Inspire Medical Systems, Inc. (INSP) Q2 2026 Earnings Report, Transcript and Summary

Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Inspire Medical Systems Second Quarter 2026 Conference Call. [Operator Instructions] I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.

Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer; and Matt Osberg, Chief Financial Officer. Earlier today, we released financial results for the 3 months ended June 30, 2026. A copy of the press release is available on our website. On this call, management will make forward-looking statements within the meaning of the federal securities laws. All forward-looking statements, including, without limitation, those relating to our operations, financial results and financial condition, investments in our business, full year 2026 financial and operational outlook and changes in market access and different aspects of coding or reimbursement are based upon our current estimates and various assumptions. Forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. For a discussion of these risks and uncertainties, please see our filings with the Securities and Exchange Commission, including our periodic reports on Form 10-K and 10-Q as well as the Form 10-Q, which we filed this afternoon with the SEC for the quarter ended June 30, 2026. Inspire disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, August 3, 2026. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Thank you, Ezgi, and thanks, everyone, for joining us today. On the call today, I will provide some key takeaways of our second quarter results and updated outlook before providing an update on coding and reimbursement. I'll then turn the call over to Matt, who will provide additional insights on our second quarter and full year financials. We will then open the call up for questions. Prior to discussing the operations of the quarter, we always highlight that the focus of the Inspire team as well as health care professionals is to deliver the highest possible patient outcomes. And during this call, we will highlight the impressive safety and efficacy of the Inspire V system and also the emerging data demonstrating long-term cardiovascular health associated with the use of Inspire therapy. We are pleased to have delivered results ahead of our expectations for the second quarter. During the quarter, we continue to make progress working with our sales team and customers to navigate the evolving coding and reimbursement environment and delivered adjusted operating income and positive cash flow ahead of expectations through continued disciplined cost management. Given our performance, we are increasing our 2026 outlook for revenue, adjusted operating margin and adjusted earnings per share. I'd like to start by providing an update on coding and reimbursement. Let me address this across the short, mid and long terms. In the short term, we are continuing our efforts to provide Inspire V coding and reimbursement education and support to our customers. As we are starting with our highest volume centers, these represent disproportionately higher percentages of our revenue. We have continued to see improved trends in key data points such as prior authorization submissions, and we will continue our support efforts in the second half of the year. The bottom line is enhanced coding and billing clarity for all payers, be it commercial, Medicare Advantage or Government Medicare. Each of the payer groups have coverage policies that clearly identify the coding to be used for Inspire procedures and the confusion created early in the year is being effectively managed. Let me provide a little more detail. The previously announced C-codes are now in place. And importantly, hospital and ASC reimbursement rates remain unchanged. These C-codes have also been adopted into the WISeR system for the 6 applicable states. We believe these changes should significantly reduce any uncertainty regarding the appropriate codes that customers should use for the Inspire V procedures. For surgeon reimbursement, the majority of the medical area contractors or MACs do not require use of a -52 modifier when billing CPT code 64582 for Inspire V procedures. Two MACs, however, currently require the modifier. Based on available data, the payment reduction applied by those MACs has ranged from 0% to 30% of the current national average Medicare payment of $723. We have placed significant emphasis on educating customers regarding the documentation requirements and related considerations for reporting Inspire V procedures using CPT code 64582 with the -52 modifier. Turning to midterm actions. CMS has issued its proposed 2027 OPPS and PFS reimbursement rates. For Medicare facility reimbursement, CMS has proposed increasing hospital outpatient reimbursement for the Inspire V procedure to $35,414, an increase of approximately $3,900 or 12% over 2026 rates. CMS has also proposed increasing ASC reimbursement to $31,722, which is an increase of approximately $4,200 or 15% increase over 2026 rates. While these proposed increases are very encouraging, we are not making any assumptions regarding future reimbursement levels until CMS publishes its final rates in November. On the physician fee schedule, CMS has proposed 2027 physician reimbursement of approximately $699 for CPT code 64582. This represents a year-over-year decrease of approximately 4%, driven primarily by a reduction in the physician RVU rate as with the physician reimbursement proposals. The final physician reimbursement rates will be published in November. Looking further ahead, we are focused on supporting the development of a new Category 1 CPT code for a single lead Inspire system. As a reminder, our initial application was not approved at the April AMA CPT Editorial Panel Meeting. Following that decision, we met with reimbursement experts to better understand how we could improve the application and have incorporated that guidance into a revised application, which will be reviewed at the September CPT Editorial Panel Meeting. The revised application addresses 3 key areas. First, it corrects several coding issues related to subcodes for replacement procedures. Second, it is being submitted jointly with another participant in the industry, demonstrating broader stakeholder support. And third, it includes additional clinical evidence that was not presented in the initial submission. If the revised application is approved, the process moves to code valuation and reimbursement review, keeping the proposed new CPT code on track for implementation on January 1, 2028. With coding clarification improving, we feel we can more aggressively refocus our efforts on improving patient flow and revenue growth. As such, and aligning with our earnings results, we are announcing a strategic growth plan called Project Horizon, which is intended to accelerate revenue growth by investing in initiatives designed to enhance patient flow. We are creating this capacity by optimizing our organizational structure to better align resources with revenue growth initiatives. In addition, we are optimizing our supply chain by consolidating production to support quality, scale and efficiency. Through the actions of Project Horizon, we expect to create $30 million of annualized growth investment capacity, which we intend to invest in areas that we believe have the largest growth opportunities for us to further penetrate the OSA market. Our primary area of focus will be expanding patient access to care, improving patient education and engagement and helping appropriate patients navigate the treatment journey with the information they need to make informed decisions about Inspire therapy. Although Project Horizon is still in its early stages, and we are continuing to refine our growth investment priorities, one area where we have already seen encouraging results is the addition of prior authorization support capabilities within the SleepSync platform. These tools help support patients as they navigate the coverage approval process and have been very well received during the pilot phase. Based on that early success, we are increasing our investment in this initiative to further facilitate patient access to therapy. Another example is Inspire Connect, a program designed to enhance the post-implant patient experience for providing patients with timely education and support throughout their Inspire journey. The program is intended to help standardize key aspects of the patient experience by engaging with patients at appropriate intervals following implant to ensure that they have the information and resources needed to understand what to expect during activation and acclamation process. We believe this additional support can improve patient confidence and preparedness, helping patients make informed decisions and navigate their therapy journey more effectively. As we move forward with Project Horizon and our efforts to reinvigorate revenue growth, I look forward to providing additional updates on these and other initiatives as investments that will support our long-term growth strategy. Switching to patient outcomes. We remain excited about the clinical outcome data on Inspire V. At the recent American Academy of Sleep Medicine Conference in Baltimore in June, we presented the full results from the Inspire V trial conducted in Singapore. While we have previewed some of the early data points, including inspiratory overlap, this was the first time we showed the full trial results, including the ability of the new accelerometer-based sensing technology and the safety and efficacy of the Inspire V implant. In addition, multiple presentations highlighted the growing body of evidence supporting Inspire therapy, particularly in improving cardiovascular risk markers. Separately, Inspire highlighted additional research at its exhibit booth, including recent peer-reviewed articles on hypoxic burden and cardiovascular outcomes. The first article I want to highlight was a secondary analysis from the STAR trial that demonstrated significant reductions in hypoxic burden, a key measure of the total impact of oxygen desaturation events during sleep, integrating the depth, duration and frequency of these events to quantify sleep apnea severity. These findings reinforce hypoxic burden as an emerging and clinically relevant endpoint and align with a growing number of studies evaluating cardiovascular outcomes in patients treated with Inspire therapy versus continuous positive airway pressure and untreated populations. Another article compared clinical outcomes between hypoglossal nerve stimulation and CPAP in OSA patients using data from the TriNetics database and compared a masked group of 3,525 patients in each group. The findings demonstrated that the hypoglossal nerve stimulation cohort has significantly lower odds of several factors, including stroke, myocardial infarction, atrial fibrillation, hospitalization, acute heart failure and others. The conclusion was that hypoglossal nerve stimulation may offer systemic benefits and reduce health care burden compared to CPAP. We also are excited to announce the publication of the PREDICTOR study, which identified body mass index and neck circumference as predictors of complete concentric collapse. These findings suggest that many patients may be screened for Inspire therapy eligibility without requiring drug-induced sleep endoscopy, potentially reducing diagnostic burden, time to treatment and health care costs. A big contributor to our strong body of clinical evidence is our dedication to be at the forefront of innovation in OSA. As such, we continue to make progress with our research and development efforts in 2026 with ongoing work on Inspire V. Before I wrap up, I want to thank Casey Tansey for over 18 years of service on our Board of Directors. Casey was one of the first venture investors to recognize the potential impact of Inspire therapy, led the Series A financing back in 2007 and has provided years of valuable mentorship, leadership and perspective. At the same time, we are excited to welcome Mike Carroll to our Board of Directors. Mike is a veteran of the medical device industry with significant executive leadership and Board experience, and we look forward to his guidance and contributions to our Board. In closing, we continue to believe that there is a large untreated population of people struggling with sleep apnea that can benefit from Inspire therapy, and we continue to be encouraged by the strong adoption of Inspire V and the positive data we continue to collect. We remain focused on investing in our growth and providing the best therapy for patients and helping our customers navigate what we believe will be a temporary market disruption related to coding and reimbursement. We are actively addressing the challenges posed by this disruption, and we remain excited about our product and the market opportunity to improve the lives of our patients as we've already done for over 140,000 patients since our inception. We will continue to take actions to position the company for long-term profitable growth and believe that we have the right strategies in place to drive long-term stakeholder value. I will now turn the call over to Matt.

Thank you, Tim, and good afternoon, everyone. First, I'll begin with a review of the second quarter results, then follow with some further details on Project Horizon and finish with commentary on our outlook for the remainder of the year. Looking at the second quarter results, we are pleased with our sales execution, continued cost discipline and focus on spending priorities, which helped us to deliver profitability ahead of our expectations. Revenue decreased 7.6% to $200.6 million, primarily reflecting the impact of coding and reimbursement disruption, including the impact of the trend of declining preauthorizations that we saw in the first quarter. Operating margin improved primarily driven by gross profit expansion due to a higher mix of Inspire V and lower stock-based compensation costs due to an accelerated stock-based compensation charge recognized in the prior year. Adjusted operating margin declined primarily driven by unfavorable leverage from lower sales, partially offset by gross profit improvement due to a higher mix of Inspire V. Adjusted operating income was favorable to our expectations, primarily driven by continued spending discipline, favorable volume and rate impacts in gross profit and the timing of some planned spending shifting into the second half of the year. The effective tax rate was 89.9%, primarily driven by the tax impacts of stock-based compensation and executive compensation limitations. Additionally, in the prior year period, we maintained a full valuation allowance against federal and state deferred tax assets. The adjusted effective tax rate was 41.2%. Given our pretax income is a relatively small base, certain tax charges can have a material impact on our tax rate. Additionally, the tax impact of stock-based compensation can be material and may have significant variability from period to period. Diluted EPS was $0.01 and adjusted diluted EPS was $0.14 for the quarter. Our adjusted EBITDA margin, which excludes the impact of stock-based compensation, declined 90 basis points to 19.4%, primarily due to the decrease in adjusted operating margin. Turning to cash flow and the balance sheet. Operating cash flow was $23.2 million for the quarter and $36.1 million for the year-to-date period, an improvement of $40 million compared to the first 6 months of the prior year, primarily driven by improved working capital. Our balance sheet remains strong with no debt and $415 million in cash and investments at the end of the quarter. Our strong cash position allows us to remain focused on making investments to drive profitable growth. As Tim mentioned, we announced a strategic growth plan called Project Horizon, which is intended to create additional capacity to invest in initiatives to drive revenue growth. We expect to incur a total of $20 million to $25 million of pretax restructuring charges in connection with Project Horizon, with approximately 90% of the charges expected to be recognized in the third quarter. Approximately $16 million to $20 million of these charges are expected to be noncash impairment charges related to production equipment at vendors that will no longer be used as we consolidate our supply chain with the balance of the charges relating to employee separation costs. The actions of Project Horizon are expected to generate approximately $30 million of annualized growth investment capacity, which we expect to direct to our highest revenue growth initiatives. We expect the majority of actions related to the restructuring plan to be completed in the third quarter and all actions to be substantially complete by the end of the year. Turning now to our 2026 outlook. We are revising our full year revenue outlook to be in the range of $835 million to $875 million. This range incorporates our Q2 revenue performance and our expectations for coding and reimbursement disruption for the remainder of the year. We estimate that our second quarter results were adversely impacted by coding and reimbursement challenges and the WISeR program by approximately $40 million. We expect the adverse impact of these items to decrease sequentially as we move into the third and fourth quarters as we continue our education efforts and our customers build experience with coding and billing processes. For the full year, we are currently estimating the total impact of these items to be in the range of $120 million to $130 million. The estimated impact of these items on our results reflect high-level assumptions based on currently available data and incorporate inherent uncertainty related to quantifying how these items impact customers, physicians and patients. In addition to revising our revenue outlook, we are also revising our outlook on profitability metrics for the year. We now expect adjusted operating margin in the range of 4% to 6%, diluted EPS in the range of a loss of $0.42 per share to earnings of $0.17 per share and adjusted diluted EPS in the range of $1.05 to $1.45. The changes to the adjusted profitability metrics primarily represent the impact of operating performance in Q2, while the forecasted impact of restructuring charges is expected only to impact the GAAP metrics. Our updated outlook assumes an effective tax rate of 95% to 100% and an adjusted effective tax rate of 30% to 35%. The increase in the forecasted effective tax rate as compared to our previous outlook primarily relates to lower pretax income driven by forecasted Project Horizon restructuring charges and incremental impacts of stock-based compensation and executive compensation limitations. Our outlook assumes estimated weighted average diluted shares outstanding of approximately 29.4 million and capital expenditures between $35 million and $40 million. Looking at the cadence of the year for the third quarter, we are forecasting an 8% to 10% year-over-year revenue decline, primarily due to the expected ongoing impact of coding and reimbursement. Additionally, we expect to deliver approximately breakeven adjusted operating income for the third quarter as the operating income impact of the forecasted sequential increase in revenue is offset by an expected sequential step-up in marketing expense. In closing, despite the top line pressure in the first half of the year, I am pleased with our spending discipline and focus on prioritizing investments in revenue-generating activities. The additional growth investment capacity created as a result of Project Horizon will enable us to make further investments to accelerate our growth. Our team remains committed to providing strong patient outcomes and supporting our customers to expand the adoption of Inspire therapy while delivering value for our shareholders. This concludes our prepared remarks. Dilem, you may now open the line for questions.

[Operator Instructions] And I show our first question comes from the line of Jon Block from Stifel.

Tim, maybe you can talk a little bit about what you're seeing in those 2 MAC regions that have the 0% to 30% dock fee cut from a utilization standpoint? And is there really a big delta versus the other regions? And then also sort of tack on, can you update us on what percent of your overall centers are, call it, up to speed with these billing changes? And I don't know if you want to give it as a percent of overall centers or maybe as a percent of revenue exposure.

Start with number one, when we looked at the regions of the 2 MACs and generally, when surgeons provide the billing with the materials to describe the reduction in services, they are able to minimize any kind of reduction. And some of the hospitals when they bundle the billing along with the payment tend to just submit in, and that's where you see the greatest amount of reduction. So we believe that we'll continue to educate and make sure that centers and surgeons provide the requested information. And by providing that information, we've been able to see reductions being minimized. So we'll continue to build on that data set. But again, we're comfortable with where we are today, and we'll continue to provide further education on that. As far as percent of centers going through, as we talked earlier, we have an active program to start with our highest level of centers and work through that entire list as we work high to low. So the number of centers that we're training today tend to be the top 25%. We're working through the majority of those and tend to be into the next wave, and we'll be able to educate most of them in the third quarter.

And I show our next question in the queue comes from the line of Adam Maeder from Piper Sandler.

Congrats on the progress. Maybe I could ask about the strategic growth plan. I think you're calling it Project Horizon. Just wanted to, I guess, better understand exactly what that entails. So it sounds like there's some restructuring there. You're freeing up $30 million of capacity for redeployment, mostly that has to do with the supply chain. But can you just help us better understand exactly how those funds are going to be redeployed? How they're going to drive growth going forward? And is that something that could impact the business in the back half of '26? Or is it more 2027?

Sure. We've grown very fast over the years, and the organization has grown pretty quickly to be able to handle the level of demand for Inspire. So we've taken the opportunity with Project Horizon to really look at areas where we can be more efficient. And with that, we've been able to identify the areas of savings. So we will be implementing several of those new tasks. Currently, we believe the majority of these are targeting patient flow, which you'll see more in '27. And as Matt kind of laid out what we expect to see in the latter half of '26. So more to come on the specific projects. But again, we believe this is really going to help us reenergize growth, particularly in '27 and beyond.

And I show our next question comes from the line of Robbie Marcus from JPMorgan.

Great. Two for me. Maybe just to follow up on the last question. Tim, you talked about part of the restructuring was around manufacturing. I just want to make sure, are you eliminating any dual source manufacturing? Like are you going to single source to save money? Maybe just elaborate there. It's interesting. We don't usually hear manufacturing as part of the cost savings. So just love to hear more.

We'll be able to provide more information in the near future. Right now, our products are single sourced. And so we're looking to build the quality and responsibility of having a strong supply chain, and we will be building efficiencies into that manner as we are looking to bring other manufacturing sites on that provides opportunities there. So we'll provide greater details into that, but we want to make sure that we have secure supply as we progress and improve our ability to scale with quality.

And I show our next question comes from the line of Anthony Petrone from Mizuho Americas.

Maybe, Tim, one on just how backlog is trending and then one on WISeR real quick. When 64568 sort of went away and you had to use sort of the -- or at least the thought of the C codes plus modifiers, it just kind of froze the channel. And it sounds like certainly certain centers just kind of punted on doing cases. So is there anything you can share as to where you think maybe the backlog sits as we sit here in early August from this warehousing effect? And then real quick on WISeR. We picked up from just some channel checks that potentially it can go away that it's being contemplated down in D.C. that there's a push to potentially just do away with WISeR. Have you heard that? And if that's the case, what do you think the probability that WISeR goes away, say, early next year?

Sure. The backlog is really focused on those patients that are trying to get into the process, but unfortunately, centers had to take a little bit of a pause, and we saw that when we discussed the submission of the number of prior authorizations that we saw earlier in the year and knew that, that would have an impact in the second quarter. And as we mentioned in our prepared remarks that we are seeing improvements in the trends, including increase in the number of prior authorization submissions. So centers are getting comfortable with the coding and they're getting experience with it to see that they are receiving proper reimbursement levels and that they're able to start to get back to their utilization levels, and we can start working through that backlog as we move forward. As far as WISeR goes, yes, we hear the same commentary, although we need to continue to work that it's going to not only exist in those 6 states, but that it could expand into additional states. And so we don't want to wait to see what the final resolution will be, but the point is we did see that the C codes are now incorporated into WISeR. We continue to learn how to operate in a WISeR environment, and we're prepared to move forward in the rest of the year. And so it doesn't have as much of a disruptive effect as it did in the first half of the year.

And I show our next question comes from the line of Larry Biegelsen from Wells Fargo.

Matt or Tim, it looks like -- if I'm doing the math right here, it looks like you're expecting Q3 on a year-over-year basis to be slightly worse than Q2 despite some of these trends getting better. So why is that? And related to that, the guidance range is very wide. It implies like down 13% at the low end and down 5%, I think, at the high end. What's assumed at the low and the high end?

Yes, I'll start with that. Thanks for the question, Larry. So from a Q3 perspective, you're right, it's a larger year-over-year decline. But sequentially, we're looking at higher revenue between Q3 -- or Q2 and Q3. So looking at continuing to build some momentum on the top line, although year-over-year, it's still down more than in Q2. And then the range is really just reflecting that we've had a lot of volatility during the year. There's been a lot of action. We were very happy with how we performed in Q2, and we just want to be cautious about narrowing the range as we look out for the rest of the year, and we're focused on delivering within that range.

And I show our next question comes from the line of Travis Steed from Bank of America.

The coding impact went from $120 million to $150 million to $120 million to $130 million, so lower. I think that implies second half better, but the revenue guide for the full year didn't change. So just want to make sure I understand that. And then when you think about 2027 before you were saying kind of return to growth, just kind of curious about how your visibility in 2027 is shaping up at this point? And any color you could give on '27.

Travis, it's Matt. I'll jump in on the first one. Yes, you're right. The real reduction in that range was primarily due to what we saw in the second quarter. We had originally thought a $40 million to $50 million impact from reimbursement impacts, and that was on the low end of the range. So that helped really bring down that range for the year, slightly better in the second half of the year, but most of that benefit was in the second quarter. From a 2027 perspective, Tim, I don't know if you want to...

Yes, sure, Travis. In 2027, we see opportunity that we're still evaluating. Number one, with the Horizon, we're able to increase investments into our growth initiatives. We have already been investing in our initiatives, and we'll continue to do that, driving growth. We continue to see improvements with the coding environment and comfort around the coding levels. And we're further encouraged with the proposed rules from CMS on facility reimbursement, although we need to wait until November to see where those numbers come out. So in that, we have to wait. We don't want to make comments on guiding on '27 yet, but we like what is coming together and really want to lean into the clinical evidence that we're seeing with Inspire V and more importantly, getting a new support from cardiovascular health with the clinical evidence being posted on that front.

And I show our next question comes from the line of Richard Newitter from Truist Securities.

Maybe the first, just this has come up a couple of times. Just you've had varying responses quarter-to-quarter. But where are we on kind of GLP-1 impact from as best as you can see and how the trend is going on the business? And then also the second item there is capacity. I'm not sure if the $30 million in reinvestment to growth initiatives, like to what extent are those things that will help increase capacity or getting more or new types of physicians to kind of come in and be able to do the procedure to drive higher utilization? Would love any insights on that.

Thanks, Rich. GLP-1 trends, well, GLP-1s have been around for a longer period of time with the positive indication for sleep apnea. So we're seeing more sleep physicians being able to prescribe that. But again, I don't think it really changes our overall demand for Inspire therapy as we move forward. And we believe and continue to believe that GLP-1s will be a long-term benefit to help people lose weight to get them into the -- and to qualify for Inspire therapy. But we continue to track our inbounds and track patients looking to get appointments with health care providers and we see the increase in prior authorization. So we do see capacity returning. The data looks strong, and we do believe long-term GLP-1s will help. Capacity is always a key factor. And now that we're getting more comfort with the coding and the reimbursement aspects and clarity is starting to gain with each payer that we're able to lean in on that. Inspire V is -- can help with capacity in itself because ENT surgeons are comfortable performing that procedure. But we are looking to expand, not only with centers, but also with additional surgeons. And so we're going to lean into that, and that will be an initiative that we'll lean into in the future.

And I show our next question comes from the line of Michael Polark from Wolfe Research.

Just 2 items for me. Territory count in the quarter. If you said it, I missed it, I'd welcome that update. And the related piece to that is kind of direction of travel for that count as Project Horizon gets implemented further down? Or is it reaching a stable level? And the second thing I'm interested in learning more about is Inspire IV versus Inspire V mix either in the second quarter, where are we and what's contemplated for the back half on that metric?

Thanks, Mike. Territory manager territories that we talk about, we're still at 280 and stable on that end. We have increased the number of field clinical representatives. That was a strategy that we implemented previously to get that ratio back to 1:1. We've actually surpassed that, and we actually have 301 FCR areas that we're looking at. So a little bit higher than the 1:1 ratio because we think this can drive efficiencies in each of the territories and help us as we grow capacity and handle the demand from the patients. As far as Inspire IV and V ratios in the field, Inspire V is by far and away the majority of the implants performed in the second quarter, and we expect that to continue as we move into the rest of the year in '27. We do still have customers that utilize the Inspire IV technology based on CMS reimbursement for their Medicare cases. As you know, that Medicare and 64582 is adjusted for both geographic as well as academic centers. So in those territories where the reimbursement isn't as high, there are some centers that continue to use Inspire IV. But the majority of centers have transitioned over to Inspire V.

And I show our next question comes from the line of David Rescott from Baird.

I wanted to ask about the PREDICTOR and the cardio data that you had at Sleep. And I'm more curious along the lines of if and why, how you would expect to be able to leverage that either to just drive increasing utilization or potentially extend the reach beyond the core channel you're in today? Is that something where you now have the data in place and it's something that could begin to benefit as early as 2027? Or are there further publications that we'd be expecting to see and maybe it's, hey, reimbursement is in place by 2028, and that's really when you start to pump the investment behind that?

Thanks, David. Two different answers coming out, yes. So from a PREDICTOR standpoint, yes, with the publication, we can pursue this a little bit more aggressively. I think the -- there are patients that will be able to go through the prior authorization process with their BMI less than 32, along with a neck circumference measurement where they won't need a DISE procedure. Again, the algorithm in the publication is patients with a BMI above 32 are more susceptible to complete concentric collapse and probably should continue to receive a drug-induced sleep endoscopy prior to Inspire. So we're going to start pursuing this and target areas upfront and be able to report back on that. But we're very happy that we have the publication in place. Cardiovascular data is going to continue to grow. Epoxic burden is real, and it's correlated to cardiovascular health. We already know of numerous publications in the works and additional research being performed independent by some of our leading academic institutions in the United States. And we'll continue to build on that and communicate that with the cardiovascular physicians and societies to show the benefits that Inspire therapy can bring to their patients in the long run. So a whole different channel that we're looking at to educate on the benefits of Inspire therapy and a lot more publications coming on that front.

And our next question comes from the line of Michael Sarcone from Jefferies.

So 2 for me. One, Tim, maybe can you comment on the competitive environment and kind of what's the latest and greatest there and the trends you're seeing? And then in terms of Project Horizon and redeploying some of the phase into growth initiatives, how are you thinking about that in the context of DTC spending?

Very good, Michael. From a competitive standpoint, I think we just focus on the Inspire procedures. We focus on making that available to the patients demanding therapy and coming to our website. We know that there are centers who will trial competitive devices, but we don't see a significant impact of that at this point. We know another company is approved but still working on preparing for launch and haven't -- they obviously don't have a presence because they haven't launched their product yet. So again, we think that we need to just focus on Inspire V and the benefit that, that brings to our potential patients. As far as Horizon, we look at DTC as one of our tools, but we don't want to say that we're going to fully increase DTC to the full level. We think there's other areas that we really want to focus on in regards to patient flow, which includes helping patients once they come to a website to make a connection with the health care professional and that way, we'll be able to streamline that process. We did mention PREDICTOR's potential avenue and really going back and highlighting the data that we have around cardiovascular health. So there's a lot of different areas that we want to go down, not just immediately dumping into DTC.

And I show our next question comes from the line of Brett Fishbin from KeyBanc Capital Markets.

You mentioned in the prepared remarks that one of the items that the revised CPT application addresses is in regards to subcodes for replacement procedures. So I wanted to just follow up on that topic and ask about the volume of replacement procedures you're currently seeing and whether this is starting to become a material part of the overall revenue mix in 2026? And then just if so, how should we think about the impact on ASPs for the company per procedure and if there's like a margin impact from procedures starting to shift to replacements from new patients?

Absolutely, Brett. You got about 4 questions in there. Let me go through these. So the CPT, when the application went in, there was already subcodes there for the replacement revision. There was a juggling during the meeting that caused confusion and disruption. And so that's all been cleared up now. And so the subcodes in the application now are clear and defined, and we addressed that right upfront. But you do bring up the next key point, which is we are many years since approval back in 2014 from the FDA and with our average battery life of 11 years, we are starting to see patients come around for their replacement devices. What has been overshadowed by the coding and reimbursement is that the reimbursement CPT code for a replacement Inspire V device was actually moved to a Level 5 APC, ambulatory procedure classification from a Level 4. So that reimbursement has gone up appropriately to support replacements and the ASP for that device is commensurate with the combination of the pressure sensing lead and the old Inspire IV neurostimulator. So in a pretty good position from that, and we should be okay with margin on that. But again, we're starting to ramp the number of patients coming in. But again, a relatively small part of our overall business dating back to 11 years back to implants back in 2014, '15 and '16.

And I show our next question comes from the line of Daniel Markowitz from Evercore ISI.

I wanted to ask in terms of the program to work with centers and improve billing certainty, can you talk about what you've seen early on? It would be helpful to know how many centers you've worked with thus far and what you've seen in terms of activity levels before versus after? And then if I could squeeze one really quick one in. International isn't a huge part of the business. But if I'm looking at the numbers, there was a really nice step-up internationally. Can you talk a little bit about what caused that?

Absolutely, Daniel. When we look at the centers, as we mentioned in the prepared remarks, we start with the highest volume centers and educate through that process. There are many centers that are comfortable with just receiving the material and they were able to gain confidence in the coding that they were able to give reimbursement back and thereby get back to their volumes. Other centers want one-on-one meetings to walk through the coding, understanding the C-codes, what that means, how does that play with commercial payers versus Medicare Advantage versus fee-for-service Medicare? So we're able to sit down and work with them. So as we mentioned earlier, we're working through that top 25% then actively in the next group of centers. We can see confidence in being able to be reimbursed when we start to see their volumes come back. As such, that is one of the trends along with prior authorization numbers that gives us confidence for the second half of the year. International had a very good Q2. And I think that it's about focus and the growth that the international team is working and basically -- primarily the core Continental Europe as we're seeing the greatest amount of growth and teams being very focused in those areas with upstarts in France because they just recently got countrywide reimbursement. We know that, that's going to continue to grow along with the mainstay with Germany, Austria, Switzerland, Netherlands, Belgium and the contributions from the U.K. and some other contributions from overseas with Japan and Singapore as well. So good quarter for the international team. They're doing a very good job in -- with their growth.

And I show our next question comes from the line of Keith Hinton from Freedom Capital Markets.

Just one for me around the assumptions to get to the top and the low end of the operating margin guide. And I just want to understand in terms of Horizon, should we expect to see kind of the reinvestment of those cost savings right away? Or could there be a small timing issue where costs temporarily drop and then step back up? Kind of how should we think about that from an OpEx perspective?

Yes. I would expect there might be a little bit of favorability in the third quarter, but offsetting that as we start to move into the fourth quarter and ramping up some of those investments, and that's incorporated into the outlook that we provided.

And I show our last question in the queue comes from the line of Mike Kratky from Leerink Partners.

Just one for me, but can you talk about how U.S. implant volumes, prior auths and procedures trended sequentially on a monthly basis over 2Q? And what have you seen so far in July to help inform your outlook?

Well, I think that early on, we talked about prior authorizations as kind of being a leading indicator. We're seeing trends increase from that standpoint and not necessarily going to comment too much on implants in July. Typically, we do see implants continue to progress as we go through a quarter. But again, the positive trends that we're seeing, we're gaining comfort around prior authorization submissions as our leading indicator. As always, thank you. But as always, I'm grateful to our team of dedicated employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to patients remains unmatched and is the most important element of our success. For all of you on the call, we appreciate your continued interest in and support and look forward to providing you with further updates in the months ahead.

This concludes today's conference call. You may now disconnect.