Inspire Medical Systems, Inc. (NYSE:INSP) Q2 2023 Earnings Conference Call August 1, 2023 5:00 PM ET Company Participants Ezgi Yagci - Vice President of Investor Relations Tim Herbert - President & Chief Executive Officer Rick Buchholz - Chief Financial Officer Conference Call Participants John Block - Stifel Robbie Marcus - JPMorgan Travis Steed - Bank of America Adam Maeder - Piper Sandler Richard Newitter - Truist Securities Lei Huang - Wells Fargo Anthony Petrone - Mizuho Americas David Rescott - Baird ...

[Forward-Looking Statements](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section details the nature of forward-looking statements, their inherent uncertainties, and key risks [Overview of Forward-Looking Statements](index=3&type=section&id=Overview%20of%20Forward-Looking%20Statements) This section outlines forward-looking statements as predictions based on current expectations, subject to various risks - Forward-looking statements cover future operations, financial position, business strategy, COVID-19 impact, product approvals, reimbursement levels, R&D costs, and management objectives[8](index=8&type=chunk) - Identified by terms such as "anticipate," "believe," "expect," and "plan," these statements are predictions based on current expectations and projections[9](index=9&type=chunk) [Key Risks and Uncertainties](index=3&type=section&id=Key%20Risks%20and%20Uncertainties) The company highlights numerous risks that could cause actual results to differ from forward-looking statements - Risks include a history of operating losses, dependency on the Inspire system, commercial success and market acceptance, and ability to achieve adequate reimbursement levels[10](index=10&type=chunk) - Other risks involve competitive technologies, COVID-19 impact, ability to expand indications and develop new products, and dependence on third-party suppliers[10](index=10&type=chunk) - Regulatory actions (FDA), intellectual property protection, changes in tax laws, and risks related to common stock are also significant factors[15](index=15&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents consolidated financial statements, management's analysis of performance, market risks, and internal controls [Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents unaudited consolidated financial statements, including balance sheets, income, equity, cash flows, and detailed notes [Consolidated Balance Sheets](index=5&type=section&id=Balance%20Sheets) As of June 30, 2023, total assets increased to **$618.2 million**, driven by cash, inventories, and property, with total liabilities also rising Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 (unaudited) | December 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $467,051 | $441,592 | $25,459 | 5.76% | | Total current assets | $560,076 | $530,032 | $30,044 | 5.67% | | Total assets | $618,246 | $564,876 | $53,370 | 9.45% | | Total current liabilities | $66,687 | $61,186 | $5,501 | 8.99% | | Total liabilities | $88,887 | $68,868 | $20,019 | 29.07% | | Total stockholders' equity | $529,359 | $496,008 | $33,351 | 6.72% | [Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Statements%20of%20Operations%20and%20Comprehensive%20Loss) Q2 2023 revenue increased by **65.3%** to **$151.1 million**, with net loss decreasing by **17.5%** to **$12.0 million** Consolidated Statements of Operations and Comprehensive Loss Highlights (in thousands, except per share) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Revenue | $151,092 | $91,386 | $59,706 | 65.3% | $278,989 | $160,768 | $118,221 | 73.5% | | Gross profit | $126,840 | $77,213 | $49,627 | 64.3% | $234,849 | $136,591 | $98,258 | 71.9% | | Gross margin | 83.9% | 84.5% | -0.6% | -0.71% | 84.2% | 85.0% | -0.8% | -0.94% | | Operating loss | $(16,599) | $(14,007) | $(2,592) | 18.5% | $(36,097) | $(30,063) | $(6,034) | 20.1% | | Net loss | $(11,952) | $(14,490) | $2,538 | -17.5% | $(27,376) | $(31,184) | $3,808 | -12.2% | | Net loss per share, basic and diluted | $(0.41) | $(0.53) | $0.12 | -22.6% | $(0.94) | $(1.13) | $0.19 | -16.8% | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to **$529.4 million** by June 30, 2023, primarily due to paid-in capital from stock options and compensation Stockholders' Equity Changes (Six Months Ended June 30, 2023) (in thousands) | Item | Amount | | :------------------------------------ | :------- | | Balance at December 31, 2022 | $496,008 | | Stock options exercised | $7,377 (Q1), $13,113 (Q2) | | Stock-based compensation expense | $18,225 (Q1), $21,567 (Q2) | | Net loss | $(15,424) (Q1), $(11,952) (Q2) | | Balance at June 30, 2023 | $529,359 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Statements%20of%20Cash%20Flows) H1 2023 operating activities generated **$3.7 million** cash, a significant improvement, with investing and financing also providing cash Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | | :------------------------------------ | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by (used in) operating activities | $3,748 | $(18,702) | $22,450 | | Net cash provided by (used in) investing activities | $1,142 | $(12,884) | $14,026 | | Net cash provided by financing activities | $20,565 | $3,663 | $16,902 | | Net increase (decrease) in cash and cash equivalents | $25,459 | $(27,897) | $53,356 | | Cash and cash equivalents at end of period | $467,051 | $186,570 | $280,481 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details significant accounting policies, financial instrument specifics, lease obligations, and segment reporting - Inspire Medical Systems, Inc. is a medical technology company focused on minimally invasive solutions for obstructive sleep apnea (OSA) with its FDA-approved Inspire system[31](index=31&type=chunk) - Investments primarily consist of U.S. government securities and money market funds, measured at fair value using Level 1 inputs[40](index=40&type=chunk)[47](index=47&type=chunk) - A full valuation allowance is recorded against deferred tax assets due to cumulative net loss, with federal net operating loss carryforwards of **$257.4 million** as of December 31, 2022[108](index=108&type=chunk)[109](index=109&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, including revenue, expenses, liquidity, capital resources, and critical accounting policies [Overview](index=25&type=section&id=Overview) Inspire Medical Systems commercializes the FDA-approved Inspire system for OSA, focusing on direct sales, marketing, and recent expanded indications - Inspire system is the first and only FDA-approved neurostimulation technology for moderate to severe OSA[119](index=119&type=chunk) - As of August 1, 2023, the 2024 proposed Medicare reimbursement rate for hospital implantation is **$30,355** (**3% increase**) and for ASCs is **$25,470** (**1% increase**)[122](index=122&type=chunk) - Recent FDA approvals include expanded indication for AHI up to 100 and BMI up to 40 (June 2023), pediatric patients with Down syndrome (March 2023), and full-body MRI compatibility (2022)[127](index=127&type=chunk) [Macroeconomic Environment & COVID-19 Update](index=28&type=section&id=Macroeconomic%20Environment) The company faces inflationary pressures on costs and supply chain constraints, while COVID-19 impacts eased by Q1 2022 - Operations are impacted by inflationary pressures primarily related to labor, raw materials, and component parts[134](index=134&type=chunk) - Supply chain constraints eased somewhat in the first half of 2023, but inventory on-hand has been constrained[134](index=134&type=chunk) - COVID-19 resurgences impacted Q1 2022 revenue slightly, but surgical volumes returned to pre-pandemic levels by the end of Q1 2022[135](index=135&type=chunk) [Components of Our Results of Operations](index=28&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section details revenue from Inspire system sales, cost of goods, gross margin, increasing R&D and SG&A expenses, and other income - Revenue is primarily from Inspire system sales to hospitals and ASCs, recognized upon customer control of the product[136](index=136&type=chunk) - R&D expenses are expected to increase in the future as the company develops next-generation Inspire systems and expands clinical studies and new markets[143](index=143&type=chunk) - SG&A expenses are expected to continue to increase as the company expands its commercial infrastructure, headcount, and direct-to-consumer marketing efforts[145](index=145&type=chunk) [Results of Operations (Q2 2023 vs. Q2 2022)](index=31&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202023%20and%202022) Q2 2023 revenue surged by **65.3%** to **$151.1 million**, with increased R&D and SG&A expenses, and improved net income Q2 2023 vs. Q2 2022 Financial Performance (in thousands, except percentages) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Revenue | $151,092 | $91,386 | $59,706 | 65.3% | | U.S. Revenue | $144,749 | $87,876 | $56,873 | 64.7% | | International Revenue | $6,343 | $3,510 | $2,833 | 80.7% | | Gross margin | 83.9% | 84.5% | -0.6% | -0.71% | | Research and development expenses | $30,821 | $14,534 | $16,287 | 112.1% | | Selling, general and administrative expenses | $112,618 | $76,686 | $35,932 | 46.9% | | Other (income) expense, net | $(4,861) | $341 | $(5,202) | -1525.5% | | Net loss | $(11,952) | $(14,490) | $2,538 | -17.5% | [Results of Operations (H1 2023 vs. H1 2022)](index=33&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022) H1 2023 total revenue increased by **73.5%** to **$279.0 million**, with higher R&D and SG&A expenses, and improved other income H1 2023 vs. H1 2022 Financial Performance (in thousands, except percentages) | Metric | H1 2023 | H1 2022 | Change ($) | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | :--------- | | Revenue | $278,989 | $160,768 | $118,221 | 73.5% | | U.S. Revenue | $269,234 | $154,302 | $114,932 | 74.5% | | All other countries Revenue | $9,755 | $6,466 | $3,289 | 50.9% | | Gross margin | 84.2% | 85.0% | -0.8% | -0.94% | | Research and development expenses | $56,340 | $26,404 | $29,936 | 113.4% | | Selling, general and administrative expenses | $214,606 | $140,250 | $74,356 | 53.0% | | Other (income) expense, net | $(9,151) | $879 | $(10,030) | -1141.1% | | Net loss | $(27,376) | $(31,184) | $3,808 | -12.2% | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents increased to **$467.1 million**, with sufficient liquidity for the next 12 months, dependent on market acceptance Liquidity and Capital Resources Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $467,051 | $441,592 | $25,459 | 5.76% | | Working capital | $493,400 | $468,900 | $24,500 | 5.23% | - The increase in working capital was driven by a **$25.5 million** increase in cash, **$9.0 million** in inventory, and **$2.3 million** in accounts receivable, offset by a **$9.8 million** decrease in short-term investments[171](index=171&type=chunk)[178](index=178&type=chunk) - The company believes existing cash, cash equivalents, and investments (**$467.1 million**) will provide sufficient liquidity for at least the next 12 months[177](index=177&type=chunk) [Cash Flows](index=36&type=section&id=Cash%20Flows) H1 2023 operating activities generated **$3.7 million** cash, a significant improvement, with investing and financing also providing cash Summary of Cash Flows (Six Months Ended June 30) (in thousands) | Activity | 2023 | 2022 | Change ($) | | :------------------------------------ | :----- | :----- | :--------- | | Net cash provided by (used in) operating activities | $3,748 | $(18,702) | $22,450 | | Net cash provided by (used in) investing activities | $1,142 | $(12,884) | $14,026 | | Net cash provided by financing activities | $20,565 | $3,663 | $16,902 | | Net increase (decrease) in cash and cash equivalents | $25,459 | $(27,897) | $53,356 | - Operating cash flow improved due to non-cash charges (stock-based compensation) and changes in operating assets (increased inventories, accounts receivable) and liabilities (increased accounts payable, decreased accrued expenses)[180](index=180&type=chunk) - Financing cash flow was primarily driven by proceeds from stock option exercises and the employee stock purchase plan[184](index=184&type=chunk) [Contractual Obligations and Commitments](index=37&type=section&id=Contractual%20Obligations%20and%20Commitments) No material changes to contractual obligations and commitments, except for lease-related changes detailed in Note 4 - No material changes to contractual obligations and commitments, except for lease-related changes detailed in Note 4[186](index=186&type=chunk) [Critical Accounting Policies and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies remain consistent, with added considerations for prelaunch inventory capitalization - No material changes to critical accounting policies, except for the addition of prelaunch inventory capitalization policy[187](index=187&type=chunk) - Prelaunch inventory is expensed as research and development expense in the period incurred unless regulatory approval and subsequent commercialization are probable and future economic benefits are expected[188](index=188&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate risk; other risks are unchanged, but cash balances exceed insured limits - A hypothetical **1% increase** in interest rates during the six months ended June 30, 2023, would have impacted interest income on consolidated financial statements by approximately **$11.2 million**[190](index=190&type=chunk) - Cash balances were in excess of insured limits, posing a credit risk in the event of failure of any financial institutions where cash and cash equivalents are maintained[192](index=192&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective as of June 30, 2023, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2023[193](index=193&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[194](index=194&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - The company is not party to any material legal proceedings[196](index=196&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for FY2022 - No material changes to risk factors from the Annual Report on Form 10-K for FY2022[197](index=197&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities were reported - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities[198](index=198&type=chunk) [Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities - No defaults upon senior securities[199](index=199&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[200](index=200&type=chunk) [Other Information](index=37&type=section&id=Item%205.%20Other%20Information) CTO John C. Rondoni adopted a Rule 10b5-1 trading arrangement for selling up to **12,992 shares** - CTO John C. Rondoni adopted a Rule 10b5-1 trading arrangement on May 19, 2023, to sell up to **12,992 shares** by June 28, 2024[202](index=202&type=chunk) [Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, agreements, and certifications - Exhibits include organizational documents (Certificate of Incorporation, Bylaws), employment agreements, certifications (CEO, CFO), and Inline XBRL documents[204](index=204&type=chunk) [Signatures](index=41&type=section&id=SIGNATURES) This section provides the authorized signatories and the date of the report [Authorized Signatories](index=41&type=section&id=Authorized%20Signatories) The report is signed by Timothy P. Herbert and Richard J. Buchholz on August 1, 2023 - Report signed by Timothy P. Herbert (President, CEO, and Director) and Richard J. Buchholz (CFO) on August 1, 2023[209](index=209&type=chunk)

Sleep Apnea Innovation Disclaimer This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are forwardlooking statements. In some cases, you can identify forward-looking statements by terms such as ''may,'' ''will,'' ''should,'' ''expect,'' ''plan,'' ''anticipate,'' ''could,'' "future," "outlook," ''intend,'' ''target,'' ''project,'' ''contemplate,'' ''believe,'' ''estimate,'' '' ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-Q ________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38468 ______________________________ Inspire ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38468 Inspire Medical Systems, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdi ...

Inspire Medical Systems, Inc. (NYSE:INSP) Q4 2022 Results Conference Call February 7, 2023 5:00 PM ET Company Participants Ezgi Yagci - Vice President of Investor Relations Tim Herbert - President & Chief Executive Officer Rick Buchholz - Chief Financial Officer Conference Call Participants Travis Steed - Bank of America Robbie Marcus - JPMorgan Adam Maeder - Piper Sandler Rich Newitter - Truist Larry Biegelsen - Wells Fargo John Block - Stifel Michael Polark - Wolfe Research Chris Pasquale - Nephron Resear ...

Inspire Medical Systems, Inc. (NYSE:INSP) Q3 2022 Earnings Conference Call November 1, 2022 5:00 PM ET Company Participants Ezgi Yagci - IR Tim Herbert - President & CEO Rick Buchholz - CFO Conference Call Participants Travis Steed - Bank of America Jonathan Block - Stifel Robbie Marcus - JP Morgan Larry Biegelsen - Wells Fargo Adam Maeder - Piper Sandler Chris Pasquale - Nephron Research Rich Newitter - Truist Phil Coover - Goldman Sachs Suraj Kalia - Oppenheimer Operator Good afternoon. My name is Dalen, ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-Q ________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38468 ______________________________ Insp ...

Inspire Medical Systems, Inc. (NYSE:INSP) Q2 2022 Results Conference Call August 2, 2022 5:00 PM ET Company Participants Megan Rowekamp - Investor Relations Tim Herbert - President and Chief Executive Officer Rick Buchholz - Chief Financial Officer Conference Call Participants Larry Biegelsen - Wells Fargo Robbie Marcus - JP Morgan Travis Steed - Bank of America Rich Newitter - Truist Jonathan Block - Stifel Amit Hazan - Goldman Sachs Chris Pasquale - Nephron Research Adam Maeder - Piper Sandler Michael Pol ...

[Part I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) Inspire Medical Systems, Inc.'s financial statements as of June 30, 2022, show decreased total assets and stockholders' equity, alongside increased revenue but wider net losses for the three and six months ended [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets decreased slightly to $292.0 million from $295.1 million, with cash and cash equivalents falling to $186.6 million, while total stockholders' equity also declined Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $186,570 | $214,467 | | Inventories | $21,857 | $17,231 | | Total current assets | $263,133 | $268,537 | | Total assets | $292,002 | $295,084 | | **Liabilities & Equity** | | | | Total current liabilities | $46,853 | $41,307 | | Total liabilities | $65,018 | $66,036 | | Total stockholders' equity | $226,984 | $229,048 | [Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Revenue significantly increased to **$91.4 million** in Q2 2022 and **$160.8 million** for H1 2022, yet net loss widened to **$14.5 million** and **$31.2 million** respectively, compared to prior-year periods Key Operating Results (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $91,386 | $52,959 | $160,768 | $93,311 | | Gross Profit | $77,213 | $45,441 | $136,591 | $79,812 | | Operating Loss | $(14,007) | $(12,544) | $(30,063) | $(28,233) | | Net Loss | $(14,490) | $(13,088) | $(31,184) | $(29,304) | | Net Loss Per Share | $(0.53) | $(0.48) | $(1.13) | $(1.08) | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities improved to **$18.7 million** for the six months ended June 30, 2022, but increased investing activities led to an overall **$27.9 million** decrease in cash and cash equivalents Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,702) | $(20,515) | | Net cash used in investing activities | $(12,884) | $(477) | | Net cash provided by financing activities | $3,663 | $7,029 | | **Decrease in cash and cash equivalents** | **$(27,897)** | **$(13,977)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's business as a medical technology firm specializing in OSA solutions, its revenue recognition policies, and significant increases in advertising expenses and outstanding credit facility debt - The company is a medical technology firm focused on developing and commercializing minimally invasive solutions for patients with obstructive sleep apnea (OSA) and its proprietary Inspire system is an FDA-approved neurostimulation technology[33](index=33&type=chunk) Revenue by Geographic Region (in thousands) | Region | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $87,876 | $49,353 | $154,302 | $87,122 | | All other countries | $3,510 | $3,606 | $6,466 | $6,189 | | **Total revenue** | **$91,386** | **$52,959** | **$160,768** | **$93,311** | - Advertising expenses increased significantly, totaling **$18.0 million** for Q2 2022 and **$33.5 million** for H1 2022, compared to **$11.5 million** and **$20.6 million** in the respective prior-year periods[73](index=73&type=chunk) - As of June 30, 2022, the company had **$21.4 million** outstanding under its credit facility, which matures in March 2024[86](index=86&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **72.6%** Q2 2022 revenue growth to market penetration and awareness, despite increased net loss due to higher cost of goods sold and operating expenses, while maintaining strong liquidity [Overview](index=25&type=section&id=Overview) Inspire Medical Systems, a medical technology company, commercializes an FDA-approved neurostimulation treatment for Obstructive Sleep Apnea (OSA), expanding its sales force and securing broad reimbursement coverage - The company's direct sales force expanded to **191 U.S. territories**, and the number of U.S. medical centers implanting Inspire therapy grew to **785** as of June 30, 2022[135](index=135&type=chunk) - New Category I CPT codes for the implant procedure and a related diagnostic procedure (DISE) became effective on January 1, 2022, formalizing reimbursement pathways[123](index=123&type=chunk) - The company is seeing increased patient inquiries about Inspire therapy, believed to be partially driven by the Philips Respironics CPAP recall[134](index=134&type=chunk) - Recent product development achievements include FDA approval for full-body MRI compatibility (July 2022) and a Bluetooth-enabled patient remote (December 2021)[131](index=131&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q2 2022 revenue increased **72.6%** to **$91.4 million**, primarily from U.S. growth, but operating expenses rose **57.3%** due to increased headcount and marketing, resulting in a wider operating loss Q2 2022 vs Q2 2021 Performance (in thousands) | Metric | Q2 2022 | Q2 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $91,386 | $52,959 | $38,427 | 72.6% | | Gross Profit | $77,213 | $45,441 | $31,772 | 69.9% | | R&D Expenses | $14,534 | $9,288 | $5,246 | 56.5% | | SG&A Expenses | $76,686 | $48,697 | $27,989 | 57.5% | | Operating Loss | $(14,007) | $(12,544) | $(1,463) | 11.7% | - U.S. revenue growth was driven by increased market penetration, expansion into new territories, and a list price increase that began to be phased in during May 2022[153](index=153&type=chunk) - The increase in SG&A expenses was primarily driven by a **$16.7 million** rise in compensation-related costs from increased headcount and a **$7.8 million** increase in marketing expenses, including new national TV ads[158](index=158&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company held **$196.3 million** in cash and investments, with working capital at **$216.3 million**, and believes its capital is sufficient for at least the next 12 months despite cash decreases from operations and investments - The company had cash, cash equivalents, and available-for-sale securities of **$196.3 million** as of June 30, 2022[170](index=170&type=chunk) - The company had **$21.4 million** of outstanding borrowings under its credit facility as of June 30, 2022, with principal payments having commenced in April 2022[172](index=172&type=chunk) - Management believes existing cash, along with cash flow from operations, will be sufficient to meet cash needs for at least the next 12 months[177](index=177&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks relate to interest rate fluctuations on cash equivalents and variable-rate debt, with no material changes in exposure to credit, foreign currency, or inflation risks since year-end 2021 - The primary market risk is from interest rate fluctuations, which affects cash equivalents and variable-rate debt, and a hypothetical 1% change in interest rates would not have had a material impact[187](index=187&type=chunk) - There have been no material changes in the company's exposure to credit risk, foreign currency risk, or inflation risk since the end of fiscal year 2021[188](index=188&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[189](index=189&type=chunk) - No changes occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[190](index=190&type=chunk) [Part II. Other Information](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently a party to any material legal proceedings - The company is not party to any material legal proceedings[192](index=192&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021[193](index=193&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[194](index=194&type=chunk) [Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act and the Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files[199](index=199&type=chunk)