Inspire Medical Systems, Inc.

Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Q4 and full year 2021 conference call. All lines have been placed on mute to prevent 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 12 months ended December 31, 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 2022 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 annual report on Form 10-K, which we anticipate filing with the SEC within the next couple of weeks, 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, February 8th, 2022. 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 fourth quarter and full year 2021 business update. I'm pleased to report today that the Inspire team once again delivered extremely strong results in the fourth quarter, as we continue to focus on commercial execution and leveraging the increased number of hospitals and ambulatory surgical centers offering Inspire Therapy. This increased capacity continued to provide important flexibility during the quarter due to the regional challenges driven by the COVID resurgence. In addition, our improved process of connecting patients with healthcare providers through our advisor care program is consistently increasing the number of patient appointments for Inspire Therapy. In the fourth quarter, revenue was again very strong, as we generated worldwide revenue of $78.4 million, which was an increase of 70% compared to the fourth quarter of 2020. For the full year, we generated worldwide revenue of $233.4 million, which was an increase of 102% compared to 2020. The outbreak from the Omicron variant had a moderate impact on our business late in the fourth quarter. Importantly, as was the case with the Delta variant in the third quarter, because our centers are geographically distributed across the country and not overly concentrated in any one particular area, The impact on our business was localized and therefore minimized. Another important factor in managing COVID in these areas was our ability to work with implanting centers to shift some procedures to regional hospitals and ASCs, which were less affected by COVID and staffing issues. We are proud of our field teams and the healthcare providers' grit and resiliency and keeping INSPIRE cases moving and thereby ensuring patients were able to receive their therapy. As INSPIRE is an outpatient procedure in the United States, it does not impact the availability of hospital beds, therefore allowing centers to continue to perform INSPIRE cases. In Europe, and specifically in Germany, we experienced a more pronounced impact as INSPIRE procedures in Germany do require and overnight hospital stay. As we entered the first quarter of 2022, Omicron is having a more meaningful impact on our business as compared to late in 2021. The Omicron variant has led to staffing shortages in hospitals and ASCs, has impacted Inspire employees, including territory managers and field clinical representatives, and has resulted in numerous rescheduled procedures due to patients testing positive for COVID on the day of their procedure. These factors, along with our normal Q1 seasonality due to high deductible insurance plans resetting at year end, has affected procedure volume during the early part of the first quarter. As you will recall, we had a similar COVID surge in January of 2021, and as we moved into February, we were able to increase the number of scheduled cases and get back to a normal procedure flow. We expect the same phenomenon this year as we work through the seasonality and the Omicron surge. Despite these challenges and in light of the currently forecasted decline in COVID cases, we are confident in the outlook for our business in 2022 based on our progress to date. As such, we are providing full-year 2022 revenue guidance in the range of $318 million to $326 million, which represents an increase of 36 to 40% over full-year 2021 revenue. Rick will provide additional details of our financials in a few minutes. Before discussing the specifics of our business, I reiterate our primary focus remains on the patients to ensure that each and every one has the best possible outcome from Inspire Therapy. I am pleased to report that we have now surpassed 20,000 patients treated with Inspire Therapy, a significant milestone for our company. We will discuss U.S. operations shortly. But I want to begin by highlighting some important recent international achievements. First, we are very happy to announce that the first INSPIRE procedure was performed at Tokyo University in Japan last week. Clearly, this first implant is a significant milestone, but it is just the beginning as our teams are training several additional centers as we prepare for the full commercial launch in Japan. Our products in Japan are commercially available through our exclusive distribution arrangement with Japan Lifeline. And along with the physicians, JLL has worked closely with the INSPIRE team to accomplish this key milestone as well as prepare for broader therapy adoption in Japan. Following this same approach and taking this regional expansion a step further, We have entered into agreements with distribution partners in Singapore and Hong Kong, and we are planning for the first implants in these new territories in 2022. In Europe, we are also very happy to report that the first two INSPIRE procedures in the United Kingdom were completed last week. This again required the team's focus to work through the reimbursement in the UK, as well as the new regulatory environment. the core European business had a solid fourth quarter, but as mentioned, procedures in Germany were impacted by the Omicron surge. As with the US, we expect procedure volumes in our European markets to return to normal levels as we move through the first quarter. In the US, the growth was driven by both increases in capacity as well as a very strong patient demand resulting from from our direct-to-consumer programs, beginning with capacity. In the fourth quarter, we added 81 new U.S. implanting centers, ending the year with a total of 684. We continue to experience growing demand for new centers with physicians seeking to add Inspire Therapy to their practices. Specifically to the fourth quarter, we opened several sites which helped to alleviate the pressures from the Omicron surge. These sites will remain active as many are ASCs and provide additional capacity going forward. In fact, at the end of 2021, ASCs made up 22% of all US centers compared to 16% at the end of 2020. We will continue to stay focused on opening new centers and therefore maintain our guidance of 52 to 56 new centers per quarter in 2022. As we did back in the second quarter of 2020, during the beginning of COVID, we are conducting a deep dive into all centers and we'll be focusing the team on the active centers. As such, over the course of the second quarter, we expect to deactivate between 25 and 30 centers or less than 5%. Ultimately, our decisions to maintain centers is based on our assessment of their ability to deliver consistent, high-quality outcomes for patients receiving inspired therapy. We will routinely monitor and ensure the field team is focused on accounts that can provide the greatest benefits to the patients moving forward. Regarding the US sales team, We created 16 new sales territories in the fourth quarter, bringing our total to 157. And we expect to maintain the strong pace during 2022. Consistent with our prior guidance, we anticipate adding 11 to 12 new territories per quarter this year. We also increased the number of field clinical representatives by adding eight, ending the year with 79. We remain dedicated to scaling our sales management and training teams to optimize our ongoing expansion and to focus on strong patient outcomes and center productivity. We ended the year with eight area vice presidents, and each will have an area business manager whose primary purpose is to recruit and open new centers. Conversely, the focus of the territory managers is to cultivate existing centers to increase utilization. Together, this provides a balanced approach to therapy adoption growth and a strong foundation moving forward. In 2021, approximately 60% of our growth was the result of increased procedures at existing centers and approximately 40% was from newly added centers. We are careful when comparing these two factors, especially given the varying impact that COVID has had on procedure volumes over the past two years, especially in 2020. We will maintain focus on both areas and expect that increased utilization at existing centers will remain a slightly larger contributor to our growth as compared to training and opening new centers. As part of growing center utilization, we remain focused on improving our ability to assist interested patients with making a connection with a qualified healthcare provider. Importantly, our outreach programs continue to be very effective in generating interest in Inspire Therapy, primarily through the InspireSleep.com website. For the full year 2021, the number of visitors to our website was approximately 7.3 million. an increase of 52% year-over-year. From these visits, we had approximately 95,000 physician contacts, representing a significant 53% year-over-year increase. There are two contributing elements to these physician contacts. One is through community health talks, and the second is through our ACP. After tracking these for some time, we characterized the community health tox is more educational while most appointments originate from the ACP. Therefore, we are now only reporting on the physician contacts through the ACP as this provides greater accuracy when we are reviewing appointments and therapy conversion rates. We ended 2021 with over 550 centers or 80% of the centers on the advisor care program, up from just 180 the previous year. The second version of our ACP was launched in the third quarter with a more experienced vendor. We are extremely pleased with the program and intend to continue expanding our ACP throughout 2021 and include many technology advancements to improve our ability to help patients make appointments as well as to help them through the overall process. To summarize, our direct-to-consumer initiatives in 2021 significantly contributed to the approximately 9,000 inspired procedures last year. We intend to continue investing in direct-to-consumer activities throughout 2022 and beyond. as we now have geographic coverage across the United States. In January, we made a switch to buy national TV advertising, whereas previously purchased within local markets. National buys are significantly more cost-effective and provides greater exposure. In early January, these national ads led to several of the highest single day number of hits to our website ever. Our focus in 2022 will be on improving our conversion rate. This will be accomplished by improving patient education on our website and improving physician contacts to patient appointments and finally on to INSPIRE procedures. Transitioning to reimbursement and coding. As of January 1st, the new CPT codes for INSPIRE were in place and effective and the final physician, hospital, and ASC payments have been published. The 2022 national average Medicare payment to the hospital is $30,063 and $24,828 to the ASCs. The physician's professional services are reimbursed separately. and the national average Medicare physician fee for the implant is $888. Finally, the national average Medicare reimbursement to perform the drug-induced sleep endoscopy is approximately $115, which is the first time physicians have been compensated for this diagnostic procedure. As a general rule, commercial reimbursement is about 1.4 times Medicare rates. switching gears to R&D. 100% of INSPIRE procedures that occurred in Q4 made use of the two-incision surgical technique. The use of this technique resulted in both a benefit to the patient as there is one less incision and a significant benefit to the physicians as it reduces surgical time to approximately 90 minutes from the previous average of 120 minutes. On the product development side, we are very excited to announce that the FDA has approved our new Bluetooth-enabled patient remote. This new version allows information from the implanted neural stimulator and the patient remote to be uploaded to the Inspire Cloud via a patient's smartphone, making it easier for physicians to monitor Inspire patients. We are conducting a soft launch of the new remote in the first half of this year to provide a full system-level test of the patient remote and InspireCloud interface. We are planning for a full product introduction at the American Academy of Sleep Medicine meeting in June of this year. The InspireCloud patient management system continues to expand as we add centers in the U.S. and in Europe, and InspireCloud will become an important tool for physicians to monitor patient experience and outcomes. This tool will further expand capacity as physicians can more efficiently manage a greater number of patients. The next step for our digital program is to upgrade our physician programmer. This project is ongoing and we expect to submit for FDA review later this year. The project will allow the programmer to also connect with InspireCloud, which is key to the end goal of providing remote patient programming, which we are targeting for 2023. Moving on, during the fourth quarter, we formally submitted to the FDA our request for full-body MRI compatibility. The FDA has been involved during the extensive MRI evaluation process, and we expect approval within the 180-day review window. This approval will not require any changes to the existing INSPIRE system. Longer term, the design work for our fifth generation INSPIRE Neural Stimulator continues to progress. This fifth generation device will eliminate the pressure sensor and incorporate sensing inside the Neural Stimulator using an accelerometer to measure respiration. We are targeting FDA approval in late 2023. The Inspire 5 device will utilize the existing form factor and will maintain the average 11-year battery life without the need for recharging. Collectively, these technology enhancements will further strengthen patient outcomes as well as improve patient and physician experience with Inspire Therapy. In summary, we continue to experience significant momentum in all key aspects of our business, and our determined 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 our confidence in the continued growth of INSPIRE. To reiterate, our core focus for 2022 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 increases in utilization and capacity is a continued expansion of our call center. While the most recent surge in COVID cases driven by Omicron will have a short near-term impact on our business, 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.