Inspire Medical Systems, Inc.

Greetings and welcome to the Inspire Medical Systems third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yeted. Please go ahead.

Thank you, Stacey, and thank you all for participating in today's call. Joining me are Tim Herbert, President and Chief Executive Officer, and Rick Buchholz, Chief Financial Officer. Earlier today, INSPIRE released financial results for the three and nine months ended September 30th, 2020. A copy of the press release is available on the company's website. I'd like to remind you that on this call, management will make forward-looking statements within the meaning of the Federal Securities Law. All forward-looking statements, including without limitation, operations, financial results and financial condition, investments in our business, continued effects of the COVID-19 pandemic, full year 2020 financial and operational outlook, and improvements in market access are based upon current estimates and various assumptions. These 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. See our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC today for a description of these risks and uncertainties. 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, December 2nd, 2020. And with those prepared remarks, it's my pleasure to turn the call over to Tim Herbert, CEO. Tim?

Thank you, Bob. Thanks, everyone, for joining the call today for our third quarter of 2020 business update. I'd like to begin by reiterating how very proud I am of the INSPIRE team and how hard they have worked through all the challenges experienced thus far in 2020. These efforts resulted in an extremely strong third quarter with momentum in our business that we expect to continue through the end of the year and into 2021. In the third quarter of 2020, we generated worldwide revenue of $35.8 million, which is an increase of 72 percent compared to the third quarter of 2019. Our strong rebound in the third quarter included patients previously scheduled for implants but delayed due to COVID, and this, combined with the continued enhancements of the core fundamentals of our business, drove the high level of procedures that was sustained throughout the quarter, and we do not foresee any pause in our momentum. Importantly, our INSPIRE team, the hospitals, and all healthcare providers have continued to adapt and identify safe methods to continue to operate and treat patients in need. Simply stated, the patient flow, diagnostic, and implant activity has rebounded and is back to pre-COVID levels and beyond. That said, business conditions during COVID are always evolving and we continue to monitor the impact of the pandemic, especially with the most recent spikes. However, to date, we have not seen suspension of cases. With this in mind and assuming continued normalized operations, our strong performance in the third quarter and the positive trends in implant activity provide us with confidence in the outlook for our business for the remainder of the year. Therefore, we are increasing our full-year 2020 revenue guidance to between $110 and $112 million, which is an increase from our prior guidance of $88 to $92 million following our second quarter results. These impressive results and our confidence for the remainder of 2020 are indicative of a multitude of factors primarily focused on our forward planning and preparation during the pandemic period. We previously discussed the four groups of patients, including those who are unable to undergo their inspired procedure during the pandemic. Each of these patient groups is critical to our success, but beyond this, It is the continued development of our core business that truly drives our business forward. Let's get into the details surrounding the third quarter. First and foremost, our focus remains on the patients to ensure that each and every one has the best possible outcome from Inspire Therapy. We know that all patients are different, and individual attention is required to ensure consistency, and our safe and efficacious outcomes remain at the highest level. Later, we'll provide an update on the development of our digital technology, which will be a productive tool to help clinicians track patients and their outcomes and further drive consistent patient care globally. Beginning with capacity. During the third quarter, we added 42 new U.S. implanting centers and ended the period with a total of 370. This is well above our prior guidance of adding 20 to 24 new centers per quarter. Since we were not able to schedule implant procedures earlier in the year, we had several sites that planned to open in the second quarter and these carried over into the third quarter. Driven by the more favorable reimbursement environment, we have increased our focus on adding ambulatory surgical centers or ASCs to further drive capacity. To date, we have signed two national contracts with United Surgical Partners International and Surgical Care Affiliates, which collectively represent over 620 ASCs in the U.S. We understand that we will certainly not open all of these, but working with the corporate groups, we can identify which ASCs focus on ENT procedures. At the end of the third quarter, ASCs made up nearly 15% of our total US in-planning centers, up from 10% at the end of the second quarter. We will continue our efforts toward adding standalone ASCs, other national ASC groups, as well as not losing our focus on opening hospital systems. With that said, we are accelerating the opening of new centers and are increasing our guidance to open 28 to 30 new centers in the fourth quarter compared to our prior guidance of adding 20 to 24 new centers. Regarding the U.S. sales team, we created seven new sales territories in the third quarter, bringing our total to 98. As a reminder, we did not slow our cadence of hiring territory managers during the shutdown period, to ensure that we are in a strong position once cases were able to resume. You will recall that we opened nine territories in the second quarter. We have also continued increasing the number of regional managers, ending the third quarter with 18, as well as field clinical representatives, ending the third quarter with 36. From a territory manager perspective, we will continue to target opening six to seven new sales territories in the fourth quarter. This cadence in new centers and territories will continue to have positive impact on our long-term growth. As we review some of the key initiatives from the third quarter, what remains most critical for us is to stay active in educating new patients. Creating this awareness is a core objective of our direct-to-consumer activities. You will recall that during the latter half of the second quarter, we resumed radio and TV initiatives in our larger markets as the impact of COVID lessened after focusing on smaller markets earlier in the year. We also continue to utilize our website and virtual tools to help patients connect with physicians and, in many cases, using telemedicine. During the first nine months of 2020, the number of visitors to our website was over 3.6 million, which is a 15% increase year-over-year. In addition, over 43,000 physician contacts were established via the website, representing a robust 39% increase year-over-year. Moreover, in order to increase the percentage of patients reaching out to health care providers resulting in an Inspire implant, we continue to expand our call center concept called the Inspire Advisor Care Program. The primary purpose of the Advisor Care Program is to assist patients