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Item 8. Financial Statements and Supplementary Data

2025-02-10 compared with 2024-02-09 · 305 added, 187 removed, 571 unchanged (46% of the section changed)

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Inspire Medical Systems, Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory valuation reserves

Description of the Matter At December 31, 2023, the Company’s net inventory balance was $33.9 million.

As explained in Note 2 to the financial statements, 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.

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, introduction of new products, and possible alternative uses.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Reserves for excess and obsolete inventory

Description of the Matter At December 31, 2024, the Company’s net inventory balance was $80.1 million, which included reserves for excess and obsolete inventory of $1.0 million.

As explained in Note 2 to the consolidated financial statements, 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.

Auditing management’s estimate for excess and obsolete inventory reserves involved subjective auditor judgment because of the assumptions and judgments used in determining the excess and obsolete inventory reserves, including future demand, technological or market obsolescence resulting from the introduction of new products, and possible alternative uses for existing products.

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, introduction of new products 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.

We also audited management’s calculation of the inventory valuation reserve by testing the mathematical accuracy of the Company’s reserve calculation.

We have served as the Company's auditor since 2015.

This included controls over the Company’s review of the significant assumptions and judgments used in determining the reserve estimates.

To test the adequacy of the Company's excess and obsolete inventory reserves, we performed audit procedures that included, among others, testing the accuracy and completeness of the underlying data used in the reserve calculations.

We performed analytical procedures to evaluate the assumptions and judgments used in determining the inventory reserves, specifically future demand and possible alternative uses.

We performed inquiries of Company personnel and inspected regulatory approvals to assess the assumptions used in determining the technological or market obsolescence resulting from the introduction of new products.

We also audited management’s calculation of the inventory reserves by testing the mathematical accuracy of the Company’s reserve calculations.

/s/Ernst & Young LLP

We have served as the Company's auditor since 2015.

Minneapolis, Minnesota

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Total liabilities 118,688 104,297

Commitments and contingencies (Note 12)

Stockholders' equity

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Common Stock, $ 0.001 par value, 200,000,000 shares authorized;

29,560,464 and 29,008,368 shares issued and outstanding at December 31, 2023 and 2022, respectively

29,740,176 and 29,560,464 shares issued and outstanding at

December 31, 2024 and 2023, respectively

Additional paid-in capital 981,043 917,107

Accumulated other comprehensive income (loss) 800 ( 86 )

Accumulated other comprehensive income 536 800

Accumulated deficit ( 291,914 ) ( 345,423 )

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Inspire Medical Systems, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share amounts)

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Total operating expenses 643,735 568,494 389,333

Operating loss ( 40,271 ) ( 47,592 ) ( 39,850 )

Operating income (loss) 36,083 ( 40,271 ) ( 47,592 )

Other expense (income):

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Other expense, net 855 195 49

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

Loss before income taxes ( 19,906 ) ( 44,268 ) ( 41,970 )

Total other income ( 22,370 ) ( 20,365 ) ( 3,324 )

Income (loss) before income taxes 58,453 ( 19,906 ) ( 44,268 )

Income taxes 4,944 1,247 613

Net loss ( 21,153 ) ( 44,881 ) ( 42,042 )

Other comprehensive loss:

Foreign currency translation gain 140 89 —

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

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

Net loss per share, basic and diluted $ ( 0.72 ) $ ( 1.60 ) $ ( 1.54 )

Weighted average common shares used to compute

net loss per share, basic and diluted 29,302,154 28,071,748 27,262,979

Net income (loss) 53,509 ( 21,153 ) ( 44,881 )

Other comprehensive income (loss):

Foreign currency translation (loss) gain ( 65 ) 140 89

Unrealized (loss) gain on investments ( 199 ) 746 ( 120 )

Total comprehensive income (loss) $ 53,245 $ ( 20,267 ) $ ( 44,912 )

Net income (loss) per share:

Basic $ 1.80 $ ( 0.72 ) $ ( 1.60 )

Diluted $ 1.75 $ ( 0.72 ) $ ( 1.60 )

Weighted average shares outstanding:

Basic 29,763,395 29,302,154 28,071,748

Diluted 30,543,274 29,302,154 28,071,748

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

Inspire Medical Systems, Inc.

STATEMENTS OF STOCKHOLDERS' EQUITY

Consolidated Statements of Stockholders' Equity

(in thousands, except share amounts)

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

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

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

Stock-based compensation expense — — 26,178 — — 26,178

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

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

Balance at December 31, 2021 27,416,106 27 508,465 ( 55 ) ( 279,389 ) 229,048

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

Vesting of restricted stock units 569 — — — — —

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Balance at December 31, 2023 29,560,464 30 917,107 800 ( 345,423 ) 572,514

Stock options exercised, net 376,730 — 21,897 — — 21,897

Vesting of restricted stock units, net 57,824 — ( 4,895 ) — — ( 4,895 )

Issuance of common stock 1,716 — 322 — — 322

Issuance of common stock for employee stock purchase plan 48,599 — 5,605 — — 5,605

Stock-based compensation expense — — 116,007 — — 116,007

Accelerated share repurchase of common stock ( 305,157 ) — ( 75,000 ) — — ( 75,000 )

Other comprehensive loss — — — ( 264 ) — ( 264 )

Net income — — — — 53,509 53,509

Balance at December 31, 2024 29,740,176 $ 30 $ 981,043 $ 536 $ ( 291,914 ) $ 689,695

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

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Operating activities

Net loss $ ( 21,153 ) $ ( 44,881 ) $ ( 42,042 )

Adjustments to reconcile net loss:

Net income (loss) $ 53,509 $ ( 21,153 ) $ ( 44,881 )

Adjustments to reconcile net income (loss):

Depreciation and amortization 6,550 2,846 1,858

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

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

Accretion of investment discount ( 8,859 ) ( 2,469 ) ( 4 )

Stock-based compensation expense 116,007 82,470 51,970

Non-cash stock issuance for services rendered 353 325 301

Other, net 1,987 ( 549 ) 296

Provision (benefit) for estimated credit losses ( 768 ) 1,612 ( 63 )

Other non-cash expenses 1,517 2,128 879

Changes in operating assets and liabilities:

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Inventories ( 46,233 ) ( 21,999 ) 5,345

Prepaid expenses and other assets ( 4,758 ) ( 2,815 ) ( 696 )

Prepaid expenses and other current assets ( 2,344 ) ( 4,758 ) ( 2,815 )

Accounts payable 604 9,296 14,355

Accrued expenses and other liabilities 12,865 6,898 11,942

Net cash provided by (used in) operating activities 24,653 11,569 ( 20,119 )

Net cash provided by operating activities 130,246 24,653 11,569

Investing activities

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Purchases of strategic investments ( 250 ) ( 250 ) ( 10,500 )

Net cash (used in) provided by investing activities ( 294,822 ) ( 19,596 ) 29,139

Net cash used in investing activities ( 113,122 ) ( 294,822 ) ( 19,596 )

Financing activities

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Proceeds from sale of common stock — — 243,801

Accelerated share repurchase of common stock ( 75,000 ) — —

Payment of taxes on net share settlement of equity awards ( 5,165 ) ( 17,158 ) ( 43 )

Proceeds from the issuance of common stock from employee stock purchase plan 5,605 5,299 3,738

Net cash provided by financing activities 13,950 235,077 14,948

Net cash (used in) provided by financing activities ( 52,393 ) 13,950 235,077

Effect of exchange rate on cash ( 118 ) 164 75

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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") approved neurostimulation technology that provides a safe and effective treatment for moderate to severe 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 patients with 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.

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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 and corporate debt securities, are stated at fair value.

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

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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

Inspire Medical Systems, Inc.

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(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 $ 0.2 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:

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.

For the years ended December 31, 2024, 2023, and 2022, we recognized a total of $ 0.9 million, $ 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 income within stockholders' equity in the consolidated balance sheets.

We had $ 0.2 million of unrecognized gain in our accumulated other comprehensive income balance as of both December 31, 2024 and 2023.

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

December 31, 2024

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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

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.

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

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

Inspire Medical Systems, Inc.

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(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 following table shows all available-for-sale investments in an unrealized loss position for which an allowance for credit losses has not been recorded and the related gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

December 31, 2024

Less than 12 Months 12 Months or Greater Total

Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Corporate debt securities $ 11,728 $ ( 56 ) $ — $ — $ 11,728 $ ( 56 )

Treasury debt securities 69,402 ( 220 ) — — 69,402 ( 220 )

Total $ 81,130 $ ( 276 ) $ — $ — $ 81,130 $ ( 276 )

There were no investments in an unrealized loss position at December 31, 2023.

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 within stockholders' equity.

We had $ 0.4 million and $ 0.6 million of unrecognized gains in our accumulated other comprehensive income balance at December 31, 2024 and 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).

We recorded $ 0 of gross realized gains from the sale or maturity of available-for-sale investments during each of the years ended December 31, 2024, 2023, and 2022.

We recorded $ 0 of gross realized losses from the sale or maturity of available-for-sale investments during each of the years ended December 31, 2024, 2023, and 2022.

As of December 31, 2024, we had no investments with a contractual maturity of greater than two 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, 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 December 31, 2024 and 2023.

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

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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.

Treasury debt 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 money market funds and available-for-sale securities are held by two custodians who obtain 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, 2024 and 2023.

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

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Asset-backed securities 287 — 287 —

government securities 243,554 243,554 — —

Treasury debt securities 267,355 267,355 — —

Total investments 366,391 267,355 99,036 —

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Total cash equivalents 146,217 146,217 — —

government securities 9,821 9,821 — —

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 —

Treasury debt securities 243,554 243,554 — —

Total investments 283,981 243,554 40,427 —

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There were no transfers between levels during the years ended December 31, 2024 and 2023.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Concentration of Credit Risk

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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

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Balance at the end of the period $ 880 $ 1,648 $ 36

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

The increase in charges to the allowance during the year ended December 31, 2023 relate primarily to accounts receivable with two healthcare systems and the increase in accounts written off, net of recoveries during the year ended December 31, 2024 related primarily to accounts receivable with two healthcare systems.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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:

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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 the U.S.

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.

During the year ended December 31, 2022, we recorded a $ 1.8 million inventory reserve related to product introductions, including the new silicone-based leads and the Bluetooth®-enabled patient remote.

The reserve for excess and obsolete inventory was $ 1.0 million and $ 2.4 million as of December 31, 2024 and 2023, respectively.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization and consisted of the following:

Computer equipment and software $ 2,601 $ 1,729

Internal-use software $ 16,553 $ 2,270

Manufacturing equipment 29,117 7,245

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Property and equipment, net $ 71,925 $ 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 .

Internal-use software costs are capitalized during the application development stage.

Costs related to planning and post implementation activities are expensed as incurred.

Capitalized internal-use software is amortized, and recognized as cost of goods sold or selling, general and administrative expenses, on a straight-line basis over the estimated useful life of three years .

Construction in process is comprised primarily of manufacturing equipment.

Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to ten 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 $ 6.6 million, $ 2.8 million, and $ 1.9 million during the years ended December 31, 2024, 2023, and 2022, respectively.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Strategic Investments

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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, 2024, 2023, or 2022.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Accrued Expenses

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Payroll related $ 40,162 $ 33,875

Income tax payable 1,612 577

Product warranty liability 933 1,100

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Balance at the end of the period $ 933 $ 1,100 $ 920

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Revenue Recognition

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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.

Notes to Consolidated Financial Statements

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

See Note 9 for disaggregated revenue by geographic area.

1 unchanged sentence

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.

The overhead costs include the cost of material procurement, depreciation expense for manufacturing equipment, and operations and quality supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel.

Research and Development

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

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Stock-Based Compensation

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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 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.

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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.

Notes to Consolidated Financial Statements

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

underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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.

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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 loss.

Comprehensive Loss

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

Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period.

Because we have reported a net loss for all periods presented, 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.

Purchase Commitments

As of December 31, 2023, we had purchase commitments to suppliers for purchases totaling $ 91.4 million.

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

As we have historically incurred operating losses, we have recorded a full valuation allowance against our net deferred tax assets.

We will continue to maintain a full valuation allowance until the point at which we are more certain than not that the deferred tax assets will be realized.

Therefore there is no provision for federal income taxes, but we do record provision for current state and foreign taxes, which includes a foreign tax reserve relating to uncertain tax positions.

Our policy is to record interest and penalty expense related to

Inspire Medical Systems, Inc.

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

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.

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 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.

Purchase Commitments

We had purchase commitments to suppliers for purchases totaling $ 86.0 million as of December 31, 2024.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU No.

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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 currently awaiting the outcome of the litigation or other actions the SEC may take with respect to this rule.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income-Expense Disaggregation (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU 2024-03”).

The guidance requires the disclosure of additional information related to certain costs and expenses, including amounts of inventory purchases, employee compensation, and depreciation and amortization included in each income statement line item.

ASU 2024-03 also requires disclosure of the total amount of selling expenses and our definition of selling expenses.

The ASU is effective for our annual reports beginning in fiscal 2027, and interim period reports beginning in fiscal 2028 either on a prospective or retrospective basis.

Early adoption is permitted.

We are currently evaluating the impact of adopting ASU 2024-03 on our financial statement 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.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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 prior 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 2035.

In October 2024, we entered into an amendment on this lease which provides approximately 10,000 square feet of additional space.

We entered into a 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 2035.

In March 2024, we entered into an amendment on this lease which commenced in January 2025 which provides for approximately 18,000 square feet of additional space.

Each lease described above 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.

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Total operating lease liabilities $ 31,793 $ 24,846

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

The cost components of our operating leases were as follows:

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

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Maturities of our lease liability for our operating lease are as follows as of December 31, 2024:

2024 $ ( 3,582 )

Thereafter 23,501

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As of December 31, 2024, the remaining lease terms were 10.4 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.

The operating cash (inflow) outflows from our operating leases were $( 3.3 ) million, $ 2.2 million, and $ 0.7 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Long-Term Debt

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In August 2022, we prepaid the outstanding principal balance of $ 19.4 million, the final payment fee of $ 0.9 million, and the prepayment fee of $ 0.2 million.

As of December 31, 2023, we had no remaining amounts outstanding under our former credit facility.

We had no remaining amounts outstanding under our former credit facility as of either December 31, 2024 or 2023.

Employee Retirement Plan

We sponsor a defined contribution employee retirement plan covering all of our full-time employees.

The plan allows for eligible employees to defer a portion of their eligible compensation up to the maximum allowed by IRS Regulations.

Beginning January 1, 2022, we elected to begin making voluntary matching contributions to the plan.

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

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, and totaled $ 4.7 million, $ 3.7 million, and $ 2.4 million for the years ended December 31, 2024, 2023, and 2022 respectively.

Stockholders' Equity

Share Repurchase Program

In August 2024, our Board of Directors authorized the repurchase of up to $ 150.0 million of our outstanding shares of common stock from time to time through open market transactions, privately negotiated transactions, tender offers, or other means (the “share repurchase program”).

We are not obligated to repurchase any specific number of shares and the program may be modified, suspended, or discontinued at any time.

The share repurchase program

Inspire Medical Systems, Inc.

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(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.

will expire in August 2026, subject to the earlier termination or extension by the Board, in its sole discretion and without prior notice.

In November 2024, we entered into an accelerated share repurchase agreement (the “ASR Agreement”) with a large financial institution to repurchase common stock as part of the share repurchase program.

Under the ASR Agreement, the financial institution delivered a portion of shares to us at contract inception and delivered the remaining shares at settlement.

We made a prepayment of $ 75.0 million and received an initial delivery of 305,157 shares of common stock.

We retired the initial shares delivered and recorded a $ 75.0 million reduction to additional paid-in capital.

We accounted for the variable component of shares to be delivered under the ASR Agreement as a forward contract indexed to our common stock, which met the criteria for equity classification, and therefore, was accounted for as a component of equity.

The ASR Agreement continued to meet the requirements for equity classification as of December 31, 2024.

As of December 31, 2024, no excise tax was accrued, as the aggregate fair market value of our stock issuances exceeded the fair market value of stock repurchases during the year.

In January 2025, we were notified of the early termination of the ASR Agreement.

Upon final settlement in January 2025, we received an additional 103,886 shares of common stock from the financial institution.

The final number of shares received was based on the volume-weighted average price of our common stock during the term of the ASR Agreement, less a discount and subject to adjustment pursuant to the terms of the ASR Agreement.

The 305,157 shares of common stock received in November 2024, from the ASR Agreement, are the only shares repurchased during 2024.

The total shares repurchased under the ASR Agreement was 409,043 shares with the average share price of $ 190.29 .

Stock-Based Compensation

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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.

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 services through the applicable vesting date.

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

The stock options 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.

Options are forfeitable in the event of termination other than for death, disability, or qualifying retirement.

Upon death or disability, all outstanding and unvested options accelerate and become fully vested.

Upon qualifying retirement, all outstanding and unvested options accelerate, become fully vested, and become exercisable in accordance with the original grant terms.

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.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Option Value and Assumptions

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We will continue to analyze our expected term assumption as more historical data becomes available.

Expected Volatility — Due to our limited company specific historical and implied volatility data, we have 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 of public companies on which we have based our expected stock price volatility, 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.

We will continue to analyze the historical stock price volatility assumption as more historical data for our common stock becomes available.

Expected Volatility — During the year ended December 31, 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 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.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

(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.

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Exercisable at December 31, 2024 1,594,490 $ 148.90 5.8 $ 87,193

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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.

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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 cannot be transferred and the awards are subject to forfeiture in the event of termination other than for death, disability, or qualifying retirement.

Upon death or disability, all outstanding and unvested RSUs accelerate and become fully vested.

Upon qualifying retirement, all outstanding and unvested RSUs remain outstanding and settle in accordance with the original vesting and payment terms.

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.

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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

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Granted 130,463 $ 214.16

Vested ( 569 ) $ 201.51 $ 118

Forfeited ( 7,489 ) $ 214.40

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

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Unvested at December 31, 2024 679,905 $ 195.63 $ 126,041

There were no RSUs granted prior to 2021.

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

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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 and December 31, 2025, respectively.

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

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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.

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

PSUs are subject to forfeiture in the event of termination other than a termination due to death, disability, or qualifying retirement occurring after the first 12 months of the applicable performance period.

Upon such a termination due to death or disability, a prorated amount of the target number of PSUs will accelerate and become fully vested.

Upon such a qualifying retirement, a prorated amount of the PSUs will be eligible to vest and settle based on the actual performance achievement in accordance with the original vesting and payment terms.

A summary of PSUs and related information is as follows:

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

There were no PSUs granted prior to 2022.

Granted 184,905 $ 196.41

Forfeited ( 30,572 ) $ 224.44

Unvested at December 31, 2024 323,302 $ 220.82 $ 59,934

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 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.

As of December 31, 2024, there was $ 27.6 million of unrecognized stock-based compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 1.5 years.

Employee Stock Purchase Plan

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We issued 48,599 shares under the ESPP during 2024 and there were 1,199,532 shares available for future issuance under the ESPP as of December 31, 2024.

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.

Due to our cumulative net loss position, a valuation allowance is required for all U.S.

deferred tax assets as of December 31, 2024, 2023, and 2022.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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

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Total current 4,957 1,247 613

Foreign ( 13 ) — —

Total deferred ( 13 ) — —

Total provision for income taxes $ 4,944 $ 1,247 $ 613

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Stock-based compensation 31,097 16,824

Other comprehensive loss — 44

Total deferred tax assets 113,313 123,108

Deferred tax liabilities:

Depreciation — ( 9 )

Lease asset ( 5,742 ) ( 5,600 )

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Valuation allowance ( 107,467 ) ( 117,367 )

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.

As of December 31, 2023, our gross federal net operating loss carryforwards of $ 226.1 million will expire at various dates beginning in 2034.

In addition, net operating loss carryforwards for state income tax purposes of $ 173.5 million will begin to expire in 2024.

Total deferred income taxes $ 13 $ —

Deferred income taxes reflect the tax effects of net operating loss 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.

As of December 31, 2024, we had gross federal net operating loss carryforwards, which are no longer subject to expiration, of $ 51.2 million.

In addition, we had net operating loss carryforwards for state income tax purposes of $ 88.1 million which will begin to expire in 2025.

We also have gross R&D credit carryforwards of $ 13.4 million as of December 31, 2024 which will expire at various dates beginning in 2034.

Under the Tax Cuts and Jobs Act of 2017, R&D costs are no longer fully deductible and are required to be capitalized and amortized for U.S.

tax purposes effective January 1, 2022.

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.

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 Code and similar state provisions.

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Although unexpected, if we experienced an ownership change during 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 book 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 offset by a valuation allowance, with the exception of less than $ 0.1 million in foreign deferred tax assets.

The valuation allowance decreased by $ 9.9 million and increased by $ 12.9 million during the years ended December 31, 2024 and 2023, respectively.

Inspire Medical Systems, Inc.

1 unchanged sentence

(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.

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

The valuation allowance increased by $ 12.9 million and $ 17.5 million during the years ended December 31, 2023 and 2022, respectively.

The changes to our gross unrecognized tax benefits were as follows:

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Increase in balances related to current year tax positions — — 12

Increase in balances related to prior year tax positions — — —

Balance end of the year $ 146 $ 146 $ 146

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The 2020 to 2023 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 benefits over the next 12 months.

Our policy is to record interest related to uncertain tax positions as interest expense and any penalties as other expense in our consolidated statements of operations and comprehensive loss.

There were no interest or penalties accrued as of December 31, 2023 and 2022.

We do no t expect a significant change to our unrecognized tax positions over the next 12 months.

Our policy is to record interest related to uncertain tax positions as interest expense and any penalties as other expense in our consolidated statements of operations and comprehensive income (loss).

There were no interest or penalties accrued as of December 31, 2024, 2023, or 2022.

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.

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 ("CODM") in deciding how to allocate resources and in assessing performance.

Our CODM is the Company's President, Chief Executive Officer, and Chair of the Board of Directors.

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

Our segment revenues are derived from the sales of our product, the Inspire system, to hospitals and ambulatory surgery centers in the U.S.

and in select countries in Europe and the Asia Pacific region.

We do not have any intra-entity sales or transfers.

Our CODM uses consolidated net income (loss) as the measure of profit or loss.

Our CODM assesses performance for the segment and allocates resources and monitors budget versus actual results using consolidated net income (loss) and operating income (loss).

The monitoring of budget versus actual results are used in establishing management's compensation.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

Year Ended December 31,

2024 2023 2022

Revenue $ 802,804 $ 624,799 $ 407,856

Cost of goods sold 122,986 96,576 66,115

Research and development expense 114,128 116,536 68,645

Selling, general and administrative expense (excluding advertising expense) 434,669 351,632 246,428

Advertising expense 94,938 100,326 74,260

Operating income (loss) 36,083 ( 40,271 ) ( 47,592 )

Other income (b) ( 22,370 ) ( 20,365 ) ( 3,324 )

Income taxes 4,944 1,247 613

Segment net income (loss) 53,509 ( 21,153 ) ( 44,881 )

Reconciliation of profit or loss

Adjustments and reconciling items — — —

Consolidated net income (loss) $ 53,509 $ ( 21,153 ) $ ( 44,881 )

(a) The significant expense categories and amounts align with the segment-level information that is regularly provided to our chief operating decision maker.

(b) Other income represents the consolidated amounts for interest and dividend income, interest expense, and other expense, net, as shown on our consolidated statements of operations and comprehensive income (loss).

For the years ended December 31, 2024, 2023, and 2022, depreciation and amortization expense was $ 6.6 million, $ 2.8 million, and $ 1.9 million, respectively, and is included within the segment expense captions of cost of goods sold, research and development expense, and selling, general and administrative expense.

For the years ended December 31, 2024, 2023, and 2022, stock-based compensation expense was $ 116.0 million, $ 82.5 million and $ 52.0 million, respectively, and is included within the segment expense captions of cost of goods sold, research and development expense, and selling, general and administrative expense.

Revenue by geographic region is as follows:

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

Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period.

Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period.

Because we have reported a net loss for all periods presented, 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 loss per common share for the periods presented because including them would have been anti-dilutive:

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.

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:

Year Ended December 31,

2024 2023 2022

Common stock options outstanding 2,447,141 2,660,734 2,646,235

Unvested restricted stock units 201,070 124,680 2,275

Stock options 1,514,718 2,447,141 2,660,734

Restricted stock units 29,320 201,070 124,680

Total 1,544,038 2,648,211 2,785,414

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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.

We recognized expense of $ 0.2 million and less than $ 0.1 million for the use of the suite in SG&A expense in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2024 and 2023, respectively.

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.

We are involved in claims and litigation in the ordinary course of business, some of which seek monetary damages, including claims for punitive damages, which may not be covered by insurance.

We evaluate all matters and record liabilities for losses from legal proceedings when we determine that it is probable that the outcome will be unfavorable and the amount, or potential range, of loss can be reasonably estimated.

An adverse determination in one or more of these pending matters could have an adverse effect on our consolidated financial position, results of operations or cash flows.

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.

, 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.

, 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,

Inspire Medical Systems, Inc.

Notes to Consolidated Financial Statements

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

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.

The motion is now fully briefed and was argued in November 2024.

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 arose out of the same subject matter as the City of Hollywood Lawsuit and alleged 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 sought unspecified damages.

On September 5, 2024, counsel for Mr.

Hollin filed a motion for voluntary dismissal of the Hollin Lawsuit, which motion remains pending.

In addition, on January 17, 2025, we received a civil investigative demand (“CID”) from the Department of Justice U.S.

Attorney’s Office for the District of Minnesota pursuant to the False Claims Act in the course of the government’s investigation concerning allegations of false claims, including false claims arising from violations of the Anti-Kickback Statute, submitted to government payors in connection with our implant.

The CID requests information relating to the marketing, promotion, and reimbursement practices associated with our products.

We are cooperating with the investigation.

No assurance can be given as to the timing or outcome of the government’s investigation.

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