Stifel 2026 Healthcare Conference - INSPIRE MEDICAL SYSTEMS INC

Explicit Guidance:

• FY 2026 Revenue: Midpoint guidance implies a 6% year-over-year decline (down 10% in 4Q 2026 midpoint), reflecting sequential improvement from Q3 to Q4.
• FY 2027 Revenue: Guidance for low single-digit growth, specifically estimated at $870–$875 million.
• FY 2027 Operating Cadence: Anticipated return to historical quarterly revenue distribution (approx. 21% in Q1), with the expectation of turning profitable in Q1 2027.
• Gross Margins: Current gross margin at 86% with expansion expected as top-line growth resumes.
• Cash Position: No debt; strong balance sheet to fund growth investments.

Business-Segment Outlook:

• Adoption & Utilization: Focus on increasing utilization at existing high-volume centers to drive growth, rather than solely relying on new center openings.
• Procedure Mix: Significant shift toward Ambulatory Surgical Centers (ASCs); 25% of procedures performed in ASCs in Q3 (up from 18% YoY), with a long-term target of >50% of procedures.
• New Facility Expansion: Expect significantly higher number of new center openings in 4Q 2026 compared to the first three quarters, accelerated by improved reimbursement clarity.
• Retention: Minimal facility drops observed; focus on re-educating and re-exciting existing centers to restore pre-disruption utilization levels.
• Replacement Market: Anticipated growth in replacement revenue starting in FY 2027 as the initial installed base reaches the 10-year battery life mark; conversion rate estimated near 75% with generator-only ASP of ~$20,000.
• Product Roadmap:
  • Inspire 5: Currently deployed; improved inspiratory overlap from 79% to 87% via internal accelerometer sensor.
  • Inspire 6: Development phase; will feature sleep detection technology to auto-activate upon patient sleep, improving adherence and outcomes.
  • Inspire 7+: Further innovations planned post-Inspire 6.

Market and Competitive Outlook:

• Physician Experience: Shift toward remote programming capabilities, allowing physicians to program devices from their offices rather than requiring patient visits.
• Digital Integration: Expansion of digital tools for patient identification (texting qualified leads) and remote monitoring to streamline the care pathway.
• Adherence: Targeting highest adherence levels with Inspire 6's sleep detection to address the limitation of patients not using therapy all night/night.
• Clinical Evidence: Ongoing expansion of publications (currently 400+) forthcoming, specifically targeting cardiovascular benefits and hypoxic burden reduction.

Macro / Industry Outlook:

• Reimbursement (Facility): Significant tailwinds from recent OPPS updates; hospital reimbursement up 11% and ASC reimbursement up 13.5% effective immediately, moving majority of US ASCs into profitability for Inspire procedures.
• Reimbursement (Provider/CPT): New Category 1 CPT code awarded; valuation survey conducted by AAO with RUC committee. Proposed rules expected July 2027, with final rule expected November 2027, taking effect January 1, 2028.
• Coding Stability: Coding and billing processes for Inspire 5 (codes 64568, 64582, and CMS C-code) have stabilized; commercial payers and MACs are aware of the new code and preparing systems for 2028 transition.
• Prior Authorizations: Focus on reducing turnaround times to accelerate Q4 implant volumes, particularly for high-deductible patients.
• Seasonality: Strong end-of-year surge expected (Christmas/New Year's week) driven by patients maximizing insurance benefits before calendar year reset.

Strategic Initiatives:

• Project Horizon: Restructuring initiative executed in Q3/Q4 to identify $30 million in efficiencies, which will be reallocated to growth initiatives and high-revenue activities in 2027 budgeting.
• Reinvestment: Capital will be redeployed toward clinical evidence expansion, physician experience improvements, and patient access initiatives.
• Capacity Optimization: Leveraging the efficiency gains from "Project Horizon" to reinvest in growth areas in Q4 2026 and the 2027 budget cycle.

Risks and Headwinds to Outlook:

• Reimbursement Valuation Uncertainty: Final RVU values and pro-fee adjustments for the new 2028 CPT code remain unconfirmed until CMS final rules are released; current valuation is based on survey data.
• Procedure Volume Lag: Transition challenges from 2026 to 2027 may persist if facility utilization does not recover quickly despite reimbursement improvements.
• Adoption Barriers: Potential for continued prior authorization delays or commercial payer system integration issues until the 2028 code is fully operational.
• Operational Execution: Success of "Project Horizon" depends on the speed and efficiency of reallocating costs from back-office functions to growth areas.
• Market Saturation: Growth reliance on utilization and replacement revenue requires sustained penetration in existing centers; new center contribution is limited by the sheer size of the current footprint.

Management Tone on the Future:

• Confidence Level: Highly encouraged and optimistic regarding the path to growth in 2027; management describes the current state as transitioning from "corrective action" to "growth."
• Pacing: Cautious but deliberate; views 2026 as a stabilization year leading into a return to low single-digit growth in 2027.
• Strategic Focus: Emphasis on "clinical outcomes" and "patient outcomes" as the primary drivers of future adoption, rather than aggressive short-term pricing power.
• Historical Context: Management acknowledges the "tough year" and coding disruptions but expresses excitement about the "positive persistence" of the field team and the upcoming favorable reimbursement landscape.
• Guidance Hedges: Guidance assumes continued operational improvements and successful navigation of the new coding environment without major regulatory surprises.

Miscellaneous:

• Patient Base: Crossed 150,000 total patients treated.
• Employee Base: 1,300 employees.
• Geographic Expansion: High-volume centers prioritized for coding education; commercial and Medicare Advantage coverage remains solid.
• Technology Differentiation: Inspire 5 offers a smaller device (1/3 size of predecessors) with 11-year battery life, leveraging rate-responsive technology for better inspiratory overlap.