Inspire Medical Systems, Inc.

Previous wording

Most recently, in April 2026 the American Hospital Association (AHA) recommended use of CPT code 64999 for Inspire V commercial cases. CPT code 64999 is an unlisted procedure code for the nervous system and is to be used when no specific CPT code exists to accurately describe a service. Because CPT code 64999 is non‑specific, reimbursement determinations typically required additional supporting documentation, which may result in increased claims review and processing time (in which case we will provide additional education and support to customers). The AHA's quarterly newsletter that included this recommendation indicates that its guidance does not dictate coverage and reimbursement policy as determined by local Medicare contractors or any other payer; nor is it a substitution for the judgment of a qualified practitioner in the application of HCPCS codes. Currently, many commercial policies still publish CPT code 64568 as the code to be used for the Inspire V procedure. As a result, Inspire continues to recommend that providers consider using the code listed in the applicable payer policy (recognizing that the payer policies may not reflect current coding guidance) and consult their provider's own compliance, coding advisors, and payers as needed.

Current wording

In March 2026, the American Hospital Association (AHA) recommended use of CPT code 64999 for Inspire V commercial cases. CPT code 64999 is an unlisted procedure code for the nervous system and is to be used when no specific CPT code exists to accurately describe a service. Because CPT code 64999 is non-specific, reimbursement determinations typically required additional supporting documentation, which may result in increased claims review and processing time (in which case we will provide additional education and support to customers). The AHA's quarterly newsletter that included this recommendation indicates that its guidance does not dictate coverage and reimbursement policy as determined by local Medicare contractors or any other payer; nor is it a substitution for the judgment of a qualified practitioner in the application of HCPCS codes. Currently, many commercial policies still publish CPT code 64568 as the code to be used for the Inspire V procedure. As a result, Inspire continues to recommend that providers consider using the code listed in the applicable payer policy (recognizing that the payer policies may not reflect current coding guidance) and consult their provider's own compliance, coding advisors, and payers as needed.

Previous wording

In terms of Inspire V Medicare cases, in February 2026, the Centers for Medicare & Medicaid Services (CMS) announced that it would implement a series of HCPCS Level II C‑codes which were published on April 1, 2026. These C‑codes apply only to facility billing and do not address professional (or physician) fee reimbursement. We currently believe all Medicare Administrative Contractor (MAC) local coverage determinations identify CPT code 64582 as the appropriate code. In addition, based on information provided to us, most procedures billed year‑to‑date have been submitted and paid without the use of a modifier. Accordingly, we believe it is appropriate for providers to continue billing CPT code 64582 without a modifier. However, it is important to note that MACs may, in the future, require the use of a modifier for these services, which could affect professional fee reimbursement.

Current wording

In terms of Inspire V Medicare cases, in February 2026, the Centers for Medicare & Medicaid Services (CMS) announced that it would implement a series of HCPCS Level II C‑codes which were published on April 1, 2026. These C‑codes apply only to facility billing and do not address professional (or physician) fee reimbursement. We currently believe all Medicare Administrative Contractor (MAC) local coverage determinations identify CPT code 64582 as the appropriate code. Based on information provided to us, most procedures billed year‑to‑date have been submitted and paid without the use of a modifier. We are currently aware of two MACs that require the use of the -52 modifier when billing CPT code 64568. Based on available data, application of the modifier has resulted in physician reimbursement ranging from no reduction to approximately 30% below the existing national average payment. Additional MACs may in the future require the use of a modifier which could affect professional fee reimbursement.

Previous wording

These and other recent coding and reimbursement decisions (particularly the uncertainty of the decisions and volatility of the announcements from multiple stakeholders) have adversely impacted our revenue in the first quarter and we anticipate that this will continue to adversely impact revenue during 2026. Inspire is actively engaging with relevant stakeholders regarding the reimbursement uncertainty affecting Inspire V and is providing support as appropriate - with a goal of limiting and moving past the uncertainty as soon as possible. In the short-term, we are working to minimize potential delays and continue to support patient access to therapy. This includes providing proactive education and assistance to our field team, our customers and physicians. We are also seeking a long-term solution, including the creation of a separate CPT code. There can be no guarantee as to the timing or outcome of the CPT code application.

Current wording

These and other recent coding and reimbursement decisions (particularly the uncertainty of the decisions and volatility of the announcements from multiple stakeholders) have adversely impacted our revenue in the first half of 2026 and we anticipate that this will continue to adversely impact revenue during the remainder of 2026. Inspire is actively engaging with relevant stakeholders regarding the reimbursement uncertainty affecting Inspire V and is providing support as appropriate - with a goal of limiting and moving past the uncertainty as soon as possible. In the short-term, we are working to minimize potential delays and continue to support patient access to therapy. This includes providing proactive education and assistance to our field team, our customers and physicians. We are also seeking a long-term solution, including the creation of a separate CPT code. There can be no guarantee as to the timing or outcome of the CPT code application.

Previous wording

In addition, the Wasteful and Inappropriate Service Reduction Model (WISeR) program, which is a government initiative requiring prior authorization of Medicare cases in six pilot states, began in mid-January 2026. During the first quarter, we experienced delays due to the new WISeR requirements for traditional Medicare procedures in the six WISeR states which adversely impacted our revenue in the first quarter. We anticipate that this will continue to adversely impact revenue for the remainder of 2026.

Current wording

In addition, the Wasteful and Inappropriate Service Reduction Model (WISeR) program, which is a government initiative requiring prior authorization of Medicare cases in six pilot states, began in mid-January 2026. During the first half of 2026, we experienced delays due to the new WISeR requirements for traditional Medicare procedures in the six WISeR states which adversely impacted our revenue in the first half of 2026. We anticipate that this will continue to adversely impact revenue for the remainder of 2026, although to a lesser extent than in the first half of the year.

Previous wording

We continue to make significant investments in our sales and marketing organization. In 2025, we began optimizing our sales model through targeted territory consolidation and increased field clinical representatives (FCRs). This enables territory managers to focus on therapy awareness, surgeon recruiting and training, and driving the adoption of Inspire therapy, while FCRs provide technical and clinical expertise as well as educational and field support. As of March 31, 2026, we had 284 U.S. sales territories and 288 field clinical representatives, as compared with 295 U.S. sales territories and 275 field clinical representatives as of December 31, 2025.

Current wording

We continue to make significant investments in our sales and marketing organization. In 2025, we began optimizing our sales model through targeted territory consolidation and increased field clinical representatives (FCRs). This enables territory managers to focus on therapy awareness, surgeon recruiting and training, and driving the adoption of Inspire therapy, while FCRs provide technical and clinical expertise as well as educational and field support. As of June 30, 2026, we had 280 U.S. sales territories and 301 field clinical representatives, as compared with 295 U.S. sales territories and 275 field clinical representatives as of December 31, 2025.

Previous wording

•Gross margin increased to 86.5% compared to 84.7%, primarily due to increased sales mix of the Inspire V system, which has a higher gross margin than the Inspire IV system.

Current wording

•Gross margin increased to 85.5% compared to 84.0%, primarily due to increased sales mix of the Inspire V system, which has a higher gross margin than the Inspire IV system.

Previous wording

•Research and development expenses decreased $2.0 million, or 7.1%, to $25.8 million, primarily due to an increase in internal cost allocations into SG&A and cost of goods sold, partially offset by an increase in sourcing costs and clinical studies expenses.

Current wording

•Research and development expenses decreased $1.5 million, or 5.8%, to $24.7 million, primarily due to lower stock-based compensation costs due to accelerated stock-based compensation expense recognized in the prior year period and increased internal cost allocations into SG&A and cost of goods sold, partially offset by an increase in development costs, mainly for our next generation generator.

Previous wording

•Other income, net decreased by $2.1 million, or 37.7%, to $3.5 million, primarily due to a decrease in interest and dividend income due to lower average interest rates and lower average cash, cash equivalents, and investment balances.

Current wording

•Other income, net increased by $2.6 million, or 268.8%, to $3.6 million, primarily due to a $4.0 million impairment charge recognized in the prior year period, partially offset by a decrease in interest and dividend income due to lower average interest rates and lower average cash, cash equivalents, and investment balances in the current period.

Previous wording

•The effective tax rate was 571.2% compared to 28.1%. The increase in the effective tax rate was primarily driven by shortfalls related to stock-based compensation, which were driven by a decline in our stock price at award vesting and exercise compared to grant-date fair value (tax shortfall). For the three months ended March 31, 2025, we maintained a full valuation allowance against federal and state deferred tax assets, which was subsequently released at December 31, 2025. The majority of our stock awards vest annually during the first quarter of each year, which will generally concentrate the tax impact related to the tax shortfall in the first quarter of the year.

Current wording

•The effective tax rate was 89.9% compared to (54.0)%. The increase in the effective tax rate was primarily driven by tax shortfall related to stock-based compensation. Additionally, for the three months ended June 30, 2025, we maintained a full valuation allowance against federal and state deferred tax assets, which was subsequently released at December 31, 2025.

Previous wording

•Revenue increased $3.3 million, or 1.6%, to $204.6 million driven by growth in the U.S. and International regions. U.S. growth was driven primarily by increased market penetration, partially offset by the adverse impacts of coding and reimbursement challenges and uncertainty as well as the WISeR program.

Current wording

•Revenue decreased $13.2 million, or 3.2%, to $405.2 million primarily due to a decline in U.S. revenue, partially offset by growth in International. The U.S. decline was driven primarily by the adverse impacts of coding and reimbursement challenges and the WISeR program.

Previous wording

Net cash provided by operating activities was $12.8 million for the three months ended March 31, 2026 compared to $6.7 million of net cash used in operating activities in the prior year period. The change was primarily driven by improved working capital, primarily in payables and receivables, partially offset by a higher net loss in the current period.

Current wording

Net cash provided by operating activities was $36.1 million for the six months ended June 30, 2026 compared to $4.0 million of net cash used in operating activities in the prior year period. The change was primarily driven by improved working capital, mainly in receivables and inventories.

Previous wording

Net cash used in investing activities was $11.2 million for the three months ended March 31, 2026, compared to $1.6 million in the prior year period. The change was primarily driven by higher purchases of investments, partially offset by higher proceeds from the sale or maturity of investments.

Current wording

Net cash used in investing activities was $7.7 million for the six months ended June 30, 2026, compared to $45.0 million of net cash provided by investing activities in the prior year period. The change was primarily driven by lower proceeds from the sale or maturity of investments.

Previous wording

Net cash used in financing activities was $7.5 million for the three months ended March 31, 2026, compared to $87.8 million in the prior year period. The change was primarily driven by higher share repurchases in the prior year period.

Current wording

Net cash used in financing activities was $5.6 million for the six months ended June 30, 2026, compared to $84.1 million in the prior year period. The change was primarily driven by higher share repurchases in the prior year period.