insp-20230930

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, 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 Medical Systems, Inc.

(Exact name of registrant as specified in its charter)

______________________________


Delaware			26-1377674
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
5500 Wayzata Blvd., Suite 1600 Golden Valley, MN			55416
(Address of principal executive offices)			(Zip Code)

(844) 672-4357

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

INSP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2023, the registrant had 29,524,189 shares of common stock, $0.001 par value per share, outstanding.

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		Page
	Forward-Looking Statements	3

PART I.	FINANCIAL INFORMATION	5
Item 1.	Consolidated Financial Statements	5
	Balance Sheets	5
	Statements of Operations and Comprehensive Loss	6
	Statements of Stockholders' Equity	7
	Statements of Cash Flows	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities , Use of Proceeds, and Issuer Purchases of Equity Securities	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	42

	Signatures	43

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the "Quarterly Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements, including, without limitation, statements regarding our future results of operations and financial position, business strategy, the impact of COVID-19 on our business, financial results and financial position, prospective products, international product approvals and commercialization, our expectations regarding the final reimbursement levels for Inspire therapy procedures, research and development costs, timing and likelihood of success, other insurance providers' plans to begin approving our Inspire therapy, human capital initiatives, environmental, social, and governance reporting, and the plans and objectives of management for future operations.

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including, but not limited to:

•our history of operating losses and dependency on our Inspire system for revenues;

•commercial success and market acceptance of our Inspire therapy;

•our ability to achieve and maintain adequate levels of coverage or reimbursement for our Inspire system or any future products we may seek to commercialize;

•competitive companies and technologies in our industry;

•the impact on our business, financial condition, and results of operation from COVID-19, or any other pandemic, epidemic or outbreak of an infectious disease;

•our ability to expand our indications and develop and commercialize additional products and enhancements to our Inspire system;

•future results of operations, financial position, research and development costs, capital requirements, and our needs for additional financing;

•our ability to forecast customer demand for our Inspire system and manage our inventory;

•our dependence on third-party suppliers, vendors, and contract manufacturers;

•risks related to consolidation in the healthcare industry;

•our ability to expand, manage, and maintain our direct sales and marketing organization, and to market and sell our Inspire system in markets outside of the United States;

•our ability to manage our growth;

•our ability to hire and retain our senior management and other highly qualified personnel;

•risks related to product liability claims and warranty claims;

•our ability to address quality issues that may arise with our Inspire system;

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•our ability to successfully integrate any acquired business, products or technologies;

•changes in global macroeconomic conditions;

•any failure of key information technology systems, processes or sites or damage to or inability to access our physical facilities;

•our ability to commercialize or obtain regulatory approvals or certifications for our Inspire therapy and system, or the effect of delays in commercializing or obtaining regulatory approvals or certifications;

•any violations of anti-bribery, anti-corruption, and anti-money laundering laws;

•our ability to use our net operating losses and research and development carryforwards;

•the risk that we may be deemed to be an investment company under the Investment Company Act of 1940;

•risks related to the increasing and evolving focus on sustainability and environmental, social and governance initiatives;

•U.S. Food and Drug Administration ("FDA") or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including risks associated with regulatory approvals or healthcare reform measures in the United States and international markets;

•our ability to establish and maintain intellectual property protection for our Inspire therapy and system or avoid claims of infringement;

•changes in U.S. and foreign tax laws;

•risks related to our common stock; and

•other important factors that could cause actual results, performance or achievements to differ materially from those contemplated that are found in "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," and "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless the context requires otherwise, references to “Inspire,” the “Company,” “we,” “us,” and “our,” refer to Inspire Medical Systems, Inc.

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PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

Inspire Medical Systems, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	329,897	$	441,592
Investments, short-term	134,317		9,821
Accounts receivable, net of allowance for credit losses of $1,376 and $36, respectively	71,460		61,228
Inventories, net	26,115		11,886
Prepaid expenses and other current assets	7,802		5,505
Total current assets	569,591		530,032
Investments, long-term	2,961		—
Property and equipment, net	32,249		17,249
Operating lease right-of-use assets	23,081		6,880
Other non-current assets	11,612		10,715
Total assets	$	639,494	$	564,876
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	40,031	$	26,847
Accrued expenses	29,964		34,339

Total current liabilities	69,995		61,186

Operating lease liabilities, non-current portion	25,173		7,536
Other non-current liabilities	146		146
Total liabilities	95,314		68,868
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding	—		—
Common Stock, $0.001 par value per share; 200,000,000 shares authorized; 29,403,189 and 29,008,368 issued and outstanding at September 30, 2023 and December 31, 2022, respectively	29		29
Additional paid-in capital	904,293		820,335
Accumulated other comprehensive income (loss)	44		(86)
Accumulated deficit	(360,186)		(324,270)
Total stockholders' equity	544,180		496,008
Total liabilities and stockholders' equity	$	639,494	$	564,876

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

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Inspire Medical Systems, Inc.

Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	153,302	$	109,188	$	432,291	$	269,956
Cost of goods sold	24,382		19,786		68,522		43,963
Gross profit	128,920		89,402		363,769		225,993
Operating expenses:
Research and development	29,144		20,993		85,484		47,397
Selling, general and administrative	113,247		85,603		327,853		225,853
Total operating expenses	142,391		106,596		413,337		273,250
Operating loss	(13,471)		(17,194)		(49,568)		(47,257)
Other (income) expense:
Interest and dividend income	(5,495)		(1,350)		(14,690)		(1,681)
Interest expense	—		656		—		1,677
Other expense, net	224		101		268		290
Total other (income) expense	(5,271)		(593)		(14,422)		286
Loss before income taxes	(8,200)		(16,601)		(35,146)		(47,543)
Income taxes	340		246		770		488
Net loss	(8,540)		(16,847)		(35,916)		(48,031)
Other comprehensive loss:
Foreign currency translation loss	(181)		(148)		(4)		(106)
Unrealized gain (loss) on investments	122		(14)		134		(202)
Total comprehensive loss	$	(8,599)	$	(17,009)	$	(35,786)	$	(48,339)
Net loss per share, basic and diluted	$	(0.29)	$	(0.60)	$	(1.23)	$	(1.73)

Weighted average common shares used to compute net loss per share, basic and diluted	29,365,968		28,226,345		29,229,626		27,782,093

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

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Inspire Medical Systems, Inc.

Consolidated Statements of Stockholders' Equity (unaudited)

(in thousands, except share amounts)


	Nine Months Ended September 30, 2023
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders' Equity
Balance at December 31, 2022	29,008,368	$	29	$	820,335	$	(86)	$	(324,270)	$	496,008
Stock options exercised	142,167	—		7,377		—		—		7,377
Vesting of restricted stock units	18,852	—		—		—		—		—
Withholding taxes on net share settlement of restricted stock units	(6,750)	—		(1,746)		—		—		(1,746)
Issuance of common stock	364	—		90		—		—		90
Stock-based compensation expense	—	—		18,225		—		—		18,225
Other comprehensive income	—	—		—		118		—		118
Net loss	—	—		—		—		(15,424)		(15,424)
Balance at March 31, 2023	29,163,001	29		844,281		32		(339,694)		504,648
Stock options exercised	143,693	—		13,113		—		—		13,113
Vesting of restricted stock units	9,349	—		—		—		—		—
Withholding taxes on net share settlement of restricted stock units	(3,237)	—		(971)		—		—		(971)
Issuance of common stock	390	—		91		—		—		91
Issuance of common stock for employee stock purchase plan	12,983	—		2,792		—		—		2,792
Stock-based compensation expense	—	—		21,567		—		—		21,567
Other comprehensive income	—	—		—		71		—		71
Net loss	—	—		—		—		(11,952)		(11,952)
Balance at June 30, 2023	29,326,179	29		880,873		103		(351,646)		529,359
Stock options exercised	72,632	—		4,016		—		—		4,016
Vesting of restricted stock units	6,272	—		—		—		—		—
Issuance of common stock	279	—		91		—		—		91
Withholding taxes on net share settlement of restricted stock units	(2,173)	—		(516)		—		—		(516)
Stock-based compensation expense	—	—		19,829		—		—		19,829
Other comprehensive loss	—	—		—		(59)		—		(59)
Net loss	—	—		—		—		(8,540)		(8,540)
Balance at September 30, 2023	29,403,189	$	29	$	904,293	$	44	$	(360,186)	$	544,180

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

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Inspire Medical Systems, Inc.

Consolidated Statements of Stockholders' Equity (unaudited)

(in thousands, except share amounts)

Nine Months Ended September 30, 2022

Common Stock

Amount

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total
Stockholders'
Equity

Balance at December 31, 2021

27,416,106

SEC Form 10-Q filed by Inspire Medical Systems Inc.