10-Q 1 insp-20240630.htm 10-Q insp-20240630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to                              
Commission File Number: 001-38468
______________________________
Inspire logo.jpg
Inspire Medical Systems, Inc.
(Exact name of registrant as specified in its charter)
______________________________
Delaware26-1377674
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5500 Wayzata Blvd., Suite 1600
Golden Valley, MN
55416
(Address of principal executive offices)(Zip Code)
(844672-4357
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareINSPNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer ☐Non-accelerated filer ☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
As of July 31, 2024, the registrant had 29,821,707 shares of common stock, $0.001 par value per share, outstanding.


Table of Contents
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2

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the "Quarterly Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact contained in this Quarterly Report are forward-looking statements, including, without limitation, statements regarding our future results of operations and financial position, business strategy, the impact of macroeconomic trends on our business, financial results and financial position, prospective products, international product approvals and commercializations, our expectations regarding the final reimbursement levels for Inspire therapy procedures, research and development costs, timing and likelihood of success, other insurance providers' plans to begin approving our Inspire therapy, our sales and marketing initiatives, potential supply chain disruptions, and the plans and objectives of management for future operations.
In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including, but not limited to:
our history of operating losses and dependency on our Inspire system for revenues;
commercial success and market acceptance of our Inspire therapy;
our ability to achieve and maintain adequate levels of coverage or reimbursement for our Inspire system or any future products we may seek to commercialize;
competitive companies and technologies in our industry;
the impact on our business, financial condition, and results of operation from public health crises and pandemics;
our ability to expand our indications and develop and commercialize additional products and enhancements to our Inspire system;
future results of operations, financial position, research and development costs, capital requirements, and our needs for additional financing;
our ability to forecast customer demand for our Inspire system and manage our inventory;
our dependence on third-party suppliers, vendors, and contract manufacturers;
risks related to consolidation in the healthcare industry;
our ability to expand, manage, and maintain our direct sales and marketing organization, and to market and sell our Inspire system in markets outside of the United States;
our ability to manage our growth;
our ability to hire and retain our senior management and other highly qualified personnel;
risks related to product liability claims and warranty claims;
our ability to address quality issues that may arise with our Inspire system;
3

our ability to successfully integrate any acquired business, products, or technologies;
changes in global macroeconomic conditions;
any failure of key information technology systems, processes, or sites or damage to or inability to access our physical facilities;
our ability to commercialize or obtain regulatory approvals or certifications for our Inspire therapy and system, or the effect of delays in commercializing or obtaining regulatory approvals or certifications;
any violations of anti-bribery, anti-corruption, and anti-money laundering laws;
our ability to use our net operating losses and research and development carryforwards;
risks related to the increasing and evolving focus on sustainability and environmental, social, and governance initiatives;
U.S. Food and Drug Administration ("FDA") or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including risks associated with regulatory approvals, certifications, or healthcare reform measures in the United States and international markets;
our ability to establish and maintain intellectual property protection for our Inspire therapy and system or avoid claims of infringement;
changes in U.S. and foreign tax laws;
risks related to our common stock; and
other important factors that could cause actual results, performance, or achievements to differ materially from those contemplated that are found in "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," and "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as updated by “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 1A. Risk Factors" in this Quarterly Report.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Unless the context requires otherwise, references to “Inspire,” the “Company,” “we,” “us,” and “our,” refer to Inspire Medical Systems, Inc.
4

PART I—FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements.
Inspire Medical Systems, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
June 30,
2024
December 31, 2023
(unaudited)
Assets
Current assets:
Cash and cash equivalents$188,035 $185,537 
Investments, short-term251,629 274,838 
Accounts receivable, net of allowance for credit losses of
    $515 and $1,648, respectively
79,716 89,884 
Inventories, net59,025 33,885 
Prepaid expenses and other current assets28,755 9,595 
Total current assets607,160 593,739 
Investments, long-term26,344 9,143 
Property and equipment, net61,701 39,984 
Operating lease right-of-use assets22,189 22,667 
Other non-current assets10,995 11,278 
Total assets$728,389 $676,811 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$33,621 $38,839 
Accrued expenses32,036 39,266 
Total current liabilities65,657 78,105 
Operating lease liabilities, non-current portion24,512 24,846 
Other non-current liabilities149 1,346 
Total liabilities90,318 104,297 
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized; no shares
     issued and outstanding
  
Common Stock, $0.001 par value per share; 200,000,000 shares authorized; 29,805,301 and 29,560,464 issued and outstanding at June 30, 2024 and December 31, 2023, respectively
30 30 
Additional paid-in capital983,791 917,107 
Accumulated other comprehensive (loss) income(115)800 
Accumulated deficit(345,635)(345,423)
Total stockholders' equity638,071 572,514 
Total liabilities and stockholders' equity$728,389 $676,811 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

Inspire Medical Systems, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)
(in thousands, except share and per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2024202320242023
Revenue$195,885 $151,092 $359,895 $278,989 
Cost of goods sold29,843 24,252 54,600 44,140 
Gross profit166,042 126,840 305,295 234,849 
Operating expenses:
Research and development28,859 30,821 57,709 56,340 
Selling, general and administrative132,084 112,618 257,705 214,606 
Total operating expenses160,943 143,439 315,414 270,946 
Operating income (loss)5,099 (16,599)(10,119)(36,097)
Other (income) expense:
Interest and dividend income(5,882)(4,922)(11,805)(9,195)
Other expense, net135 61 195 44 
Total other income(5,747)(4,861)(11,610)(9,151)
Income (loss) before income taxes10,846 (11,738)1,491 (26,946)
Income taxes1,053 214 1,703 430 
Net income (loss)9,793 (11,952)(212)(27,376)
Other comprehensive income (loss):
Foreign currency translation (loss) gain(39)72 (173)177 
Unrealized (loss) gain on investments(200)(1)(742)12 
Total comprehensive income (loss)$9,554 $(11,881)$(1,127)$(27,187)
Net income (loss) per share:
Basic$0.33 $(0.41)$(0.01)$(0.94)
Diluted$0.32 $(0.41)$(0.01)$(0.94)
Weighted average shares outstanding:
Basic29,728,849 29,229,922 29,672,006 29,160,323 
Diluted30,408,439 29,229,922 29,672,006 29,160,323 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
6

Inspire Medical Systems, Inc.
Consolidated Statements of Stockholders' Equity (unaudited)
(in thousands, except share amounts)

Six Months Ended June 30, 2024
Common Stock
SharesAmountAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
Balance at December 31, 202329,560,464 $30 $917,107 $800 $(345,423)$572,514 
Stock options exercised88,276 — 3,616 — — 3,616 
Vesting of restricted stock units41,185 — — — — — 
Shares held for tax withholdings(14,373)— (2,848)— — (2,848)
Issuance of common stock543 — 101 — — 101 
Stock-based compensation expense— — 26,322 — — 26,322 
Other comprehensive loss— — — (676)— (676)
Net loss— — — — (10,005)(10,005)
Balance at March 31, 202429,676,095 30 944,298 124 (355,428)589,024 
Stock options exercised88,328 — 5,517 — — 5,517 
Vesting of restricted stock units21,340 — — — — — 
Shares held for tax withholdings(10,985)— (1,862)— — (1,862)
Issuance of common stock365 — 85 — — 85 
Issuance of common stock for employee stock purchase plan30,158 — 3,431 — — 3,431 
Stock-based compensation expense— — 32,322 — — 32,322 
Other comprehensive loss— — — (239)— (239)
Net income— — — — 9,793 9,793 
Balance at June 30, 202429,805,301 $30 $983,791 $(115)$(345,635)$638,071 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

Inspire Medical Systems, Inc.
Consolidated Statements of Stockholders' Equity (unaudited)
(in thousands, except share amounts)

Six Months Ended June 30, 2023
Common Stock
SharesAmountAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Stockholders'
Equity
Balance at December 31, 202229,008,368 $29 $820,335 $(86)$(324,270)$496,008 
Stock options exercised142,167 — 7,377 — — 7,377 
Vesting of restricted stock units18,852 — — — — — 
Shares held for tax withholdings(6,750)— (1,746)— — (1,746)
Issuance of common stock364 — 90 — — 90 
Stock-based compensation expense— — 18,225 — — 18,225 
Other comprehensive income— — — 118 — 118 
Net loss— — — — (15,424)(15,424)
Balance at March 31, 202329,163,001 29 844,281 32 (339,694)504,648 
Stock options exercised143,693 — 13,113 — — 13,113 
Vesting of restricted stock units9,349 — — — — — 
Shares held for tax withholdings(3,237)— (971)— — (971)
Issuance of common stock390 — 91 — — 91 
Issuance of common stock for employee stock purchase plan12,983 — 2,792 — — 2,792 
Stock-based compensation expense— — 21,567 — — 21,567 
Other comprehensive income— — — 71 — 71 
Net loss— — — — (11,952)(11,952)
Balance at June 30, 202329,326,179 $29 $880,873 $103 $(351,646)$529,359 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
8

Inspire Medical Systems, Inc.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 Six Months Ended
June 30,
 20242023
Operating activities  
Net loss$(212)$(27,376)
Adjustments to reconcile net loss:  
Depreciation and amortization2,222 1,252 
Accretion of investment discount(4,907)(1)
Non-cash lease expense477 593 
Stock-based compensation expense58,644 39,792 
Non-cash stock issuance for services rendered186 181 
Provision (benefit) for estimated credit losses(1,133)881 
Changes in operating assets and liabilities:  
Accounts receivable11,247 (3,116)
Inventories(25,139)(8,954)
Prepaid expenses and other current assets(18,917)(3,791)
Accounts payable(5,004)11,782 
Accrued expenses and other liabilities(8,682)(7,495)
Net cash provided by operating activities8,782 3,748 
Investing activities  
Purchases of property and equipment(24,089)(8,608)
Purchases of investments(112,035) 
Proceeds from sales or maturities of investments122,209 10,000 
Purchases of strategic investments (250)
Net cash (used in) provided by investing activities(13,915)1,142 
Financing activities  
Proceeds from the exercise of stock options9,134 20,490 
Payment of taxes on net share settlement of equity awards(4,710)(2,717)
Proceeds from issuance of common stock from employee stock purchase plan3,431 2,792 
Net cash provided by financing activities7,855 20,565 
Effect of exchange rate on cash(224)4 
Increase in cash and cash equivalents2,498 25,459 
Cash and cash equivalents at beginning of period185,537 441,592 
Cash and cash equivalents at end of period$188,035 $467,051 
Supplemental cash flow information  
Property and equipment included in accounts payable and accrued expenses$3,868 $2,678 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
9

Inspire Medical Systems, Inc.
Notes to Consolidated Financial Statements (Unaudited) 
(Table amounts in thousands, except share and per share amounts)

1. Organization
Description of Business
Inspire Medical Systems, Inc. is 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 United States ("U.S.") Food and Drug Administration ("FDA") European Union ("EU"), Medical Devices Regulation ("MDR"), and Japan Pharmaceuticals and Medical Devices Agency ("PDMA")-approved neurostimulation technology of its kind that provides a safe and effective treatment for moderate to severe OSA. Inspire therapy received premarket approval ("PMA") from the FDA in 2014 and has been commercially available in certain European markets since 2011 and certain Asia Pacific markets since 2021.

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial reporting and as required by the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, the results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. All intercompany accounts and transactions have been eliminated in consolidation.
For a complete discussion of our significant accounting policies and other information, the unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Cash and Cash Equivalents
We consider all highly liquid securities, readily convertible to cash, that have original maturities of 90 days or less from the date of purchase to be cash equivalents. Cash is carried at cost, which approximates fair value, and cash equivalents, which consist of money market funds, are stated at fair value.
Foreign Currency
Our functional and reporting currency is the U.S. dollar. Our subsidiaries have functional currency in Euro and Yen. The consolidated financial statements are translated to U.S. dollars. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Sales and expenses denominated in foreign currencies are translated at exchange rates in effect on the date of the transaction. Foreign currency transaction gains and losses and the impacts of foreign currency remeasurement are recognized in other expense, net in the consolidated statements of operations and comprehensive income (loss). For the three-month periods ended June 30, 2024 and 2023, we recognized $0.1 million of loss and $0.1 million of gain, net, respectively. For the six-month period ended June 30, 2024, we recognized $0.2 million of loss, net, and for the six-month period ended June 30, 2023, we recognized no gain or loss. Any unrealized gains and losses due to translation adjustments are included in accumulated other comprehensive income (loss) within stockholders' equity in the consolidated balance sheets. We had $0.1 million
10

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
and $0.2 million of unrecognized gain in our accumulated other comprehensive income (loss) balance as of June 30, 2024 and December 31, 2023, respectively.
Investments
Our investments are classified as available-for-sale and consisted of the following:
June 30, 2024
AmortizedUnrealized GrossAggregate
CostGainsLossesFair Value
Short-Term:
Commercial paper$4,406 $1 $(5)$4,402 
Corporate debt securities26,051 9 (2)26,058 
Certificates of deposit11,227 3 (3)11,227 
U.S. treasury debt securities209,999 5 (62)209,942 
Short-term investments$251,683 $18 $(72)$251,629 
Long-Term:
Certificates of deposit$2,994 $9 $ $3,003 
Asset-backed securities655  (1)654 
U.S. treasury debt securities22,814  (127)22,687 
Long-term investments$26,463 $9 $(128)$26,344 

December 31, 2023
AmortizedUnrealized GrossAggregate
CostGainsLossesFair Value
Short-Term:
Commercial paper$2,950 $1 $ $2,951 
Corporate debt securities30,154 61  30,215 
Certificates of deposit2,953 15  2,968 
U.S. treasury debt securities238,237 467  238,704 
Short-term investments$274,294 $544 $ $274,838 
Long-Term:
Corporate debt securities$3,109 $13 $ $3,122 
Asset-backed securities1,170 1  1,171 
U.S. treasury debt securities4,838 12  4,850 
Long-term investments$9,117 $26 $ $9,143 
Investments are classified as available-for-sale and are reported at their estimated fair market values which are based on quoted, active or inactive market prices when available. Any unrealized gains and losses due to interest rate fluctuations and other external factors are reported as a separate component of accumulated other comprehensive income (loss) within stockholders' equity. We had $0.2 million of unrecognized loss and $0.6 million of unrecognized gain in our accumulated other comprehensive income (loss) balance at June 30, 2024 and December 31, 2023, respectively. Any realized gains and losses are calculated on the specific identification method and reported net in other expense, net in the consolidated statements of operations and comprehensive income (loss). For the three and six months ended June 30, 2024 and 2023, we recognized $0 of realized losses, net.
11

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
As of June 30, 2024 and December 31, 2023, we had no investments with a contractual maturity of greater than three years. Currently, we do not intend to sell the investments, and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider those investments to be other-than-temporarily impaired as of June 30, 2024. Each reporting period, we evaluate whether declines in fair value below carrying value are due to expected credit losses, as well as our ability and intent to hold the investment until a forecasted recovery occurs. Expected credit losses, not to exceed the amount of the unrealized loss, are recorded as an allowance through other expense in the consolidated statements of operations and comprehensive income (loss). The total allowance for credit losses was $0 at both June 30, 2024 and December 31, 2023.
Fair Value of Financial Instruments
We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents and investments. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1: Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions.
We classify instruments within Level 1 if quoted prices are available in active markets for identical assets, which include our money market funds and U.S. treasury securities. We classify instruments in Level 2 if the instruments are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or an income approach, such as a discounted cash flow pricing model that calculates values from observable inputs such as quoted interest rates, yield curves and other observable market information. These instruments include our commercial paper, certificates of deposit, corporate debt securities and asset-backed securities. The available-for-sale securities are held by a custodian who obtains investment prices from a third-party pricing provider that uses standard inputs (observable in the market) to models which vary by asset class.
The following tables set forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of June 30, 2024 and December 31, 2023. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
12

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
Fair Value Measurements as of
June 30, 2024
Estimated
Fair Value
Level 1Level 2Level 3
Cash equivalents:
Money market funds$144,507 $144,507 $ $ 
Total cash equivalents144,507 144,507   
Investments:
Commercial paper4,402  4,402  
Corporate debt securities26,058  26,058  
Certificates of deposit14,230  14,230  
Asset-backed securities654  654  
U.S. government securities232,629 232,629   
Total investments277,973 232,629 45,344  
Total cash equivalents and investments$422,480 $377,136 $45,344 $ 
Fair Value Measurements as of
December 31, 2023
Estimated
Fair Value
Level 1Level 2Level 3
Cash equivalents:
Money market funds$146,217 $146,217 $ $ 
Total cash equivalents146,217 146,217   
Investments:
Commercial paper2,951  2,951  
Corporate debt securities33,337  33,337  
Certificates of deposit2,968  2,968  
Asset-backed securities1,171  1,171  
U.S. government securities243,554 243,554   
Total investments283,981 243,554 40,427  
Total cash equivalents and investments$430,198 $389,771 $40,427 $ 
There were no transfers between levels during the periods ended June 30, 2024 and December 31, 2023.
Concentration of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash equivalents, investments, and accounts receivable. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.
Our investment policy limits investments to 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. We place restrictions on maturities and concentration by type and issuer. We are exposed to credit risk in the event of a default by the issuers of these securities to the
13

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
extent recorded on the consolidated balance sheets. However, as of June 30, 2024 and December 31, 2023, we limited our credit risk associated with cash equivalents by placing investments with banks we believe are highly creditworthy.
We believe that the credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms, and dispersion of our customer base. We generally do not require collateral, and losses on accounts receivable have historically not been significant.
Accounts Receivable and Allowance for Expected Credit Losses
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the general standard being net 30 days. Collateral or any other security to support payment of these receivables generally is not required.
Each reporting period, we estimate the credit loss related to accounts receivable based on a migration analysis of accounts grouped by individual receivables delinquency status and apply our historic loss rate adjusted for management's assumption of future market conditions. Any change in the allowance from new receivables acquired or changes due to credit deterioration on previously existing receivables is recorded in selling, general and administrative expenses. Write-offs of receivables considered uncollectible are deducted from the allowance. Specific accounts receivable are written off once a determination is made that the amount is uncollectible. The write-off is recorded in the period in which the account receivable is deemed uncollectible. Recoveries are recognized when received and as a direct credit to earnings or as a reduction to the allowance for credit losses (which would indirectly reduce the loss by decreasing bad debt expense).
The following table presents the changes in the allowance for credit losses related to accounts receivable:
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Balance at beginning of period$256 $36 $1,648 $36 
Charges (credits) to the allowance, net(19)(7)57 (7)
Accounts written off, net of recoveries278 888 (1,190)888 
Balance at the end of the period$515 $917 $515 $917 
The increase in accounts written off, net of recoveries during the six months ended June 30, 2024 related primarily to accounts receivable with three healthcare systems.
Inventories
Inventories are valued at the lower of cost or net realizable value, computed on a first-in, first-out basis and consisted of the following:
June 30, 2024December 31, 2023
Raw materials$10,804 $6,115 
Finished goods48,221 27,770 
Total inventories, net of reserves$59,025 $33,885 
We expense prelaunch inventory as research and development expense in the period incurred unless objective and persuasive evidence exists that regulatory approval and subsequent commercialization of a product candidate is probable and where we also expect the future economic benefit from the sales of the product candidate to be realized. In August 2024, we received approval from the FDA for our next generation Inspire system, which we expect to fully launch in 2025. The balance of inventory related to our next generation Inspire system was $6.5 million and $0.9 million as of June 30, 2024 and December 31, 2023, respectively.
14

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, incur charges to write down inventories to their net realizable value. The determination of a reserve for excess and obsolete inventory involves management exercising judgment to determine the required reserve, considering future demand, product life cycles, introduction of new products, and current market conditions. The reserve for excess and obsolete inventory was $1.5 million and $2.4 million as of June 30, 2024 and December 31, 2023, respectively.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization and consisted of the following:
June 30, 2024December 31, 2023
Computer equipment and software$9,058 $2,601 
Manufacturing equipment15,298 7,245 
Other equipment2,157 1,842 
Leasehold improvements4,643 2,356 
Construction in process40,038 33,211 
Property and equipment, cost71,194 47,255 
Less: accumulated depreciation and amortization(9,493)(7,271)
Property and equipment, net$61,701 $39,984 
Construction in process is comprised primarily of production equipment. Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Depreciation and amortization expense was $1.4 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and $2.2 million and $1.3 million for the six months ended June 30, 2024 and 2023, respectively.
Strategic Investments
For equity securities without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These securities are presented within other non-current assets on the consolidated balance sheets. The balance of equity securities without readily determinable fair values was $10.4 million as of both June 30, 2024 and December 31, 2023, respectively. There were no adjustments to the carrying amount during either of the six months ended June 30, 2024 or 2023.
Impairment of Long-lived Assets
Long-lived assets consist primarily of property and equipment, operating lease right-of-use assets, and strategic investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that an asset be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the asset is not recoverable on an undiscounted cash flow basis, we determine the fair value of the asset and recognize an impairment loss to the extent the carrying amount of the asset exceeds its fair value. We determine fair value using the income approach based on the present value of expected future cash flows or other appropriate measures of estimated fair value. Our cash flow assumptions consider historical and forecasted revenue and operating costs and other relevant factors. We did not record any impairment charges on long-lived assets during either of the six months ended June 30, 2024 or 2023.
15

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
Accrued Expenses
Accrued expenses consisted of the following:
June 30, 2024December 31, 2023
Payroll related$26,635 $33,875 
Product warranty liability1,431 1,100 
Other accrued expenses3,970 4,291 
Total accrued expenses$32,036 $39,266 
The following table shows the changes in our estimated product warranty liability accrual, included in accrued liabilities:
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Balance at beginning of period$1,388 $741 $1,100 $920 
Provisions for warranty263 151 798 283 
Settlements of warranty claims(220)(132)(467)(443)
Balance at the end of the period$1,431 $760 $1,431 $760 
Revenue Recognition
We derive our revenue from sales of our products in the U.S. and internationally. Customers are primarily comprised of hospitals and ambulatory surgery centers, with distributors being used in certain international locations where we do not have a direct commercial presence.
Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product, depending on shipment terms. Our standard shipping terms are free on board shipping point, unless the customer requests that control and title to the inventory transfer upon delivery. In those cases where shipping and handling costs are billed to customers, we classify the amounts billed as a component of cost of goods sold.
Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The majority of our contracts have a single performance obligation and are short term in nature.
Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
Variable consideration related to certain customer sales incentives is estimated based on the amounts expected to be paid based on the agreement with the customer using probability assessments.
We offer customers a limited right of return for our product in case of non-conformity or performance issues. We estimate the amount of our product sales that may be returned by our customers based on historical sales and returns. As our historical product returns to date have been immaterial, we have not recorded a reduction in revenue related to variable consideration for product returns.
See Note 7 for disaggregated revenue by geographic area.
16

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
Cost of Goods Sold
Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap and inventory obsolescence, warranty replacement costs, as well as distribution-related expenses such as logistics and shipping costs, net of shipping costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel.
Research and Development
Research and development expenses consist primarily of product development, clinical and regulatory affairs, quality assurance, consulting services, and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, prelaunch inventory, consulting, and travel expenses related to research and development programs. Clinical expenses include clinical study design, clinical site reimbursement, data management, travel expenses, and the cost of manufacturing products for clinical studies.
We expense prelaunch inventory as research and development expense in the period incurred unless objective and persuasive evidence exists that regulatory approval and subsequent commercialization of a product candidate is probable and where we also expect the future economic benefit from the sales of the product candidate to be realized.
Stock-Based Compensation
We maintain an equity incentive plan to provide long-term incentives for eligible employees, consultants, and members of the board of directors. The plan allows for the issuance of restricted stock units ("RSUs"), performance stock units ("PSUs"), and non-statutory and incentive stock options to employees, and RSUs, PSUs, and non-statutory stock options to consultants and directors. We also offer an employee stock purchase plan ("ESPP") which allows participating employees to purchase shares of our common stock at a discount through payroll deductions.
We recognize equity-based compensation expense for awards of equity instruments based on the grant date fair value of those awards as expense in the consolidated statements of operations and comprehensive income (loss). We estimate the fair value of stock options using the Black-Scholes option pricing model and the fair value of RSUs and PSUs is equal to the closing price of our common stock on the grant date. The fair value of each purchase under the employee stock purchase plan is estimated at the beginning of the offering period using the Black-Scholes option pricing model.
Stock-based compensation expense is recognized on a straight-line basis over the vesting term for stock options and RSUs, and over the vesting and performance period based on the probability of achieving the performance objectives for PSUs. We account for award forfeitures as they occur.
Advertising Expenses
We expense the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $23.2 million and $25.3 million during the three months ended June 30, 2024 and 2023, respectively, and $48.8 million and $48.9 million during the six months ended June 30, 2024 and 2023, respectively.
Leases
Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expenses, and operating lease liabilities – non-current portion in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments,
17

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
we use our incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of our incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments, and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our consolidated balance sheets.
Income Taxes
We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances against deferred tax assets are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. As we have historically incurred operating losses, we have recorded a full valuation allowance against our net deferred tax assets, and there is no provision for income taxes other than minimal state and foreign taxes, which includes a foreign tax provision relating to uncertain tax positions. Our policy is to record interest and penalties expense related to uncertain tax positions as other expense in the consolidated statements of operations and comprehensive income (loss).
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and changes in unrealized gains and losses due to interest rate fluctuations and other external factors on investments classified as available-for-sale, and foreign currency translation adjustments. Accumulated other comprehensive income (loss) is presented in the accompanying consolidated balance sheets as a component of stockholders' equity.
Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. For the periods presented with a net loss, diluted net loss per share is the same as basic net loss per share as all potentially dilutive shares consisting of outstanding stock options, unvested RSUs and PSUs, and shares issuable under our employee stock purchase plan were antidilutive in those periods.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The standard requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM. The amendments in this update also expand the interim segment disclosure requirements. This authoritative guidance will be effective for us in fiscal 2024 for annual periods and in the first quarter of fiscal 2025 for interim periods, with early adoption permitted. We are currently evaluating the effect of this new guidance on our consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). The guidance is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The
18

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
amendments in ASU 2023-09 are effective for us in fiscal 2025, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. We are evaluating the impact of the standard on our income tax disclosures.
In March 2024, the SEC issued climate-related disclosure rules, which the SEC has subsequently stayed pending ongoing legal challenges. If they survive litigation, the rules will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules will require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. We are in the process of analyzing the impact of the rules on our related disclosures.
We have reviewed and considered all other recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially have a material impact on our business practices, financial condition, results of operations, or disclosures.

3. Leases
We lease office space for our corporate headquarters under a non-cancelable operating lease. The corporate office leases were amended in May 2023 to increase the total space leased to approximately 106,000 square feet and to extend the noncancellable lease term through May 31, 2035. We entered into an additional warehouse and office space lease for our corporate headquarters under a non-cancelable operating lease in August 2023. This space includes approximately 22,000 square feet and a noncancellable lease term through May 31, 2035. Each lease includes options to renew for up to two additional periods of five years each at the then-prevailing market rates. The exercises of the lease renewal options are at our sole discretion and were not included in the lease term for the calculation of the ROU assets and lease liabilities as of the lease modification date as they were not reasonably certain of exercise.
In March 2024, we entered into an amendment on our additional warehouse and office space lease which is expected to commence in January 2025. This amendment provides for approximately 18,000 square feet of additional space and follows the lease term and renewal options in the original lease described above.
In addition to base rent in these leases, we also pay our proportionate share of the operating expenses, as defined in the leases. These payments are made monthly and adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes, and insurance.
The following table presents the lease balances within the consolidated balance sheets:
June 30, 2024December 31, 2023
Right-of-use assets:
Operating lease right-of-use assets$22,189 $22,667 
Operating lease liabilities:
Operating lease liabilities, non-current portion$24,512 $24,846 
As of June 30, 2024, the remaining lease terms were 10.9 years and the weighted average discount rate was 4.9%. The operating cash outflows from our operating leases were $0.7 million and $0.5 million for the three-month periods ended June 30, 2024 and 2023, respectively, and $1.3 million and $0.9 million for the six-month periods ended June 30, 2024 and 2023, respectively.

19

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
4. Employee Retirement Plan
We sponsor a defined contribution employee retirement plan covering all of our full-time employees. The plan allows eligible employees to defer a portion of their eligible compensation up to the maximum allowed by IRS Regulations. We make voluntary matching contributions of 50% of the first 6% of each participating employee's contribution, up to 3% of eligible earnings. Our match contributions are made to funds designated by the participant, none of which are based on Inspire common stock. Our matching contributions to the plan totaled $1.1 million and $0.9 million for the three months ended June 30, 2024 and 2023, respectively, and $2.6 million and $2.1 million for the six months ended June 30, 2024 and 2023, respectively.

5. Stock-Based Compensation
As of June 30, 2024, there were 4,765,711 shares reserved for issuance under our equity incentive plan, of which 1,462,624 shares were available for issuance.
Stock-based compensation expense is recognized on a straight-line basis over the vesting term for stock options and RSUs, and over the performance period based on the probability of achieving the performance objectives for PSUs, and is reduced by actual forfeitures as they occur. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase, or cancel any remaining unearned stock compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock-based awards.
Stock Options
Options are granted with an exercise price, which is equal to the closing price of our stock on the date of grant. Stock options include a four-year service period and 25% vest after the first year of service and the remainder vest in equal installments over the next 36 months of service. The stock options granted to the board of directors vest in one or three equal annual installments, in each case subject to the director's continuous service through the applicable vesting date. The stock options have a contractual life of ten years.
The fair value per share of options is estimated on the date of grant using the Black-Scholes option pricing model.
Option Value and Assumptions
Six Months Ended
June 30,
20242023
Weighted average fair value$116.06$154.11
Assumptions:
Expected term (years)
6.25
6.25
Expected volatility
58.6 - 60.8%
56.6 - 57.4%
Risk-free interest rate
3.95 - 4.71%
3.49 - 4.07%
Expected dividend yield0.0%0.0%
Expected Term — Due to our limited amount of historical exercise, forfeiture, and expiration activity, we have opted to use the "simplified method" for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting terms and the original contractual term of the option. We will continue to analyze our expected term assumption as more historical data becomes available.
Expected Volatility — During the six months ended June 30, 2024, we based expected volatility on the historic volatility of our common stock. Prior to 2024, due to our limited company specific historical and implied volatility
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Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
data, we incorporated our historical stock trading volatility with those of a group of similar companies that are publicly traded for the calculation of volatility. When selecting this peer group, we generally selected companies with comparable characteristics, including enterprise value, stages of clinical development, risk profiles, position within the industry, and those with historical share price information sufficient to meet the expected life of the stock-based awards.
Risk-Free Interest Rate — The risk-free rate assumption is based on the U.S. government Treasury instruments with maturities similar to the expected term of our stock options.
Expected Dividend Yield — The expected dividend assumption is based on our history of not paying dividends and our expectation that we will not declare dividends for the foreseeable future.
Stock Option Activity
OptionsWeighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
(in thousands)
Outstanding at December 31, 20232,447,141 $152.17 7.0$160,691
Granted175,108 $195.77 
Exercised(176,638)$53.21 $24,139
Forfeited/expired(43,241)$226.85 
Outstanding at June 30, 20242,402,370 $161.28 6.6$66,313
Exercisable at June 30, 20241,645,593 $131.83 5.8$66,291
The aggregate intrinsic value of options exercised is the difference between the estimated fair market value of our common stock at the date of exercise and the exercise price for those options. The aggregate intrinsic value of outstanding options is the difference between the closing price as of the date outstanding and the exercise price of the underlying stock options. As of June 30, 2024, the amount of unearned stock-based compensation to be expensed from now through the year 2028 related to unvested stock options is $91.4 million, which we expect to recognize over a weighted average period of 2.4 years.
Restricted Stock Units
RSUs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s service terminates prior to the release of the vesting restrictions. The RSUs granted to employees include three- or four-year service periods and vest in equal installments on each anniversary of the date of grant. The RSUs granted to the board of directors include one-or three-year service periods and vest in equal installments on each anniversary of the date of grant. The fair value of the RSUs is equal to the closing price of our common stock on the grant date. A summary of RSUs and related information is as follows:
Restricted Stock UnitsWeighted Average
Grant Date Fair Value
Aggregate Intrinsic Value (in thousands)
Unvested at December 31, 2023201,070 $235.47 $40,904 
Granted490,918 $191.87 
Vested(62,525)$244.75 $12,368 
Forfeited(24,907)$207.57 
Unvested at June 30, 2024604,556 $200.26 $80,908 
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Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
The aggregate intrinsic value of unvested RSUs was based on our closing stock price on the last trading day of the period. The aggregate intrinsic value of vested RSUs was based on our closing stock price on the date of award vesting. As of June 30, 2024, the amount of unearned stock-based compensation currently estimated to be expensed from now through the year 2027 related to unvested RSUs was $104.1 million which we expect to recognize over a weighted average period of 2.4 years.
Performance Stock Units
During 2022, 2023, and 2024, we granted PSUs to officers and key employees. The number of PSUs that will ultimately be earned is based on our performance relative to pre-established goals for the three-year periods ending December 31, 2024, 2025, and 2026, respectively. The expense is recorded on a straight-line basis over the requisite service periods based on an estimate of the number of PSUs expected to vest. Management expectations related to the achievement of the performance goals associated with PSU grants are assessed each reporting period. The number of shares earned at the end of each of the three-year periods will vary based on actual performance, from 0% to 200% of the number of PSUs granted. If the performance conditions are not met or not expected to be met, any compensation expense recognized associated with the grant will be reversed.
A summary of PSUs and related information is as follows:
Performance Stock UnitsWeighted Average
Grant Date Fair Value
Aggregate Intrinsic Value (in thousands)
Unvested at December 31, 2023168,969 $248.19 $34,373 
Granted178,525 $198.39 
Forfeited(13,781)$228.51 
Unvested at June 30, 2024333,713 $222.36 $44,661 
The fair value of the PSUs is equal to the closing price of our common stock on the grant date. The aggregate intrinsic value of unvested PSUs was based on our closing stock price on the last trading day of the period. As of June 30, 2024, there was $46.6 million of unrecognized stock-based compensation expense related to outstanding PSUs that is expected to be recognized over a weighted-average period of approximately 2.0 years.
Employee Stock Purchase Plan
Employees may participate in our ESPP provided they meet certain eligibility requirements. The purchase price for our common stock under the terms of the ESPP is defined as 85% of the lower of the closing market price per share of our common stock on the first or last trading day of each stock purchase period. There were 1,217,973 shares available for future issuance under the ESPP as of June 30, 2024. The current purchase period under the ESPP began on July 1, 2024 and ends December 31, 2024.

6. Income Taxes
At both June 30, 2024 and December 31, 2023, a valuation allowance was recorded against all deferred tax assets due to our cumulative net loss position. We recorded income tax expense of $1.1 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively, and $1.7 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively. The income tax expense reflects state and foreign income tax expense in both of the six months ended June 30, 2024 and June 30, 2023.
As of December 31, 2023, our gross federal net operating loss carryforwards were $226.1 million, which will expire at various dates beginning in 2034. In addition, net operating loss carryforwards for state income tax purposes of $173.5 million that include net operating losses will begin to expire in 2024. We also have gross research and
22

Inspire Medical Systems, Inc. 
Notes to Consolidated Financial Statements (unaudited) 
(Table amounts in thousands, except share and per share amounts)
development credit carryforwards of $14.7 million as of December 31, 2023, which will expire at various dates beginning in 2033.
Utilization of the net operating loss carryforwards and research and development ("R&D") credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by Section 382 and Section 383 of the Code and similar state provisions. During 2023, we finalized a detailed analysis to determine whether an ownership change has occurred through December 31, 2022, and if a limitation exists. It was determined that December 11, 2018 was the only date that we experienced an ownership change. The study concluded that none of the $126.5 million of federal net operating losses nor the $1.7 million of federal R&D credits that were accumulated on December 11, 2018 will expire unused solely due to the limitations under Sections 382 and 383 of the Code. We are in the process of updating the analysis through December 31, 2023. Although unexpected, if we experienced an ownership change during 2023 or 2024, the timing of our ability to utilize the tax attributes may be affected.
Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of which are uncertain. Based on available objective evidence and cumulative losses, we believe it is more likely than not that the deferred tax assets are not recognizable and will not be recognizable until we have sufficient book income. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.
We had $0.1 million of tax payable on unrecognized tax positions as of both June 30, 2024 and December 31, 2023.
We file income tax returns in the applicable jurisdictions. The 2020 to 2022 tax years remain open to examination by the major taxing authorities to which we are subject. We do not expect a significant change to our unrecognized tax positions over the next 12 months.

7. Segment Reporting and Revenue Disaggregation
We operate our business as one operating segment. An operating segment is defined as a component of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.
We sell our Inspire system to hospitals and ambulatory surgery centers in the U.S. and in select countries in Europe and Japan through a direct sales organization, and in Singapore and Hong Kong through distributors. Revenue by geographic region is as follows:
Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
United States$187,808 $144,749 $343,579 $269,234 
All other countries8,077 6,343 16,316 9,755 
Total revenue$195,885 $151,092 $359,895 $278,989 
Long-lived tangible assets by geographic location were as follows:
June 30, 2024December 31, 2023
United States$60,792 $39,916 
All other countries909 68 
Total long-lived tangible assets$61,701 $39,984 

23

INSPIRE MEDICAL SYSTEMS, INC. 
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 
(Table amounts in thousands, except share and per share amounts)
8. Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. For the periods presented with a net loss, diluted net loss per share is the same as basic net loss per share as all of the following potentially dilutive shares were antidilutive in those periods.
The following common stock-based awards were excluded from the computation of diluted net income (loss) per common share for the periods presented because including them would have been antidilutive:
June 30,
20242023
Common stock options outstanding2,402,370 2,716,418 
Unvested restricted stock units604,556 188,402 
Total3,006,926 2,904,820 

9. Related Party Transaction
In December 2023, we entered into an agreement with an entity controlled by our Chief Executive Officer (the "Entity"), pursuant to which we agreed to share the costs of a corporate suite at a sports and entertainment venue (the "Venue") (the “Suite”) (the “Cost Sharing Agreement”). In August 2023, the Entity entered into an agreement with the Venue, pursuant to which the Entity acquired certain rights to use the Suite for specified sporting and other events at the Venue through August 2026. Pursuant to this agreement, the Entity agreed to pay $0.2 million per year, with each year beginning September 1 and ending August 31, and the fee increasing by 5% for each succeeding year. Under the Cost Sharing Agreement, we will reimburse the Entity 50% of the cost of the Suite in exchange for the right to use the Suite for 50% of the specified events at the Venue through August 2026.

10. Commitments and Contingencies
As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, Inspire and two of its executive officers were named as defendants in a purported federal securities law class action filed in the United States District Court for the District of Minnesota, captioned City of Hollywood Firefighters’ Pension Fund v. Inspire Medical Systems, Inc., et. al., Court File No. 0:23-cv-03884 (the "City of Hollywood Lawsuit"). The plaintiff filed an amended complaint on April 19, 2024, which alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5, which alleged violations relate to certain prior disclosures of Inspire about the effectiveness of a program intended to help certain customers establish independence in seeking prior authorization from payors for our Inspire therapy. The plaintiff seeks to represent a class of shareholders who purchased or otherwise acquired Inspire common stock between May 3, 2023 and November 7, 2023. The plaintiff seeks damages and other relief, including attorneys' fees and costs. The defendants are vigorously defending this lawsuit. On June 28, 2024, the defendants moved to dismiss the amended complaint in its entirety.
On July 16, 2024, a stockholder derivative lawsuit was filed in the United States District Court for the District of Minnesota, purportedly on behalf of Inspire against certain of our present and former officers and directors and Inspire (as a nominal defendant), captioned Lawrence Hollin v. Herbert, et al., Court File No. 0:24-cv-02716 (the “Hollin Lawsuit”). The Hollin Lawsuit arises out of the same subject matter as the City of Hollywood Lawsuit and alleges the following claims under common law and the Exchange Act: (1) breach of fiduciary duty; (2) unjust enrichment; (3) waste of corporate assets; and (4) as against the officer defendants, contribution under Sections 10(b) and 21D of the Exchange Act. The lawsuit seeks unspecified damages. The defendants intend to vigorously defend this lawsuit.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
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, 2023 (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, 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 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.
We sell our Inspire system to hospitals and ambulatory surgery centers ("ASCs") in the U.S. and in select countries in Europe and Japan through a direct sales organization and we sell our Inspire system in Singapore and Hong Kong through distributors. Our direct sales force engages in sales efforts and promotional activities primarily focused on ENT physicians and sleep centers. In addition, we highlight our compelling clinical data and value proposition to increase awareness and adoption amongst referring physicians. We build upon this top-down approach with strong direct-to-consumer marketing initiatives to create awareness of the benefits of our Inspire system and drive interest through patient empowerment. We believe this outreach helps to educate thousands of patients on our Inspire therapy.
Although our sales and marketing efforts are directed at patients and physicians because they are the primary users of our technology, we consider the hospitals and ASCs where the procedure is performed to be our customers, as they are the purchasing agents of our Inspire system. Our customers are reimbursed the cost required to treat each patient through various third-party payors, such as commercial payors and government agencies. Our Inspire system is currently reimbursed primarily on a per-patient prior authorization basis for patients covered by commercial payors, under Local Coverage Determinations for patients covered by Medicare, and under U.S. government contract for patients who are treated by the Veterans Health Administration. As of August 6, 2024, we have secured positive coverage policies with many U.S. commercial payors, including virtually all large national commercial insurers, covering approximately 260 million lives in the U.S. In addition, all seven Medicare Administrative Contractors provide coverage of Inspire therapy when certain coverage criteria are met.
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
25

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.
Reimbursement in other countries can often be established through a combination of private (commercial insurance) and public funding sources, or at the hospital level through innovation budgets.
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.
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.
We typically seek to maintain higher levels of inventory to protect ourselves from supply interruptions, and, as a result, we are subject to the risk of inventory obsolescence and expiration, which could lead to inventory impairment charges.
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.
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
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$0.2 million compared to revenue of $279.0 million with a gross margin of 84.2% and a net loss of $27.4 million for the six months ended June 30, 2023. Our accumulated deficit as of June 30, 2024 was $345.6 million.
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.
Our direct-to-consumer marketing includes the use of social media platforms such as Facebook, Google ad placements, and radio and television commercials. The objective of this outreach is to bring patients to our website, where they can find educational materials and videos on sleep apnea and the use and benefits of our Inspire therapy, contact information for physicians and clinical sites, and information regarding community awareness events. Further, our team leverages the Inspire Sleep app for patient education. We plan to continue to refine our approach to direct-to-consumer outreach, including increasing attention to digital advertising directed towards qualified patients. We expect to maintain our level of direct-to-consumer activities.
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.
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.
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
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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.
Macroeconomic Environment
The global economy continues to experience increased inflationary pressures. Higher interest rates and capital costs, higher shipping costs, increased costs of labor, international conflicts and terrorism, and weakening foreign currency exchange rates are creating additional economic challenges. These conditions may cause our customers to decrease or delay orders for our products.
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.

Components of Our Results of Operations
Revenue
We derive primarily all of our revenue from the sale of our Inspire system to hospitals and ASCs in the U.S. and in select countries in Europe and the Asia Pacific region. We recognize revenues from sales of our Inspire system when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product, depending on shipment terms.
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.
Our business has grown rapidly in recent years, resulting in substantially increased revenues, and we expect that our business will continue to grow. However, our revenue growth rate has generally declined in recent periods, and it may continue to do so as a result of the difficulty of maintaining growth rates as our revenues increase to higher levels.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap, and inventory obsolescence, warranty replacement costs, as well as distribution-related expenses such as logistics and shipping costs, net of shipping costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel. We expect cost of goods sold to increase or decrease in absolute dollars primarily as, and to the extent, our revenue grows or declines, respectively.
We calculate gross margin as gross profit divided by revenue. Our gross margin has been and we expect it will continue to be affected by a variety of factors, including manufacturing costs, the average selling price of our Inspire system, the implementation of cost-reduction strategies, inventory obsolescence costs, which generally occur when new generations of our Inspire system are introduced, and to a lesser extent the sales mix between the U.S. and countries outside of the U.S., as our average selling price in the U.S. tends to be higher than in other countries. Our gross margin may increase slightly to the extent our production volumes increase and we receive discounts on the costs charged by our contract manufacturers, thereby reducing our per unit costs, and when we implement price increases on our products, thereby increasing our revenue. On the other hand, our gross margin may decrease
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slightly to the extent our yields decrease, or materials and labor prices increase due to supply chain issues and inflation, thereby increasing our per unit costs. However, our gross margin may also fluctuate from quarter to quarter due to seasonality and foreign currency exchange rates.
Research and Development Expenses
Research and development ("R&D") expenses consist primarily of product development, engineering, clinical studies to develop and support our products, regulatory expenses, quality assurance, testing, consulting services, prelaunch inventory, and other costs associated with the next generation versions of the Inspire system and SleepSync™, a cloud-based patient management system. These expenses include employee compensation, including stock-based compensation, supplies, materials, consulting, and travel expenses related to research and development programs. Additionally, these expenses include clinical study management, payments to clinical investigators, data management and travel expenses for our various clinical studies.
We expense prelaunch inventory as R&D expense in the period incurred unless objective and persuasive evidence exists that regulatory approval and subsequent commercialization of a product candidate is probable and we also expect future economic benefit from the sales of the product candidate to be realized.
We expect R&D expenses to increase in the future as we develop next generation versions of our Inspire system and SleepSync™ and continue to expand our clinical studies to further expand positive coverage policies from private commercial payors in the U.S. and enter into new markets including additional European countries and the Asia Pacific region. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts and new clinical development activities.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of compensation for personnel, including base salaries, stock-based compensation expense and commissions related to our sales organization, finance, information technology, human resource, and legal functions, as well as spending related to marketing, sales operations, and training and reimbursement personnel. Other SG&A expenses include training physicians, travel expenses, advertising, direct-to-consumer promotional programs, conferences, trade shows and consulting services, professional services fees, audit fees, insurance costs and general corporate expenses, including facilities-related expenses.
We expect SG&A expenses to continue to increase as we expand our commercial infrastructure to both drive and support our planned growth in revenue and as we increase our headcount and expand administrative personnel to support our growth and operations as a public company including finance, legal, and human resources personnel and information technology services. Additionally, we anticipate an increase in our stock-based compensation expense with grants of stock options, restricted stock units, performance stock units, and shares of our common stock purchased pursuant to our employee stock purchase plan.
Other (Income) Expense
Other (income) expense consists primarily of interest and dividend income, the impacts of foreign currency transactions and remeasurements, and gains and losses on investments.
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.

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Results of Operations
Three Months EndedSix Months Ended
June 30,June 30,
20242023$ Change% Change20242023$ Change% Change
(in thousands, except percentages)
Revenue$195,885 $151,092 $44,793 29.6 %$359,895 $278,989 $80,906 29.0 %
Cost of goods sold29,843 24,252 5,591 23.1 %54,600 44,140 10,460 23.7 %
Gross profit166,042 126,840 39,202 30.9 %305,295 234,849 70,446 30.0 %
Gross margin84.8%83.9%84.8%84.2%
Operating expenses:
Research and development28,859 30,821 (1,962)(6.4)%57,709 56,340 1,369 2.4 %
Selling, general and administrative132,084 112,618 19,466 17.3 %257,705 214,606 43,099 20.1 %
Total operating expenses160,943 143,439 17,504 12.2 %315,414 270,946 44,468 16.4 %
Operating income (loss)5,099 (16,599)21,698 (130.7)%(10,119)(36,097)25,978 (72.0)%
Other income, net(5,747)(4,861)(886)18.2 %(11,610)(9,151)(2,459)26.9 %
Income (loss) before income taxes10,846 (11,738)22,584 (192.4)%1,491 (26,946)28,437 (105.5)%
Income taxes1,053 214 839 392.1 %1,703 430 1,273 296.0 %
Net income (loss)$9,793 $(11,952)$21,745 (181.9)%$(212)$(27,376)$27,164 (99.2)%
Comparison of the Three Months Ended June 30, 2024 and 2023
Revenue
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 $1.7 million outside of the U.S. compared to the same prior year period. Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.
Revenue information by region is summarized as follows:
Three Months Ended June 30,
20242023Change
Amount% of RevenueAmount% of Revenue$%
(in thousands, except percentages)
United States$187,808 95.9 %$144,749 95.8 %$43,059 29.7 %
All other countries8,077 4.1 %6,343 4.2 %1,734 27.3 %
Total revenue$195,885 100.0 %$151,092 100.0 %$44,793 29.6 %
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.
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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.
Cost of Goods Sold and Gross Margin
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.
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.
Research and Development Expenses
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.
Selling, General and Administrative Expenses
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.
Other Income, Net
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.
Income Taxes
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.


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Comparison of the Six Months Ended June 30, 2024 and 2023
Revenue
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 $6.6 million outside of the U.S. Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.
Revenue information by region is summarized as follows:
Six Months Ended June 30,
20242023Change
Amount% of RevenueAmount% of Revenue$%
(in thousands, except percentages)
United States$343,579 95.5 %$269,234 96.5 %$74,345 27.6 %
All other countries16,316 4.5 %9,755 3.5 %6,561 67.3 %

$359,895 100.0 %$278,989 100.0 %$80,906 29.0 %
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.
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.
Cost of Goods Sold and Gross Margin
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.
Gross margin increased to 84.8% for the six months ended June 30, 2024 from 84.2% for the six months ended June 30, 2023. Gross margin 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.
Research and Development Expenses
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
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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.
Selling, General and Administrative Expenses
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.
Other Income, Net
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.
Income Taxes
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.

Liquidity and Capital Resources
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:
a $25.1 million increase in inventory balances, which increased as supply chain issues eased;
a $19.2 million increase in prepaid expense and other current assets which increased primarily due to dividends receivable on investments;
a $7.2 million decrease in accrued expenses, which decreased primarily due to the payment of year-end bonuses and commissions;
a $5.2 million decrease in accounts payable, generally due to decreased direct-to-consumer marketing spend in the second quarter of 2024; and
a $2.5 million increase in cash and cash equivalents, primarily due to cash provided by operations and proceeds from the exercise of stock options.
The increase in working capital was partially offset by the following factors:
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
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.
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.
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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.
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.
We spent $24.1 million on purchases of property and equipment in the six months ended June 30, 2024, mainly on testing systems and production equipment for our next generation Inspire system, our SleepSync™ platform, computer hardware and software, and leasehold improvements. We anticipate further capital expenditures in 2024, primarily for additional production equipment and our SleepSync™ platform, computer hardware and software, and leasehold improvements on our corporate office buildings.
As of June 30, 2024, 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.
We believe that our existing cash and cash equivalents and investments, which totaled $466.0 million as of June 30, 2024, together with cash flows from operations, will provide liquidity sufficient to meet our cash needs and fund our operations and planned capital expenditures for at least the next 12 months. There can be no assurance, however, that our business will continue to generate cash flows at the same levels achieved in prior periods.
Beyond the next 12 months, our cash requirements will depend extensively on the timing of market introduction, and extent of market acceptance of, our Inspire system. Our long-term cash requirements also will be significantly impacted by the level of our investment in commercialization, entry and expansion into new markets such as Australia, whether we make strategic acquisitions, and competition. 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.
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Cash Flows
The following table presents a summary of our cash flow for the periods indicated:
Six Months Ended
June 30,
20242023
(in thousands)
Net cash provided by (used in):
Operating activities$8,782 $3,748 
Investing activities(13,915)1,142 
Financing activities7,855 20,565 
Effect of exchange rate on cash(224)
Net increase in cash and cash equivalents$2,498 $25,459 
Operating Activities
The net cash provided by operating activities was $8.8 million for the six months ended June 30, 2024 and consisted of a net loss of $0.2 million, non-cash charges of $55.5 million, and a decrease in net operating assets of $46.5 million. The non-cash charges consisted primarily of stock-based compensation, which increased mainly as a result of granting more equity awards to a greater number of employees as compared to the same prior-year period. The remainder of the non-cash charges included accretion of investment discount due to higher investment balances, depreciation and amortization expense which increased with additional purchases of property and equipment, non-cash lease expense, the benefit for estimated credit losses related primarily to accounts receivable with two healthcare systems, and stock issued for services rendered. Operating assets include inventories, which increased as supply chain constraints eased, and accounts receivable, which decreased due to collections on the higher sales volume we typically experience late in the fourth quarter. Operating assets also include prepaid expenses and other current assets, which increased primarily due to dividends receivable on our investments. Operating liabilities include accounts payable, which decreased generally due to reduced direct-to-consumer marketing spend in the second quarter of 2024, and accrued expenses, which decreased primarily due to the payment of year-end bonuses and commissions.
The net cash provided by operating activities was $3.7 million for the six months ended June 30, 2023 and consisted of a net loss of $27.4 million, non-cash charges of $42.7 million, and a decrease in net operating assets of $11.6 million. The non-cash charges consisted primarily of stock-based compensation, which increased mainly as a result of granting more stock options, restricted stock units, and performance stock units to more employees at a higher fair market value. The remainder of the non-cash charges included depreciation and amortization expense, non-cash lease expense, stock issued for services rendered, and other, net. Operating assets include inventories, which increased as supply chain constraints eased, and prepaid expenses and other current assets, which increased primarily due to prepaid insurance and other prepaid expenses. Operating assets also include accounts receivable, which increased due to higher sales volume. Operating liabilities include accounts payable, which increased generally due to our increased business volume year-over-year and the costs to support the growth of our operations, and accrued expenses, which decreased primarily due to the payment of year-end bonuses and commissions.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 was $13.9 million and consisted primarily of the purchase of investments of $112.0 million and the purchases of property and equipment of $24.1 million, mainly for testing systems and production equipment for our next generation Inspire system, our SleepSync™ platform, computer hardware and software, and leasehold improvements, partially offset by the proceeds from sales or maturities of investments of $122.2 million.
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Net cash provided by investing activities for the six months ended June 30, 2023 was $1.1 million and consisted of the proceeds from sales or maturities of investments of $10.0 million, offset by the purchases of property and equipment of $8.6 million, and the purchase of strategic investments of $0.3 million.
Financing Activities
Net cash provided by financing activities was $7.9 million for the six months ended June 30, 2024 and consisted of $9.1 million in proceeds from the exercise of stock options and $3.4 million in proceeds from the issuance of common stock from our Employee Stock Purchase Plan ("ESPP"), partially offset by $4.7 million of taxes paid on net share settlement of equity awards.
Net cash provided by financing activities was $20.6 million for the six months ended June 30, 2023 and consisted of $20.5 million in proceeds from the exercise of stock options and $2.8 million in proceeds from the issuance of common stock from our ESPP, partially offset by $2.7 million of taxes paid on net share settlement of equity awards.

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
Our critical accounting policies and estimates are described in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" contained in our Annual Report. We have reviewed and determined that those critical accounting policies and estimates discussed in our Annual Report remain our critical accounting policies and estimates as of and for the six months ended June 30, 2024.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The risk associated with fluctuating interest rates is primarily limited to our cash equivalents which are carried at quoted market prices and our short-term investments. We do not currently use or plan to use financial derivatives in our investment portfolio. A hypothetical 1% change in interest rates would have impacted interest and dividend income on our consolidated financial statements by approximately $2.2 million and $2.0 million during the six months ended June 30, 2024 and 2023, respectively.
Credit Risk, Foreign Currency Risk, and Inflation Risk
For market risks related to changes in credit, foreign currency, and inflation, refer to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report. Our exposure to these risks has not materially changed from those disclosed in our Annual Report, other than as described below.
As of June 30, 2024 and December 31, 2023, our cash, cash equivalents, and investments were maintained with financial institutions which we believe have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us; however, our cash balances were in excess of insured limits. Market conditions can impact the viability of where our cash is held. In the event of failure of any of the financial
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institution