Inspire Medical Systems, Inc.INSP
Inspire Medical Systems, Inc. Stock Compensation Disclosure
Stock-Based Compensation
As of December 31, 2025, there were 4,598,570 shares reserved for issuance under the Inspire Medical Systems, Inc. 2018 Incentive Award Plan, of which 1,319,587 shares were available for issuance.
Stock-based compensation expense is recognized on a straight-line basis over the requisite service period, which is the vesting period or term to become eligible for a qualified retirement for stock options and RSUs, and over the vesting and performance period based on the probability of achieving the performance objectives for PSUs, and is reduced by actual forfeitures as they occur. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase, or cancel any remaining unearned stock compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock-based awards.
During the year ended December 31, 2025, we recorded accelerated stock-based compensation expense of $11.2 million for employees who are retirement eligible in accordance with the implementation of changes to the treatment of equity awards under the Inspire Medical Systems, Inc. 2018 Incentive Award Plan upon the holder's death, disability, or retirement.
Stock Options
Stock options are granted to employees at the exercise price, which is equal to the closing price of our stock on the date of grant. The stock options include a four-year service period and 25% vest after the first year of service and the remainder vest in equal monthly installments over the next 36 months of service. Unvested options are forfeitable in the event of termination other than for death, disability, or qualifying retirement. Upon death, disability or qualifying retirement, all outstanding and unvested options accelerate and become fully vested. The stock options have a contractual life of ten years.
The fair value per share of options is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted during the year ended December 31, 2025.
Option Value and Assumptions
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Weighted average fair value | $113.56 | $149.70 | |||||||||
| Assumptions: | |||||||||||
| Expected term (years) | 6.25 | 6.25 | |||||||||
| Expected volatility | 58.6% - 61.0% | 56.4% - 58.2% | |||||||||
| Risk-free interest rate | 3.67% - 4.71% | 3.49% - 4.89% | |||||||||
| Expected dividend yield | —% | —% | |||||||||
Expected Term — Due to our limited amount of historical exercise, forfeiture, and expiration activity, we have opted to use the "simplified method" for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting terms and the original contractual term of the option. We will continue to analyze our expected term assumption as more historical data becomes available.
Expected Volatility — During the year ended December 31, 2024, we based expected volatility on the historic volatility of our common stock. Prior to 2024, due to our limited company specific historical and implied volatility data, we incorporated our historical stock trading volatility with those of a group of similar companies that are publicly traded for the calculation of volatility. When selecting this peer group, we generally selected companies with comparable characteristics, including enterprise value, stages of clinical development, risk profiles, position within the industry, and those with historical share price information sufficient to meet the expected life of the stock-based awards.
Risk-Free Interest Rate — The risk-free rate assumption is based on the U.S. government Treasury instruments with maturities similar to the expected term of our stock options.
Expected Dividend Yield — The expected dividend assumption is based on our history of not paying dividends and our expectation that we will not declare dividends for the foreseeable future.
Stock Option Activity
| Options | Weighted Average Exercise Price | Weighted average remaining contractual term (years) | Aggregate intrinsic value (in thousands) | |||||||||||||||||||||||||||||
| Outstanding at December 31, 2022 | 2,660,734 | $ | 112.19 | 6.9 | $ | 372,068 | ||||||||||||||||||||||||||
| Granted | 441,394 | $ | 257.22 | |||||||||||||||||||||||||||||
| Exercised | (595,188) | $ | 45.09 | $ | 105,952 | |||||||||||||||||||||||||||
| Forfeited/expired | (59,799) | $ | 214.61 | |||||||||||||||||||||||||||||
| Outstanding at December 31, 2023 | 2,447,141 | $ | 152.17 | 7.0 | $ | 160,691 | ||||||||||||||||||||||||||
| Granted | 247,048 | $ | 177.99 | |||||||||||||||||||||||||||||
| Exercised | (387,856) | $ | 62.37 | $ | 49,221 | |||||||||||||||||||||||||||
| Forfeited/expired | (146,184) | $ | 195.27 | |||||||||||||||||||||||||||||
| Outstanding at December 31, 2024 | 2,160,149 | $ | 168.33 | 6.4 | $ | 89,052 | ||||||||||||||||||||||||||
| Exercised | (163,445) | $ | 70.31 | $ | 13,739 | |||||||||||||||||||||||||||
| Forfeited/expired | (134,818) | $ | 222.71 | |||||||||||||||||||||||||||||
| Outstanding at December 31, 2025 | 1,861,886 | $ | 173.07 | 5.4 | $ | 38,524 | ||||||||||||||||||||||||||
| Exercisable at December 31, 2025 | 1,627,185 | $ | 166.07 | 5.1 | $ | 38,524 | ||||||||||||||||||||||||||
The aggregate intrinsic value of options exercised is the difference between the estimated fair market value of our common stock at the date of exercise and the exercise price for those options. The aggregate intrinsic value of outstanding options is the difference between the closing price as of the date outstanding and the exercise price of the underlying stock options. The total grant date fair value of options vested during the year was $38.9 million, $56.7 million and $45.7 million for the years ended December 31, 2025, 2024, and 2023, respectively. As of December 31, 2025, the amount of unearned stock-based compensation currently estimated to be expensed from now through the year 2028 related to unvested stock options is $26.4 million which we expect to recognize over a weighted average period of 1.5 years.
Restricted Stock Units
RSUs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture in the event of termination other than for death, disability, or qualifying retirement. Upon death or disability, all outstanding and unvested RSUs accelerate and become fully vested and settled. Upon qualifying retirement, all outstanding and unvested RSUs remain outstanding and settle in accordance with the original vesting and payment terms applicable to such RSUs. The RSUs granted to employees include - or four-year service periods and vest in equal installments on each anniversary of the date of grant. The RSUs granted to the board of directors include - or three-year service periods and vest in equal installments on each anniversary of the date of grant. The fair value of the RSUs is equal to the closing price of our common stock on the grant date.
A summary of RSUs and related information is as follows:
| Restricted Stock Units | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||||||
| Unvested at December 31, 2022 | 124,680 | $ | 213.97 | $ | 31,404 | |||||||||||||||||||||
| Granted | 128,661 | $ | 249.58 | |||||||||||||||||||||||
| Vested | (40,915) | $ | 214.06 | $ | 10,190 | |||||||||||||||||||||
| Forfeited | (11,356) | $ | 236.30 | |||||||||||||||||||||||
| Unvested at December 31, 2023 | 201,070 | $ | 235.47 | $ | 40,904 | |||||||||||||||||||||
| Granted | 614,219 | $ | 188.73 | |||||||||||||||||||||||
| Vested | (83,702) | $ | 234.56 | $ | 16,261 | |||||||||||||||||||||
| Forfeited | (51,682) | $ | 205.57 | |||||||||||||||||||||||
| Unvested at December 31, 2024 | 679,905 | $ | 195.63 | $ | 126,041 | |||||||||||||||||||||
| Granted | 744,258 | $ | 167.68 | |||||||||||||||||||||||
| Vested | (258,987) | $ | 200.59 | $ | 40,753 | |||||||||||||||||||||
| Forfeited | (102,985) | $ | 186.89 | |||||||||||||||||||||||
| Unvested at December 31, 2025 | 1,062,191 | $ | 175.68 | $ | 169,186 | |||||||||||||||||||||
The aggregate intrinsic value of unvested RSUs was based on our closing stock price on the last trading day of the period. The aggregate intrinsic value of vested RSUs was based on our closing stock price on the date of vest. As of December 31, 2025, the amount of unearned stock-based compensation currently estimated to be expensed from now through the year 2028 related to unvested RSUs is $123.5 million which we expect to recognize over a weighted average period of 1.9 years.
Performance Stock Units
We grant PSUs to officers and key employees. The number of PSUs that will ultimately be earned is based on our performance relative to pre-established goals for the respective three-year periods from the year of grant. The expense is recorded on a straight-line basis over the requisite service periods based on an estimate of the number of PSUs expected to vest. Management expectations related to the achievement of the performance goals associated with PSU grants are assessed each reporting period. The number of shares earned at the end of each of the three-year periods will vary based on actual performance, from 0% to 200% of the number of PSUs granted. If the performance conditions are not met or not expected to be met, any compensation expense recognized associated with the grant will be reversed. PSUs are subject to forfeiture in the event of termination other than a termination due to death, disability, or qualifying retirement occurring after the first 12 months of the applicable performance period. Upon such a termination due to death or disability, a prorated amount of the target number of PSUs will accelerate and become fully vested. Upon such a qualifying retirement, a prorated amount of the PSUs will be eligible to vest and settle based on the actual performance achievement in accordance with the original vesting and payment terms applicable to such PSUs.
A summary of PSUs and related information is as follows:
| Performance Stock Units | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||||||
| Unvested at December 31, 2022 | 77,472 | $ | 227.53 | $ | 19,514 | |||||||||||||||||||||
| Granted | 95,994 | $ | 264.59 | |||||||||||||||||||||||
| Forfeited | (4,497) | $ | 242.27 | |||||||||||||||||||||||
| Unvested at December 31, 2023 | 168,969 | $ | 248.19 | $ | 34,373 | |||||||||||||||||||||
| Granted | 184,905 | $ | 196.41 | |||||||||||||||||||||||
| Forfeited | (30,572) | $ | 224.44 | |||||||||||||||||||||||
| Unvested at December 31, 2024 | 323,302 | $ | 220.82 | $ | 59,934 | |||||||||||||||||||||
| Granted | 236,333 | $ | 199.70 | |||||||||||||||||||||||
| Vested | (143,518) | $ | 228.48 | $ | 26,759 | |||||||||||||||||||||
| Forfeited | (51,078) | $ | 213.23 | |||||||||||||||||||||||
| Unvested at December 31, 2025 | 365,039 | $ | 205.20 | $ | 58,143 | |||||||||||||||||||||
The fair value of the PSUs is equal to the closing price of our common stock on the grant date. The aggregate intrinsic value of unvested PSUs was based on our closing stock price on the last trading day of the period. As of December 31, 2025, there was $26.2 million of unrecognized stock-based compensation expense related to outstanding PSUs that is expected to be recognized over a weighted average period of 1.4 years.
Employee Stock Purchase Plan
Employees may participate in our ESPP provided they meet certain eligibility requirements. The purchase price for our common stock under the terms of the ESPP is defined as 85% of the lower of the closing market price per share of our common stock on the first or last trading day of a purchase period. We issued 52,015 shares under the ESPP during 2025 and there were 1,332,425 shares available for future issuance under the ESPP as of December 31, 2025.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.