Inspire Medical Systems, Inc.

Good afternoon. My name is Peter and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Q3 2021 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you. Megan Rohkamp, Director of Financial Reporting at Inspire. You may begin the conference.

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, we released financial results for the three and nine months ended September 30, 2021. 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, continued effects of the COVID-19 pandemic, full year 2021 financial and operational outlook, and improvements in market access are based upon our 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. November 2, 2021. And with that, it is my pleasure to turn the call over to Tim Herbert.

Tim? Thank you, Megan. And thanks, everyone, for joining the call today for our third quarter 2021 business update. I am pleased to report today that the Inspire team once again delivered extremely strong results in the third quarter. As we continue to focus on commercial execution and leveraging the increased number of hospitals and ASCs offering Inspire Therapy, This increased capacity provided additional flexibility during the quarter, especially with the regional challenges of the COVID resurgence. In addition, our improved process of connecting patients with healthcare providers, including through our advisor care program, has steadfastly increased the number of patient consultations regarding Inspired Therapy. First, revenue results were very strong. In the third quarter, we generated worldwide revenue of $61.7 million, which was an increase of 72% compared to the third quarter of 2020. This growth was driven by several factors, including the increased patient demand for inspired therapy, our ability to improve patients' access to care with our advisor care program, the increased capacity and performance at new and existing centers, the positive reimbursement environment for inspired therapy, and finally, the significant impact the pandemic had on procedures in 2020. Due to the continued spread of the Delta variant during the third quarter, we experienced an impact on our business in many regions across the U.S. However, Since our centers are geographically distributed across the country and not overly concentrated in any one particular area, the impact was localized and therefore minimized. In addition, the rise in COVID cases moved through the impacted areas relatively quickly, with normalized procedure volumes resuming in a relatively short order. Another important factor minimizing COVID-related impacts in these areas was our ability to work within planning centers to schedule procedures at new centers and shift some procedures to regional hospitals and ASCs less affected by the resurgence. Additionally, INSPIRE is not considered an elective procedure in many hospitals. That fact coupled with the consideration that INSPIRE is an outpatient procedure provided additional flexibility for implanting centers to continue to perform INSPIRE cases. With this progress, we continue to have confidence in the outlook for our business during the remainder of 2021. As such, we are increasing our full year 2021 revenue guidance to a range of $219 to $221 million from our previous guidance of $210 to $213 million. This guidance represents an increase of 90 to 92% over full year 2020 revenue. As always, I would like to reiterate that our primary focus remains on the patients to ensure that each and every one has the best possible outcome from Inspire Therapy. Our ongoing research and clinical programs are tracking patients' progress and experience with Inspire Therapy. As an example is the Adhere Registry, which has planned to enroll 5,000 patients. Currently, we have over 3,400 patients enrolled. And during the third quarter, the investigators published the results of the first 1,800 patients and reported clinically relevant reductions in AHI and quality of life measures. as well as a patient satisfaction score exceeding 90%. We remain committed to the ongoing research to further improve patient outcomes. With that, let's now get into the details surrounding the third quarter, beginning with capacity. During the quarter, we added 68 new U.S. implanting centers, extending the period with a total of 603. This is well above our prior guidance of adding 48 to 52 new centers. We continue to experience a growing demand for new centers as well as physicians seeking to add Inspire Therapy to their practices. With this continued strong demand, we are increasing our guidance and now expect to open 52 to 56 new centers during the fourth quarter of the year. This increase in new centers includes a growing number of ASCs, which offer a more efficient care setting and now make up 20% of our total U.S. centers. We will continue to add both hospitals and ASCs going forward and expect to see a growing percentage of inspired procedures being performed in the ASCs. Regarding the U.S. sales team, we created 11 new sales territories in the third quarter, bringing our total to 141. and we expect to maintain this strong pace during the fourth quarter. Therefore, we are increasing our guidance and now expect to add 11 to 12 new territories in the fourth quarter. We also increased the number of field clinical representatives by adding 10, ending the third quarter with 71. Further, we remain dedicated to scaling our sales management and training teams to optimize our ongoing expansion and focus on the strong patient outcomes and center productivity. As such, during the third quarter, we expanded the number of area vice presidents from four to seven and created two zone senior vice presidents, new positions that oversee the area vice presidents. We are proud that all of these positions were filled with promotions from inside the organization. This is our ongoing planned cadence to scale the U.S. business in a controlled manner to grow the adoption of Inspire Therapy while maintaining quality and, again, strong patient outcomes. Regarding productivity, as expected, growth between new and existing centers has shifted such that a higher percentage of the growth is attributed to existing centers, And more specifically, through the first nine months of 2021, approximately 70% of our growth was the result of increased procedures at existing centers, and approximately 30% has run from newly added centers. Again, we need to be careful with these percentages due to the significant impact the pandemic had on procedures in 2020. We believe that our growth will be more balanced moving forward. as part of growing center utilization, we need to continually improve our ability to assist interested patients with making a connection with a qualified healthcare provider. To start, the outreach programs continue to be very effective in generating interest in Inspire Therapy, primarily through the InspireSleep.com website. We have recently changed the Inspire site to provide more educational content to ensure patients have a good understanding of Inspire Therapy, as well as the process of working with their healthcare provider to discuss and be prescribed Inspire Therapy. For the first nine months of 2021, the number of visitors to our website was approximately 5.3 million, an increase of 45% year over year. From these visits, we had approximately 72,000 physician contacts, representing a significant 69% year-over-year increase. Now there are two contributing elements to these physician contacts. One is through Community Health Talks, and the second is through our Advisor Care Program. After tracking these for some time, we characterized the Community Health Talks as more educational, and most appointments originate from the Advisor Care Program. As such, moving forward, We will report on the physician contacts only through the advisor care program as this provides greater accuracy when we're looking at appointments and therapy conversion rates. We will certainly continue to support community health talks as this provides the physicians the opportunity to speak with several potential patients in a live group session or via Zoom meeting to answer questions that they may have about Inspire Therapy. Focusing on the performance of our advisor care program, we ended 2020 with approximately 180 of our centers using the ACP. And today, we have over 450 centers on the ACP. Through the first nine months of 2021, this equates to approximately 13,500 contacts generated through the advisor care program alone. As we noted on our last call, we launched the second version of our ACP in the third quarter with a new, larger, and more experienced vendor with a major call center in San Antonio, Texas. This vendor provides improved scalability, patient community, communication, and data tracking. Most newly activated centers start immediately on the ACP while existing centers are added through a phased approach. Let's transition to reimbursement and coding. The new dedicated Category 1 code for Inspire Therapy now has received its number designation, and that is 64582. This code is for closed-loop stimulation and covers all elements of the Inspire procedure, and as a result, we believe will ensure reliable coverage and payment. Moreover, Because this code is for closed-loop stimulation, it does not describe the therapies of all potential competitors. The new code will formally take effect on January 1, 2022. As a fresh update, CMS just released the commentary regarding the final OPPS rules. In fact, the data files have not yet been uploaded but will be shortly. Just as a backdrop, the new Inspire Category 1 code, 64582, was approved to replace the original Category 1 CPT code, 64568. Back in July, CMS proposed a lower ASC payment for the new code, but after reviewing the process, we realized they did not make the connection between the two Category 1 codes. As such, the Inspire team met with the CMS review panel following release of these proposed rules, and the panel voted unanimously to recommend recalculating the new ASC payment using the data available on the prior year's INSPIRE implants. From the commentary issued this afternoon, CMS has confirmed that they are accepting the panel recommendation and will await for the final reimbursement calculation. This commentary includes the removal of the multiple procedure discount which should not have been checked with the original proposal. Further, regarding hospital payments, the new CPT code continues to map to the same Level 5 Neural Ambulatory Procedure Code, or APC. CMS proposed the 2022 payment for this APC to increase by 3% for national average Medicare payment of just over $30,000. Finally, a new Category 1 code was also approved for the drug-induced sleep endoscopy procedure. The proposed reimbursement for a DICE procedure increased the physician payment from $68 in 2021 to $114 in 2022, a 67% increase. Moving on, Europe also had a strong quota driven by increased procedure volumes particularly in Germany and the Netherlands. Following changes in the reimbursement policy in the Netherlands, we have started training new implanting centers in that country. We expect growth of Inspire to continue in Europe, especially as there has been very limited impact from COVID in recent months. In Asia, we are happy to report the first products have been shipped to Japan in support of the initial implants, which are still planned for later this year. Entry into Japan remains very restricted based on COVID, but we are working with the authorities to have our leading therapy trainer enter into the country to support the initial cases and to reside in Tokyo for the ongoing launch of Inspire Therapy. Our partner, Japan Lifeline, has identified several additional centers which will be trained and become operational in 2022. Switching gears to R&D. The adoption of the two-incision implant procedure, which was approved earlier this year, is essentially complete, as 99% of the INSPIRE procedures are being performed using the two-incision procedure. On the product development side, The team has completed the testing, and this week we formally submitted to the FDA our request for full-body MRI compatibility. The FDA was involved during the extensive MRI evaluation process, and we expect approval within the 180-day review window. The next priority is FDA approval of the new patient remote, which we are targeting for later this year. This new device incorporates Bluetooth technology and allows information from the implanted neural stimulator and the patient remote to be uploaded to the INSPIRE Cloud via patient's smartphone. INSPIRE Cloud is our cloud-based patient management system and we continue to expand the number of centers in the U.S. and in Europe who are using this tool. The new patient remote significantly adds utility to INSPIRE Cloud and we will be conducting a limited launch in the first quarter of 2022 to fully test the interconnectivity and collect feedback from the patients and physicians. We plan full launch of the new patient remote in the second quarter. The next step of our overall digital program is to upgrade our physician programmer, and this project is already in process. This project will allow the programmer to also connect with Inspire Cloud, which is key to the end goal of providing remote patient programming, which we are targeting for 2023. Longer term, the design work for our fifth generation Inspire Neural Stimulator continues to progress. Once approved, we expect Inspire 5 to be commercially available in late 2023. The Inspire 5 device will utilize the existing form factor with plans to maintain the average 11-year battery life without the need for recharging. The Inspire 5 neurostimulator will provide several enhancements and most notably will eliminate the pressure sensing lead. All sensing will be inside the neurostimulator using an accelerometer to measure respiration. Collectively, these technology enhancements will only further strengthen patient outcomes as well as improve patient and physician experience with Inspire Therapy. Finally, I'd like to highlight the recent launch of our first-ever Patient Experience Report, an initiative that provides greater visibility and transparency into clinically reported outcomes and device-related treatment benefits with Inspire Therapy. This Patient Experience Report is available on our website. In summary, We continue to experience significant momentum in all key aspects of our business and our aggressive approach to operating in a COVID environment has resulted in continued growth in the adoption of Inspire Therapy. Our focus on patient outcomes and our unique ability to reach and educate potential patients provides us confidence in the continued growth of Inspire. To reiterate, our core focus for 2021 is to increase utilization at our existing centers as well as to increase capacity by opening and training new centers. An important aspect of the anticipated increase in utilization and capacity is the continued expansion of our advisor care program. We remain extremely excited about our future prospects and are confident that we have the appropriate strategy in place to drive long-term shareholder value. With that, I'd like to turn the call over to Rick for his review of our financials.