Stifel 2026 Healthcare Conference - INSPIRE MEDICAL SYSTEMS INC

Financial Performance:

• Q3 results exceeded expectations on both top and bottom lines despite YoY revenue decline; revenue run rate increased sequentially from Q2 to Q3.
• Gross margin remains strong at 86% and expanded YoY, providing capacity to drive stronger operating margins.
• Generated strong free cash flow in a depressed top-line environment; balance sheet is debt-free.
• Full-year 2026 revenue guidance narrowed with a midpoint of -6% growth; Q4 2026 guidance reflects a midpoint decline of -10%, with sequential improvement from Q3.
• Introduced a 2027 revenue outlook targeting low single-digit growth (estimated $870M–$875M).

Guidance and Future Outlook:

• 2026 outlook focuses on stabilizing revenue through Q4 as reimbursement clarity improves and prior authorization processes accelerate.
• 2027 growth is driven by "Project Horizon" (reinvesting $30M in efficiencies into growth), resumption of patient growth, and early-stage replacement revenue from devices implanted 10 years ago.
• New CPT code implementation begins January 1, 2028, following RUC survey data collection and CMS proposal in July 2028.
• Management expects 2027 revenue cadence to return to historical seasonal patterns (approx. 21% in Q1).
• Anticipate significant contribution from replacement revenue in 2027 and beyond, converting older units to Inspire 5.

Business Segments and Product Lines:

• Inspire 5 (Gen 5): Fifth-generation device features an internal accelerometer sensor (replacing intercostal muscle placement), improving stimulation coverage (inspiratory overlap) from 79% to 87%.
• Clinical Data: Singapore study data on Inspire 5 to be published soon; total patients treated exceeds 150,000; 400+ publications available.
• Inspire 6 (In Development): Will incorporate sleep detection technology to automate therapy initiation, aiming to maximize adherence and outcomes.
• Future Tech: Roadmap includes Inspire 7+ focusing on digital tools, patient texting/app communication, and remote programming capabilities for physicians.
• New Facilities: Plan to accelerate opening of new centers in Q4, particularly focusing on Ambulatory Surgical Centers (ASCs).

Market and Competitive Landscape:

• Reimbursement Catalysts: Recent OPPS update raised facility reimbursement by 11% for hospitals and 13.5% for ASCs, moving majority of ASCs into profitability and correcting previous loss-leader scenarios.
• Market Shift: Procedures are migrating to ASCs; 25% of Q3 procedures were performed in ASCs (up from 18% YoY), with a long-term goal of >50%.
• Coding: Temporary codes for Inspire 5 are established; new permanent CPT code accepted for 2028; commercial and Medicare coverage remains solid.
• Competitive Positioning: Unique selling proposition relies on clinical outcomes and the "triple C" opportunity (Curing, Cost, Comfort) via high adherence and technology improvements.

Risks and Challenges:

• Reimbursement Uncertainty: Past challenges with code transitions (64568) and billing clarity caused adoption slowdowns and utilization pauses, though now stabilizing.
• Utilization Volatility: Some centers paused or slowed procedures during the coding flux; focus remains on ensuring centers achieve high utilization to maintain patient outcomes.
• Prior Authorization: Still a friction point; management is actively working to reduce the time from authorization to implant, especially in Q4.
• Seasonality: Q4 revenue remains subject to high-deductible insurance reset behaviors, though ASC flexibility mitigates OR scheduling constraints.

Management Commentary and Tone:

• Tone is confident and relieved regarding the resolution of reimbursement coding issues; management views 2026 as a "corrective action" year leading into 2027 growth.
• Emphasizes "persistence" and "clinical outcomes" as the core drivers for long-term market penetration despite short-term headwinds.
• CEO Tim Herbert credited the field team for navigating complex reimbursement changes and highlighted the excitement of returning to growth.
• CFO Matt Osberg expressed satisfaction with the ability to grow the revenue run rate sequentially despite overall YoY declines.

Analyst Questions and Answers:

• 2027 Guidance: Management confirmed the low single-digit growth guide assumes nominal reimbursement increases and factors in ASC migration and replacement revenue.
• ASC Strategy: 25% of procedures are now in ASCs; new reimbursement levels make ASCs more profitable, accelerating the shift from hospitals.
• 2028 Code Process: New code value determination relies on a survey by the American Academy of Otolaryngology (AAO); results and CMS proposals expected July 2028, final rules in November.
• Facility Expansion: New center sign-ups were limited in H1/H2 2026 due to billing confusion but are expected to ramp significantly in Q4 2026 and 2027.
• Replacement Revenue: Model assumes a conversion rate from devices implanted 10+ years ago; Inspire 5 generator replacement offers 11-year battery life and smaller size (1/3 volume of old units).
• Q4 Dynamics: Anticipate seasonal uptick driven by patients utilizing insurance before deductible reset; ASC flexibility allows for Saturday implants to capture demand.

Other Key Points:

• Project Horizon: $30M in identified organizational efficiencies to be reallocated toward high-revenue growth initiatives in late 2026 and 2027.
• Physiologic Metrics: Shift in focus beyond Apnea-Hypopnea Index (AHI) to "hypoxic burden" as a key measure of cardiovascular stress and patient outcomes.
• Remote Care: Developing remote programming technology to allow physicians to manage patient settings from the office, reducing clinic visits.
• Market Penetration: Market remains significantly underpenetrated; strategy focuses on expanding access and identifying qualified patients more effectively.