Inspire Medical Systems (NYSE:INSP) reported third-quarter revenue of $206.7 million, down 7.9% from a year earlier but up 3% sequentially, as stronger-than-expected U.S. performance offset weaker international results. The company said coding and reimbursement challenges continued to weigh on results, though management expressed growing confidence that the disruption is easing.
Chief Executive Officer Tim Herbert said third-quarter revenue and adjusted operating income came in slightly ahead of the company’s expectations. “We are in a much more favorable position with coding than we were just last quarter and are increasingly confident in our path forward,” Herbert said.
Financial Results and Updated Outlook
Gross margin rose 20 basis points year over year to 86%, which Chief Financial Officer Matt Osberg attributed primarily to a higher mix of the Inspire V device, which carries a higher gross margin than Inspire IV.
Operating expenses increased $23.5 million from the prior-year period to $206.6 million. The increase included $24.1 million in restructuring charges tied to Project Horizon, $7 million in legal settlement expense and higher legal fees. Those costs were partly offset by lower marketing and stock-based compensation expenses.
- Operating loss was $28.7 million, compared with operating income of $9.6 million a year earlier.
- Adjusted operating income was $1.9 million, compared with $10.9 million in the prior-year quarter.
- Diluted loss per share was $0.84, while adjusted diluted earnings per share was $0.14.
- Adjusted EBITDA margin declined 130 basis points to 18.3%, primarily due to lower revenue.
Operating cash flow totaled $46.4 million in the quarter, bringing year-to-date operating cash flow to $82.5 million, compared with $64.5 million in the comparable prior-year period. The company ended the quarter with $453.1 million in cash and investments and no debt.
For the full year, Inspire narrowed its revenue outlook to $850 million to $860 million. It now expects adjusted operating margin of 4.5% to 5.5%, a diluted loss per share of $0.36 to $0.10, and adjusted diluted earnings per share of $1.20 to $1.40.
Osberg said the company estimates that coding and reimbursement challenges reduced third-quarter results by approximately $30 million and may reduce full-year 2026 results by approximately $120 million. He said the estimate is based on high-level assumptions and includes uncertainty around how the issues affect customers, physicians and patients.
Coding Developments and 2028 CPT Code
Management said implanting centers have gained experience with a stable temporary billing framework after an abrupt change in billing procedures. Herbert said the company expects centers to become increasingly comfortable using that framework throughout 2027.
The company is awaiting the final 2027 hospital outpatient prospective payment system rule from the Centers for Medicare & Medicaid Services. The July proposed rule indicated what Herbert described as a significant increase, although he said the company would not confirm the impact until the final rule is published.
Inspire also highlighted the approval of a Category I CPT code for single-lead hypoglossal nerve stimulation for the Inspire V device. The code is scheduled to take effect Jan. 1, 2028. Herbert said the code should simplify coding and reimbursement because providers would use one primary implant code across payers, rather than navigating the current mix of billing approaches.
The company said the Relative Value Scale Update Committee valuation process is underway, with the American Academy of Otolaryngology managing physician surveys. Herbert said the RUC is expected to begin reviewing data around January, and CMS is expected to publish a preliminary rule in July 2027.
Growth Investments and 2027 Expectations
Inspire expects a significant sequential revenue increase in the fourth quarter in both its U.S. and international businesses. International revenue is expected to be approximately flat compared with the fourth quarter of 2025, after a high-single-digit decline in the third quarter that Osberg attributed primarily to destocking activity in Germany.
Looking to 2027, management said it expects low-single-digit year-over-year revenue growth, citing a more stable coding environment, growth investments funded by Project Horizon and a greater contribution from battery replacement procedures. Herbert said the company is accounting for competitors in the market and some potential benefit from reimbursement changes, while remaining cautious until final payment rules are released.
Project Horizon is expected to create approximately $30 million of annualized investment capacity through organizational changes and production consolidation. The company began deploying those funds during the third quarter toward patient access, education, engagement and treatment navigation.
Inspire plans to add field-support roles in about 40 high-potential markets. Management clarified that the initiative represents a net increase of 40 employees intended to add capacity within existing territories rather than create 40 new territory-manager positions. The roles are intended to support referral networks, patient flow, scheduling, existing centers and new center openings.
Herbert also said the company is directing field resources toward cardiology referral sources, rather than expanding the surgical call point to cardiac surgeons. The effort is based on the company’s view that sleep apnea has broader health implications, including potential cardiovascular effects.
Clinical Evidence and Product Development
Management said Inspire V now represents the vast majority of procedures. Herbert cited early assessments showing improved inspiratory overlap compared with Inspire IV and a marked reduction in median apnea-hypopnea index at six months.
The company also discussed analyses of STAR trial data and a TriNetX meta-analysis. Herbert said the STAR analysis found a significant reduction in hypoxic burden with Inspire therapy, while the TriNetX analysis associated the therapy with lower odds of stroke, heart attack and atrial fibrillation compared with CPAP.
Meanwhile, Inspire VI remains in development. Herbert said the next-generation product is intended to detect when a patient falls asleep and automatically activate therapy. The company is in final algorithm development and clinical validation, and it is targeting a potential FDA submission in 2027.
About Inspire Medical Systems (NYSE:INSP)
Inspire Medical Systems, Inc develops and commercializes medical devices for the treatment of obstructive sleep apnea (OSA), a condition in which the upper airway repeatedly narrows or becomes blocked during sleep. The company’s primary product is Inspire therapy, an implantable system designed to help keep the airway open by stimulating the hypoglossal nerve, which controls muscles involved in maintaining airway patency.
Inspire therapy is intended for certain adults with moderate to severe OSA who are unable to use or obtain consistent benefit from continuous positive airway pressure (CPAP) therapy.
