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Item 7. Management’s Discussion and Analysis

2026-02-13 compared with 2025-02-10 · 111 added, 127 removed, 187 unchanged (56% of the section changed)

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We are a medical technology company focused on the development and commercialization of innovative, minimally invasive solutions for patients with obstructive sleep apnea ("OSA").

Our proprietary Inspire system is the first and only FDA, European Union ("EU") Medical Devices Regulation ("MDR"), and Japan Pharmaceuticals and Medical Devices Agency-approved neurostimulation technology of its kind that provides a safe and effective treatment for patients with moderate to severe OSA.

Our proprietary Inspire system is the only FDA, European Union ("EU") Medical Devices Regulation ("MDR"), and Japan Pharmaceuticals and Medical Devices Agency-approved neurostimulation technology of its kind that provides a safe and effective treatment for patients with moderate to severe OSA.

We have developed a novel, closed-loop solution that continuously monitors a patient’s breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway.

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

and in select countries in Europe and Japan through a direct sales organization and we sell our Inspire system in Singapore and Hong Kong through distributors.

and in select countries in Europe and Japan through a direct sales organization and we sell our Inspire system in Singapore, Hong Kong, and Thailand through distributors.

Our direct sales force engages in sales efforts and promotional activities primarily focused on ENT physicians and sleep centers.

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As of February 13, 2026, we have secured positive coverage policies with many U.S.

commercial payors, including all large national commercial insurers, covering approximately 260 million lives in the U.S.

commercial payors, including all large national commercial insurers, covering more than 300 million lives in the U.S.

In addition, all seven Medicare Administrative Contractors provide coverage of Inspire therapy when certain coverage criteria are met.

The procedures performed to implant, revise, or explant our Inspire IV device are described for billing purposes in the U.S.

with Category I Current Procedural Terminology codes (64582, 64583, and 64584, respectively).

A Category I code (42975) is also used for Drug-Induced Sleep Endoscopy ("DISE") to evaluate sleep disordered breathing, which may be a necessary procedure to determine which patients are appropriate for Inspire therapy.

Third-party payors require physicians and hospitals to identify the service for which they are seeking reimbursement by using Current Procedural Terminology (“CPT") codes, which are created and maintained by the American Medical Association.

Our various generations of Inspire therapy have been billed under different codes and reimbursement approaches throughout our history.

For example, the procedures performed to implant our Inspire IV device are described for billing purposes using Category I CPT code 64582.

And for 2025, the procedures performed to implant our Inspire V device were described for billing purposes using Category I CPT code 64568.

There are also other relevant CPT codes for revisions, explants and DISE.

In November 2025, the final 2026 Medicare reimbursement payments were announced.

The Medicare national average 2025 payment to implant our Inspire IV device in a hospital outpatient site of service is $30,474, an increase of 3% from the 2024 rate.

The 2025 Medicare national average ASC reimbursement is $25,832, an increase of 4% from the 2024 rate.

The 2025 Medicare national average physician reimbursement is $816 for implantation of a hypoglossal nerve stimulator, a 1% decrease over the 2024 payment.

The reimbursement for the DISE procedure in the hospital setting is $1,724, a 7% increase over the prior year amount.

In the ASC setting, the reimbursement for the DISE procedure is $792, a 714% increase from the 2024 amount.

The 2025 Medicare national average physician reimbursement for the DISE procedure is $94, a 2% decrease over the prior year amount.

There has been, and still is currently, confusion on the appropriate reimbursement and coding for our products from CMS and Medicare Administrative Contractors ("MACs"), as well as other payors and stakeholders in the overall reimbursement and coding process.

Most recently, we received clarification regarding the coding that should be used for the Inspire V procedure.

Currently, healthcare centers and physicians should bill the most recent healthcare policies, be it a Medicare Administrative Contractor (MACs) or a commercial payor, and based on this clarification, we believe the

code will transition to CPT code 64582 for the Inspire V procedure, including the use of a -52 modifier.

To date, our top commercial payers by volume have all adopted the guidance of 64568 for coding and reimbursement of Inspire V.

Confusion will remain until there is definitive and public guidance from various stakeholders and we have sufficient claims data that has been submitted and processed across payers.

The resulting coding and reimbursement decisions may impact our business, financial condition and results of operations, in particular our future revenues.

We continue to work with the relevant stakeholders to get specific and accurate direction for Inspire V coding, including the -52 modifier that we would expect to reduce the professional fee for Inspire V procedures under CPT code 64582 by approximately 10% to 50% of the base rate.

In any case, we believe that a significant decrease in the professional fee resulting from use of the –52 modifier will likely influence physicians’ willingness to perform the Inspire V procedure and may limit the number of cases they choose to undertake.

Beyond our short-term initiatives intended to minimize the actual reduction applied to the professional fee, as well as to drive consistency across the country, we are seeking a long-term solution, including the creation of a separate CPT code.

There can be no guarantee as to the timing or outcome of the CPT code to be applied.

Reimbursement in other countries can often be established through a combination of private (commercial insurance) and public funding sources, or at the hospital level through innovation budgets.

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Many of these suppliers are currently single source suppliers.

We have experienced supply disruptions that began during the COVID-19 pandemic, but to date we have managed to avoid major delays in implant procedures due to those issues.

During the third quarter of 2023, we experienced an inventory supply issue related to our polyurethane-based stimulation leads, one component of the Inspire system used only in the European market at that time.

In 2022, the FDA approved our silicone-based stimulation and sensing leads in the U.S., which replaced the polyurethane versions of the leads, and we stopped manufacturing polyurethane leads.

We applied for EU MDR certification in December 2021, which we received in July 2024, following industry-wide delays in the process.

In the interim, we had received a derogation pursuant to Article 59 of the EU MDR from the Dutch, German, Swiss, Belgian, and Austrian competent authorities, and the British equivalent, i.e.

exceptional use authorization, from the United Kingdom national competent authority, allowing us to continue to place the silicone-based leads on the market in those countries until various dates in 2024 or until we received certification under the EU MDR, whichever occurred first.

Now that we have obtained certification under the EU MDR, silicone leads may be marketed throughout the EU.

During the fourth quarter of 2023 and extending into early 2024, the delay in certification and the shortage of polyurethane-based stimulation leads caused delays to implant procedures which adversely affected our business in Europe, including a reduction in our European revenue, and thereby our consolidated revenue.

We estimate the impact during the fourth quarter of 2023 was approximately $4.0 million in lost revenue opportunity, most of which we believe was recovered during the first half of 2024.

Currently, all of our manufacturing is done in the U.S.

and most components for our Inspire system are sourced in the U.S.

We have experienced supply disruptions in the past.

We typically seek to maintain higher levels of inventory to protect ourselves from supply interruptions, and, as a result, we are subject to the risk of inventory obsolescence and expiration, which could lead to inventory impairment charges.

For example, during 2022, we recorded a charge of $2.8 million for obsolete inventory and component parts related to product introductions, including the new silicone leads and the Bluetooth®-enabled patient remote.

Our products are shipped directly to our U.S.

customers and to our Singapore and Hong Kong distributors on a purchase order basis, primarily by a third-party vendor with a facility in Tennessee, although we do ship some products from our facility in Minnesota.

Warehousing and shipping operations for our European customers are handled by a third-party vendor with a facility located in the Netherlands, and warehousing and shipping operations for our Japanese customers are handled by a third-party with a facility in Japan.

Customers do not have the right to return a non-defective product, nor do we place product on consignment.

Our sales representatives do not maintain trunk stock.

For example, during 2025, we recorded a charge of $2.1 million for excess component parts related to our Inspire IV system.

Since our inception in 2007, we have financed our operations primarily through sales of our Inspire system, private placements of our convertible preferred securities, amounts borrowed under our former credit facility, and equity offerings of our common stock.

We have devoted significant resources to research and development activities related to our Inspire system, including clinical and regulatory initiatives to obtain marketing approval, and sales and marketing activities.

For the year ended December 31, 2024, we generated revenue of $802.8 million with a gross margin of 84.7% and net income of $53.5 million, compared to revenue of $624.8 million with a gross margin of 84.5% and a net loss of $21.2 million for the year ended December 31, 2023, and revenue of $407.9 million with a gross margin of 83.8% and a net loss of $44.9 million for the year ended December 31, 2022.

For the year ended December 31, 2025, we generated revenue of $912.0 million with a gross margin of 85.4% and net income of $145.4 million, compared to revenue of $802.8 million with a gross margin of 84.7% and net income of $53.5 million for the year ended December 31, 2024, and revenue of $624.8 million with a gross margin of 84.5% and a net loss of $21.2 million for the year ended December 31, 2023.

Our accumulated deficit as of December 31, 2025 was $146.5 million.

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We have also made significant investments in clinical studies to demonstrate the safety and efficacy of our Inspire therapy and to support regulatory submissions.

We continue to make investments in research and development efforts to develop our next generations of the Inspire systems and support our future regulatory submissions for expanded indications and for new markets such as additional European countries and the Asia Pacific region.

For example, in August 2024, we received approval from the FDA for our next generation Inspire system, which we expect to fully launch in the U.S.

2023, we received approval from the FDA on an expanded indication which includes an increase on the upper limit of the Apnea Hypopnea Index to 100 events per hour from 65 and raises the Body Mass Index ("BMI") warning in the labeling to 40 from 32, and we also received FDA approval of our new physician programmer, called the SleepSync™ programmer, which we launched in the U.S.

in late 2024.

In March 2023, we received FDA approval to offer Inspire therapy to certain pediatric patients with Down syndrome.

Our direct-to-consumer marketing program's goals are therapy awareness, connecting patients with providers, and supporting the patient through their path to Inspire from start to finish.

Our investments in advertising are designed to increase patient awareness and encourage them to visit our website.

On our website, patients can explore educational materials and videos about sleep apnea, learn about the benefits of Inspire therapy, find physician and clinical site contact information, and stay informed about community awareness events.

We also use the Inspire Sleep app as a valuable tool for patient education.

Moving forward, we plan to refine and optimize our outreach strategies, with an emphasis on expanding digital advertising efforts to reach more qualified patients.

We generally expect to maintain our level of direct-to-consumer expenditures.

We have a call center which we refer to as the Inspire Advisor Care Program.

The primary purpose of this program is to assist patients with making a connection with a qualified healthcare provider based on their specific needs.

In 2022, we initiated a digital scheduling program to facilitate and streamline patient access to care.

We intend to continue to enhance this scheduling capability during 2025.

We also continue to make significant investments to build our sales and marketing organization by increasing the number of U.S., European, and Japanese sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets.

During 2024, we activated 285 U.S.

centers bringing the total to 1,435 U.S.

medical centers implanting Inspire therapy as of December 31, 2024.

Additionally, we created 48 new U.S.

sales territories during 2024, bringing the total to 335 U.S.

territories as of December 31, 2024.

During 2023 and 2024, glucagon-like peptide 1 ("GLP-1s"), a class of drug indicated for diabetes and obesity, continued to gain popularity as a weight-loss drug.

In late 2024, Zepbound (tirzepatide), which was FDA approved for weight loss in 2023, was also FDA approved for treatment of OSA in patients with obesity and moderate to severe OSA.

We continue to make investments in research and development efforts to develop our future generations of Inspire systems and support our future regulatory submissions for expanded indications and for new markets such as additional European countries and the Asia Pacific region.

For example, in August 2024, we received approval from the FDA for our Inspire V neurostimulator ("Inspire V,") which we began to market for sale in the U.S.

Since 2023, glucagon-like peptide 1 ("GLP-1s"), a class of drug indicated for diabetes and obesity, has continued to gain popularity as a weight-loss drug.

In late 2024, tirzepatide (marketed as Zepbound), a GLP-1 injection which was FDA approved for weight loss in 2023, was also FDA approved for treatment of OSA in patients with obesity and moderate to severe OSA.

If GLP-1s are used to treat OSA in an indication for which Inspire therapy is approved, demand for our Inspire system for patients with that indication could be reduced.

OSA is a multifactorial disease with many independent factors including age, gender, weight, and neck circumference.

Inspire is designed to address anteroposterior airway collapse, also known as tongue base collapse.

Additionally, patients with a higher BMI are subject to a larger neck circumference and present predominantly with lateral-wall collapse.

Inspire is designed to address antero-posterior airway collapse, also known as tongue base collapse.

In contrast, patients with a higher BMI are subject to a larger neck circumference and present predominantly with lateral-wall collapse.

A combination of tongue base collapse and lateral wall collapse is identified as a complete concentric collapse of the upper airway.

Inspire is contraindicated for complete concentric collapse.

In April 2024, Eli Lilly and Company ("Lilly") published headline results from its SURMOUNT-OSA trial demonstrating a 50.7% reduction in Apnea-Hypopnea Index ("AHI") for patients in the therapy arm of the study using tirzepatide, a GLP-1 injection.

Subsequently, in June 2024, Lilly published additional results from its SURMOUNT-OSA trial demonstrating 43% of participants treated with tirzepatide at the highest dose met criteria for disease resolution.

In 2024, Eli Lilly and Company ("Lilly") published results from its SURMOUNT-OSA trial demonstrating a 50.7% reduction in Apnea-Hypopnea Index ("AHI") for patients in the therapy arm of the study using tirzepatide, and that 43% of participants treated with tirzepatide at the highest dose met criteria for disease resolution.

In this context, "disease resolution" means achieving an AHI of fewer than 5 events per hour, or an AHI of 5 to 14 events per hour and an Epworth Sleepiness Scale ("ESS") score of ≤10.

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We expect GLP-1s may help patients address their lateral wall collapse, making them a potential candidate for Inspire therapy to the extent they also have tongue base collapse.

Based on our ongoing ADHERE patient registry, the average BMI of patients treated with Inspire therapy is 29 and the American Academy of Sleep Medicine guidelines recommend weight loss prior to surgery for patients with BMI over 35 and nonsurgical solutions for patients with BMI over 40.

Therefore, we believe there is not a notable overlap between the Inspire patient population and the patient population being treated with GLP-1s today.

While we cannot quantify the impact, we believe that there could be a benefit to our business as a result of GLP-1s reducing the BMI of our prospective patients and increasing the number of eligible patients for our Inspire therapy, although there can be no assurance of such benefit at this time.

Based on our ongoing ADHERE patient registry, the average BMI of patients treated with Inspire therapy is 29.

The American Academy of Sleep Medicine guidelines recommend weight loss prior to surgery for patients with BMI over 35 and nonsurgical solutions for patients with BMI over 40.

In October 2025, we conducted a survey of over 200 sleep physicians to better understand their treatment paradigm for OSA since the introduction of GLP-1s.

The survey findings suggest that some physicians will prescribe a GLP-1 to patients prior to considering Inspire therapy.

The survey findings also suggest that, with the availability of GLP-1s to treat OSA, the number of patients seeking diagnosis and treatment for OSA is increasing.

We believe that some of these patients will see a reduction in their BMI into our indication, and that some of those patients will not have their OSA fully resolved and will require further treatment.

This reinforces our belief that the overall number of patients eligible for Inspire therapy will increase in the long-term due to the availability of GLP-1s, although there can be no assurance of such benefit at this time.

Macroeconomic Environment

The global economy continues to experience increased inflationary pressures.

Higher interest rates and capital costs, higher shipping costs and new or increased tariffs, increased costs of labor, international conflicts and terrorism, and weakening foreign currency exchange rates are creating additional economic challenges.

The global economy continues to experience increased inflationary pressures and market instability.

Higher interest rates and capital costs, higher shipping costs and new or increased tariffs, regulatory changes, including changes to government funding of entitlement programs, increased costs of labor, international conflicts and terrorism, and weakening foreign currency exchange rates are creating additional economic challenges.

These conditions may cause our customers to decrease or delay orders for our products.

Our inventory on-hand has been constrained by the supply chain challenges and component shortages, although to a lesser degree in 2024 than in prior periods.

Components of Our Results of Operations

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Our business has grown rapidly in recent years, resulting in substantially increased revenues, and we expect that our business will continue to grow.

However, our revenue growth rate has generally declined in recent periods, and it may continue to do so as a result of the difficulty of maintaining growth rates as our revenues increase to higher levels.

However, our revenue growth rate has generally decelerated in recent periods, and it may continue to do so as a result of the difficulty of maintaining growth rates as our revenues increase to higher levels.

Cost of Goods Sold and Gross Margin

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We expense prelaunch inventory as R&D expense in the period incurred unless objective and persuasive evidence exists that regulatory approval and subsequent commercialization of a product candidate is probable, and we also expect future economic benefit from the sales of the product candidate to be realized.

We expect R&D expenses to increase in the future as we develop next generation versions of our Inspire system and SleepSync™ and continue to expand our clinical studies to further expand positive coverage policies from private commercial payors in the U.S.

We expect R&D expenses to increase in the future as we invest in our product pipeline, including future versions of our Inspire system and SleepSync™ and continue to expand our clinical studies to further expand positive coverage policies from private commercial payors in the U.S.

and enter into new markets including additional European countries and the Asia Pacific region.

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Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses consist primarily of compensation for personnel, including base salaries, stock-based compensation expense and commissions related to our sales organization, finance, information technology, human resource, and legal functions, as well as spending related to marketing, sales operations, and training and reimbursement personnel.

Selling, general and administrative ("SG&A") expenses consist primarily of compensation for personnel, including base salaries, stock-based compensation expense and commissions related to our sales organization, finance, information technology, human resources, and legal functions, as well as spending related to marketing, sales operations, and training and reimbursement personnel.

Other SG&A expenses include training physicians, travel expenses, advertising, direct-to-consumer promotional programs, conferences, trade shows and consulting services, professional services fees, audit fees, insurance costs and general corporate expenses, including facilities-related expenses.

We expect SG&A expenses to continue to increase as we expand our commercial infrastructure to both drive and support our planned growth in revenue and as we increase our headcount and expand administrative personnel to support our growth and operations as a public company including finance, legal, and human resources personnel and information technology services.

Additionally, we anticipate an increase in our stock-based compensation expense with grants of stock options, restricted stock units, performance stock units, and shares of our common stock purchased pursuant to our employee stock purchase plan.

and information technology services.

Additionally, we anticipate an increase in our stock-based compensation expense with grants of restricted stock units, performance stock units, and shares of our common stock purchased pursuant to our employee stock purchase plan.

Other Income, Net

Other income, net consists primarily of interest and dividend income, interest expense under our former credit facility, the impacts of foreign currency transactions and remeasurements, and gains and losses on investments.

Other income, net consists primarily of interest and dividend income, minimal interest expense, the impacts of foreign currency transactions and remeasurements, gains and losses on investments, and an impairment charge related to a strategic investment.

Results of Operations

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Total operating expenses 727,802 643,735 84,067 13.1 %

Operating income (loss) 36,083 (40,271) 76,354 (189.6) %

Operating income 50,954 36,083 14,871 41.2 %

Other income, net (14,743) (22,370) 7,627 (34.1) %

Income (loss) before income taxes 58,453 (19,906) 78,359 (393.6) %

Income before income taxes 65,697 58,453 7,244 12.4 %

Income taxes (79,725) 4,944 (84,669) (1712.6) %

Net income (loss) $ 53,509 $ (21,153) $ 74,662 (353.0) %

Net income $ 145,422 $ 53,509 $ 91,913 171.8 %

Revenue increased $109.2 million, or 13.6%, to $912.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase was attributable to a $101.0 million increase in sales of our Inspire system in the U.S and an increase of $8.1 million outside of the U.S.

Overall revenue growth was primarily due to increased market penetration in existing centers, expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints.

Overall revenue growth was primarily due to increased market penetration, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints and some U.S.

patients and physicians delaying Inspire therapy until Inspire V is available at their location or while they trial GLP-1 medications.

Revenue information by region is summarized as follows:

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Revenue growth in the U.S.

was primarily due to increased market penetration in existing centers, the expansion into new territories and centers, and, we believe, increased physician and patient awareness of our Inspire system.

was primarily due to increased market penetration, and, we believe, increased physician and patient awareness of our Inspire system, partially offset by ENT surgeon capacity constraints and some patients and physicians delaying Inspire therapy until Inspire V is available at their location or while they trial GLP-1 medications.

Revenue generated outside of the U.S.

was $39.9 million in the year ended December 31, 2025, an increase of $8.1 million, or 25.6%, over the year ended December 31, 2024.

As noted above, during the fourth quarter of 2023, not having received EU MDR certification of our silicone-based stimulation lead and the resulting shortage of polyurethane-based stimulation leads had an estimated adverse impact on European revenue during that period of approximately $4.0 million.

The revenue increase experienced during 2024 was partially due to the

recovery of most of the estimated $4.0 million of revenue opportunity from the fourth quarter of 2023.

Other factors contributing to revenue growth were increased market penetration in existing centers, the expansion of our European sales representatives into new territories and centers, the start of reimbursed procedures in France, increased sales in the Asia Pacific region, and, we believe, increased physician and patient awareness of our Inspire system.

Revenue growth outside the U.S.

was primarily due to increased market penetration, and, we believe, increased physician and patient awareness of our Inspire system.

Cost of Goods Sold and Gross Margin

Cost of goods sold increased $10.2 million, or 8.3%, to $133.2 million for the year ended December 31, 2025 compared to $123.0 million for the year ended December 31, 2024.

The increase was primarily due to product costs associated with the higher sales volume of our Inspire system experienced during 2024.

The increase was primarily due to product costs associated with the higher sales volume of our Inspire system, and to a lesser extent, the $2.1 million charge associated with excess components related to Inspire IV.

Gross margin was 85.4% for the year ended December 31, 2025 compared to 84.7% for the year ended December 31, 2024.

This increase was primarily due to increased sales volume and manufacturing efficiencies.

This increase was primarily due to increased sales volume as well as increased sales mix of the Inspire V system, which is less expensive to manufacture and therefore has a higher gross margin than the Inspire IV system, partially offset by the excess inventory component charge discussed above.

Research and Development Expenses

Research and development expenses decreased $11.0 million, or 9.6%, to $103.2 million for the year ended December 31, 2025 compared to $114.1 million for the year ended December 31, 2024.

This change was primarily due to a decrease of $23.6 million in ongoing research and development costs, primarily with respect to our next generation versions of the Inspire neurostimulator and our SleepSync™ platform, partially offset by an increase of $20.1 million in compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense, and an increase of $1.1 million in regulatory and clinical studies expenses and quality compliance fees.

This change was primarily due to a decrease of $12.6 million in ongoing research and development costs, primarily with respect to our next generation versions of the Inspire neurostimulator, our SleepSync™ programmer, and our SleepSync™ platform, and an increase in costs allocated to cost of good sold and inventory of $12.7 million, partially offset by an increase of $14.0 million in compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense, and an increase of $0.3 million in regulatory submissions and clinical studies expenses and quality compliance fees.

Selling, General and Administrative Expenses

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The primary driver of this change was an increase of $51.1 million in compensation, including salaries, commissions, stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount.

In addition, general corporate costs increased $8.6 million primarily due to computer equipment and software expense, bank fees, and depreciation expense, as well as an increase in travel expenses of $5.1 million, partially offset by a decrease of $2.7 million of marketing expenses primarily consisting of direct-to-consumer initiatives.

In addition, marketing costs increased $33.0 million, mainly for advertising, and general corporate costs increased $7.0 million, primarily due to legal fees, depreciation expense, computer equipment and software expense, and consulting fees.

Also contributing to the increase were travel expenses, which increased by $3.9 million.

Other Income, Net

Other income, net increased by $2.0 million, or 9.8%, to $22.4 million of income for the year ended December 31, 2024 compared to $20.4 million of income for the year ended December 31, 2023.

This change was primarily due to an increase of $2.7 million in interest and dividend income due to higher cash, cash equivalents, and investment balances, partially offset by an increase in net losses of $0.7 million in foreign currency translation and remeasurement gains due to exchange rates.

We recorded a provision for income taxes of $4.9 million and $1.2 million for the years ended December 31, 2024 and 2023, respectively.

This change was primarily due to an increase in state and local taxes.

Other income, net decreased by $7.6 million, or 34.1%, to $14.7 million of income for the year ended December 31, 2025 compared to $22.4 million of income for the year ended December 31, 2024.

This change was primarily due to an decrease of $5.7 million in interest and dividend income due to lower cash, cash equivalents, and investment balances, an impairment charge of $4.0 million on one of our strategic investments, and an increase of $0.1 million in interest expense, partially offset by an increase of $2.2 million in foreign currency translation and remeasurement gains due to exchange rates.

We recorded a total income tax benefit of $79.7 million for the year ended December 31, 2025 and $4.9 million of expense for the year ended December 31, 2024.

The provision for income taxes for fiscal 2025 includes a deferred tax benefit of $88.8 million related to the release of the valuation allowance against our net deferred tax assets, partially offset by current income tax expense of $9.1 million, which reflects federal and state income tax liabilities that are not fully offset by NOLs and credits due to limitations on net operating loss carryforwards and credits under the Internal Revenue Code of 1986, as amended.

We expect that we will record income tax expense in 2026 and beyond as we expect to continue to generate additional taxable income for the foreseeable future.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

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Our sources of capital include sales of our Inspire system and registered offerings of our common stock.

As of December 31, 2024, we had cash, cash equivalents and available-for-sale debt securities of $516.5 million, an increase of $47.0 million from $469.5 million as of December 31, 2023.

Working capital totaled $542.3 million as of December 31, 2024, an increase of $26.7 million from December 31, 2023.

As of December 31, 2025, we had cash, cash equivalents and available-for-sale debt securities of $404.6 million, a decrease of $111.9 million from $516.5 million as of December 31, 2024.

Working capital totaled $487.6 million as of December 31, 2025, a decrease of $54.7 million from December 31, 2024.

We define working capital as current assets less current liabilities.

The increase in working capital was primarily due to the following factors:

• an increase of $46.2 million in inventory balances which increased as supply chain issues eased and we increased inventory levels to support higher sales and the anticipated 2025 launch of our next generation Inspire system in the U.S.;

• an increase of $3.2 million in accounts receivable due to higher sales which occurred during the fourth quarter of 2024;

• an increase of $2.5 million in prepaid expense and other current assets which increased primarily due to increases in miscellaneous receivables and interest income receivable;

• a decrease of $0.2 million in accounts payable.

The increase in working capital was offset by the following factors:

• a decrease of $14.8 million in cash and cash equivalents and short-term available for sale investments primarily due to the ASR we entered in November 2024 and the purchase of long-term available-for-sale investments and inventory, partially offset by proceeds from sales of the Inspire system, proceeds from the exercise of stock options, and interest and dividend income;

The decrease in working capital was primarily due to the following factors:

• a decrease of $137.3 million in cash and cash equivalents and short-term available for sale investments primarily due to $175.0 million of share repurchases made under our share repurchase programs, as well as inventory purchases and the payment of taxes on net share settlements of equity awards, partially offset by proceeds from sales of the Inspire system, proceeds from the exercise of stock options, interest and dividend income, and the increase in long-term available for sale investments;

• an increase of $9.7 million in accrued expenses which increased primarily due to compensation and personnel-related costs;

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk or decreasing availability.

• a decrease of $1.7 million in prepaid expense and other current assets which increased primarily due to increases in miscellaneous receivables and interest income receivable.

The decrease in working capital was offset by the following factors:

• an increase of $65.2 million in inventory balances, as we increased inventory levels to support higher sales and the launch of Inspire V;

• an increase of $26.6 million in accounts receivable due to higher sales which occurred late in the fourth quarter of 2025;

• a decrease of $2.1 million in accounts payable.

risk or decreasing availability.

To achieve these objectives, our investment policy allows us to maintain a portfolio of certain types of debt securities issued by the U.S.

government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies.

At December 31, 2024, we had $59.6 million in money market funds, $267.4 million in U.S.

Treasury debt securities, and $99.0 million in corporate debt securities, commercial paper, certificates of deposit, and asset-asset-backed securities.

See Note 2 to our audited financial statements for additional information on our investments.

At December 31, 2025, we had $159.8 million in U.S.

Treasury debt securities, $116.7 in corporate debt securities, $64.4 million in money market funds, and $23.3 million in commercial paper and asset-asset-backed securities.

See Note 2 to our Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for additional information on our investments.

In 2025, our SG&A expenditures increased significantly over the prior year levels, and we anticipate further increases during 2026.

Our SG&A expenditures, primarily for increasing headcount and advertising, may exceed any associated increases in revenues, and therefore would reduce our cash flow from operations.

We also anticipate R&D expenses will increase in 2025, primarily related to the ongoing development of the SleepSync™ platform and next generation products.

We spent $39.1 million on purchases of property and equipment in 2024, mainly on testing systems and manufacturing equipment for our next generation Inspire system, our SleepSync™ platform, computer hardware

and software, and leasehold improvements.

We also anticipate R&D expenses will increase during 2026, primarily related to the ongoing development of the SleepSync™ platform and next generation products.

We spent $38.5 million on purchases of property and equipment in 2025, mainly on manufacturing equipment and tooling for Inspire V, development of our SleepSync™ platform, and computer hardware and software.

We anticipate further capital expenditures in 2026, primarily for additional manufacturing equipment and our SleepSync™ platform, computer hardware and software, and leasehold improvements on our corporate office buildings.

We believe that our existing cash and cash equivalents and available for sale investments, which totaled $516.5 million as of December 31, 2024, together with cash flows from operations, will provide liquidity sufficient to meet our cash needs and fund our operations and planned capital expenditures for at least the next 12 months.

We believe that our existing cash and cash equivalents and available for sale investments, which totaled $404.6 million as of December 31, 2025, together with cash flows from operations, will provide sufficient liquidity to meet our cash needs and fund our operations and planned capital expenditures for at least the next 12 months.

There can be no assurance, however, that our business will continue to generate cash flows at the same levels achieved in prior periods.

Beyond the next 12 months, our cash requirements will depend extensively on the timing of market introduction, and extent of market acceptance of, our Inspire system.

Beyond the next 12 months, our cash requirements will depend extensively on the extent of market acceptance of our Inspire system and the demand for our therapy.

Our long-term cash requirements also will be significantly impacted by the level of our investment in commercialization, entry and expansion into new markets, whether we make strategic acquisitions, whether we repurchase more shares of our common stock, and competition.

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Total $ 131,435 $ 93,709 $ 37,726

(1) See Note 3 to our audited consolidated financial statements.

(1) See Note 3 to our Consolidated Financial Statements included elsewhere in this Form 10-K.

(2) Primarily purchase obligations to suppliers for inventory.

As of December 31, 2025, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Repurchase Program

In August 2024, our Board of Directors authorized the repurchase of up to $150.0 million in our common stock through August 5, 2026 (the "Repurchase Program").

In November 2024, we entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution as part of the Repurchase Program, whereupon we paid the counterparties to the ASR $75.0 million for the repurchase of shares of our common stock.

In November 2024, we received an initial delivery of 305,157 shares of common stock representing a portion of the prepayment, which shares had an average price paid per share of $196.62.

Upon final settlement of this ASR in January 2025, we received an incremental delivery of 103,886 shares of our common stock.

Under this ASR, we repurchased a total of 409,043 shares at an average price paid per share of $190.29.

See section titled “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this report for stock repurchases during the quarter ended December 31, 2024 and Note 6 of our Notes to our Consolidated Financial Statements for further details regarding our Repurchase Program.

Repurchase Programs

See section titled “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this report for a discussion of our share repurchase program and related stock repurchases during the quarter ended December 31, 2025 as well as Note 5 to our Consolidated Financial Statements included elsewhere in this Form 10-K.

The following table presents a summary of our cash flow for the periods indicated:

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Net cash provided by operating activities was $117.0 million for 2025 and consisted of net income of $145.4 million, non-cash charges of $58.9 million, and a decrease in net operating assets of $87.4 million.

The non-cash charges consisted primarily of stock-based compensation, which increased mainly as a result of the accelerated recognition of stock-based compensation expense for employees who are retirement eligible in accordance with implementation of changes to the treatment of equity awards under the Inspire Medical Systems, Inc.

2018 Incentive Award Plan upon the holder's death, disability, or retirement, and granting more equity awards to a greater number of employees as compared to the same prior-year period.

The remainder of the non-cash charges included the recognition of a deferred tax benefit, depreciation and amortization expense which increased with additional purchases of property and equipment, an impairment of a strategic investment, accretion of investment discount on our available-for-sale investments, a change in the provision for estimated credit losses, and other, net.

Operating assets include inventories, which increased as we continue to build inventory levels to support higher sales and the launch of Inspire V, and accounts receivable, which increased primarily due to higher sales which occurred during September 2025.

Operating assets also include prepaid expenses and other current assets which increased slightly.

Operating liabilities include accounts payable, which increased generally due to the timing of vendor invoice payments, and accrued expenses, which increased slightly.

Net cash provided by operating activities was $130.2 million for 2024 and consisted of net income of $53.5 million, non-cash charges of $114.4 million, and a decrease in net operating assets of $37.7 million.

The non-cash charges consisted primarily of stock-based compensation, which increased mainly as a result of granting more equity awards to a greater number of employees as compared to the same prior year period.

The remainder of the non-cash charges included accretion of investment discount due to higher investment balances, depreciation and amortization expense which increased with additional purchases of property and equipment, the benefit for estimated credit losses related primarily to accounts receivable with two healthcare systems, and other non-cash expenses.

Operating assets include inventories, which increased as supply chain constraints continued to ease and inventory on hand increased to support higher sales and the launch of our next generation Inspire system, and accounts receivable, which increased due to the higher sales volume we typically experience late in the fourth quarter.

Operating assets include inventories, which increased as supply chain constraints continued to ease and inventory on hand increased to support higher sales and the launch of Inspire V neurostimulator, and accounts receivable, which increased due to the higher sales volume we typically experience late in the fourth quarter.

Operating assets also include prepaid expenses and other current assets, which increased primarily due to miscellaneous receivables and interest income receivable on our higher investment balances.

Operating liabilities include accrued expenses which increased primarily due to compensation and personnel-related costs, and accounts payable.

Net cash provided by operating activities was $24.7 million for 2023 and consisted of a net loss of $21.2 million, non-cash charges of $86.6 million, and a decrease in net operating assets of $40.8 million.

The non-cash charges consisted primarily of stock-based compensation, which increased mainly as a result of granting more stock options, restricted stock units, and performance stock units to a greater number of employees at a higher fair market value.

The remainder of the non-cash charges included depreciation and amortization expense which increased with additional purchases of property and equipment, accretion of investment discount due to higher investment balances, non-cash lease expense, stock issued for services rendered, and other, net.

Operating assets include inventories, which increased as supply chain constraints eased, and accounts receivable, which increased due to higher sales volume.

Operating assets also include prepaid expenses and other current assets, which increased primarily due to various prepaid expenses and interest income receivable.

Operating liabilities include accounts payable, which increased generally due to our increased business volume year-over-year and the costs to support the growth of our operations, and accrued expenses, which increased primarily due to compensation and personnel-related costs.

Investing Activities

Net cash provided by investing activities for 2025 was $21.4 million and consisted primarily of proceeds from sales or maturities of investments of $310.4 million, partially offset by the purchase of investments of $240.3 million, the purchase of strategic investments of $10.1 million and purchases of property and equipment of $38.5 million, mainly on manufacturing equipment and tooling for Inspire V, development of our SleepSync™ platform, and computer hardware and software.

Net cash used in investing activities for 2024 was $113.1 million and consisted primarily of the purchase of investments of $418.4 million, partially offset by $344.6 million of proceeds from sales or maturities of investments.

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We also purchased strategic investments of $0.3 million.

Net cash used in investing activities for 2023 was $294.8 million and consisted primarily of the purchase of investments of $281.2 million, partially offset by $10.2 million of proceeds from sales or maturities of investments.

Investing activities also included purchases of property and equipment of $23.6 million, mainly for testing systems and manufacturing equipment for our next generation Inspire system, our SleepSync™ platform, computer hardware and software, and leasehold improvements, as well as the purchase of strategic investments of $0.3 million.

Financing Activities

Net cash used in financing activities was $52.4 million for 2024 and consisted primarily of a $75.0 million payment for our ASR agreement and $5.2 million of taxes paid on net share settlement of equity awards, partially offset by proceeds from the exercise of stock options of $22.2 million and proceeds from the issuance of common stock from our Employee Stock Purchase Plan ("ESPP") of $5.6 million.

Net cash provided by financing activities was $14.0 million for 2023 and consisted primarily of proceeds from the exercise of stock options of $25.8 million and proceeds from the issuance of common stock from our ESPP of $5.3 million, partially offset by $17.2 million of taxes paid on net share settlement of equity awards.

Net cash used in financing activities was $183.4 million for 2025 and consisted primarily of share repurchases of $175.0 million under our share repurchase authorizations and the payment of $23.0 million of taxes paid on net share settlement of equity awards, partially offset by proceeds from the exercise of stock options of $9.6 million and proceeds from the issuance of common stock from our Employee Stock Purchase Plan ("ESPP") of $5.0 million.

Critical Accounting Estimates

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We maintain an equity incentive plan to provide lon g-term incentives for eligible employees, consultants, and members of the board of directors.

The plan allows for the issuance of performance stock units ("PSUs"), and d uring 2022, 2023, and 2024, we granted PSUs to officers and key employees.

The number of PSUs that will ultimately be earned is based on our performance relative to pre-established goals for the three-year periods ending December 31, 2024, 2025, and 2026, respectively.

The plan allows for the issuance of performance stock units ("PSUs") which we grant 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 fiscal year periods from the date of grant.

Management expectations related to the achievement of the performance goals associated with PSU grants is assessed each reporting period, which determines the amount of stock-based compensation expense recorded during the period.

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

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

If the performance goals are not met, no shares will be earned.

If 200% of the PSUs outstanding as of December 31, 2024 are ultimately earned, the total stock-based compensation expense recognized over the five-year period ending December 31, 2026 will be $142.8 million.

If 200% of the PSUs outstanding as of December 31, 2025 are ultimately earned, the total stock-based compensation expense recognized over the next two-year period ending December 31, 2027 will be $92.9 million.

If the performance conditions are not met or not expected to be met, any compensation expense previously recognized associated with the grant will be reversed which will impact our operating results.

Prior to December 31, 2025, we maintained a full valuation allowance against all of our net deferred tax assets, and as a result we have historically not recorded an income tax benefit in the accompanying consolidated financial statements.

This valuation allowance reflected our assessment of whether it is more likely than not that we would generate sufficient taxable income in the future to be able to utilize our deferred tax assets.

In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies.

We consider all positive and negative evidence to estimate if sufficient future taxable income will be generated to realize our deferred tax assets, and we considered cumulative losses in recent years to be a significant type of negative evidence.

As of December 31, 2025, we determined that it is more-likely-than-not that a majority of our federal and state deferred tax assets will be realized.

As a result, we recorded a release of the valuation allowance associated with these deferred tax assets, which was due in part to achieving three years of cumulative taxable income and projected taxable income that is more than sufficient to realize our federal and state deferred tax assets, and we recorded a deferred income tax benefit in the amount of $88.8 million for the year ended December 31, 2025 (see Note 7 to our Consolidated Financial Statements included elsewhere in this Form 10-K).

We utilize financial projections to support our net deferred tax assets, which contain significant assumptions and estimates of future operations.

If such assumptions were to differ significantly, it may have a material impact on our ability to realize our net deferred tax assets.

Changes in our valuation allowance will result in a change to tax expense.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to our financial statements contained in this Annual Report on Form 10-K.

A discussion of recent accounting pronouncements is included in Note 2 to our Consolidated Financial Statements contained elsewhere in this Form 10-K.

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 7. Management’s Discussion and Analysis