What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-09 compared with 2023-02-10 · 200 added, 131 removed, 558 unchanged (37% of the section changed)

27 unchanged sentences

Auditing management’s estimate for excess and obsolete inventory involved subjective auditor judgment because of the assumptions and judgments used to calculate the inventory valuation reserve, including consideration of the timing of the introduction of new products and current market conditions.

In particular, the excess and obsolete inventory calculations are sensitive to significant assumptions, including forecasted customer demand, technological and/or market obsolescence, and possible alternative uses.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's process to determine the amount of the Company’s reserve for excess and obsolete inventory.

This included controls over the Company’s review of the significant assumptions underlying the reserve estimate.

To test the adequacy of the Company's inventory valuation reserve, we performed audit procedures that included, among others, testing the accuracy and completeness of the underlying data used in the estimation calculations and evaluating significant assumptions, specifically forecasted customer demand, technological and/or market obsolescence, and possible alternative uses.

We evaluated management’s ability to accurately estimate the amount of excess and obsolete inventory by comparing actual inventory write-off activity in recent years to management’s prior year estimates of the inventory valuation reserve.

25 unchanged sentences

Accrued expenses 39,266 34,339

Notes payable, current portion — 9,188

Total current liabilities 78,105 61,186

Notes payable, non-current portion — 15,799

Operating lease liabilities, non-current portion 24,846 7,536

7 unchanged sentences

Additional paid-in capital 917,107 820,335

Accumulated other comprehensive loss ( 86 ) ( 55 )

Accumulated other comprehensive income (loss) 800 ( 86 )

Accumulated deficit ( 345,423 ) ( 324,270 )

18 unchanged sentences

Interest expense — 1,677 2,128

Other expense (income), net 49 117 ( 145 )

Other expense, net 195 49 117

Total other (income) expense ( 20,365 ) ( 3,324 ) 2,120

4 unchanged sentences

Foreign currency translation gain 140 89 —

Unrealized loss on investments ( 120 ) ( 84 ) ( 73 )

Unrealized gain (loss) on investments 746 ( 120 ) ( 84 )

Total comprehensive loss $ ( 20,267 ) $ ( 44,912 ) $ ( 42,126 )

13 unchanged sentences

Issuance of common stock 1,463 — 301 — — 301

Sale of common stock from follow-on public offering, net of offering expenses 2,300,000 3 124,651 — — 124,654

Issuance of common stock for employee stock purchase plan 21,507 — 3,472 — — 3,472

1 unchanged sentence

Other comprehensive loss — — — ( 84 ) — ( 84 )

Adoption of ASU 2016-13 , Financial Instruments - Credit Losses

— — — — 12 12

Net loss — — — — ( 42,042 ) ( 42,042 )

1 unchanged sentence

Stock options exercised 416,602 1 12,080 — — 12,081

Vesting of restricted stock units 569 — — — — —

Shares held for tax withholdings ( 205 ) — ( 43 ) — — ( 43 )

Issuance of common stock 1,587 — 325 — — 325

Sale of common stock from follow-on public offering, net of offering expenses 1,150,000 1 243,800 — — 243,801

Issuance of common stock for employee stock purchase plan 23,709 — 3,738 — — 3,738

5 unchanged sentences

Vesting of restricted stock units 40,915 — — — — —

Withholding taxes on net share settlement of restricted stock units ( 205 ) — ( 43 ) — — ( 43 )

Shares held for tax withholdings ( 113,062 ) — ( 17,158 ) — — ( 17,158 )

Issuance of common stock 1,575 — 353 — — 353

Sale of common stock from follow-on public offering, net of offering expenses 1,150,000 1 243,800 — — 243,801

Issuance of common stock for employee stock purchase plan 27,480 — 5,299 — — 5,299

Stock-based compensation expense — — 82,470 — — 82,470

Other comprehensive loss — — — ( 31 ) — ( 31 )

Other comprehensive income — — — 886 — 886

Net loss — — — — ( 21,153 ) ( 21,153 )

10 unchanged sentences

Depreciation and amortization 2,846 1,858 1,218

(Accretion) amortization of investment (discount) premium ( 2,469 ) ( 4 ) 14

Non-cash lease expense 1,400 1,040 771

19 unchanged sentences

Proceeds from sale of common stock — 243,801 —

Taxes paid on the net share settlement of restricted stock units ( 43 ) — —

Payment of taxes on net share settlement of equity awards ( 17,158 ) ( 43 ) —

Proceeds from the issuance of common stock from employee stock purchase plan 5,299 3,738 3,472

1 unchanged sentence

Effect of exchange rate on cash 164 75 ( 19 )

Increase in cash and cash equivalents 227,125 23,949 167,658

(Decrease) increase in cash and cash equivalents ( 256,055 ) 227,125 23,949

Cash and cash equivalents at beginning of year 441,592 214,467 190,518

11 unchanged sentences

Our proprietary Inspire system is the first and only United States ("U.S.") Food and Drug Administration ("FDA") approved neurostimulation technology 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.

Japan's Ministry of Health, Labour and Welfare ("MLHW") approved Inspire therapy to treat moderate to severe OSA in 2018 and was formally added to the Japan National Health Insurance Payment Listing in 2021.

In 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA, and we are currently seeking reimbursement coverage in Australia.

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.

Summary of Significant Accounting Policies

8 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements.

We use significant judgment when making estimates related to the allowance for credit losses, inventory reserves, warranty reserves, and stock-based awards.

We use significant judgment when making estimates related to the inventory reserves and stock-based awards.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

5 unchanged sentences

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.

The carrying amount reported in the consolidated balance sheets for cash is cost, which approximates fair value.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Cash is carried at cost, which approximates fair value, and cash equivalents, which consist of money market funds and corporate debt securities, are stated at fair value.

Foreign Currency

Our functional and reporting currency is the U.S.

Our subsidiary has a functional currency in Euro.

Our subsidiaries have functional currency in Euro and Yen.

The consolidated financial statements are translated to U.S.

1 unchanged sentence

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 (income), net in the consolidated statements of operations and comprehensive loss.

For the years ended December 31, 2022 and 2021, we recognized a total of $ 0.1 million and $ 0.2 million of gains, net, respectively.

Sales and expenses denominated in foreign currencies are translated at exchange rates

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

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 loss.

For the years ended December 31, 2023 and 2022, we recognized a total of $ 0.2 million and $ 0.1 million of losses, net, respectively.

Any unrealized gains and losses due to translation adjustments are included in accumulated other comprehensive loss within stockholders' equity in the consolidated balance sheets.

We had $ 0.1 million and $ 0 of unrecognized gain in our accumulated other comprehensive loss balance as of December 31, 2022 and 2021, respectively.

At December 31, 2022 and 2021, our investments consisted of U.S.

government securities.

Investments 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 loss within stockholders' equity.

We had $ 0.2 million and $ 0.1 million of unrecognized loss in our accumulated other comprehensive loss balance at December 31, 2022 and 2021, respectively.

Any realized gains and losses are calculated on the specific identification method and reported net in other expense (income), net in the consolidated statements of operations and comprehensive loss.

We had $ 0.2 million and $ 0.1 million of unrecognized gain in our accumulated other comprehensive loss balance as of December 31, 2023 and 2022, respectively.

Our investments are classified as available-for-sale and consist of the following:

December 31, 2023

Amortized Unrealized Gross Aggregate

Cost Gains Losses Fair Value

Commercial paper $ 2,950 $ 1 $ — $ 2,951

Corporate debt securities 30,154 61 — 30,215

Certificates of deposit 2,953 15 — 2,968

treasury debt securities 238,237 467 — 238,704

Short-term investments $ 274,294 $ 544 $ — $ 274,838

Corporate debt securities $ 3,109 $ 13 $ — $ 3,122

Asset-backed securities 1,170 1 — 1,171

treasury debt securities 4,838 12 — 4,850

Long-term investments $ 9,117 $ 26 $ — $ 9,143

December 31, 2022

Amortized Unrealized Gross Aggregate

Cost Gains Losses Fair Value

treasury debt securities $ 9,998 $ — $ ( 177 ) $ 9,821

Short-term investments $ 9,998 $ — $ ( 177 ) $ 9,821

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 $ 0.6 million of unrecognized gain and $ 0.2 million of unrecognized loss in our accumulated other comprehensive income (loss) balance at December 31, 2023 and 2022, 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 loss.

For both of the years ended December 31, 2023 and 2022, we recognized $ 0 of gains, net.

We recognize expected credit losses on investments in accordance with Accounting Standards Update ("ASU"), ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which we adopted effective January 1, 2020 using the modified retrospective approach.

The adoption of ASU 2016-13 did not have a material impact on the amount and timing of credit losses recognized in our consolidated financial statements.

We reassess our estimated credit losses on investments each reporting period.

government securities and cash equivalents are under a "zero-loss exception" for credit losses, meaning no credit loss risk calculation is necessary on those instruments due to the exceptionally low rate of default, which continues to decrease as the securities approach maturity, which for us is no longer than two years.

We record changes in the allowance for credit losses for available-for-sale debt securities with a corresponding adjustment in credit loss expense on the consolidated statement of operations and comprehensive loss.

No reversal of a previously recorded allowance for credit losses may be made to an amount below zero.

As of 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 December 31, 2023.

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

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

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, net in the consolidated statements of operations and comprehensive loss.

The total allowance for credit losses was $ 0 at both December 31, 2023 and 2022.

5 unchanged sentences

Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets.

Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

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.

Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions.

We use the methods and assumptions described below in determining the fair value of our financial instruments.

Money market funds:

Fair values of money market funds are based on quoted market prices in active markets.

These are included as Level 1 measurements in the tables below.

government securities:

Consists of U.S.

government Treasury bills with original maturities of less than two years and are based on quoted prices in active markets.

These are included as a Level 1 measurement in the tables below.

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 sets forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of December 31, 2023 and 2022.

Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Fair Value Measurements as of

4 unchanged sentences

Total cash equivalents 146,217 146,217 — —

Commercial paper $ 2,951 $ — $ 2,951 $ —

Corporate debt securities 33,337 — 33,337 —

Certificates of deposit 2,968 — 2,968 —

Asset-backed securities 1,171 — 1,171 —

government securities 243,554 243,554 — —

13 unchanged sentences

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.

1 unchanged sentence

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

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

extent recorded on the consolidated balance sheets.

We are exposed to credit risk in the event of a default by the issuers of these securities to the extent recorded on the consolidated balance sheets.

However, as of December 31, 2023 and 2022, we limited our credit risk associated with cash equivalents by placing investments with banks we believe are highly creditworthy.

1 unchanged sentence

We generally do not require collateral, and losses on accounts receivable have historically not been significant.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Accounts Receivable and Allowance for Expected Credit Losses

8 unchanged sentences

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:

Year Ended December 31,

2023 2022 2021

Balance at beginning of period $ 36 $ 99 $ 42

Charges (credits) to the allowance, net 1,622 ( 13 ) 57

Accounts written off, net of recoveries ( 10 ) ( 50 ) —

Balance at the end of the period $ 1,648 $ 36 $ 99

The increase in charges to the allowance during the year ended December 31, 2023 relate primarily to accounts receivable with two healthcare systems.

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:

2 unchanged sentences

Total inventories, net of reserves $ 33,885 $ 11,886

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.

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.

15 unchanged sentences

Property and equipment, net $ 39,984 $ 17,249

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 .

4 unchanged sentences

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 $ 10.5 million and $ 0 as of December 31, 2022 and 2021, respectively.

There were no adjustments to the carrying amount during the year ended December 31, 2022.

The balance of equity securities without readily determinable fair values was $ 10.4 million and $ 10.5 million as of December 31, 2023 and 2022, respectively.

We recognized an impairment charge of $ 0.4 million during the year ended December 31, 2023 due to a deterioration in the performance and quality of one of the equity securities that had an original carrying amount of $ 0.8 million.

There was no adjustment to the carrying amounts during the year ended December 31, 2022.

Impairment of Long-lived Assets

Long-lived assets consist primarily of property and equipment and operating lease right-of-use asset and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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.

2 unchanged sentences

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 the years ended December 31, 2022, 2021, or 2020.

We did not record any impairment charges on long-lived assets, other than the $ 0.4 million discussed above in the Strategic Investments section, during the years ended December 31, 2023, 2022, or 2021.

Inspire Medical Systems, Inc.

4 unchanged sentences

Payroll related $ 33,875 $ 30,398

Interest — 160

Product warranty liability 1,100 920

23 unchanged sentences

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

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.

Inspire Medical Systems, Inc.

1 unchanged sentence

(Table amounts in thousands, except share and per share amounts)

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 8 for disaggregated revenue by geographic area.

4 unchanged sentences

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, consulting, and travel expenses related to research and development programs.

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.

Prelaunch inventory expenses were $ 5.2 million and $ 0 during the years ended December 31, 2023 and 2022, respectively.

Stock-Based Compensation

10 unchanged sentences

Advertising expenses were $ 100.3 million, $ 74.3 million, and $ 47.8 million during the years ended December 31, 2023, 2022, and 2021, respectively.

Operating leases are included in operating lease right-of-use ("ROU") asset, accrued expenses, and operating lease liability – 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,

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

Inspire Medical Systems, Inc.

1 unchanged sentence

(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.

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, 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.

11 unchanged sentences

Comprehensive loss consists of net 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 loss is presented in the accompanying consolidated balance sheets as a component of stockholders' equity.

Accumulated other comprehensive income (loss) is presented in the accompanying consolidated balance sheets as a component of stockholders' equity.

Loss Per Share

5 unchanged sentences

Recent Accounting Pronouncements

We have reviewed and considered all 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.

Our investments are classified as available-for-sale and consist of the following:

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

Inspire Medical Systems, Inc.

1 unchanged sentence

(Table amounts in thousands, except share and per share amounts)

December 31, 2022

Amortized Unrealized Gross Aggregate

Cost Gains Losses Fair Value

government securities $ 9,998 $ — $ ( 177 ) $ 9,821

Short-term investments $ 9,998 $ — $ ( 177 ) $ 9,821

December 31, 2021

Amortized Unrealized Gross Aggregate

Cost Gains Losses Fair Value

government securities $ 9,993 $ — $ ( 55 ) $ 9,938

Long-term investments $ 9,993 $ — $ ( 55 ) $ 9,938

As of December 31, 2022, we had no investments with a contractual maturity of greater than two years.

We do not consider those investments to be other-than-temporarily impaired as of December 31, 2022.

At the end of each reporting period, we evaluate potential credit impairment on available-for-sale securities in an unrealized loss position, based on the expected cash flows to be collected and the yield-to-maturity on those securities.

Securities with a valuation allowance for expected credit losses and deemed uncollectible are permanently written down, and a reversal out of the valuation allowance occurs.

We lease approximately 70,000 square feet of office space for our corporate headquarters under non-cancelable operating leases.

The leases expire May 31, 2028 with options to renew for one additional period of five years at the then-prevailing market rate.

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 when the leases commenced as they were not reasonably certain of exercise.

In addition to base rent, we also pay our proportionate share of the operating expenses, as defined in the leases.

2025 for annual periods and in the first quarter of fiscal 2026 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 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.

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.

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, resulting in a non-cash increase in the associated right-of-use asset and lease liability of $ 15.1 million.

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, resulting in an associated right-of-use asset and lease liability of $ 2.3 million.

Each lease includes options to renew for up to two additional period 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 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.

1 unchanged sentence

Right-of-use assets:

Operating lease right-of-use asset $ 6,880 $ 7,919

Operating lease right-of-use assets $ 22,667 $ 6,880

Operating lease liabilities:

Accrued liabilities — 1,336

Operating lease liability, non-current portion 7,536 8,796

Operating lease liabilities, non-current portion 24,846 7,536

Total operating lease liabilities $ 24,846 $ 8,872

6 unchanged sentences

Operating lease cost $ 2,166 $ 1,529 $ 1,125

Short-term lease cost 250 — —

Variable lease cost 1,667 1,366 1,001

Total lease cost $ 4,083 $ 2,895 $ 2,126

Variable lease costs consist primarily of taxes, insurance and common area maintenance costs on our current corporate office leases.

Variable lease costs consist primarily of taxes, insurance, and common area maintenance costs.

Maturities of our lease liability for our operating lease are as follows as of December 31, 2023:

2024 $ ( 3,582 )

Thereafter 25,363

2 unchanged sentences

Present value of lease liability $ 24,846

As of December 31, 2022, the remaining lease term was 5.4 years and the weighted average discount rate was 5.3 %.

As of December 31, 2023, the remaining lease terms were 11.4 years and the weighted average discount rate was 4.9 %.

The operating cash outflows from our operating leases were $ 2.2 million, $ 0.7 million, and $ 0.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

13 unchanged sentences

We match 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.

Discretionary contributions to the plan totaled $ 2.4 million for the year ended December 31, 2022.

Our match contributions are made to funds designated by the participant, none of which are based on Inspire common

Inspire Medical Systems, Inc.

1 unchanged sentence

(Table amounts in thousands, except share and per share amounts)

Discretionary contributions to the plan totaled $ 3.7 million and $ 2.4 million for the years ended December 31, 2023 and 2022, respectively.

Stock-Based Compensation

4 unchanged sentences

Stock Options

Options are granted at the exercise price, which is equal to the closing price of our stock on the date of grant.

The stock options granted to employees include a four-year service period and 25 % vest after the first year of service and the remainder vest in equal monthly installments over the next 36 months of service.

21 unchanged sentences

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.

Inspire Medical Systems, Inc.

1 unchanged sentence

(Table amounts in thousands, except share and per share amounts)

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

25 unchanged sentences

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 employment terminates prior to the release of the vesting restrictions.

The RSUs include three - or four-year service periods and vest in equal installments on each of the first four anniversaries of the date of grant, provided the employee remains continuously employed with the Company.

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:

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Restricted Stock Units Weighted Average

7 unchanged sentences

Unvested at December 31, 2022 124,680 $ 213.97 $ 31,404

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Granted 128,661 $ 249.58

Vested ( 40,915 ) $ 214.06 $ 10,190

Forfeited ( 11,356 ) $ 236.30

Unvested at December 31, 2023 201,070 $ 235.47 $ 40,904

There were no RSUs granted prior to 2021.

1 unchanged sentence

The aggregate intrinsic value of vested RSUs was based on our closing stock price on the date of vest.

As of December 31, 2022, there was $ 21.3 million of unrecognized stock-based compensation expense related to RSUs to be recognized over a period of 2.4 years.

As of December 31, 2023, the amount of unearned stock-based compensation currently estimated to be expensed from now through the year 2026 related to unvested RSUs is $ 34.4 million which we expect to recognize over a weighted average period of 1.9 years.

Performance Stock Units

During 2022, we granted PSUs to officers and key employees.

The number of PSUs that will ultimately be earned is based on our performance relative to a pre-established goal for the three-year period ending December 31, 2024.

The expense is recorded on a straight-line basis over the requisite service period based on an estimate of the number of PSUs expected to vest.

Management expectations related to the achievement of the performance goal associated with PSU grants is assessed each reporting period.

The number of shares earned at the end of the three-year period will vary based on actual performance, from 0 % to 200 % of the number of PSUs granted.

If the performance condition is not met or not expected to be met, any compensation expense recognized associated with the grant will be reversed.

During 2022 and 2023, 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 and December 31, 2025, 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:

5 unchanged sentences

Unvested at December 31, 2022 77,472 $ 227.53 $ 19,514

Granted 95,994 $ 264.59

Forfeited ( 4,497 ) $ 242.27

Unvested at December 31, 2023 168,969 $ 248.19 $ 34,373

There were no PSUs granted prior to 2022.

1 unchanged sentence

The aggregate intrinsic value of unvested PSUs was based on our closing stock price on the last trading day of the period.

As of December 31, 2022, there was $ 23.2 million of unrecognized stock-based compensation expense related to outstanding PSUs that is expected to be recognized over a period of approximately 2.3 years.

As of December 31, 2023, there was $ 27.6 million of unrecognized stock-based

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 1.8 years.

Employee Stock Purchase Plan

2 unchanged sentences

We issued 27,480 shares under the ESPP during 2023 and there were 1,063,223 shares available for future issuance under the ESPP as of December 31, 2023.

Due to our cumulative net loss position, a valuation allowance has been required to be established for all deferred tax assets as of December 31, 2022, 2021, and 2020.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Due to our cumulative net loss position, a valuation allowance is required for all deferred tax assets as of December 31, 2023, 2022, and 2021.

The components of our provision for income taxes are as follows:

12 unchanged sentences

Other ( 4.6 ) ( 0.7 ) 0.4

Executive compensation ( 16.3 ) ( 0.1 ) —

Change in valuation allowance ( 64.6 ) ( 40.5 ) ( 47.0 )

Total ( 6.3 ) % ( 1.4 ) % ( 0.2 ) %

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Significant components of net deferred tax assets and liabilities were as follows:

4 unchanged sentences

R&D expenditures, capitalized for tax 22,533 14,230

Interest expense carryforward — 757

Accruals and other 3,587 2,305

Depreciation and amortization — 62

Depreciation 79 —

Lease liability 6,138 2,223

Inventory 2,561 997

Stock-based compensation 16,824 12,439

4 unchanged sentences

Lease asset ( 5,600 ) ( 1,724 )

Other comprehensive income ( 141 ) —

Total deferred tax liabilities ( 5,741 ) ( 1,733 )

1 unchanged sentence

Valuation allowance ( 117,367 ) ( 104,452 )

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Deferred income taxes reflect the tax effects of net operating loss and tax credit carryforwards and the net temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

4 unchanged sentences

tax purposes effective January 1, 2022.

The mandatory capitalization requirement increased our deferred tax assets, which were fully offset by a valuation allowance.

Utilization of the net operating loss carryforwards and 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 Internal Revenue Code of 1986 and similar state provisions.

We are currently performing a detailed analysis to determine whether an ownership change has occurred and if a limitation exists.

Based on the preliminary results of the analysis, we believe there is no evidence that this limitation would hinder the utilization of our net operating loss carryforwards or R&D credit carryforwards in the future.

The mandatory capitalization requirement increased our deferred tax assets, which were fully offset by a decrease in our net operating loss carry forwards and an increase in the valuation allowance.

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, the timing of our ability to utilize the tax attributes may be affected.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

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 taxable income.

Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

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Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

We sell our Inspire system to hospitals and ambulatory surgery centers in the U.S.

and in select countries in Europe through a direct sales organization, and in Japan and Singapore through distributors.

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:

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Total revenue $ 624,799 $ 407,856 $ 233,394

All of our long-lived assets are located in the U.S.

Long-lived tangible assets by geographic location were as follows:

United States $ 39,916 $ 17,249

All other countries 68 —

Total long-lived tangible assets $ 39,984 $ 17,249

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(Table amounts in thousands, except share and per share amounts)

Loss Per Share

8 unchanged sentences

Total 2,648,211 2,785,414 2,648,510

Related Party Transaction

In December 2023, we entered into an agreement with an entity controlled by our CEO (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.

Commitments and Contingencies

On December 22, 2023, plaintiff City of Hollywood Firefighters’ Pension Fund, on behalf of itself and similarly situated investors, filed a putative class action lawsuit in the United States District Court for the District of Minnesota against the Company and certain of its executive officers, captioned City of Hollywood Firefighters’ Pension Fund v.

Inspire Medical Systems, Inc., et.

, 0:23-cv-03884 (D.

The complaint generally alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, by making allegedly materially false and misleading statements between May 3, 2023 and November 7, 2023 regarding the effectiveness of the Company’s Acceleration Program, a program designed to facilitate customers’ receiving prior authorizations from doctors with the goal of increasing demand for the Company’s Inspire therapy.

The Complaint alleges that when subsequent disclosures were made regarding issues with the Acceleration Program and the Company announced its third quarter 2023 financial results, the Company’s stock price fell, causing significant losses and damages.

The plaintiffs are seeking, among other things, unquantified compensatory damages, attorneys' fees and costs.

The defendants believe the allegations are without merit and intend to vigorously defend against these claims.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data