Inspire Medical Systems Inc

Previous wording

We are a medical technology company focused on the development and commercialization of innovative, minimally invasive solutions for patients with obstructive sleep apnea ("OSA"). Our proprietary Inspire system is the first and only FDA, EU MDR, and PDMA-approved neurostimulation technology of its kind that provides a safe and effective treatment for moderate to severe OSA. We have developed a novel, closed-loop solution that continuously monitors a patient’s breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway. Inspire therapy is indicated for patients with moderate to severe OSA who do not have significant central sleep apnea and do not have a complete concentric collapse of the airway at the soft palate level. In addition, patients in the U.S., Japan, Singapore, and Hong Kong must have been confirmed to fail or be unable to tolerate positive airway pressure treatments, such as CPAP, and be 18 years of age or older, though there are no similar requirements for patients in Europe.

Current wording

We are a medical technology company focused on the development and commercialization of innovative, minimally invasive solutions for patients with obstructive sleep apnea ("OSA"). Our proprietary Inspire system is the first and only FDA, European Union ("EU") Medical Devices Regulation ("MDR"), and Japan Pharmaceuticals and Medical Devices Agency-approved neurostimulation technology of its kind that provides a safe and effective treatment for moderate to severe OSA. We have developed a novel, closed-loop solution that continuously monitors a patient’s breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway. Inspire therapy is indicated for patients with moderate to severe OSA who do not have significant central sleep apnea and do not have a complete concentric collapse of the airway at the soft palate level.

Previous wording

The procedures performed to implant, revise, or explant our device are described for billing purposes in the U.S. with Category I Current Procedural Terminology (“CPT”) codes (64582, 64583, and 64584, respectively). A Category I code (42975) is also used for Drug-Induced Sleep Endoscopy ("DISE") to evaluate sleep disordered breathing, which may be a necessary procedure to determine which patients are appropriate for Inspire therapy. In July 2024, the 2025 proposed Medicare reimbursement payments were announced. The Medicare national average 2025 payment to implant our device in a hospital outpatient site of service is $30,198,an increase of 2% from the 2024 rate. The 2025 Medicare national average ASC reimbursement is $25,620, an increase of 3% from the prior year amount. The 2025 Medicare national average physician reimbursement is $816 for implantation of a hypoglossal nerve stimulator, a 2% decrease over the 2024 payment. The reimbursement for the DISE procedure in the hospital setting is $1,723, a 7% increase over the prior year amount. In the ASC setting, the reimbursement for the DISE procedure is $791, a 4% increase from the 2024 amount. The 2025 Medicare national average physician reimbursement for the DISE procedure is $94, a 3% decrease over the prior year amount. The proposed reimbursement rates will be reviewed by the Centers for Medicare & Medicaid Services ("CMS") in conjunction with the annual Medicare rulemaking cycle with final decisions expected in November 2024.

Current wording

The procedures performed to implant, revise, or explant our device are described for billing purposes in the U.S. with Category I Current Procedural Terminology codes (64582, 64583, and 64584, respectively). A Category I code (42975) is also used for Drug-Induced Sleep Endoscopy ("DISE") to evaluate sleep disordered breathing, which may be a necessary procedure to determine which patients are appropriate for Inspire therapy. In November 2024, the final 2025 Medicare reimbursement payments were announced. The Medicare national average 2025 payment to implant our device in a hospital outpatient site of service is $30,474, an increase of 3% from the 2024 rate. The 2025 Medicare national average ASC reimbursement is $25,832, an increase of 4% from the prior year amount. The 2025 Medicare national average physician reimbursement is $816 for implantation of a hypoglossal nerve stimulator, a 1% decrease over the 2024 payment. The reimbursement for the DISE procedure in the hospital setting is $1,724, a 7% increase over the prior year amount. In the ASC setting, the reimbursement for the DISE procedure is $792, a 5% increase from the 2024 amount. The 2025 Medicare national average physician reimbursement for the DISE procedure is $94, a 2% decrease over the prior year amount.

Previous wording

For the six months ended June 30, 2024, 95.5% of our revenue was derived in the U.S. and 4.5% was derived outside of the U.S. No single customer accounted for more than 10% of our revenue during the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2024, 95.8% of our revenue was derived in the U.S. and 4.2% was derived outside of the U.S. No single customer accounted for more than 10% of our revenue during the nine months ended September 30, 2024.

Previous wording

We rely on third-party suppliers to manufacture our Inspire system and its components. Many of these suppliers are currently single source suppliers. We have experienced supply disruptions that began during the COVID-19 pandemic, but to date we have managed to avoid major delays in implant procedures due to those issues. During the third quarter of 2023, we experienced an inventory supply issue related to our polyurethane-based stimulation leads, one component of the Inspire system used only in the European market at that time. In 2022, the FDA approved our silicone-based stimulation and sensing leads in the U.S., which replaced the polyurethane versions of the leads, and we stopped manufacturing polyurethane leads. We applied for European Union ("EU") Medical Devices Regulation ("MDR") certification in December 2021, which we received in July 2024, following industry-wide delays in the process. In the interim, we had received a derogation pursuant to Article 59 of the EU MDR from the Dutch, German, Swiss, Belgian, and Austrian competent authorities, and the British equivalent, i.e. exceptional use authorization, from the United Kingdom national competent authority, allowing us to continue to place the silicone-based leads on the market in those countries until various dates in 2024 or until we received certification under the EU MDR, whichever occurred first. Now that we have obtained certification under the EU MDR, silicone leads may be marketed throughout the EU. During the fourth quarter of 2023 and extending into early 2024, the delay in certification and the shortage of polyurethane-based stimulation leads caused delays to implant procedures which adversely affected our business in Europe, including a reduction in our European revenue, and thereby our consolidated revenue. We estimate the impact during the fourth quarter of 2023 was approximately $4.0 million in lost revenue opportunity, most of which we believe was recovered during the first half of 2024.

Current wording

We rely on third-party suppliers to manufacture our Inspire system and its components. Many of these suppliers are currently single source suppliers. We have experienced supply disruptions that began during the COVID-19 pandemic, but to date we have managed to avoid major delays in implant procedures due to those issues. During the third quarter of 2023, we experienced an inventory supply issue related to our polyurethane-based stimulation leads, one component of the Inspire system used only in the European market at that time. In 2022, the FDA approved our silicone-based stimulation and sensing leads in the U.S., which replaced the polyurethane versions of the leads, and we stopped manufacturing polyurethane leads. We applied for EU MDR certification in December 2021, which we received in July 2024, following industry-wide delays in the process. In the interim, we had received a derogation pursuant to Article 59 of the EU MDR from the Dutch, German, Swiss, Belgian, and Austrian competent authorities, and the British equivalent, i.e. exceptional use authorization, from the United Kingdom national competent authority, allowing us to continue to place the silicone-based leads on the market in those countries until various dates in 2024 or until we received certification under the EU MDR, whichever occurred first. Now that we have obtained certification under the EU MDR, silicone leads may be marketed throughout the EU. During the fourth quarter of 2023 and extending into early 2024, the delay in certification and the shortage of polyurethane-based stimulation leads caused delays to implant procedures which adversely affected our business in Europe, including a reduction in our European revenue, and thereby our consolidated revenue. We estimate the impact during the fourth quarter of 2023 was approximately $4.0 million in lost revenue opportunity, most of which we believe was recovered during the first half of 2024.

Previous wording

In the U.S., our products are shipped directly to our U.S. customers and to our Singapore and Hong Kong distributors on a purchase order basis, primarily by a third-party vendor with a facility in Tennessee, although we do ship some products from our facility in Minnesota. Warehousing and shipping operations for our European customers are handled by a third-party vendor with a facility located in the Netherlands, and warehousing and shipping operations for our Japanese customers are handled by a third-party with a facility in Japan. Customers do not have the right to return a non-defective product, nor do we place product on consignment. Our sales representatives do not maintain trunk stock.

Current wording

Our products are shipped directly to our U.S. customers and to our Singapore and Hong Kong distributors on a purchase order basis, primarily by a third-party vendor with a facility in Tennessee, although we do ship some products from our facility in Minnesota. Warehousing and shipping operations for our European customers are handled by a third-party vendor with a facility located in the Netherlands, and warehousing and shipping operations for our Japanese customers are handled by a third-party with a facility in Japan. Customers do not have the right to return a non-defective product, nor do we place product on consignment. Our sales representatives do not maintain trunk stock.

Previous wording

Since our inception in 2007, we have financed our operations primarily through sales of our Inspire system, private placements of our convertible preferred securities, amounts borrowed under our former credit facility, and equity offerings of our common stock. We have devoted significant resources to research and development activities related to our Inspire system, including clinical and regulatory initiatives to obtain marketing approval, and sales and marketing activities. For the three months ended June 30, 2024, we generated revenue of $195.9 million with a gross margin of 84.8% and had a net income of $9.8 million compared to revenue of $151.1 million with a gross margin of 83.9% and a net loss of $12.0 million for the three months ended June 30, 2023. For the six months ended June 30, 2024, we generated revenue of $359.9 million with a gross margin of 84.8% and had a net loss of

Current wording

Since our inception in 2007, we have financed our operations primarily through sales of our Inspire system, private placements of our convertible preferred securities, amounts borrowed under our former credit facility, and equity offerings of our common stock. We have devoted significant resources to research and development activities related to our Inspire system, including clinical and regulatory initiatives to obtain marketing approval, and sales and marketing activities. For the three months ended September 30, 2024, we generated revenue of $203.2 million with a gross margin of 84.1% and had a net income of $18.5 million compared to revenue of $153.3 million with a gross margin of 84.1% and a net loss of $8.5 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, we generated revenue of $563.1 million with a gross margin of 84.5% and had a net income of $18.3 million compared to revenue of $432.3 million with a gross margin of 84.1% and a net loss of $35.9 million for the nine months ended September 30, 2023. Our accumulated deficit as of September 30, 2024 was $327.1 million.

Previous wording

We have invested heavily in product development. Our research and development activities have been centered on driving continuous improvements to our Inspire therapy. We have also made significant investments in clinical studies to demonstrate the safety and efficacy of our Inspire therapy and to support regulatory submissions. We continue to make investments in research and development efforts to develop our next generations of the Inspire systems and support our future regulatory submissions for expanded indications and for new markets such as additional European countries and the Asia Pacific region. For example, in August 2024, we received approval from the FDA for our next generation Inspire system, which we expect to fully launch in 2025. In June 2023, we received approval from the FDA on an expanded indication which includes an increase on the upper limit of the Apnea Hypopnea Index to 100 events per hour from 65, and raises the Body Mass Index ("BMI") warning in the labeling to 40 from 32, and we also received FDA approval of our new physician programmer, called the SleepSync™ programmer, which we expect to formally launch in the U.S. in the second half of 2024. In March 2023, we received FDA approval to offer Inspire therapy to certain pediatric patients with Down syndrome.

Current wording

We have invested heavily in product development. Our research and development activities have been centered on driving continuous improvements to our Inspire therapy. We have also made significant investments in clinical studies to demonstrate the safety and efficacy of our Inspire therapy and to support regulatory submissions. We continue to make investments in research and development efforts to develop our next generations of the Inspire systems and support our future regulatory submissions for expanded indications and for new markets such as additional European countries and the Asia Pacific region. For example, in August 2024, we received approval from the FDA for our next generation Inspire system, which we expect to fully launch in 2025. In June 2023, we received approval from the FDA on an expanded indication which includes an increase on the upper limit of the Apnea Hypopnea Index to 100 events per hour from 65, and raises the Body Mass Index ("BMI") warning in the labeling to 40 from 32, and we also received FDA approval of our new physician programmer, called the SleepSync™ programmer, which we expect to formally launch in the U.S. in late 2024. In March 2023, we received FDA approval to offer Inspire therapy to certain pediatric patients with Down syndrome.

Previous wording

We have a call center which we refer to as the Inspire Advisor Care Program ("ACP"). The primary purpose of this program is to assist patients with making a connection with a qualified healthcare provider based on their specific needs. In 2022, we initiated a digital scheduling pilot program to facilitate and streamline patient access to care. We intend to continue to enhance this scheduling capability during the remainder of 2024.

Current wording

We have a call center which we refer to as the Inspire Advisor Care Program. The primary purpose of this program is to assist patients with making a connection with a qualified healthcare provider based on their specific needs. In 2022, we initiated a digital scheduling pilot program to facilitate and streamline patient access to care. We intend to continue to enhance this scheduling capability during the remainder of 2024 and beyond.

Previous wording

We also continue to make significant investments to build our sales and marketing organization by increasing the number of U.S., European, and Japanese sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets. During the three months ended June 30, 2024, we added 12 new U.S. sales territories, bringing our total to 310 U.S. sales territories as of June 30, 2024. During that same period, we activated 81 new U.S. medical centers, bringing the total to 1,316 U.S. medical centers implanting Inspire therapy as of June 30, 2024.

Current wording

We also continue to make significant investments to build our sales and marketing organization by increasing the number of U.S., European, and Japanese sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets. During the three months ended September 30, 2024, we added 13 new U.S. sales territories, bringing our total to 323 U.S. sales territories as of September 30, 2024. During that same period, we activated 66 new U.S. medical centers, bringing the total to 1,371 U.S. medical centers implanting Inspire therapy as of September 30, 2024.

Previous wording

During 2023 and into the first half of 2024, glucagon-like peptide 1 ("GLP-1s"), a class of drug indicated for diabetes and obesity, continued to gain popularity as a weight-loss drug. OSA is a multifactorial disease with many independent factors including age, gender, weight, and neck circumference. Inspire is designed to address anteroposterior airway collapse, also known as tongue base collapse. Additionally, patients with a higher BMI are subject to a larger neck circumference and present predominantly with lateral-wall collapse. A combination of tongue base collapse and lateral-wall collapse is identified as a complete concentric collapse of the upper airway. Inspire is contraindicated for complete concentric collapse. On April 17, 2024, Eli Lilly and Company ("Lilly") published headline results from its SURMOUNT-OSA trial demonstrating a 50.7% reduction in Apnea-Hypopnea Index ("AHI") for patients in the therapy arm of the study using tirzepatide, a GLP-1 injection. Subsequently, on June 21, 2024, Lilly published additional results from its SURMOUNT-OSA trial demonstrating 43% of participants treated with tirzepatide at the highest dose met criteria for disease resolution. In this context, "disease resolution" means achieving an AHI of fewer than 5 events per hour, or an AHI of 5 to 14 events per hour and an Epworth Sleepiness Scale ("ESS") score of ≤10. ESS is a standard questionnaire designed to assess excessive daytime sleepiness. Given a baseline AHI of 50.3, and based on these results, we believe that most patients enrolled in the study will continue to have residual moderate to severe OSA that will require treatment and fall within Inspire’s FDA-approved indication. While weight loss may help reduce a patient’s AHI and other OSA symptoms, numerous other studies have shown that weight loss alone will not resolve OSA for the vast majority of patients. We expect GLP-1s may help patients address their lateral wall collapse, making them a potential candidate for Inspire therapy to the extent they also have tongue base collapse. Based on our ongoing ADHERE patient registry, the average BMI of patients treated with Inspire therapy is 29 and the American Academy of Sleep Medicine guidelines recommend weight loss prior to surgery for patients with BMI over 35 and nonsurgical solutions for patients with BMI over 40. Therefore, we believe there is not a notable overlap between the Inspire patient population and the patient population being treated with GLP-1s today. While we cannot quantify the impact, we believe that there could be a benefit to our business as a result of GLP-1s, although there can be no assurance of such benefit at this time.

Current wording

During 2023 and 2024, glucagon-like peptide 1 ("GLP-1s"), a class of drug indicated for diabetes and obesity, continued to gain popularity as a weight-loss drug. OSA is a multifactorial disease with many independent factors including age, gender, weight, and neck circumference. Inspire is designed to address anteroposterior airway collapse, also known as tongue base collapse. Additionally, patients with a higher BMI are subject to a larger neck circumference and present predominantly with lateral-wall collapse. A combination of tongue base collapse and lateral wall collapse is identified as a complete concentric collapse of the upper airway. Inspire is contraindicated for complete concentric collapse. On April 17, 2024, Eli Lilly and Company ("Lilly") published headline results from its SURMOUNT-OSA trial demonstrating a 50.7% reduction in Apnea-Hypopnea Index ("AHI") for patients in the therapy arm of the study using tirzepatide, a GLP-1 injection. Subsequently, on June 21, 2024, Lilly published additional results from its SURMOUNT-OSA trial demonstrating 43% of participants treated with tirzepatide at the highest dose met criteria for disease resolution. In this context, "disease resolution" means achieving an AHI of fewer than 5 events per hour, or an AHI of 5 to 14 events per hour and an Epworth Sleepiness Scale ("ESS") score of ≤10. ESS is a standard questionnaire designed to assess excessive daytime sleepiness. Given a baseline AHI of 50.3, and based on these results, we believe that most patients enrolled in the study will continue to have residual moderate to severe OSA that will require treatment and fall within Inspire’s FDA-approved indication. While weight loss may help reduce a patient’s AHI and other OSA symptoms, numerous other studies have shown that weight loss alone will not resolve OSA for the vast majority of patients. We expect GLP-1s may help patients address their lateral wall collapse, making them a potential candidate for Inspire therapy to the extent they also have tongue base collapse. Based on our ongoing ADHERE patient registry, the average BMI of patients treated with Inspire therapy is 29 and the American Academy of Sleep Medicine guidelines recommend weight loss prior to surgery for patients with BMI over 35 and nonsurgical solutions for patients with BMI over 40. Therefore, we believe there is not a notable overlap between the Inspire patient population and the patient population being treated with GLP-1s today.

Previous wording

Our inventory on-hand has been constrained by the continuing supply chain challenges and component shortages, although the supply chain constraints eased somewhat throughout 2023 and into 2024.

Current wording

Our inventory on-hand has been constrained by the supply chain challenges and component shortages, although to a lesser degree in 2024 than in recent periods.

Previous wording

Our revenue has fluctuated, and may continue to fluctuate, from quarter to quarter due to a variety of factors. For example, we have historically experienced seasonality in our first and fourth quarters, and have experienced adverse impacts on our revenue due to the prior delay in obtaining EU MDR approval of our silicone-based leads and foreign currency exchange rates. In addition, we believe our revenue growth has been adversely impacted by lack of ENT surgeon capacity. If such impacts continue, our revenue growth may be further adversely impacted.

Current wording

Our revenue has fluctuated, and may continue to fluctuate, from quarter to quarter due to a variety of factors. For example, we have historically experienced seasonality in our first and fourth quarters, and previously experienced adverse impacts on our revenue due to the prior delay in obtaining EU MDR approval of our silicone-based leads and foreign currency exchange rates. In addition, we believe our revenue growth has been adversely impacted by lack of ENT surgeon capacity. If such impacts continue, our revenue growth may be further adversely impacted.

Previous wording

Historically, we have experienced seasonality in our first and fourth fiscal quarters, and we expect this trend to continue. In the U.S., we have experienced, and may in the future experience, higher sales in the fourth quarter as a result of patients having paid their annual insurance deductibles in full, thereby reducing their out-of-pocket costs. Conversely, in the first quarter, many U.S. patients' insurance deductibles reset, requiring more out-of-pocket costs, which negatively impacts our sales during this period.

Current wording

Historically, we have experienced seasonality in our first and fourth fiscal quarters, and we expect this trend to continue. In the U.S., we have experienced, and may in the future experience, higher sales in the fourth quarter as a result of patients having paid their annual insurance deductibles in full, thereby reducing their out-of-pocket costs. Conversely, in the first quarter, many U.S. patients' insurance deductibles reset, requiring more out-of-pocket costs, which negatively impacts our sales during this period. We have also begun to experience some seasonality during summer months in the U.S. and Europe, which we believe is attributable to the postponement of elective surgeries due to summer vacation plans of physicians and patients.

Previous wording

Revenue increased $44.8 million, or 29.6%, to $195.9 million for the three months ended June 30, 2024 compared to $151.1 million for the three months ended June 30, 2023. These results reflect an increase in sales of our Inspire system of $43.1 million in the U.S. and an increase of $1.7 million outside of the U.S. compared to the same prior year period. Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.

Current wording

Revenue increased $49.9 million, or 32.5%, to $203.2 million for the three months ended September 30, 2024 compared to $153.3 million for the three months ended September 30, 2023. These results reflect an increase in sales of our Inspire system of $48.3 million in the U.S. and an increase of $1.6 million outside of the U.S. compared to the same prior year period. Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.

Previous wording

Revenue generated in the U.S. was $187.8 million for the three months ended June 30, 2024, an increase of $43.1 million, or 29.7%, compared to the three months ended June 30, 2023. Revenue growth in the U.S. was primarily due to increased market penetration in existing centers, the expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system.

Current wording

Revenue generated in the U.S. was $195.8 million for the three months ended September 30, 2024, an increase of $48.3 million, or 32.8%, compared to the three months ended September 30, 2023. Revenue growth in the U.S. was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system.

Previous wording

Revenue generated outside of the U.S. was $8.1 million in the three months ended June 30, 2024, an increase of $1.7 million, or 27.3%, compared to the three months ended June 30, 2023. Revenue growth outside of the U.S. was primarily due to increased market penetration in existing centers, the expansion of our European sales representatives into new territories and centers, increased sales in the Asia Pacific region, and, we believe, increased physician and patient awareness of our Inspire system.

Current wording

Revenue generated outside of the U.S. was $7.4 million in the three months ended September 30, 2024, an increase of $1.6 million, or 27.2%, compared to the three months ended September 30, 2023. Revenue growth outside of the U.S. was primarily due to increased market penetration in existing centers, the expansion of our European sales representatives into new territories and centers, the start of reimbursed procedures in France, and, we believe, increased physician and patient awareness of our Inspire system.

Previous wording

Cost of goods sold increased $5.6 million, or 23.1%, to $29.8 million for the three months ended June 30, 2024 compared to $24.3 million for the three months ended June 30, 2023. The increase was primarily due to product costs associated with the higher sales volume of our Inspire system experienced during the second quarter of 2024. Cost of goods sold for the three months ended June 30, 2023 was negatively impacted by additional costs associated with the transition of manufacturing lines to produce our new silicone-based leads.

Current wording

Cost of goods sold increased $8.0 million, or 32.9%, to $32.4 million for the three months ended September 30, 2024 compared to $24.4 million for the three months ended September 30, 2023. The increase was primarily due to product costs associated with the higher sales volume of our Inspire system experienced during the third quarter of 2024.

Previous wording

Research and development expenses decreased $2.0 million, or 6.4%, to $28.9 million for the three months ended June 30, 2024 compared to $30.8 million for the three months ended June 30, 2023. This change was primarily due to a decrease of $7.9 million in ongoing research and development costs compared to the prior year period, primarily with respect to our next generation versions of the Inspire neurostimulator and our SleepSync™ platform, partially offset by an increase of $5.7 million of compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense, and an increase of $0.2 million in regulatory and clinical studies expenses and quality compliance fees.

Current wording

Research and development expenses decreased $3.1 million, or 10.5%, to $26.1 million for the three months ended September 30, 2024 compared to $29.1 million for the three months ended September 30, 2023. This change was primarily due to a decrease of $7.6 million in ongoing research and development costs compared to the prior year period, primarily with respect to our next generation versions of the Inspire neurostimulator and our SleepSync™ platform, partially offset by an increase of $4.5 million of compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense.

Previous wording

SG&A expenses increased $19.5 million, or 17.3%, to $132.1 million for the three months ended June 30, 2024 compared to $112.6 million for the three months ended June 30, 2023. The primary driver of this change was an increase of $18.8 million in compensation, including salaries, commissions, stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount. In addition, general corporate costs increased $1.9 million primarily due to computer equipment and software expense, bank fees, and depreciation expense, as well as an increase in travel expenses of $0.9 million, partially offset by marketing expenses which decreased by $2.1 million, which amount was primarily attributable to reduced direct-to-consumer initiatives.

Current wording

SG&A expenses increased $17.1 million, or 15.1%, to $130.4 million for the three months ended September 30, 2024 compared to $113.2 million for the three months ended September 30, 2023. The primary driver of this change was an increase of $16.8 million in compensation, including salaries, commissions, stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount. In addition, general corporate costs increased $0.8 million primarily due to bank fees and depreciation expense, and travel expenses increased $1.0 million, partially offset by a $1.5 million decrease in marketing expenses, which amount was primarily attributable to reduced direct-to-consumer initiatives.

Previous wording

Other income, net increased by $0.9 million, or 18.2%, to $5.7 million for the three months ended June 30, 2024 compared to $4.9 million for the three months ended June 30, 2023. The change was primarily due to an increase of $1.0 million in interest and dividend income due to higher interest rates on our higher cash, cash equivalents, and investment balances, partially offset by an increase of $0.1 million in foreign currency translation and remeasurement losses.

Current wording

Other income, net increased by $0.7 million, or 14.0%, to $6.0 million for the three months ended September 30, 2024 compared to $5.3 million for the three months ended September 30, 2023. The change was primarily due to an increase of $0.4 million in interest and dividend income due to higher cash, cash equivalents, and investment balances, and an increase of $0.3 million in foreign currency translation and remeasurement gains.

Previous wording

We recorded a provision for incomes taxes of approximately $1.1 million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively. This change was primarily due to an increase in state and local taxes.

Current wording

We recorded a provision for incomes taxes of approximately $1.8 million and $0.3 million for the three months ended September 30, 2024 and September 30, 2023, respectively. This change was primarily due to an increase in state and local taxes.

Previous wording

Revenue increased $80.9 million, or 29.0%, to $359.9 million for the six months ended June 30, 2024 compared to $279.0 million for the six months ended June 30, 2023. The increase was attributable to a $74.3 million increase in sales of our Inspire system in the U.S and an increase of $6.6 million outside of the U.S. Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.

Current wording

$122.7 million increase in sales of our Inspire system in the U.S and an increase of $8.1 million outside of the U.S. Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.

Previous wording

Revenue generated in the U.S. was $343.6 million for the six months ended June 30, 2024, an increase of $74.3 million, or 27.6%, compared to the six months ended June 30, 2023. Revenue growth in the U.S. was primarily due to increased market penetration in existing centers, the expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system.

Current wording

Revenue generated in the U.S. was $539.4 million for the nine months ended September 30, 2024, an increase of $122.7 million, or 29.4%, compared to the nine months ended September 30, 2023. Revenue growth in the U.S. was primarily due to increased market penetration in existing centers, the expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system.

Previous wording

Revenue generated outside of the U.S. was $16.3 million for the six months ended June 30, 2024, an increase of $6.6 million, or 67.3%, compared to the six months ended June 30, 2023. As noted above, during the fourth quarter of 2023, not having received EU MDR certification of our silicone-based stimulation lead and the resulting shortage of polyurethane-based stimulation leads had an estimated adverse impact on European revenue during that period of approximately $4.0 million. The revenue increase experienced during the first half of 2024 was partially due to the recovery of some of the estimated $4.0 million of revenue opportunity from the fourth quarter of 2023. Other factors contributing to revenue growth were increased market penetration in existing centers, the expansion of our European sales representatives into new territories and centers, increased sales in the Asia Pacific region, and, we believe, increased physician and patient awareness of our Inspire system.

Current wording

Revenue generated outside of the U.S. was $23.7 million for the nine months ended September 30, 2024, an increase of $8.1 million, or 52.3%, compared to the nine months ended September 30, 2023. As noted above, during the fourth quarter of 2023, not having received EU MDR certification of our silicone-based stimulation lead and the resulting shortage of polyurethane-based stimulation leads had an estimated adverse impact on European revenue during that period of approximately $4.0 million. The revenue increase experienced during the first nine months of 2024 was partially due to the recovery of most of the estimated $4.0 million of revenue opportunity from the fourth quarter of 2023. Other factors contributing to revenue growth were increased market penetration in existing centers, the expansion of our European sales representatives into new territories and centers, the start of reimbursed procedures in France, increased sales in the Asia Pacific region, and, we believe, increased physician and patient awareness of our Inspire system.

Previous wording

Cost of goods sold increased $10.5 million, or 23.7%, to $54.6 million for the six months ended June 30, 2024 compared to $44.1 million for the six months ended June 30, 2023. The increase was primarily due to product costs associated with the higher sales volume of our Inspire system experienced during the first half of 2024. Cost of goods sold for the six months ended June 30, 2023 was negatively impacted by additional costs associated with the transition of manufacturing lines to produce our new silicone-based leads.

Current wording

Cost of goods sold increased $18.5 million, or 27.0%, to $87.0 million for the nine months ended September 30, 2024 compared to $68.5 million for the nine months ended September 30, 2023. The increase was primarily due to product costs associated with the higher sales volume of our Inspire system experienced during the first nine months of 2024.

Previous wording

Gross margin increased to 84.8% for the three months ended June 30, 2024 from 83.9% for the three months ended June 30, 2023. This increase was primarily due to increased sales volume and manufacturing efficiencies. Gross margin for the three months ended June 30, 2023 was negatively impacted by additional manufacturing costs associated with the transition of manufacturing lines to produce our new silicone-based leads.

Current wording

Gross margin increased to 84.5% for the nine months ended September 30, 2024 from 84.1% for the nine months ended September 30, 2023. This increase was primarily due to increased sales volume and manufacturing efficiencies.

Previous wording

Research and development expenses increased $1.4 million, or 2.4%, to $57.7 million for the six months ended June 30, 2024 compared to $56.3 million for the six months ended June 30, 2023. This change was primarily due to an increase of $11.0 million of compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense and $0.3 million of in regulatory and clinical studies expenses and quality compliance fees, partially offset by a decrease of $9.9 million in ongoing research and development costs, primarily with respect to our next generation versions of the Inspire neurostimulator and our SleepSync™ platform.

Current wording

Research and development expenses decreased $1.7 million, or 2.0%, to $83.8 million for the nine months ended September 30, 2024 compared to $85.5 million for the nine months ended September 30, 2023. This change was primarily due to a decrease of $17.5 million in ongoing research and development costs, primarily with respect to our next generation versions of the Inspire neurostimulator and our SleepSync™ platform, partially offset by an increase of $15.5 million in compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense, and an increase of $0.3 million in regulatory and clinical studies expenses and quality compliance fees.

Previous wording

SG&A expenses increased $43.1 million, or 20.1%, to $257.7 million for the six months ended June 30, 2024 compared to $214.6 million for the six months ended June 30, 2023. The primary driver of this change was an increase of $34.2 million in compensation, including salaries, commissions, stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount. In addition, general corporate costs increased $4.9 million primarily due to computer equipment and software expense, bank fees, and depreciation expense, as well as an increase in travel expenses of $2.8 million, and an increase of $1.2 million of marketing expenses primarily consisting of direct-to-consumer initiatives.

Current wording

SG&A expenses increased $60.2 million, or 18.4%, to $388.1 million for the nine months ended September 30, 2024 compared to $327.9 million for the nine months ended September 30, 2023. The primary driver of this change was an increase of $50.9 million in compensation, including salaries, commissions, stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount. In addition, general corporate costs increased $5.8 million primarily due to computer equipment and software expense, bank fees, and depreciation expense, as well as an increase in travel expenses of $3.8 million, partially offset by a decrease of $0.3 million of marketing expenses primarily consisting of direct-to-consumer initiatives.

Previous wording

Other income, net increased by $2.5 million, to $11.6 million for the six months ended June 30, 2024 compared to $9.2 million for the six months ended June 30, 2023. This change was primarily due to an increase of $2.6 million in interest and dividend income due to higher interest rates on our higher cash, cash equivalents and investment balances, partially offset by an increase of $0.1 million in foreign currency translation and remeasurement losses.

Current wording

Other income, net increased by $3.2 million, to $17.6 million for the nine months ended September 30, 2024 compared to $14.4 million for the nine months ended September 30, 2023. This change was primarily due to an increase of $3.0 million in interest and dividend income due to higher cash, cash equivalents and investment balances and an increase of $0.2 million in foreign currency translation and remeasurement gains.

Previous wording

We recorded a provision for income taxes of $1.7 million and $0.4 million for the six months ended June 30, 2024 and June 30, 2023, respectively. This change was primarily due to an increase in state and local taxes.

Current wording

We recorded a provision for income taxes of $3.5 million and $0.8 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. This change was primarily due to an increase in state and local taxes.

Previous wording

We proactively manage our access to capital to support liquidity and continued growth. Our sources of capital include sales of our Inspire system and registered offerings of our common stock.

Current wording

Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning processes. We consider the liquidity necessary to fund our operations, which includes working capital needs, investments in research and development, property, plant, and equipment, and other operating costs. Our sources of capital include sales of our Inspire system and registered offerings of our common stock.

Previous wording

As of June 30, 2024, we had cash, cash equivalents, and available-for-sale debt securities of $466.0 million, a decrease of $3.5 million from $469.5 million as of December 31, 2023. Working capital totaled $541.5 million as of June 30, 2024, an increase of $25.9 million from December 31, 2023. We define working capital as current assets less current liabilities. The increase in working capital was primarily due to the following factors:

Current wording

As of September 30, 2024, we had cash, cash equivalents, and available-for-sale debt securities of $524.4 million, an increase of $54.9 million from $469.5 million as of December 31, 2023. Working capital totaled $508.3 million as of September 30, 2024, a decrease of $7.4 million from December 31, 2023. We define working capital as current assets less current liabilities. The decrease in working capital was primarily due to the following factors:

Previous wording

•a $23.2 million decrease in short-term available-for-sale investments, the proceeds of which were primarily used to purchase long-term available-for-sale investments; and

Current wording

•a $11.4 million decrease in short-term available-for-sale investments, the proceeds of which were primarily used to purchase long-term available-for-sale investments; and

Previous wording

•a $10.2 million decrease in accounts receivable due to lower sales which occurred during the second quarter of 2024 versus the fourth quarter of 2023.

Current wording

•a $0.1 million decrease in accounts receivable; and

Previous wording

The increase in working capital was partially offset by the following factors:

Current wording

The decrease in working capital was partially offset by the following factors:

Previous wording

•a $25.1 million increase in inventory balances, which increased as supply chain issues eased;

Current wording

•a $33.5 million increase in inventory balances, which increased as supply chain issues eased and we increased inventory levels to support higher sales and the anticipated 2025 launch of our next generation Inspire system;

Previous wording

•a $19.2 million increase in prepaid expense and other current assets which increased primarily due to dividends receivable on investments;

Current wording

•a $4.8 million increase in prepaid expense and other current assets which increased primarily due to a prepayment to a supplier for inventory components and accrued interest income on investments; and

Previous wording

•a $5.2 million decrease in accounts payable, generally due to decreased direct-to-consumer marketing spend in the second quarter of 2024; and

Current wording

•a $3.9 million decrease in accounts payable, generally due to decreased research and development and direct-to-consumer marketing spend in the third quarter of 2024.

Previous wording

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk or decreasing availability. To achieve these objectives, our investment policy allows us to maintain a portfolio of certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. At June 30, 2024, we had $144.5 million in money market funds, $232.6 million in U.S. government securities, and $45.3 million in corporate debt securities, certificates of deposit, commercial paper, and asset-backed securities. See Note 2 to our unaudited consolidated financial statements in this Quarterly Report for additional information on our investments.

Current wording

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk or decreasing availability. To achieve these objectives, our investment policy allows us to maintain a portfolio of certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. At September 30, 2024, we had $266.5 million in U.S. government securities, $79.4 million in corporate debt securities, $69.0 million in money market funds, and $31.1 million in certificates of deposit, commercial paper, and asset-backed securities. See Note 2 to our unaudited consolidated financial statements in this Quarterly Report for additional information on our investments.

Previous wording

In the six months ended June 30, 2024, our SG&A expenditures increased significantly over the prior year levels, and we anticipate further increases during the remainder of 2024. Our SG&A expenditures, primarily for increasing headcount and advertising, may exceed any associated increases in revenues, and therefore would reduce our cash flow from operations. We also anticipate R&D expenses will continue to be significant in 2024, primarily related to the ongoing development of the SleepSync™ platform and next generation products.

Current wording

In the nine months ended September 30, 2024, our SG&A expenditures increased significantly over the prior year levels, and we anticipate further increases during the remainder of 2024. Our SG&A expenditures, primarily for increasing headcount and advertising, may exceed any associated increases in revenues, and therefore would reduce our cash flow from operations. We also anticipate R&D expenses will continue to be significant in the remainder of 2024, primarily related to the ongoing development of the SleepSync™ platform and next generation products.