Inspire (INSP) Q1 2026 Earnings Call Transcript

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DATE

Monday, May 4, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Timothy P. Herbert
• Chief Financial Officer — Matthew Osberg
• Vice President, Investor Relations — Ezgi Yagci

TAKEAWAYS

• Revenue -- $204.6 million, up 1.6%, primarily driven by increased market penetration; revenue was negatively impacted by approximately $20 million due to coding, reimbursement uncertainty, and the WISER program.
• Operating Margin -- Operating and adjusted operating margin improved, driven by gross profit expansion from a higher Inspire V systems sales mix.
• Effective Tax Rate -- Effective tax rate increased to 571.2%, due to tax shortfalls from lower stock-based compensation benefits related to stock price decline at vesting, while adjusted effective tax rate was 25.7% after removing stock-based compensation effects.
• Diluted EPS -- Reported as a loss of $0.39, with adjusted diluted EPS at $0.10.
• Adjusted EBITDA Margin -- Improved by 100 basis points to 17.5%, excluding stock-based compensation.
• Operating Cash Flow -- $12.8 million, improved by $20 million year over year due to better working capital, partially offset by a higher net loss.
• Balance Sheet -- No debt and $400 million in cash and investments at quarter-end.
• U.S. Territories and Field Clinical Representatives -- Ended with 284 U.S. territories and 288 U.S. field clinical representatives after hiring 13 new reps to reach a 1:1 territory manager to clinical rep ratio.
• Revised 2026 Revenue Outlook -- Updated full-year revenue guide to $825 million to $875 million, reflecting an estimated $120 million to $150 million revenue headwind from coding, reimbursement, and the WISER program.
• 2026 Revenue Cadence -- Management forecasts a 9%-11% year-over-year revenue decline, with second quarter headwinds from coding, reimbursement, and WISER impact increasing to $40 million to $50 million, before improving in second half.
• 2026 Profitability Outlook -- Adjusted operating margin now expected at 2%-4%; diluted EPS revised to $0.07-$0.62, with adjusted diluted EPS $0.75-$1.25; adjusted effective tax rate forecasted at 27%-29% on weighted-average diluted shares of 29.4 million.
• Capital Expenditures -- Capital spending projected between $40 million and $45 million for the year.
• Inspire System Product Mix -- Inspire V systems represented the predominant implant mix, unchanged from the fourth quarter, while Inspire IV inventory remains available for centers needing coding clarity.
• Clinical Data -- The Inspire ADHERE trial (5,000-patient real-world cohort) completed and to be presented at the SLEEP conference; a new claims-based cardiovascular outcomes study and other independent analyses will also be shared.
• Revision and Explant Rates -- For full-year 2024, revision rate was 1.7%, and explant rate was less than 1%, per the 2025 patient experience report.

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RISKS

• Coding and reimbursement uncertainty directly reduced procedural volumes by adversely impacting the number of patients in the pipeline and delayed prior authorizations, as management explicitly linked these to revenue shortfalls.
• WISER program initiated prior authorization delays for Medicare cases in six pilot states, with management stating this resulted in a headwind to first quarter revenue and a forecasted increased negative impact in the second quarter.
• GLP-1 therapy adoption is acknowledged by management as an additional, though unquantified, short-term revenue headwind due to its effect on patient eligibility timing and referral patterns.
• Effective tax rate volatility poses risk, as the company stated, "certain discrete tax charges can have a material impact on our tax rate" in connection with stock-based compensation and fluctuating stock prices.

SUMMARY

Management established the introduction of a C code for Inspire V procedures by CMS as a near-term coding solution for Medicare patients, providing clear guidance for hospitals and ambulatory surgical centers and payment parity with previous codes. Company leadership stated that, although commercial payers have been slower to adopt new codes and continue to rely on prior authorization with varying levels of coding clarity, proactive educational efforts and field reimbursement expansion are expected to support the return of patient procedural volume. Current facility payment equivalency and the new C code are already incorporated into local MAC policies, supporting continuity of Medicare payments amid the coding transition. Operational discipline was reinforced through targeted field consolidation and prioritization of revenue-focused activities, while targeted investments in digital experience, patient care pathway improvements, and research and development are being maintained. Management will present completed clinical studies, including ADHERE and cardiovascular outcomes analyses, at industry conferences to strengthen the value proposition of Inspire therapy. The company signaled that its pipeline of delayed or deferred cases remains actively managed and that improvement in authorization and billing is anticipated to recover lost volume in subsequent quarters.

• Company management described the C code for Inspire V as a "reliable solution" for Medicare procedural billing, providing payment equivalency with CPT code 64582 and reducing ambiguity for providers.
• Payer and process variations continue to present operational complexity as management noted, "significant uncertainty remains" and coding solutions require tailored guidance for individual centers and geographies.
• WISER-driven delays were framed by the company as likely to "abate in the remainder of the year" as institutional experience develops with the program's requirements across the six impacted states.
• Ongoing, management expects sequential improvement in revenue and adjusted operating income beginning in the third quarter, supported by growing procedural experience and operational support for reimbursement, with the highest revenue and profit levels targeted in the fourth quarter.

INDUSTRY GLOSSARY

• WISER program: A government initiative that requires artificial intelligence-reviewed prior authorization for Medicare cases in designated pilot states, directly influencing procedural throughput.
• MAC (Medicare Administrative Contractor): A regional organization administering Medicare claims and policies, including coding and reimbursement determinations on local coverage.
• CPT code: Current Procedural Terminology code used in the billing of medical procedures for reimbursement by payers.
• C code: CMS-specific code used for billing hospital outpatient and ambulatory surgical center procedures, customarily bridging periods before permanent CPT code implementation.
• GLP-1s: Glucagon-like peptide-1 receptor agonist therapies, increasingly prescribed for weight management, which may affect sleep apnea treatment pathways and eligibility.
• PREDICTOR study: A completed 600-patient clinical study evaluating alternative screening options for Inspire therapy candidacy, designed to eliminate the requirement for drug-induced sleep endoscopy.

Full Conference Call Transcript

Operator: Good afternoon. My name is Dylan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems, Inc. First Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. I will now hand the conference over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire Medical Systems, Inc. You may begin.

Ezgi Yagci: Thank you, Dylan, and thank you all for participating in today’s call. Joining me are Timothy P. Herbert, Chairman and Chief Executive Officer, and Matthew Osberg, Chief Financial Officer. Earlier today, we released financial results for the three months ended 03/31/2026. 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, 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 results or events to materially differ. Accordingly, you should not place undue reliance on these statements. For a discussion of these risks and uncertainties, please see our filings with the Securities and Exchange Commission, including our periodic reports on Forms 10-K and 10-Q, as well as the Form 10-Q which we filed this afternoon with the SEC for the quarter ended 03/31/2026. Inspire Medical Systems, Inc. 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, 05/04/2026. With that, it is my pleasure to turn the call over to Timothy P. Herbert. Tim?

Timothy P. Herbert: Thank you, Ezgi, and thanks, everyone, for joining us today. On the call today, I will start by providing some key takeaways of our first quarter results, including an update on coding and reimbursement. I will also provide some insight into our revised outlook for the year and will then turn it over to Matthew Osberg, who will provide additional insights on our first quarter and full-year financials. We will then open up the call for questions. First, I want to highlight how pleased we are with the team’s execution in the first quarter.

Despite challenges related to coding and reimbursement uncertainty, as well as the WISER program, the organization delivered revenue growth and improved adjusted operating income and operating cash flow compared to the prior-year period. In this environment, it is critical that we focus on the factors within our control. Our first quarter results demonstrate this, as well as our focus on prioritizing revenue-generating activities and maintaining disciplined cost management while continuing to make targeted investments to support long-term growth. We believe these actions position the company well both in the near and long term.

As we progressed through the first quarter, we saw many developments with respect to coding and reimbursement, and we are diligently working to establish a consistent methodology to coding of the Inspire V procedure in the short term. The long-term solution is to establish a new CPT code for a single-lead Inspire system. This is a long process, and if approved, we expect this new CPT code to become effective on January 1, 2028. Therefore, we are establishing short-term remedies for the various payers to bridge until the new CPT code is in place.

For centers concerned with Inspire V reimbursement, we have inventory of Inspire IV, which has proven itself to be an extremely effective therapy with clear coding and reimbursement. As for coding for Inspire V systems, we are working with physicians, centers, and payers to establish clear and consistent coding and reimbursement guidelines, and there was progress in the first quarter. For Medicare patients, the Centers for Medicare & Medicaid Services, or CMS, announced the creation of a C code to be used with Inspire V procedures, and the Medicare Administrative Contractors, or MACs, are beginning to incorporate the C code into their local policies.

This provides a reliable solution for hospitals and ambulatory surgical centers and, importantly, the facility payment is equal to the Inspire IV CPT code 64582. Staying with Medicare, for physicians, currently the MACs list the Inspire IV CPT code 64582 without the use of a modifier. As such, the majority of Medicare cases this year have been billed without the use of a modifier, and we will continue to monitor this throughout the year. At this point, the commercial payers continue to list CPT code 64568 for Inspire V procedures. There is guidance provided by societies, including a nonbinding newsletter from the American Hospital Association, recommending the use of an unlisted CPT code, specifically 64999.

However, the use of an unlisted code requires manual reviews and additional support from centers. Because of this, many centers and payers may be reluctant to adopt the use of this unlisted code. The good news for commercial payers is each case is prior authorized, meaning the billing code is approved in the prior authorization before the procedure, significantly reducing payment uncertainty for the center. Medicare Advantage is managed by commercial payers. We recommend consistent coding practices as defined by the payer, and Medicare Advantage patients are also prior authorized. Although challenging, there has been progress in coding and reimbursement, and we have seen initial billing practices being established by physicians and centers in response to the changes in coding.

However, we recognize that significant uncertainty remains, and we will continue to support our customers as they navigate the path forward. This coding uncertainty has adversely impacted the number of patients in the pipeline, including the number of prior authorizations submitted to commercial payers as we moved through the first quarter. We expect this trend to reverse and improve in the remainder of the year as we continue to support prior authorizations and build confidence in the coding processes and guidelines. To further support patient access to therapy, we are increasing our assistance to customers by providing additional proactive education relating to prior authorization and billing processes, and we are adding to our field reimbursement team.

Our goal is to provide as much clarity to our customers as possible to mitigate disruptions to patient access to care. Switching to the WISER program, WISER is a government initiative requiring AI-reviewed prior authorization for Medicare cases in six pilot states, and the program kicked off in 2026. During the first quarter, the WISER program created prior authorization delays for traditional Medicare procedures in the six WISER states, resulting in a headwind to our first quarter revenue. As we continue to gain experience working with the new systems in these states, we anticipate the headwinds to abate in the remainder of the year.

With the ongoing coding and reimbursement challenges and the WISER program impact, we are revising our full-year revenue outlook. In light of our lower revenue outlook, and as we demonstrated in the first quarter, we will continue to be disciplined with our spending and focus on prioritizing revenue-generating activities while still making progress on long-term growth investments. In addition to enhancing our support to customers for proactive education and assistance with prior authorization and billing processes, we are also prioritizing projects to drive an improved patient care pathway, enhanced marketing effectiveness, improved digital product experience, continued R&D for new product development, and operational efficiencies.

We believe that these projects in these areas can begin to deliver returns in 2026 and accelerate in 2027. We continue to remain focused on our commitment to put the patient first and deliver strong patient outcomes. 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. At the upcoming SLEEP conference in Baltimore in June, we will be presenting the full results from the Inspire V trial conducted in Singapore.

While we have previewed some of the early data points, including inspiratory overlap, this is the first time we will be showing the full trial results, including the ability of the new accelerometer-based sensing technology and the safety and efficacy of the Inspire V implant. Additionally, the Inspire ADHERE trial is now complete. The data from the 5 thousand-patient cohort will be presented at the SLEEP conference. This is a real-world cohort demonstrating the effectiveness of Inspire as it is delivered today and builds upon our previous safety and efficacy trials.

We will further highlight the effects of Inspire therapy on cardiovascular outcomes, utilizing a large claims database to retrospectively examine incident cases of cardiovascular disease after Inspire implantation as compared to a matched group of patients receiving CPAP therapy and those not receiving treatment. At the SLEEP conference, we will present this study on the cardiovascular outcomes along with two other independent studies using two different claims databases to compare the use of various claims databases in the demonstration of improved cardiovascular and respiratory outcomes associated with Inspire therapy. In addition, a third independent study from Virginia Commonwealth University was just published in a peer-reviewed journal.

The data demonstrated that the Inspire patient cohort had significantly lower odds of stroke, myocardial infarction, atrial fibrillation, acute heart failure, acute respiratory failure, and hospitalization, to name a few, with at least two years of follow-up. These strong results suggest Inspire provides systemic cardiovascular and respiratory health benefits and reduces health care burden compared to CPAP. We expect further studies to support these findings. We are happy to report that the PREDICTOR manuscript has been accepted by a major medical journal, and we look forward to the publication in the coming weeks.

As you are aware, PREDICTOR is the 600-patient study we conducted to demonstrate alternative screening options to replace the drug-induced sleep endoscopy, or DISE, procedure for a large subset of eligible patients, improving the patient experience and reducing the timeline to implant. Last but not least, last month, we published our 2025 patient experience report. Highlighted in the report is a continued improvement in our revision and explant rates, which were 1.7% and less than 1%, respectively, for full-year 2024. In summary, we remain focused on providing the best therapy solution for patients and helping our customers navigate what we believe will be a temporary market disruption related to coding and reimbursement and the WISER program.

We are actively addressing the challenges posed by this disruption, and we remain excited about our product and the market opportunity to improve the lives of our patients as we have already done for over 135 thousand patients since our inception. We will continue to take action to position the company for long-term profitable growth, and we believe that we have the right strategies in place to drive long-term stakeholder value. I will now turn the call over to Matthew Osberg for his review of our financial performance.

Matthew Osberg: Thank you, Tim, and good afternoon, everyone. First, I will begin with a review of the first quarter results and then follow with commentary on our outlook for the remainder of 2026. Revenue increased 1.6% to $204.6 million, primarily driven by increased market penetration. As Tim mentioned, in the first quarter, we experienced disruption related to coding and reimbursement challenges and the WISER program, and we estimate that these items adversely impacted revenue by approximately $20 million. Operating margin and adjusted operating margin improved primarily driven by gross profit expansion due to a higher sales mix of Inspire V systems.

The effective tax rate increased to 571.2%, primarily driven by tax shortfalls related to our stock-based compensation, which were created by a decline in our stock price at award vesting date compared to the stock price at grant date. Additionally, in the prior-year period, we maintained a full valuation allowance against federal and state deferred tax assets. The adjusted effective tax rate, which removes the impact of stock-based compensation, was 25.7%. As we mentioned on our fourth quarter call, as we are in a situation where our pretax income is a relatively small base, certain discrete tax charges can have a material impact on our tax rate.

Due to the fact that we have a significant amount of stock-based compensation outstanding, and due to the volatility of our stock price, the tax impact of stock-based compensation on our effective tax rate can be material and could have significant variability from year to year. We expect the tax impact from stock-based compensation will be concentrated in the first quarter of the year, as that is when the majority of our vesting of our RSUs and PSUs occur. Diluted EPS was a loss of $0.39 and adjusted diluted EPS was $0.10 for the quarter. Our adjusted EBITDA margin, which excludes the impact of stock-based compensation, improved 100 basis points to 17.5%.

Turning to cash flow and the balance sheet, operating cash flow was $12.8 million for the quarter, an improvement of $20 million compared to the first quarter of the prior year, primarily driven by improved working capital partially offset by a higher net loss in the current period. Our balance sheet remains strong with no debt and $400 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. We ended the quarter with 284 U.S. territories and 288 U.S. field clinical representatives. We are being strategic in our approach to territory management and optimizing our model through targeted territory consolidation.

We hired 13 field clinical reps in the quarter and are now at our goal of one territory manager to one field clinical rep. Turning now to our 2026 outlook, we are revising our full-year revenue outlook to be in the range of $825 million to $875 million. This range incorporates updated assumptions of the expected impact on our full-year results from continued coding and reimbursement uncertainty and the WISER program. As I mentioned, our first quarter revenue was adversely impacted by coding and reimbursement challenges and the WISER program by an estimated $20 million.

We expect the adverse impact of these items to increase to approximately $40 million to $50 million in the second quarter, as we see a more dramatic impact on our second quarter revenue. Changes in prior authorization rates typically impact revenue on a one-quarter lag. We expect the adverse revenue impact from these items to improve from the second quarter as we progress into the third and fourth quarters, as our customers receive more education and build experience with coding and billing processes, and as we continue to gain experience working with the WISER state systems.

For the full year, we are currently estimating the total impact of these items to be in a range of $120 million to $150 million. Due to the nature of the items noted, the estimated impact of these factors on our first quarter results and full-year outlook reflect high-level assumptions based on currently available data and incorporate inherent uncertainty related to quantifying how each of these items impacts customers, physicians, and patients. The ultimate impact of these items may differ materially from current expectations based on how quickly coding and reimbursement clarity evolves over the fiscal year.

Although we believe there is a long-term benefit to our market from GLP-1s as prospective patients lose weight and become eligible for Inspire therapy, we also believe that in the short term, our revenue is being adversely impacted by their increasing prevalence and adoption. Our ability to estimate the potential impact of GLP-1 therapies on revenue is subject to meaningful uncertainty and relies on limited and evolving data regarding patient behavior, physician prescribing patterns, referral dynamics, and payer coverage decisions and may not fully capture developments in longer-term treatment options for obstructive sleep apnea. 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 2% to 4%, diluted EPS in the range of $0.07 to $0.62, and adjusted diluted EPS in the range of $0.75 to $1.25. The changes to these metrics primarily represent the impact of the lower revenue outlook partially offset by continued actions to reduce operating expenses. Our updated outlook assumes an effective tax rate of 65% to 70% and an adjusted effective tax rate of 27% to 29%. The increase in the effective tax rates as compared to our previous outlook primarily relates to lower expected pretax income. Our outlook assumes estimated weighted-average diluted shares outstanding of approximately 29.4 million and capital expenditures between $40 million and $45 million.

Looking at the cadence of the year, we are forecasting a 9% to 11% year-over-year revenue decline in 2026 due to the expected ongoing impact of coding and reimbursement uncertainty, the impact of the WISER program, and lower expected commercial procedures driven by a reduction in prior authorizations in the first quarter. Additionally, we expect an adjusted operating loss in the second quarter of $10 million to $15 million, primarily due to our lower revenue expectation and sequentially higher operating expenses as compared to the first quarter, primarily due to higher stock-based compensation expense.

We expect sequential improvement from Q2 in both our revenue and adjusted operating income in the back half of the year, with the fourth quarter having the highest levels of the year. As we demonstrated in the first quarter, we will continue to be disciplined with our spending and focus on prioritizing revenue-generating activities while still making investments in long-term growth. In closing, despite the dynamic reimbursement landscape, our team remains committed to providing strong patient outcomes and supporting our customers. As we look ahead to the remainder of 2026, we will continue to emphasize execution and remain focused on what we can control in order to drive long-term shareholder value. This concludes our prepared remarks.

Tim, you may now open the line for questions.

Operator: Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone. To withdraw your question, please press 1-1 again. Due to the essence of time, we ask that you please limit your questions to no more than one. Please stand by while we compile the Q&A roster. Our first question comes from the line of Robert Justin Marcus from JPMorgan. Please go ahead.

Robert Justin Marcus: This is Lily on for Robbie. Maybe just starting with the guidance, I was hoping you could walk through your thinking behind the updated range. I think what we are all trying to figure out is how de-risked the guide is now. So can you walk through the assumptions that you are making around reimbursement and the confusion around the reimbursement, and what that looks like the rest of the year? Why are you confident that this is now the right range and it is one that you can not just meet but hopefully exceed? Thanks so much.

Timothy P. Herbert: Thank you very much, Lily, and thanks for the question. I would just highlight a little bit on the reimbursement, and each center looks at it a little bit differently. Our goal is to really focus with centers on providing education and a methodology that they are comfortable with to consistently start coding and billing for patients, both Medicare and commercial. Our assumption is that will improve as we progress through the year. But we know, as Matthew mentioned, there is a one-quarter lag in prior authorization.

As the coding impact or uncertainty unfolded in the beginning of the year, a lot of centers put on the brakes to make sure they understood it before they proceeded forward with prior authorizations. Our core assumption is that we are going to be able to build that confidence as we move through the quarter and improve prior authorizations during the second quarter and beyond, and that will show a benefit in implants and revenue as we progress through the year.

Matthew Osberg: As I pointed out, we saw a $20 million impact in Q1. We are estimating that accelerates and gets to $40 million to $50 million in Q2. If you look at the range for the year and back into what Q3 and Q4 might be, you can still see there are fairly significant impacts in the third and fourth quarters, although they are improving from the impact that we had in Q2. That risk is abating a bit from the second quarter.

Operator: Thank you. Our next question comes from the line of Jonathan David Block from Stifel. Please go ahead.

Jonathan David Block: I will keep it to one question. In terms of the $120 million to $150 million impact for the year from reimbursement headwinds, where do those revenues go, and what can the company do to ensure they stay hot leads and do not leave, whether that is coming back in 2027 or even beyond? And then to push on the improvement into the back part of the year, if there is this one-quarter lag from prior authorization to getting through the funnel, are you starting to see anything thaw? It is early May. You are anticipating some improvement 2Q to 3Q. Are there any green shoots starting to take place? Thanks.

Timothy P. Herbert: Absolutely. Great point on the hot leads. We make sure we work with our centers to keep track of the patients. We work with them on their prior authorizations and help them get those submissions in. We also help patients make that first appointment, trying to make sure we stay in contact with all these patients to give them the opportunity to receive Inspire therapy. We know they are there and still require treatment, so we are doing everything we can to continue to communicate with them and work with the centers to track them and work through their prior authorizations.

As far as seeing some improvements, with Medicare and the changes that we have there with the new C code and that being incorporated into the MAC local coverage determinations, we are starting to see a little headway, and that is important. As well, surgeons are gaining experience billing the Inspire IV code without modification, and the more experience we get there, that will build on itself. Even if there is a modifier down the road, we would expect to minimize any kind of negative impact. Secondly, as we gain experience with the WISER cases in those six states, we are improving the prior authorization process, and we expect continued improvement into the second, third, and fourth quarters.

Jonathan David Block: Thank you.

Operator: Thank you. Our next question comes from the line of Adam Carl Maeder from Piper Sandler. Please go ahead.

Adam Carl Maeder: Hi, good afternoon. Thank you for taking the question. One bigger-picture question on the revised outlook. I wanted to confirm that the guidance cut is entirely related to the reimbursement coding uncertainty plus the headwind from WISER. Or are you baking in a little more conservatism for GLP-1s or seeing anything from a competitive standpoint? Would love to flesh out those components. Thank you.

Matthew Osberg: Hey, Adam. If you do the math from where we started at the beginning of the year on our outlook and then what is implied now, and you say the $120 million to $150 million is due to reimbursement headwinds, there is a smaller gap beyond that. That gap is coming from a number of different things. Some of those are hard to put your finger on. We do think we are being impacted by GLP-1s, but it is harder to quantify what is driving some of that other impact. The main part of the revenue takedown in our outlook is due to the reimbursement headwinds.

Operator: Thank you. Our next question comes from the line of Christopher Thomas Pasquale from Nephron Research. Please go ahead.

Christopher Thomas Pasquale: Thanks. Tim, I was hoping you could talk a little bit more about the current state of the salesforce. Your U.S. territory count has contracted three quarters in a row, now down high teens from where you were a year ago, which is a pretty big adjustment. How much of that has been an intentional rethinking of your commercial organization versus unplanned attrition? Are you simultaneously dealing with new reps or reps with expanded territories having to establish new relationships while you are going through this period where your customers need you even more?

Timothy P. Herbert: Thanks, Chris. We do see adjustments in the field, and yes, it is a combination of both factors you mentioned. We did our own realignment of territories and also increased the number of field clinical reps, wanting to get back to a one-to-one ratio. That started at the beginning of the year. I think we performed well in the first quarter by achieving the implants and the revenue that we did, albeit impacted by the coding and reimbursement environment as well as WISER in those six states. The changes are purposeful for where we are, and we will continue to add territory managers as we deem appropriate. The field team is doing quite well.

We have a pretty experienced team right now, and complementing those sales territory managers with a strong field clinical representative allows us to address issues such as the coding and reimbursement uncertainties.

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

Anthony Charles Petrone: Thanks. Sticking with WISER, it is across six states, and it sounds like there is a higher prior authorization hurdle. Should we consider those procedures backlog, or are they pushed out indefinitely as you navigate WISER? And then on the CPT codes, some managed care policies still have the Inspire IV code and have introduced 64999. Why is it not just the case that they can bill to the code in the policy? Why is there ambiguity? Sorry for the two-part question.

Timothy P. Herbert: WISER introduced a new requirement for traditional Medicare prior authorization in those six states starting in January. We believe the majority of those patients exist, but as time goes on, they may get frustrated, which is why we want to act quickly. As we submit prior authorizations, we continue to learn, and centers are improving their submissions to meet WISER requirements. All six WISER states have different systems and there is variability in each, so we are working through that, and sites and our teams are getting smarter to work with WISER more efficiently. As far as CPT coding goes, these are contracted rates with both facilities and payers.

Payers want centers to work within their policies, and that is what we are recommending. The good news is that commercial patients are prior authorized. The initial application includes the CPT code to be used during the procedure, and once approved, that prevents a lot of post-procedure challenges. Using 64999 is confusing because it requires additional work, manual reviews, and more communication from sites to payers. Right now, we continue to work with centers and payers to use the codes that are in existing policies.

Operator: Thank you. Our next question comes from the line of Travis Lee Steed from Bank of America. Please go ahead.

Travis Lee Steed: Thanks for taking the question. On the $20 million impact, could you go through some of the math behind that? How do you get confidence in that $20 million number? And when you look at prior auth, for commercial, are they not just billing 64568? I am curious why procedures are dropping if they can just bill 64568 for commercial, especially given UnitedHealthcare moved April 1 to that code.

Matthew Osberg: Travis, $20 million is an estimate. We are triangulating different trends in the business, looking at data quarter over quarter, versus last year, and versus our expectations coming into the year. It is a way for us to triangulate the impact, and we believe $20 million is a reasonable estimate. On commercial payers, when we support centers with prior authorizations, we use the code that is in the policy. UnitedHealthcare adopted 64568 into their policy effective April 1. We do not expect a lot of commercial policies to move away from that.

However, the broader coding and reimbursement environment created challenges for centers to understand what code they want to use, and it caused a slowdown that we see with the reduction of prior authorizations. Commercial implants in the first quarter tend to be the prior authorizations submitted in the fourth quarter that were not completed within that quarter. The impacts in the second quarter will reflect centers slowing down to make sure they understand the coding and coverage situation before they ramp up submission of commercial cases. We believe we will continue to gain confidence, and you will see improvement in the second quarter and beyond through the continuation of the year.

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

Lawrence H. Biegelsen: Good afternoon. Thanks for taking the question. A technical coding and reimbursement question: the 10-Q states that the MACs identify CPT code 64582 as the appropriate code for Inspire V, but commercial payers continue to pay 64568. Why would there be a different code for Medicare and commercial payers? Is this common? And the 10-Q also states that you believe it is appropriate to bill 64582 without a modifier, but 64582 includes a respiratory sensor. Why would it not be appropriate to use a modifier, as you expected on the Q4 call?

Timothy P. Herbert: Thank you, Larry. Your question lays out the coding and reimbursement uncertainty in the quarter. In an ideal long-term situation with the new CPT code, Medicare, Medicare Advantage, and commercial would all use the same CPT code. Where we are today, we do have variance. The MACs currently identify 64582 for physicians to bill. The difference in physician payment between Inspire IV and Inspire V is only about $70, and several MACs have updated their local coverage determinations to include the new C code for facilities but remain silent on any modifier for physicians. As a result, surgeons have been billing 64582 without a modifier.

With commercial payers, they do not need to move away from 64568—that is what is in their policy, and it reflects contracted rates with centers. We expect commercial will stay at 64568 as long as it is in the policies, and we recommend centers follow those policies and submit prior authorizations accordingly. It does cause confusion, as it is not typical to see events like this, and every center may handle it a little differently. We are gaining experience, and while we expect challenges in the second quarter, we believe we can build through it in the second half of the year and get back to growth in 2027.

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

Richard Samuel Newitter: Thank you for taking the questions. On your last comment, I think you said there were a few MACs where you are saying they updated to say 64582, but no modifier required. In most instances, they had 64582 and there was nothing about a modifier, but they never updated to 64568 to begin with. When they put out updated policies, technically, they are not updating. What gives you the confidence to say policies are updated saying you do not need a modifier? Is there risk they could change to use a modifier?

Timothy P. Herbert: Very good comment, Rich, and thank you. To clarify, the LCDs identify 64582 as the only code, and they are silent on modifiers; they do not state “do not use a modifier.” Three MACs have updated to include the new C code for facilities but remain silent on any modifier for physicians. Several other MACs, as you note, did not switch over to 64568. At this point, there is no MAC that identifies the use of a modifier with Inspire V cases. Could that change? We will continue to monitor. We will also monitor if there are surgeons who have used a modifier, what template they used, and any level of payment reduction.

We know the difference in payment between 64582 and 64568 is only about $70.

Richard Samuel Newitter: That helps, thank you. And what is your definition of growth for 2027? I appreciate 2026 is hard enough, so not asking to pinpoint 2027, but you did say a return to growth in 2027. Where should consensus fall, or what is your definition of growth to be prudent?

Timothy P. Herbert: We have a lot of work to do to get consistency and confidence in the coding and reimbursement environment to allow centers to increase utilization again. Keep asking that question through the year, and we will provide updates. We are committed to getting back to growth, but it is too early to provide more detail.

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

Michael K. Polark: I am interested in an update on the Inspire IV versus V mix. Tim, I heard you say you still have inventory of IV for centers that have concerns about V billing. Where does that stand, and is the company thinking about reinvesting in IV to navigate this difficult period? Thank you.

Timothy P. Herbert: We did build up inventory, and we have good inventory of Inspire IV to offer to centers in the U.S., as well as to support ongoing implants in Europe and Asia. As we went through the first quarter, implants were predominantly Inspire V. When centers start doing Inspire V, they want to work through the coding and reimbursement and have a solution. Some centers, due to geographically adjusted Medicare reimbursement, may continue with Inspire IV. We will make it available, but once centers can convert to V, they generally want to stay there. They just want confidence in coding and proper reimbursement.

Matthew Osberg: I would add that the Q1 mix was predominantly V, and that mix did not change much from Q4. We will continue to monitor it, and we have inventory of IV should that mix tick up.

Operator: Our next question comes from the line of Shagun Singh from RBC Capital Markets. Please go ahead.

Shagun Singh: Thank you for taking the question. You indicated guidance is based on high-level assumptions. This quarter you are talking about WISER more than in the past. Some checks suggest overutilization there. You also mentioned GLP-1s, and checks suggest it is driving a lag that could be over a year before patients come in for Inspire. Can you put a finer point on your comments around returning to growth? Why should you return to growth anytime before 01/01/2028 when you have a new code?

Timothy P. Herbert: As Matthew noted, the impact on our revenue this year, reflected in our updated guide, is really based on coding and reimbursement uncertainty and the negative impact from the WISER program delaying procedures due to prior authorization. We mention GLP-1s as a broader topic but not as a significant part of the revenue adjustment. If we focus our activities on gaining confidence with a solid methodology for coding and reimbursement and continue to learn to work with the WISER systems to gain prior authorizations, we believe we can continue to see improvements through the year to get back to a growth situation ahead of 2028.

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

David Kenneth Rescott: Thanks for taking the question. You mentioned prioritizing investing in revenue-generating activities. Considering existing accounts versus adding new accounts, is the focus primarily on accounts you have today, or should we assume you will still bring on new accounts as a way to grow next year? Any more granularity on those prioritized investments would be helpful.

Timothy P. Herbert: The answer is both. The number one focus is to ensure existing centers have a solid pathway in coding and reimbursement. Once that is in place and they understand how they can code Medicare, commercial, and Medicare Advantage and have confidence in reimbursement, they can increase use of Inspire therapy, which we will see with increased prior authorization submissions and capacity to take on more patients. Opening new centers in the first quarter was challenged by coding uncertainty, but we will continue to lean into that because we still do not have the capacity to treat the patient demand we have. We will continue to open new centers and train additional surgeons at existing sites.

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

Analyst: Tim, you talked about getting accounts comfortable with billing and coding. What does it take to get an account comfortable? Do they have to submit one and wait for reimbursement, then submit more? How long does it take for the average account to get comfortable?

Timothy P. Herbert: It is about experience. We proactively conduct business reviews with centers. We want them to understand coding and billing—one code for Medicare and a different code for commercial—and ensure the facility’s coding personnel understand the right code to use, submit that code, and then closely monitor the payment or manage any appeals. As we work through the first quarter, we are picking up that experience and will continue to lean in as we work through the year. Once they have a methodology set, with a bridge we are establishing to the new CPT code, and they experience consistent positive outcomes, we can really ramp up. It is having consistent, positive experience with their coding processes.

Matthew Osberg: I would add that a lot of what our customers are experiencing is fairly unique to them. It is important that we work directly with customers and help them with their specific challenges rather than trying a one-size-fits-all solution.

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

Brett Adam Fishbin: Thanks for taking the question. On the competitive landscape, with a competitor now launched for a few quarters in the U.S., are you seeing an impact from centers trialing the new device or shifting mix? How have you updated guidance to account for any changes there?

Timothy P. Herbert: In our initial guidance, we noted a competitive presence. With the coding and reimbursement uncertainty and the WISER impacts, we and our centers are really focused on addressing those two key challenges. That is predominantly driving center actions right now, much less introducing a new topic.

Matthew Osberg: We did not introduce anything new in the revised outlook specifically related to competition.

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

Daniel Markowitz: Thanks for taking my question. Following up on what it takes for centers to feel like they have a handle on this—what gets you confident that centers can be comfortable before there is coding uniformity across payer types? And could we possibly see some pent-up demand as we return to hopeful growth in 2027, given procedures have been put on hold?

Timothy P. Herbert: Centers understand the benefits when they are able to do Inspire V procedures, including the ability to take care of more patients, as the procedure is more comfortable for an ENT surgeon compared to Inspire IV. We have not had the ability to fully lean into that and push the clinical evidence for Inspire V while we address coding. That will come and should help growth in 2027 and beyond. Near term, it comes down to experience—submitting cases, seeing positive acceptance of prior authorizations, experiencing positive billing outcomes using the new coding methodologies, and receiving expected reimbursement. As that experience builds, confidence grows and volume can increase.

Operator: Thank you. Our last question in the queue comes from the line of Michael Kratky from Leerink Partners. Please go ahead.

Michael Kratky: Thanks for taking the question. On the rest-of-year cadence and growth implications, you provided helpful color on the second quarter and the dollar impact from reimbursement and WISER. What are the key points of sensitivity that could get you to the high end versus low end of the range in Q3 and Q4?

Matthew Osberg: The main variable is how quickly we can move customers through their challenges with coding and reimbursement. If those challenges remain longer, you are looking toward the higher end of the impact range. If customers are able to move through more quickly, you are looking toward the lower end.

Timothy P. Herbert: Thanks all for joining the call today. As always, I am 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 to our success. We appreciate your continued interest in and support of Inspire Medical Systems, Inc., and we look forward to providing you with further updates in the months ahead.

Operator: Thank you. This concludes today’s conference call. You may all disconnect.

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