Inspire Medical Systems, Inc.

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 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. I'll now hand the call over to your first speaker, Eski Yaja, 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, President and Chief Executive Officer, and Rick Buhols, Chief Financial Officer. Earlier today, we released financial results for the three and six months ended June 30th, 2023. 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 2023 financial and operational outlook, and changes 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. Please see our filings with the Securities and Exchange Commission, including our Form 10-Q, which was filed with the SEC earlier this afternoon, 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, August 1st, 2023. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?

Thank you, Ezgi. And thanks, everyone, for joining our business update call for the second quarter of 2023. As always, we start with our commitment to patient outcomes and to ensure that each patient has the best possible experience with Inspired Therapy. As of the end of the second quarter, Over 46,000 patients have been treated with Inspire Therapy. Over the past week, we shared some exciting announcements with the additions of Carlton Weatherby as our Chief Strategy Officer and Dr. Cherise Sparks as our Chief Medical Officer. As we continue to expand our business, we need strong leadership to guide the team with our focus on increasing the adoption of Inspire Therapy in the obstructive sleep apnea market. OSA is a large and under-penetrated market, and we see many years of sustained, healthy, organic growth ahead of us. Carlton joins us from Medtronic, where he was general manager of the spinal division. He brings a wealth of talent and experience that will be invaluable as we continue to scale our business. Dr. Sparks is a board-certified physician with extensive business and leadership experience, including direct experience with Inspire as a board director. She will lead Inspire's clinical program, provide executive oversight to ensure high-quality patient outcomes, and serve as a liaison for the ENT and sleep physician communities. In connection with her appointment, Dr. Sparks will transition from her current role on the INSPIRE Board of Directors. We look forward to Carlton and Cherise's contributions toward our mission of serving the many patients with untreated OSA. With that, let's review our results. In the second quarter, we generated revenue of $151.1 million, representing a 65% increase compared to the second quarter of 2022. Our growth continues to be driven by higher utilization at existing centers and is complemented by the activation of new centers. Given the strong momentum we are seeing in our business, we now expect full revenue to be in the range of $600 to $610 million, a 47 to 50% increase compared to 2022. In the second quarter, we continue to increase our capacity to support the strong demand for inspired therapy by adding 72 new implanting centers in the U.S., ending the quarter with a total of 1,045 centers. For the remainder of 2023, we continue to expect to activate 52 to 56 centers per quarter. Regarding the U.S. sales team, We created 19 new sales territories in the second quarter, bringing our total to 261. We continue to expect to add 12 to 14 US sales territories per quarter for the remainder of 2023. In the second quarter, the number of visitors to our website surpassed 2.9 million. From these visits, we had over 12,000 physician contacts And even with the typical summer slowdown in context, we steadfastly improved our conversion of patients receiving therapy. We continue to make numerous changes to our website to enhance how patients engage with our advisor care program. And we have a new website designed in the works for later this year. Further, we are continuing to increase the use of digital scheduling for INSPIRE consultations through our ACP. We previously mentioned one of the limiting factors to the adoption of INSPIRE therapy is the capacity of ENT surgeons performing the procedure. To this end, we are focusing on providing robust training programs to new physicians and reducing the time required to qualify and support patients through the entire INSPIRE journey. that both of these focus areas will provide implanting surgeons with additional time to perform inspired procedures. One example to improve the patient experience and reduce the time burden of the surgeons is our ongoing predictor study, which is designed to replace a drug-induced sleep endoscopy, or DICE, with an office-based airway exam. We have completed the data quality checks from the first 300 patients and are actively enrolling the second group of 300 patients with a higher BMI. We will be moving towards preparing a publication from the first data set and expect that these results will be presented in the fall. Another example relates to the growing adoption of the SleepSync patient management system. SleepSync is designed to streamline the patient journey from initial contact through diagnosis, system implant, and post-procedural longitudinal patient management. The utility of this platform continues to improve, as is highlighted by the recent launch of the Inspire Bluetooth-enabled patient remote, which is the link between the patient's device and SleepSync. The next step is our new physician programmer called the Sleep Sync Programmer, which was approved by FDA in the second quarter and will formally launch in the U.S. in early 2024. The Sleep Sync Programmer allows physicians and their staff to log in from their own computer to access the programming screens and view all patient activity stored in the Sleep Sync system. Once launched, This technology will remove the necessity for INSPIRE to provide tablets as part of the physician programming system and will pave the way for future remote patient programming. Staying with product development, the INSPIRE 5 team is excited to announce the submission of our PMA supplement to the FDA. Subject to the FDA's review process, We expect approval in early 2024. Recall, Inspire 5 incorporates the sensor inside the neurostimulator using an accelerometer to measure respiration and will eliminate the need for the pressure sensing lead. Further, Inspire 5 is a platform device which will enable firmware upgrades transitioning to Inspire 6 and beyond whereby further product enhancements such as autoactivation will be introduced. From a research clinical and regulatory viewpoint, in the second quarter, we received FDA approval to expand our indication to include patients with an AHI up to 100 events per hour, up from 65, and raise the BMI warning in the labeling from 32 to 40. Furthermore, We are happy to announce that the adhere registry has met its target of 5,000 patients. And moving forward, patients will be enrolled into the adhere 2.0 registry, which will be integrated into the sleep sync system and included as part of a broader software release later this year. A quick comment on reimbursement. as the new proposed OPPS rules were recently published and showed an increase to the national Medicare payment to hospitals of about $1,000 to $30,355 and an increase for ASCs of about $300 to $25,470. We also highlight the significant increase in the reimbursement of the DICE procedure, which increased from $180 to $1,639 for the Medicare facility payment. We do see a slight reduction in the physician payment proposed, but this is tied to the overall RVU rate, which typically rebounds by the final November rules. ASCs continue to make up about 23% of our total number of centers, but longer term, we continue to see the Inspired Therapy migrate more to the ASC setting, but this is challenged by the varying Medicare reimbursement rates in different states. We also have seen a stronger rebound in Medicare cases over the last two quarters, and with the Medicare reimbursement rates lower, especially in the south, This is limiting Medicare cases to the hospital outpatient setting. While we are able to obtain sufficient OR time in hospitals, our long-term programs will focus on ASC reimbursement and education for ASCs as we see this as an efficient site of service for the INSPIRE procedure. Finally, while we are very happy with the strong Medicare rebound, We expect that the balance will shift more heavily towards commercial cases as we progress through the year. Switching over to our international business, the European team achieved a very successful second quarter, growing 81% over the prior year. This robust growth was driven by a strong performance in Germany and supported by the Netherlands and Switzerland. We are very excited about the strength we are seeing in Belgium, which finalized countrywide reimbursement earlier this year, and look forward to building momentum in the quarters ahead. We are also excited about our new country manager in France, and we continue to prepare for a full market launch there pending the final reimbursement announcement expected later this year. We have made progress with reimbursement in the United Kingdom and expect additional patients receiving Inspire Therapy in this region. In Asia, we are seeing great momentum in Singapore with procedures showing significant growth both sequentially and year over year. In Japan, we continue to advance our efforts of going direct by hiring and training additional team members have completed the Japanese website and are seeing increased activity with physicians and active centers. Regarding operations, we continue to make progress with the production ramp of the silicone-based stimulation and sensing leads. We remain in a challenged position with the sensor manufacturing yields. However, we have incorporated a recent manufacturing change and expect to grow inventory as we move through the quarter. We remain in a positive inventory position with short-term plans in place to grow to our goal of one quarter of safety stock by year-end. We feel good about our inventory position in our other products. In summary, we continue to see significant momentum in our business. We remain focused on patient outcomes and physician education to continue the adoption of our therapy. We will continue to increase utilization at our existing centers while adding capacity by opening new centers. We remain extremely excited about our future prospects and are confident that we have the appropriate strategy in place to drive long-term stakeholder value. With that, I'd like to turn the call over to Rick for his review of our financials.