INSP

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report, as well as the audited financial statements and the related notes thereto, the discussion under "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1. Business” sections included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as information with respect to our plans and strategy for our business and the impact of macroeconomic factors on our business, financial results and financial condition includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the "Part I, Item 1A. Risk Factors" section of our Annual Report and in the "Part I, Item 1A "Risk Factors" section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements. Overview 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 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 patients with 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. Seasonality 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. Recent Developments Strategic Growth Plan On August 3, 2026, we announced a strategic growth plan, named Project Horizon, intended to create additional investment capacity to accelerate revenue growth through: •aligning resources to revenue growth initiatives; •streamlining the organization; and •optimizing our supply chain by consolidating production to support quality, scale, and efficiency. We expect to incur a total of $20 million to $25 million of pre-tax restructuring charges in connection with Project Horizon. These actions are expected to generate approximately $30 million of annualized growth investment capacity which is expected to be invested in revenue growth initiatives. We expect the majority of actions related to the restructuring to be completed in the third quarter of 2026 and all actions to be substantially complete by the end of 2026. Coding and Reimbursement Third-party payors require physicians and hospitals to identify the service for which they are seeking reimbursement by using Current Procedural Terminology (CPT) codes, which are created and maintained by the American Medical Association. Our various generations of Inspire therapy have been billed under different codes and reimbursement 22 Table of Contents approaches throughout our history. In November 2025, the final 2026 Medicare reimbursement payments were announced. Since this announcement, there has been, and still is currently, significant uncertainty and changes directly and indirectly relating to the appropriate coding and reimbursement for our Inspire V therapy from CMS and Medicare Administrative Contractors (MACs), as well as other payors and stakeholders in the overall coding and reimbursement process. 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. 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. 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. 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. Commercial Organization 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. 23 Table of Contents GLP-1s Since 2023, glucagon-like peptide 1 (GLP-1s), a class of drug initially indicated for diabetes and obesity, has continued to gain popularity as a weight-loss drug. In 2024, tirzepatide (marketed as Zepbound), a GLP-1 injection was FDA approved for treatment of OSA in patients with obesity and moderate to severe OSA. If GLP-1s are used to treat OSA in an indication for which Inspire therapy is approved, demand for our Inspire system for patients with that indication could be delayed or reduced. In late 2025, we conducted a survey of over 200 sleep physicians to better understand their treatment paradigm for OSA since the introduction of GLP-1s. The survey findings suggest that some physicians will prescribe a GLP-1 to patients prior to considering Inspire therapy. The survey findings also suggest that, with the availability of GLP-1s to treat OSA, the number of patients seeking diagnosis and treatment for OSA is increasing. We believe that some of these patients will see a reduction in their BMI into our indication, and that some of those patients will not have their OSA fully resolved and will require further treatment. This reinforces our belief that the overall number of patients eligible for Inspire therapy will increase in the long-term due to the availability of GLP-1s, although there can be no assurance of such benefit at this time. However, in the short-term we currently believe our revenue is being adversely impacted by the increasing prevalence and adoption of GLP-1s. Macroeconomic Environment As a global company, our business is subject to local and international macroeconomic trends as well as geopolitical factors. Continued uncertainty around inflationary pressures, interest rates, regulatory changes (including changes to government funding of entitlement programs and changes to contain health care costs), foreign currency fluctuations, global trade policies and changes in tax laws, as well as actions by governments in response thereto, could create economic challenges which could negatively impact our business and results of operations. Further, geopolitical developments and uncertainties, including related to various ongoing global conflicts and tensions, may also create economic, supply chain, transportation, energy, and other financial or operational challenges, including disruptions to our suppliers or our customers' operations, which could negatively impact our business and results of operations. Components of Our Results of Operations There have been no material changes in market risk from those described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. Results of Operations Three Months Ended June 30, % of Revenue (in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 Revenue $ 200,581 $ 217,086 $ (16,505) (7.6) % 100.0 % 100.0 % Cost of goods sold 29,122 34,672 (5,550) (16.0) % 14.5 % 16.0 % Gross profit 171,459 182,414 (10,955) (6.0) % 85.5 % 84.0 % Operating expenses: Research and development 24,698 26,209 (1,511) (5.8) % 12.3 % 12.1 % Selling, general and administrative 147,275 159,521 (12,246) (7.7) % 73.4 % 73.5 % Total operating expenses 171,973 185,730 (13,757) (7.4) % 85.7 % 85.6 % Operating (loss) (514) (3,316) 2,802 (84.5) % (0.3) % (1.5) % Other (income), net (3,629) (984) (2,645) 268.8 % (1.8) % (0.5) % Earnings (loss) before income taxes 3,115 (2,332) 5,447 (233.6) % 1.6 % (1.1) % Income tax expense 2,801 1,260 1,541 122.3 % 1.4 % 0.6 % Net earnings (loss) $ 314 $ (3,592) $ 3,906 (108.7) % 0.2 % (1.7) % Effective tax rate 89.9% (54.0)% 24 Table of Contents Six Months Ended June 30, % of Revenue (in thousands, except percentages) 2026 2025 $ Change % Change 2026 2025 Revenue $ 405,164 $ 418,403 $ (13,239) (3.2) % 100.0 % 100.0 % Cost of goods sold 56,793 65,381 (8,588) (13.1) % 14.0 % 15.6 % Gross profit 348,371 353,022 (4,651) (1.3) % 86.0 % 84.4 % Operating expenses: Research and development 50,524 54,012 (3,488) (6.5) % 12.5 % 12.9 % Selling, general and administrative 299,479 303,811 (4,332) (1.4) % 73.9 % 72.6 % Total operating expenses 350,003 357,823 (7,820) (2.2) % 86.4 % 85.5 % Operating (loss) (1,632) (4,801) 3,169 (66.0) % (0.4) % (1.1) % Other (income), net (7,144) (6,628) (516) 7.8 % (1.8) % (1.6) % Earnings before income taxes 5,512 1,827 3,685 201.7 % 1.4 % 0.4 % Income tax expense 16,492 2,427 14,065 579.5 % 4.1 % 0.6 % Net (loss) $ (10,980) $ (600) $ (10,380) 1,730.0 % (2.7) % (0.1) % Effective tax rate 299.2% 132.8% Revenue information by region is summarized as follows: Three Months Ended June 30, 2026 2025 Change (in thousands, except percentages) Amount % of Revenue Amount % of Revenue $ % United States $ 187,304 93.4 % $ 207,150 95.4 % $ (19,846) (9.6) % International 13,277 6.6 % 9,936 4.6 % 3,341 33.6 % Total revenue $ 200,581 100.0 % $ 217,086 100.0 % $ (16,505) (7.6) % Six Months Ended June 30, 2026 2025 Change (in thousands, except percentages) Amount % of Revenue Amount % of Revenue $ % United States $ 382,907 94.5 % $ 400,756 95.8 % $ (17,849) (4.5) % International 22,257 5.5 % 17,647 4.2 % 4,610 26.1 % Total revenue $ 405,164 100.0 % $ 418,403 100.0 % $ (13,239) (3.2) % Comparison of the Three Months Ended June 30, 2026 and 2025 •Revenue decreased $16.5 million, or 7.6%, to $200.6 million driven primarily by a decline in US revenue, partially offset by growth in International. The U.S. decline was driven primarily by the adverse impacts of coding and reimbursement challenges. •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. •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. 25 Table of Contents •SG&A expenses decreased $12.2 million, or 7.7%, to $147.3 million, primarily driven by lower stock-based compensation costs due to accelerated stock-based compensation expenses recognized in the prior year period as well as lower marketing expenses. •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. •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. Comparison of the Six Months Ended June 30, 2026 and 2025 •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. •Gross margin increased to 86.0% compared to 84.4%, primarily due to increased sales mix of the Inspire V system, which has a higher gross margin than the Inspire IV system. •Research and development expenses decreased $3.5 million, or 6.5%, to $50.5 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. •SG&A expenses decreased $4.3 million, or 1.4%, to $299.5 million, primarily due to lower stock-based compensation costs due to accelerated stock-based compensation expense recognized in the prior year period and lower marketing expenses partially offset by an increase in payroll costs and internal cost allocations from R&D. •Other income, net increased by $0.5 million, or 7.8%, to $7.1 million, primarily due to a $4.0 million impairment charge recognized during 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. •The effective tax rate was 299.2% compared to 132.8%. The increase in the effective tax rate was primarily driven by tax shortfall related to stock-based compensation. Additionally, for the six 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. Liquidity and Capital Resources We rely on cash provided by operations for our material cash requirements, including working capital needs, investments in research and development, capital expenditures, other operating costs, and share repurchases. Our anticipated future uses of capital have not changed in any material respects from that described in our Annual Report. Our sources of capital have generally included sales of our Inspire system and registered offerings of our common stock. We believe that our existing cash and cash equivalents and investments, together with cash flows from operations, will provide liquidity sufficient to meet our short-term and currently anticipated long-term cash needs and fund our operations and planned capital expenditures for at least the next twelve months. There can be no assurance, however, that our business will continue to generate cash flows at the same levels achieved in prior periods. 26 Table of Contents Beyond the next twelve months, our cash requirements will depend extensively on the extent of market acceptance of our Inspire system and the demand for our therapy. Our long-term cash requirements also will be significantly impacted by the level of our investment in commercialization, entry and expansion into new markets, whether we make strategic acquisitions, whether we repurchase more shares of our common stock, competition, and our ability to obtain financing. We cannot accurately predict our long-term cash requirements at this time. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity, and financial condition. We may seek additional sources of liquidity and capital resources through equity or debt financings, such as additional securities offerings or through borrowings under a new credit facility. There can be no assurance that such transactions will be available to us on favorable terms, if at all. Operating Activities 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. Investing Activities 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. Financing Activities 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. Off-Balance Sheet Arrangements As of June 30, 2026, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Contractual Obligations and Commitments There have been no material changes to our short-term and long-term anticipated cash requirements under contractual obligations from those described in our Annual Report. Critical Accounting Policies and Estimates There have been no material changes to our critical accounting policies and estimates from those described in our Annual Report.