased patient marketing expense and general corporate costs. partially offset by a reduction in R&D year over year. Operating expenses included $1.3 million in legal fees related to a civil investigative demand from the Department of Justice and patent infringement lawsuits with a competitor. These legal fees do not reflect costs associated with our ongoing operations. Please refer to our earnings press release for a reconciliation of these items. Interest and dividend income totaled $4 million in the quarter compared to $5.9 million in the prior year period. Operating income for the quarter totaled $9.6 million compared to an operating income of $14.3 million in the prior year period. Net income for the quarter was $9.9 million compared to net income of $18.5 million in the prior year period. This represented diluted net income per share of $0.34 for the quarter compared to $0.60 in the third quarter of 2024. Adjusted EBITDA for the quarter totaled $44 million compared to $44.5 million in the prior year period. The adjusted EBITDA margin in the third quarter was 20% compared to 22% in the third quarter of 2024. Adjusted net income per share totaled $0.38 compared to $0.60 in the prior year period. The weighted average number of diluted shares outstanding for the quarter was $29.6 million. Operating cash flow totaled $68.5 million for the third quarter, bringing the year-to-date total to $64.5 million. We completed $50 million of share repurchase in the third quarter, bringing the year-to-date total to $125 million, and we ended the quarter with $411 million in cash and investments. Our strong cash position allows us to remain focused on executing our growth strategies. Moving on to 2025 guidance. As Tim mentioned, we are reaffirming our revenue guidance range of $900 to $910 million, representing an increase of 12% to 13% compared to full-year 2024 revenue. We continue to expect full-year gross margin to be in the range of 84% to 86%. We now expect diluted net income for the full year 2025 will be 90 cents to a dollar per share. An increase from our previous range of 40 to 50 cents per share. We ended the quarter with 336 US territories and 268 US field clinical representatives. We are being more strategic in our approach to territory management and optimizing our model through targeted territory consolidation and increased field clinical reps. We hired nine field clinical reps in the quarter consistent with our strategy to get the ratio closer to one to one territory manager to field clinical rep. We now expect our reported tax rate in 2025 to be 25% as state minimum taxes are higher than expected. Furthermore, in the fourth quarter, We will likely eliminate a large portion of the valuation allowance on our deferred tax assets. This will create a large one-time tax benefit that we will call out when we report our fourth quarter results. We expect the full year diluted shares outstanding to be approximately 30 million. With that, our prepared remarks are concluded. Dulem, you may now open the line for questions.

Thank you, sir. As a reminder, to ask a question, you would need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And I show our first question comes from the line of Travis Steed from Bank of America Securities. Please go ahead.

Hey, everybody. Congrats on the progress with Inspire 5. Just curious how you're thinking about some of the puts and takes on 2026 at this stage and anything to call out in terms of of cadence, first half, second half, and 26th?

Hi, Travis. Yes. Great question. I know this is top of mind for everyone. Travis, right now, we're focused on finishing the fourth quarter strong. Now, it's still early in our 26th planning process. So while we're not providing specific guidance at this time, I want to reiterate the underlying trends we're currently seeing. The Inspire 5 launch positives clinical feedback and strong patient flow driven by our increased DTC investment give us confidence in the durability of our growth heading into next year. We'll provide formal 2026 revenue guidance in January once we've completed our year-end results and planning. Taking all into account and while not providing formal guidance, we can see accelerated growth from our third quarter and wish to provide an early indication of 10% to 11% growth for next year. In the meantime, our business fundamentals remain strong. We've seen and continue to see excellent momentum within Spotify, both in physician adoption and patient outcomes. Our outreach campaign is generating record engagement, and our field organization is operating with greater focus and alignment than ever before, which is translating into more consistent execution. We're also realizing operational benefits from tighter integration across marketing and therapy development, which will continue to support long-term profitability. As always, we're mindful of near-term factors such as the Inspire 4 inventory transition, GOP 1 trialing, and ongoing competitive activity. Overall, we're executing with discipline and have reaffirmed our 2025 guidance. With Inspire 5 scaling and continued operational focus, we expect continued revenue growth and improvements in operating leverage. And as far as cadence, at this point, we expect to return to our historic norms prior to 2025 and the Inspire 5 launch.

That's a super helpful answer. Thanks a lot. I'll keep it at one.

All right. Thanks, Travis.

Thank you. And I show our next question comes from the line of Adam Mater from Piper Sandler. Please go ahead.

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

Sure, Adam. I think the key to it is really the trends we see with Inspire 5. And as we talked throughout the last earnings call with everything from Medicare to available product to the transition with SleepSync, Really the field getting their arms around all that and working with individual centers and really seeing that transition really transpire mostly in the third quarter. And we have some additional work. But we know the majority of the inventory in the field today is Inspire 5, so we're already working through that inventory transition from 4 to 5. So we do see implants going forward. We know we always have our highest seasonality later in the year because of the high deductible rate. insurance plans, and we're seeing those same trends now. And again, just to highlight, the marketing team is doing a great job with their new awareness campaign, and we are seeing the benefits of that as well.

That's helpful, Tim. I appreciate the color there. And just for the follow-up, you know, I guess you're a little bit over 75% of accounts that are implanting the Gen 5 device today. How do we think about kind of bridging that figure to 100% of your accounts? You know, just want to better understand, you know, kind of the remaining, you know, gating items there. It sounds like SleepSync is maybe the biggest one, but wanted to confirm that. And just one kind of clarification, the accounts that are adopting Gen 5, are they, you know, only implementing Gen 5 going forward? Are they still kind of, you know, carrying a mix of Gen 4 and Gen 5? Hopefully that all makes sense.

No, Adam, that's a good clarification that we want to make. I think the... We focus on the centers that are the highest implanters, the top 100, top 200 centers, of course, and make sure we get the majority of those centers across the line and taking care of patients with five. But even those centers, to your last point, will continue to do Inspire 4 at a limited amount. I also will highlight there are centers, due to economics and where they are in the United States and the Medicare reimbursement, that they will continue to implant Inspire 4 units. And we will continue to make Inspire 4 available into the future. So I think we'll continue to bridge most centers over to Inspire 5. But again, there will still be some additional centers carrying over and staying with Inspire 4. But I think the great majority will be complete with their transition by year end.

Very helpful. Thank you.

Thank you. And our next question comes from the line of Robert Marcus from JP Morgan. Please go ahead.

Oh, great. Good afternoon. Thanks for taking the questions. I wanted to ask more on expenses. And R&D and OpEx came in a good clip below where we in the street were thinking, you know, great expense control led to really good earnings power, how should we think about, I guess, A, what exactly you're pulling back on, and B, how sustainable that is?

Well, you also got to remember, not necessarily pulling back, but you also remember we're kind of in a launch period with Inspire 5. And a lot of our focus is working on stabilizing the manufacturing line and getting a second line up and running and focusing on the digital side, specifically with Sleep Sync. So we're going to continue to invest in R&D. And I think we want to be more consistent with R&D as we move forward to focus on our opportunities with Inspire 6, with our digital tools, and keep pushing those elements to it. But I do think it'll be more in line with what you're seeing right now.

Great. Maybe just a quick follow up. Tim, if you could update us where you are in sort of the inventory conversion from 4 to 5. You know, was there any destocking or restocking in 3Q? What we should expect that's baked into the guide in 4Q? And is it all done exiting the year, or is there still some more in 26?

Well, as you recall, at the beginning of the third quarter, it was pretty much all Inspire 4 inventory in the field. And now the majority of the inventory is already Inspire 5, and that continues to change on a weekly basis. And we think that those centers transitioning over to Inspire 5 will work through their Inspire 4 inventory predominantly by the end of the year. Again, Robbie, remember there's a few centers that are going to stay with Inspire 4, so we'll continue to make that product available. But again, the reports and the success that people are having with Inspire 5 is really strong. And once people transition over, they want to continue to focus on that and increase the number of patients that they can treat.

Appreciate it. Thanks a lot.

Thanks, Robbie.

Thank you. And I show next question comes from the line of Danielle from UBS. Please go ahead.

Hi, good afternoon, guys. Thanks so much for taking the question and congrats on the good progress in the quarter. I'll echo everyone else there. Just a question on thinking about ramping centers that are sort of lower to mid volume and what you guys are doing around that because, you know, I do think EMT sort of mind share, I guess I would say, or capacity is still an important driver here, appreciating the benefits Inspire 5 brings. So just curious about what you guys are doing out in the field with these lower volume centers to get them higher and using on a more regular basis.

Thank you. Big initiative that we have ongoing there. We have formed a new team that is really focused on that group about re-energizing the ENTs. And we're kind of using Inspire 5 as the catalyst to do that. Because remember, the difference between Inspire 4 and 5 is you don't have to place the pressure sensing lead between the intercostal muscles. And that's always been a little bit of the uncomfortable part of the Inspire procedure for an ear, nose, and throat surgeon. So Inspire 5 lets us come back to those ENT surgeons and to new surgeons and to re-engage with them, re-energize them around the benefits of Inspire 5, the easier implantability of the device, if you will, and really focusing on that. So we have a long history and list of those centers that have started but not reached their potential, and we're going back and revisiting them with this team, but also going to centers and starting to recruit additional ENTs who now find the procedure more acceptable that they don't have to to mess with the chest wall and the pressure sensing lead.

Are you, and just a quick follow-up, are you starting to see that or is this something, you know, it sounds like this is a relatively new initiative. So is this really something that is probably more contributing factor in 26 and beyond or is this already contributing? Thanks so much.

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

Thank you. And I show our next question comes from the line of David Prescott from Baird. Please go ahead.

Oh, great. Thanks for taking the questions. I wanted to follow up on some of the comments on the growth and the business and looking into 2026. You know, the two big pieces, of course, that we all tend to track is utilization and these new center ads. I know last quarter you talked about some of the pullback and spend impacting the opening of new centers. You know, I think prior to 2025, you had a couple of centers that were deactivated each quarter. So just trying to get a sense for maybe where that center base or the train center base stands today, whether or not we should assume that that continues to be a factor behind growth next year or more so if utilization with Inspire 5 is going to be a bigger driver than growth, than utilization has been growing.

Yeah, thanks, David. I think we've got to combine those two comments, and the answer is yes. I think what we really like is the Inspire 5 is really the tool and the feature set there with, of course, the easier implantation of the device, the shorter implant times, but not only that, but the The features that optimize outcomes and really increase the expectations for outcomes is really important. And so we don't see a lot of transition of centers away from INSPIRE over the last couple quarters. In fact, we significantly increased the number of centers. And we think going back to the last question with Danielle, that being able to excite additional ENTs to do the procedure now that it doesn't have the pressure sensing lead, kind of gives us a little bit more impetus to increase the number of centers. So we're going to continue on the pathway of not only growing utilization at existing centers with reduced surgical time, but also with the improved performance of the device and the implantability of the device to be able to continue to train new surgeons at existing centers as well as open new centers.

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

Yeah, David, that potential tax benefit is not factored into our guidance. And so, part of our improvement on the bottom line and operating margin, which I wanted to call out earlier, was that we did have a 180 basis point improvement on gross margin. So, that really helped drive our leverage in the third quarter. And that's because of the higher mix of Inspire 5, which drove higher gross margins.

Thank you. And I show our next question comes from the line of John Block from CIFL. Please go ahead.

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

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

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

Yeah, it's both. I think The key is we are winding down the manufacturing of Inspire 4. That being said, we are going to still have Inspire 4 available in the United States as we talked about, but we also have a long regulatory process in Europe and in Asia for Inspire 5. So we need to make sure that we have sufficient supplies of Inspire 4 to carry us through until we can do the full international transition of Inspire 5. So there is a big element of Inspire 4s in there that will burn down over time. That being said, we also are increasing our inventory of Inspire 5 now that we're getting stability with our manufacturing site. We're still operating with a single manufacturing site. And then also remember some of the piece parts that are shared between Inspire 4 and Inspire 5. So once we wind down 4, we'll be able to leverage some of that inventory into building additional units for Inspire 5 in the future.

Thanks, Tim. Thank you. And I'm sure our next question comes from the line of Larry Bigelson from Wells Fargo. Please go ahead.

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

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

Okay. And then maybe for Rick, on the seasonality in 2026, I just want to make sure I heard correctly with Tim's comments. Similar to prior to 2025, 2023 and 2024 were pretty similar in But, and I'm sure you've done the math, Rick, if hopefully I'm doing it right, it would imply like 205 in Q1 or low single digit growth increasing through the year. Is that directionally right? And why would Q1 be so low? And I apologize if I did the math on the fly wrong.

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

All right. Thanks for clarifying.

Thank you. And I'm sure our next question comes from the line of Anthony Petroni from Mizuho Americas. Please go ahead.

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

Absolutely. You laid that out nicely. I think the survey that we had, we learned quite a bit from that. And I think it's just a significant number of patients coming into the sleep labs because they are getting increased phone calls to do a diagnosis for obstructive sleep apnea because they need that indication to be able to help with insurance coverage. Well, sleep physicians are reluctant to just do that. Sleep physicians are responsible and they're going to do the proper diagnosis and make sure that that patient has proper care. And if they have moderate to severe sleep apnea, they're not going to just wait a year to see if a GOP1 works. They are going to put them on concomitant therapy, as you talk about. They're going to start them on CPAP. They're going to start them on a GOP1. But they're going to have to track those patients too because that's the requirement of the insurance company. So now we have an increased number of patients in the facilities with the sleep physicians. And when they become or if they become not compliant to CPAP, yeah, they're going to be looking for alternative surgery or alternative therapy. And if they are of the right BMI, the sleep physicians know what patients do best with Inspire. And we would expect those to correctly be referred over to receive Inspire therapy and the sleep physicians will continue to manage those patients long-term. So that is exactly the hypothesis of where we stand. We do believe that the GOP1s can work in concert with Inspirits, can help people lose weight, reduce the lateral wall collapse, and allow Inspirits to treat those patients that have tongue-based collapse. So it's really two mechanisms of action that can work together.

I'll hop in back in. Thank you. Thank you.

Thank you. And I show our next question, and the queue comes from the line of Shagun Singh from RBC. Please go ahead.

Great. Thank you so much, Tim. I wanted to go back to the 10% to 11% growth next year because consensus is currently at 14%, so that's a pretty big gap. And, you know, you called out Inspire 5. You called out the inventory dynamics, GLP-1's competitive effect, and you said, you know, competition is not a big headwind. I think GLP-1s are positive longer term. There could be some trialing. You know, I guess I wanted to ask, are there other factors, you know, that need to be contemplated as we think about 2026? You know, what gets you closer to consensus at 14%? You know, have you factored in anything on increased reimbursement? Or is that a headwind as you think about Inspire 5 adoption and utilization? And, you know, just even looking at Q4, you know, I'm looking at a step down in growth on a stacked two-year basis and 6% exit rate. You know, can you just give us some commentary there on, you know, why that is? And, you know, you are talking about accelerating growth, but Q4 seems to be lower. Thank you for taking the question.

Yeah, absolutely. You kind of laid out all those headwinds right there that we used to calculate, but there's also a lot of positives in there. And I think Inspire 5 performance and Inspire 5 acceptability is really – I'm strong. So once we complete the transition with five, that gives us great opportunity to kind of lean in and kind of reassess where we are with our guide. Now, I know it's an early indication. It's not formal guidance, but we wanted to make sure that we put that out there. We know what we need to do to review that, and we're going to monitor that with Q4 performance, as well as when we come with full guides in January, but yeah, we've kind of laid out the headwinds that we see that are going to challenge us, but we also want to leverage the opportunities that are there for us. Even the OPPS rule that just came out showing an increase in physician reimbursement for Inspire 5 is an opportunity because it really closes the gap between the reimbursement with 64568 versus the old code, 64582. And so there's a lot of positives mixed in there. So, yeah, we have a lot of work to do to be able to kind of work through the details for when we come with full guide in January.

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

Thank you. Our next question comes from the line of Vijay Kumar from Evercore ISI. Please go ahead.

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

No, it's really more of a good question. It's more related to site of service or hospital reimbursement. And with Inspire 4 and Inspire 5, we can make Inspire 4 available with an economic benefit to some of those centers to help them get back to doing implants. So there is some discounting on Inspire 4 that can help us out. Inspire 5, that's not true. So that's why some of these centers just choose to do 4 based on the economics with the coding today. But as you saw, that doesn't affect our overall ASP or gross margin.

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

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

That's great. Thank you very much.

Thank you.

Thank you. And I'm sure our next question comes from the line of Michael Zirconi from Jefferies. Please go ahead.

Hey, good afternoon, and thanks for taking the questions. I'll just ask both of mine up front. You might have already answered kind of the second one I'll ask Tim. But, you know, last quarter you had mentioned that at the accounts that were converted to Inspire 5, you were seeing about 20% same-store sales growth. Given the outlook for kind of 10% to 11%, at least early on right now, for 2026, it seems like, you know, that's not carrying through. Just wanted to maybe get an update on on how that 20% same-store sales has progressed as you've kind of opened up more accounts with Inspire 5. And then is there any interplay there with the Inspire 5 reimbursement on the physician fee level being lower?

Mike, thanks for the question. So there's still absolutely a correlation between centers that have transitioned to Inspire 5 and faster volume growth that we saw through the end of Q3, which we're very, very pleased with. As we highlighted on our last earnings call, though, you shouldn't anticipate that 20% to continue for all centers. But we're very pleased with the correlation that we're seeing with Inspire 5 adoption and accelerated case volume. And again, as we noted on 2026, it's really early. There's still a lot of puts and takes, which we highlighted. We just want to be prudent, but we're very, very pleased with what we're seeing with the Inspire 5 launch and experience to date.

Got it. Thank you, Lizzy.

Yep. Thank you. And I share our next question. It comes from the line of Chris Pasquale from Newfound Research. Please go ahead.

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

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

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

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

Yeah. Hey, Chris. So, yeah, you're right on all your assumptions. Year-over-year OPEX growth for 2025 is going to be in that 16%. Um, outpaces full year revenue growth, but we are going to have an improvement in operating margin, uh, sequentially into Q4. Um, still pretty early to talk about 2026, but, um, the, the new guidance also implies, um, full year operating margins in that two and a half to 3%. Um, and on a longer term basis, we expect to improve that over time.

Okay, thanks, Chris. Thank you. And I show our next question comes from the line of Richard Newiter from Truist Securities. Please go ahead.

Hi, thanks for taking the question. I just want to continue on Chris's question. I mean, congratulations. It's great to see the expense control there this quarter. I guess what I'm just trying to understand is what, you know, we were all much higher. We thought your profit was going to preserve much better even with the revenue call down last quarter. I guess I'm just trying to understand what's changed from the outlook that's causing kind of the 50 cent upward revision here. And then, you know, I know you're not giving explicit guidance next year on operating expenses, but we're all just trying to understand what the right normalized spending rate is. And, you know, significant cost controls here But it's not clear whether that's in some way linked to some improved efficiency that's going to come as a result of the territory consolidation. I guess, you know, is a 10% to 11% growth rate just requires less investment than what it did when you were, you know, initially a 15% to 20% growth rate? Just help us think through kind of what's changed because the earnings is kind of whipsawing around quite a bit here.

Yeah, I can start maybe. First and foremost, our revenue did outperform where consensus was modeling. So first and foremost, the revenue be in the quarter is what's helping with some of the EPS. Below the line, yes, we did increase our investments on DTC, but we were very disciplined across other areas. And we will continue to look for those types of savings as we move forward. Yes, there has been some consolidation of territories that's also driving some of that savings, but you're absolutely right. We're going to continue to support the business. We're going to continue to invest in R&D, in patient marketing, and in medical education, but we're going to do it in a very methodical and disciplined way and make sure that we continue to show operating leverage going forward.

Okay, thanks. And then maybe just one second one. I'm curious. Are you able to actually see more procedures per account, and the accounts that have been adopted have been fully trained in Inspire 5, and can you quantify that?

We are seeing that. The math is getting, I mean, a significant portion of our centers now are implanting Inspire 5. It's over 75%, and yes, there is a correlation between accelerated volume growth and the use of Inspire 5. We are seeing that for sure.

Okay, thanks. Thank you. And I share our next question comes from the line of Brett Fishpin from KeyBank. Please go ahead.

Hey, guys. Thanks so much for taking the questions. A lot of questions already on next year, so I'll ask one a little bit more qualitative. I think during the quarter you had the press release with some of the limited market release information about Inspire 5 in the U.S. One thing that stood out to me was the anecdote on one of the KOLs performing 12 implants per day. I believe that compared to nine with Inspire 4. So something like a 30 to 40% increase in efficiency, which was above the 20% reported from Singapore. So just curious kind of like what drove that kind of performance and are there specific items that can maybe be applied to other centers that have struggled to see that type of efficiency either in the past or with Inspire 5?

Thank you. Yeah. Hey, Brett, that was a key topic at the AAO meeting or the ISS meeting where the surgeon was actually on stage talking about that. And the key is how do they set up their center to be able to do that? Finding the number of patients, that's not the issue. We all know that the challenge is having capacity with surgeons to take care of the patients demanding therapy. But what this individual is able to do is have access to two operating rooms. And they kind of laid that out and talked through people of having the access to be able to is competing the INSPIRE time versus the time it takes to clean the room to do multiple rooms in a day and the efficiencies that that can bring. And think about the efficiencies not just from the surgeon performing multiple procedures, but there's a revenue bonus or benefit for the hospital to do that many procedures in a day. Think about INSPIRE. Think about what we're talking about with our OPEX and building efficiencies and us being able to have our field clinical rep there for a full day rather than doing a case, having to drive across town with windshield time. So it's a win-win for everybody. And it really takes an experienced, efficient surgeon to do this. And so that drives the high quality surgeons that have experience doing numerous cases. is something that we really want to emulate across the board as the way to do that to set up surgical days to stack cases.

Thank you.

Thank you so much.

Thank you.

Thank you. And I share our next question comes from the line of Michael Polark from Wolf Research. Please go ahead.

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

I'm going to come back and let me answer the first one and make you repeat the second one. I think the way we're planning it out, we are going to discontinue the manufacturing of Inspire 4, but we made sure that we did a forecast going forward. Remember, we have a three-year shelf life on these products to look at what's going to be available to support Europe and Asia, as well as centers in the United States who want to continue with 4. So we are budgeting our manufacturing to align with our forecast for 4 going forward. So what was your second question, though, Mike?

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

Go ahead.

I think that may have been a slight headwind at certain times over the course of the year, but for the most part, the implant to sales ratio has been pretty steady. I think we can take a closer look at that as we wrap up the year and figure out if it makes sense to disclose that on a one-time basis, but I would say Generally speaking, implant volumes have trended pretty closely to sales. So I don't know that that would be necessary. And as Tim noted earlier, the vast majority of inventory in the field sitting on shelves today is already Inspire 5. So that gives us confidence as we look ahead into Q4 and beyond.

Understood. Thank you.

Thank you, Mike.

Thank you. And I'm sure our last question in the queue comes from the line of Mike Krakke from Leo, Inc. Partners. Please go ahead.

Hi, everyone. Thanks for taking my questions and congrats on a nice quarter. One clarifying question there, really appreciate the color on the survey of sleep physicians and certainly encouraging. It seems like you're expanding the top of the funnel. but were there any cross-currents that are worth calling out there? And did you get the sense among physicians surveyed to what extent they're seeing or expecting GLP-1s to have a positive or negative impact on their overall INSPIRE procedure volumes?

I think the sleep physicians are gearing up that GLP-1s are increasing their procedure volume. And again, I think family practice doctors are sending them to sleep to get a diagnosis, but the sleep physicians are being more responsible when they they're not just going to do a study and send that patient back. They're going to want to make sure they do a proper diagnosis and make sure that they have the proper procedure or therapy, not just leave them on a GOP-1 and not just send them back. So I think the survey kind of really showed that they're expecting an increase in their volume, but we also wanted to tease out what patients they refer for INSPIRE, and we're able to pick up that information as well. So the knowledge base is there. They know what patients that can be helped with GLP-1, and they know that if patients can lose weight, they can qualify for INSPIRE.

Understood. Thanks very much.

Thank you.

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

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

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