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Operator: Good afternoon. My name is Dilem [ph], and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Second Quarter 2023 Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I’ll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.

Ezgi Yagci: Thank you, Deane, 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, we released financial results for the three and six months ended June 30, 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 01, 2023. With that, it is my pleasure to turn the call over to Tim Herbert.

Tim?

Tim Herbert: 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 Inspire 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. Charisse Sparks as our Chief Medical Officer. As we continue to expand our business, we need strong leadership to guide the tea., 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 Charisse’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 million 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 Inspire 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 centers 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 U.S. 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 contacts, 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. We believe that both of these focus areas will provide implanting surgeons with additional time to perform Inspire 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 DISE, 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 toward 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 SleepSync Programmer, which was approved by FDA in the second quarter and will formally launch in the U.S. in early 2024.

The SleepSync Programmer allows physicians and their staff to log in from their own computer to access the programming screen and view all patient activities stored in the SleepSync 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 auto-activation 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 BMI 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 ADHEAR registry has met its target of 5,000 patients and moving forward, patients will be enrolled into the ADHEAR 2.0 registry, which will be integrated into the SleepSync 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 [ph] 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. Today, 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 Inspired 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. Finally, 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.

Rick Buchholz: Thank you, Tim, and good afternoon, everyone. Total revenue for the second quarter was $151.1 million, a 65% increase from the $91.4 million generated in the second quarter of 2022. U.S. revenue in the second quarter was $144.7 million, an increase of 65% from the $87.9 million in the prior year period. The primary growth driver in the U.S. was higher utilization at existing centers. Other growth drivers include the addition of new implanting centers, our continuing direct-to-consumer marketing, and a higher number of territory managers. We are pleased to announce revenue outside the U.S. increased to $6.3 million, which is an 81% increase year-over-year on a reported basis, while units sold outside the U.S. grew 72%.

The U.S. average selling price in the second quarter was $25,000, compared to $24,100 in the prior year period. The increase reflects our 5% price uplift that began in May of 2022. We expect the U.S. ASP to remain steady at the current level. The ASP outside the U.S. was $22,100 during the quarter, compared to $21,000 in the second quarter of 2022. Gross margin in the second quarter was 83.9%, compared to 84.5% in the prior year period, primarily due to additional manufacturing costs of sensors and lower yields, prior to process enhancements, as well as higher costs of certain component parts, partially offset by the price increase, which is now fully in effect. Total operating expenses for the second quarter were $143.4 million, an increase of 57%, as compared to $91.2 million in the second quarter of 2022.

This planned increase was due to the expansion of our sales organization, increased direct-to-consumer marketing programs, continued product development efforts, and general corporate costs. The increase in operating expenses is reflective of our ongoing plan to drive continued long-term growth and to make investments in key areas of our business. Interest and dividend income totaled $4.9 million in the second quarter, compared to $297,000 in the prior year period. This higher income was driven by higher interest rates on our increased cash balances compared to a year ago. Net loss for the second quarter was $12 million, compared to $14.5 million net loss in the prior year period. The net loss per share was $0.41 compared to $0.53 in the second quarter of 2022.

The net loss for the second quarter includes $3 million of R&D expenses associated with pre-launch inventory related to Inspire 5 that is expensed for accounting purposes. The weighted average number of shares outstanding for the second quarter was $29.2 million. We expect the third quarter weighted average shares outstanding to be approximately $29.4 million. Given our continued operating leverage improvement, our cash and investments increased to $467 million at June 30, from $452 million at March 31. This strong cash position allows us to remain focused on executing our growth strategy of increasing procedure volumes at existing centers while training and opening new implanting centers. Moving on to updated 2023 guidance, given the strong momentum we are seeing in our business, we now expect full year revenue to be in the range of $600 million to $610 million, an increase from our previous guidance of $580 million to $590 million.

This updated revenue guidance represents 47% to 50% growth compared to full year 2022 revenue. Similar to prior years, as we progress through the second half of the year, we generally see increased seasonality in the fourth quarter as patients and physicians attempt to schedule Inspire procedures before high deductible health plans reset at the beginning of the year. We continue to expect full year gross margin to be in the range of 83% to 85%. As Tim noted, we expect to activate 52 to 56 new U.S. centers per quarter and establish 12 to 14 new U.S. sales territories per quarter for the remainder of 2023. In conclusion, our strong performance and business momentum provide us with confidence in our outlook for the remainder of 2023. With that, our prepared remarks are concluded.

Dilem, you may now open the line for questions.

Operator: [Operator instructions] Your line is open, John.

John Block: Hey, guys, its John from Stiepel. I didn’t hear the beginning, but maybe I’ll go. Good afternoon, guys.

Tim Herbert: I didn’t hear the beginning either, John, but great to have you. How are you?

John Block: I figured, Tim, I’d just jump in. What the heck? I’m going to ask both up front. GLP-1, [ph] there’s certainly a lot of chatter or concern. So, Tim, maybe sort of big picture, how do you view this playing out for the companies, TAM?. And is the funnel, you know, altered materially to the upside or the downside, arguably, from your view? And then the second question, maybe more specific to the quarter P&L, I’ve been following you guys for a while, and international usually doesn’t get a lot of play, but that’s a big growth number. I know you’ve been working on the opportunity for some time. Was there anything specific to the second quarter, or is this arguably an inflection point for the OUS business that you see going forward? Thanks.

Tim Herbert: You bet, thank you. GLP-1 concerns. We’re happy with GLP-1. We think it’s complementary to Inspire. Again, it’s very specifically discussed that the Inspire mechanism of action is to move the tongue base forward. We don’t address lateral wall collapse that is associated with higher BMI patients. Let that sink in. We’ve talked about this before. When patients go on a GLP-1 drug and they lose weight, they tend to lose the weight in the neck circumference, which is addressed by lateral wall collapse, which is outside of our mechanism of action. Therefore, if we can get higher BMI patients to lose weight, it will relax their lateral walls, and there will be predominantly tongue base obstruction, which is highly effectively treated with Inspire by stimulation of the hypoglossal nerve.

So again, two different mechanisms of action being treated by GLP-1 and Inspire, and very complementary to each of them. We do have our own research project to address lateral wall collapse, but that’s a longer-term solution, but in the meantime, if we can see progress with the GLP-1 drugs helping patients lose weight and moving them towards the Inspire indication, it’s going to be highly beneficial. At this point, it’s a little early, so we haven’t seen a lot of movement out in the field. We don’t hear a lot of feedback from our physicians, but we welcome the opportunity to take care of the patients as they start to lose weight. International is exciting, and I think we’ve seen some great progress international. John, you’ve been following Inspire for quite some time, and what we’ve always said is we don’t make strong investments in a country until we’ve established a reimbursement pathway in that country.

And in the case of Germany, we’ve had great success there, and as we’re coming well after COVID, now we’re seeing a strong rebound. Germany’s had a very good quarter. The Netherlands overcame some reimbursement challenges and are opening up new centers, which provides growth there, but the exciting news is in Belgium. They completed the countrywide reimbursement. They will have a strong second half as they start to schedule their cases. And we already have the announcement on countrywide reimbursement in France, and we expect the new coding to come out relatively soon so we can do a full launch there. So a lot going on in the international markets. We really like what’s happening. The team is well organized. And then in the Asian markets, Singapore, as we said, is doing well.

And going direct in Japan is really starting to show good progress, and we look forward to reporting more activity there in the future. So thank you very much.

John Block: Thanks, Tim. Great call. Thank you.

Operator: And I show our next question comes from the line of Robbie Robbie Marcus from JPMorgan. Please go ahead.

Robbie Marcus: Oh, great. And congrats on a really nice quarter here. Maybe to start, you’ve recently had the label updated. You can treat more episodes per night more severe sleep apnea and the BMI raised to 40. Can you talk about what you’re seeing as an impact in the field and how much this can really increase your addressable market? And I guess you touched on it in the last with GLP-1s, but I imagine it probably helps a whole lot with the combination of the two going forward.

Tim Herbert: Absolutely. And thanks, Robbie. As far as the label updates go, also remember we recently received a pediatric approval for Down syndrome and that is going along well, and we’re opening up more children’s facilities. Most of those facilities are already tied in with existing Inspire centers. So we can take care of those kids. The label update for BMI is a pretty immediate introduction. because there’s just not a lot of options for those patients that have a higher apnea hypoptic index above 65 going up to 100. And so that really helps us get the approval with the insurance company. So that’s a pretty immediate return. We’re going to see a little bit increase in procedures right there. BMI, we’ve got to be a little bit careful about because just bringing in a BMI patient up to a BMI of 40 is a little dangerous.

because the probability of them having lateral wall collapse, which again, that presents as a complete concentric collapse when you do a Dice procedure and remember we treat tongue-based obstructions with the anterior-posterior, with the tongue moving forward. So with a higher BMI, we’re being very careful to not fill the appointment books of the ENT surgeons with high BMI patients who won’t qualify for Inspire anyways. Now, those are the patients that will be good patients to get on the GLP-1 drugs, if you will, to help them lose some weight, relax the lateral walls, and allow us to assess if our tongue-based collapse can be properly treated with Inspire. So to summarize, the BMI is going to be an indication of expansion. I think in the past we’ve talked about it being about a 10% increase over our published TAM.

BMI, we’re going to be careful about because our current system doesn’t treat lateral wall, but we now have the advantage of the GLP-1 to be able to address that market as well, albeit they need to lose the weight first, and we know that takes a little bit of time with the drugs.

Robbie Marcus: Great. And maybe one on spending. There was clearly, you called out, I think it was $3 million or so in Inspire 5 build-up in and inventory and R&D accounts for a lot of the step-up. But maybe just give us an update on how you’re thinking about balancing the great top-line growth versus margin leverage and views on profitability going forward. Thanks a lot.

Rick Buchholz: Yeah, hey, Rob, it’s Rick. So yeah, we understand profitability is important, and we continue to create leverage in our P&L, but our real focus is top-line growth and growing the adoption. So we do invest in a disciplined manner. We continue to do that. We’ve made investments in DTC, R&D, and all areas of our business, but we have been improving our leverage with our operating expenses. R&D is 20% of revenue. It was 20% of revenue in the first quarter. We’ve talked about we expect that to be in the high teens or so, but we’re making tremendous investments, as Tim talked about, in the prepared remarks. But actually, in the second quarter, given the current macro supply chain environment and our confidence in Inspire 5 approval in 2024, we are purchasing some Inspire 5 components now, but for accounting purposes, it must be recorded as a R&D expense.

I don’t mean to get into the fine details of that, but that accounted for 200 basis points of our R&D as a percentage of revenue. That being said, stock-based compensation is a big number. In the quarter, it was nearly $22 million, and so taking that out, we’ve generated cash. We’re cash positive by $15 million. So profitability will come. We haven’t changed our tone on that,. but we’re really focused on the long-term top-line growth.

Robbie Marcus: Great. Thanks for taking the questions.

Operator: Thank you. And I show our next question comes from the line of Danielle Entalfi [ph] from UBS. Please go ahead.

UnidentifiedAnalyst: Hey, good afternoon, everyone. Thanks so much for taking the question. Congrats on a really strong quarter. It’s great to see. I just wanted to ask a follow-up question on the Medicare, the shift in patients a little bit away from Medicare patients given the proposed physician payment. So the first question I have is, what percentage of your patients today are Medicare, and then what percentage of overall OSA patients are Medicare and also, how we should think about this going forward. Is this really meaningful, or is this just you guys being cautious?

Tim Herbert: Sure. Hi, Danielle. I think the Medicare, historically our blend has always been about 65% to 70% commercial, 25% to 30% Medicare, and about 5% VA or military, and that probably purposely doesn’t add up to 100%. But as we’ve seen in the last couple of quarters, we saw a good Medicare rebound. Usually in Q1, we see heavy Medicare because we have the high commercial in Q4, again, going back to the high deductible insurance plans. And so in Q1, Q2, we just saw a higher percent, not quite 50%, but approaching it for Medicare. So while that’s really exciting for that population, it does put some challenges to the reimbursement in ASCs, and that’s kind of what we’re highlighting. We’re able to handle and cover those cases all in a hospital setting or in ASCs in the north, but that does present a longer-term challenge.

As we progress into Q3, and certainly into Q4, as Rick highlighted, it becomes more weighted towards commercial cases, because again, the high deductibles really kind of drive the fourth quarter. So I would expect our percentages to move back to more traditional ratios. And then overall, obstructive sleep apnea is a young person’s disease. And in the clinical studies, we saw the average age of our studies were down at 54 during the early commercial years. Of course, reimbursement’s easier with Medicare, so it kind of rises up a little bit. But we think that it should be back in the average age in the 50s. Remember, now we have the pediatric approval. The youngest person is really just single-digit years of age. So we’re across the board on treating patients, but for the most part, I think that we want to keep our ratios focused on the commercial side, certainly complementary with the Medicare and always provide service to the VA and military.

UnidentifiedAnalyst: Okay, got it. And then in [indiscernible], congrats on that. Once that is approved, should we think about that as a gradual rollout or how should we think about building capacity of Inspire 5 ahead of a launch and potential impact to margins there. Thanks so much, guys.

Tim Herbert: Thanks, Danielle. I think people are excited about Inspire 5. Obviously, the removal of the pressure-sensing lead is both an improvement for the patient. It makes the procedure more comfortable for an ear, nose and throat surgeon to perform. It gives us and the patient an improved reliability. Even though we have a small number of revision surgeries, the culprit for most of those is that pressure-sensing lead. So we want to be able to get this out broadly in the market as soon as we can. Once approved, I’m sure we’ll do a small pilot study just to make sure it works well with all the SleepSync system, the new remotes, and the adoption into the market and by mid-year, we expect to go full launch on this. And we believe once launched, it will be a very quick transition across the board.

Operator: Thank you. And I show our next question comes from the line of Travis Steed from Bank of America Securities. Please go ahead.

Travis Steed: Hey, thanks a lot. Congrats on a good quarter. Maybe the hospital outpatient reimbursement that came out recently, there was a big uptick in Dice procedures and a few things with the reimbursement going up on the replacement if it needs them to be replaced. Just curious how you’re seeing that, if that was expected, and how that should play out in the business?

Tim Herbert: Hi, Travis. Thank you. I think the sleep endoscopy increase in reimbursement was a nice surprise. We know that they have been working on that when it initially came out at just $180 or what it was, was very disappointingly low for a 15-minute procedure and it wasn’t worth hospitals or ASCs to be able to do that procedure. But moving that up, I think it actually brought the economics from the actuals over the last couple of years, kind of drove that calculation and getting it to $1,600 really is going to be beneficial for the centers providing that Dice procedure. Then again, on the other hand, as we got done talking with our Predictor study, we want to reduce the reliance on Dice anyways. to be able to go to an office exam.

We’d rather have the ENTs and the OR suites spend that time doing implant procedures. rather than Dice. So very happy about the reimbursement there and I’m sure all the centers and ASCs will be equally excited when that takes effect in November. As far as the increase to the hospital and ASC payment for the Inspire procedure, that’s tied to the overall APC, Ambulatory Procedure Code, and again, very happy with the continued increase and that’s been pretty steady of an increase year over year for the last several years. So again, it just continues to move north and that’s really good for the hospitals and ASCs, but we just have to address the Medicare ASC payments in this.

Travis Steed: Great, thanks for that. And maybe you could talk about summer seasonality, kind of cadence of the year, Q3, Q4, just any color on both the revenue and the margins and spending, that’d be helpful, thank you.

Rick Buchholz: Hey Travis, it’s Rick. So as we talked about, we’re really proud of the achievement of the team in the first half of the year. and we talked about all the opportunities with some of the label changes and the change in the BMI warning and other catalysts. So we have increased our guidance up to 600 to 610 and so we talk about the step that, and I mentioned this in the prepared remarks, that we generally see a strengthening in our year in the fourth quarter, given the commercial mix with physicians and patients attempting to schedule those procedures before those high deductible plans reset at the beginning of the year. We will continue to increase our spending. We have shown leverage. We expect to improve that as we progress throughout the year. And so we’re excited about the second half of the year, but there will be a strengthening in the fourth quarter.

Travis Steed: Great, thanks a lot. And congrats again.

Operator: Thank you. And I show our next question comes from the line of Adam Maeder from Piper Sandler. Please go ahead.

Adam Maeder: Hi, Tim, Rick, and Ezgi, congrats on the next quarter and thank you for taking the questions. I wanted to ask about the OUS business and apologies if this was asked earlier in the Q&A, but obviously a big increase sequentially to $6 million. So the question is, is this kind of the new watermark? What drove the performance and anything to call out from a competitive standpoint in Europe and then I had a follow up. Thanks.

Tim Herbert: Sure. I think it really is down to the performance. of the Inspire team. And the focus in Germany was really strong and drove most of that growth. I also want to compliment the team. in the Netherlands with opening new centers, in the Netherlands. That’s something we haven’t been able to do for several years. And also Switzerland and the rest of the stock market really did very, very strong. We haven’t really seen the performance from Belgium yet. That’s still forthcoming. You’re going to see with the implementation of the national insurance coverage in Belgium. They’re going to have a strong second half. So that’s going to continue to move north. I think the UK has done implants, but now we’re able to open up additional centers in the UK, which is really promising.

And we previously announced that we were awarded countrywide reimbursement in France, but France is working through the coding set, the CPT coding equivalent in France, to make sure that when they lay this out publicly and put this on their registry, that it will have the CPT codes in place. We expect that to happen post-vacation time in Europe and so that will do a full launch in the latter half of the year, which is really exciting for France, which is obviously one of the largest markets in Europe. So while we have good progress in Europe, I think the upside is still yet to come. And it’s really driven by the introduction of reimbursement in those countries. and that’s what’s really going to continue to drive the business. No comment on competition.

I’m not sure that has any kind of impact on us over there, but the team is really moving very, very strong. And later in the year,. I think you’re going to start to see some progress over from Asia. As we mentioned, Singapore is doing really well and Japan, we’re just coming through the transition to direct representation in that country and you’re going to start seeing activity in Japan, which is really our focus in the Asia markets.

Adam Maeder: That’s great, Tim. Thank you for the fulsome response and for the follow-up, I guess I’ll ask about the digital scheduling tool. I’m curious if you gave an update in terms of the number of U.S. centers that are now on that tool right now and just remind us of the difference in utilization between centers that have that and don’t. And a second part would be just on the ASC mix this quarter, can you provide an update there? Thank you.

Tim Herbert: Absolutely. We’re still in the pilot center of digital scheduling, but probably about 60 plus centers are using the tool right now and that’s really exciting because it’s good for the patients. They don’t go through the poor experience of getting voicemail at a center when we’re trying to make those appointments. So we’re going to continue to push that. We’re entering the second phase of that where we can add additional centers partnering with our software company to interface into their digital scheduling. So really that’s what’s happening there. I think some of the top centers, we’re going to be pushing that obviously quicker with those centers with the higher utilization because that really just, again, streamlines that process going forward and the second question?

ASC mix. Oh, ASC mix. I think that comes down to just. a little bit higher Medicare mix and Medicare tends to be dominated in the hospital setting, especially down south where they have the reduced Medicare rates, but as we progress back to higher commercial rates as we progress through the quarter, I think that you’ll see more and more progress with ASCs. But it really is our long-term vision that ASCs will be a key catalyst for driving the business and we need to continue to provide education to ASCs when they negotiate their contracts with commercial payers to make sure that they have the for Inspire. And we need to work on the reimbursement levels from a Medicare standpoint and the proper mix between commercial and Medicare and ASCs.

Operator: Thank you. And I show our next question comes from the line of Richard Newitter from Truist Securities. Please go ahead.

Richard Newitter: Nice job on another good quarter. Maybe my first question, I know in the past, you’ve talked about all these initiatives that you have to increase throughput efficiency. One of them is getting more physicians per implanting center. So, do you have an update on kind of the percent of your centers or installed base that have more than one physician? And then where do you think — how should we think about that over the next few quarters?

Timothy Herbert: Yes, absolutely. I don’t have a specific number for you. We know that continues to grow. And that’s a primary factor when reps go in to make sure we, number one, have a backup. Who is your backup? If the surgeon goes away or is unable to perform procedures, as just a routine measure, we want to always have a backup. The other thing is we always look at — a lot of our surgeons have multiple sites of service. So they can do procedures at a hospital, but they also have a backup at an ASC per se. A lot of surgeons have multiple hospitals and an ASC. So for the most part, we’re getting to the point we have multiple surgeons in most facilities, but most surgeons also have multiple sites of service, so kind of counteracts itself from that standpoint.

What we’re really excited about both from ENT and sleep is we have a very active fellows program. We want to capture the surgeons as they graduate and go forward into their first job to make sure that they’re bringing their Inspire experience with them. And what we’re doing is very actively training them before they start their jobs to really focus on making sure Inspire is part of their practice as they get going. And we’re doing that, again, both in ENT and sleep. We just finished our annual fellows course, and we had quite a few ENTs — I’m not sure the exact numbers on those — of the ENTs that graduated this year, but we’re looking at about a 50% conversion of those surgeons being able to do Inspire procedures in their first year, and that same thing goes forward with sleep physicians.

So we’re going to continue to expand that program going forward and get Inspire taught more at the medical school level.

Richard Newitter: And then kind of a generic question with respect to the utilization backdrop for a number of elective procedures out there. It’s been strong in the first half, above trend. I know you guys are in a different situation, so underpenetrated into this huge TAM. But I’m curious to the extent to which you’re seeing any kind of backlog or pent-up demand that’s continuing to come in and support strong results? And if you are, what the outlook is from a contribution standpoint as we move into the back half?

Timothy Herbert: Yes, we are. I think we’re seeing continued growth across all of our centers. Obviously, same-store sales drove the growth in Q2, as it did in Q1, and I think will continue to do so as we move forward. I think that we’re excited, again, about the pop that we saw with Medicare in the second quarter. And I think that kind of overwhelmed a little bit more of the commercial cases, which will come on strong in the second half. So the demand continues to be there. As you mentioned, Rich, we continue to be underpenetrated in the TAM. And we still have limitations on the number of surgeons performing the procedures. So we still need to continue to address that and work the backlog of patients. But absolutely, people want to have — step in and have their obstructive sleep apnea taken care of.

Demand from our direct-to-consumer continues to be very effective. Our contacts are high. Our efficiency and conversions of patients through implant continues to be strong. We just got to continue to open up more OR time by training and getting ENTs to commit more of their time to these patients.

Operator: And I show our next question comes from the line of Larry Biegelsen from Wells Fargo.

Lei Huang: It’s Lei calling in for Larry. Congratulations on the quarter. Just on the guidance, you raised the revenue — the full year revenue guidance by a little more than the beat. That seems implied in the second half, your top line growth is closer to 30%, whereas you grew over 70% in the first half. So if you can just talk about why the deceleration? Is there something other than conservatism and just general confidence in the second half outlook? And I have a follow-up.

Richard Buchholz: Lei, it’s Rick. We haven’t changed our guidance strategy. And so, we put forth guidance that we believe in and we can stand behind. We did talk about the mix of Medicare and commercial. And so, with that said, we expect a real strengthening of the commercial procedures as we enter into the fourth quarter. Despite that, we’re very proud of the Inspire team in the first half of the year, and we have increased guidance, so really similar to previous years on how our revenue will kind of roll out for the year.

Lei Huang: Got it. Okay. And then just my second question, Tim, you talked about the new Head of Strategy that you just hired, what will be his focus? The company has close to $500 million in cash. Should we read that as perhaps an increased interest in expanding your portfolio, either inside sleep apnea or even outside of sleep apnea?

Timothy Herbert: Sure. Great question. Carlton is a great talent. And as we continue to grow, we need that leadership to be able to scale our business. And I definitely see where you’re coming from that. Our investments in the past are focused on technical tools that can help us grow the adoption of Inspire. That’s not changing. I think we’re going to focus on building the Inspire business to treat obstructive sleep apnea, nothing has changed there. And yes, we’ve been successful at making sure we have a strong balance sheet. But our focus today remains with obstructive sleep apnea and leveraging tools as we have with Ognomy and EnsoData to be able to help patients make appointments with physicians to integrate in with the SleepSync system.

But again, we’re keeping our focus. We’re growing the adoption of Inspire, and Carlton is going to be just instrumental in helping us with our overall strategy plan and understanding what this organization looks like when we go to $1 billion, $2 billion in annual revenue and what does the organization need to look like, not only from our external team but from our operational side, our clinical evaluation, our quality and our overall company as a whole.

Operator: And I show our next question comes from the line of Anthony Petrone from Mizuho Americas.

Anthony Petrone: Congrats on another strong quarter here. Maybe a quick one just on Inspire 5, just to sort of clarify the pricing strategy for the latest gen system as we look toward a rollout, how will it stack up against the existing systems out there. And then a quick follow-up would be, when we look at the two themes of GLP-1s potentially lowering BMI for even patients now contraindicated above 40 BMI, but with that label expansion up to 40 BMI, when you think of those two out there now concurrently, how many patients can that actually bring into the category where they would be eligible for hypoglossal nerve stimulation?

Timothy Herbert: Got it. As far as Inspire 5 comes out, we’re still evaluating that and what our pricing strategy will be when we launch that. It will be a change because, again, we won’t be moving — selling this — the pressure sensing lead either. So a little bit of time yet to come on that. We’re still doing ongoing evaluation. As we’ve always said in the past that we tend to do price increases with technology improvements, and this is certainly a strong technology improvement, not only with Inspire 5, but it opens up platform, allowing us to go to VI and VII and beyond. So a lot more to come on that, and we’ll report back in the future. As far as GLP-1, you put out a note yesterday. You did a call with a doctor. That was very intriguing in regards to their take on what GLP-1 is going to do with addressing Inspire and how it’s going do with overall weight loss is a very interesting discussion.

I think what we’re seeing is, we know that when you get a BMI above about 35, we can screen out well over 1/3 of the patients due to complete concentric collapse or lateral wall collapses associated with the larger neck circumference. As we go to a BMI of 37, even up to 40, that’s when you’re going to screen of 50% or higher. And so, if you can just look at the number of patients up there, when we’re able to help them with the GLP-1 to be able to lose weight and relax the lateral wall component of their obstructive sleep apnea, that’s going to have a significant impact on the Inspire business. The key is going to be, it will take time. I think your report highlighted that there’s not a lot of activity that you’ve seen to date yet. We haven’t heard a lot subjectively from the field on progress made with GLP-1, but we do know that’s coming in the future.

Operator: And I show our next question comes from the line of David Rescott from Baird.

David Rescott: Congrats on the strong quarter here. Just first on utilization in the U.S. I’m wondering maybe what’s driving that — not what’s driving that, but when we think about kind of the bell curve of physicians that may be — or centers or maybe toward the upper end, middle end and lower end of this range, is increasing utilization kind of coming from any one of those specific segments? Or is it more or less broad across the kind of spectrum of centers? And then when we think about maybe those toward the higher end of that range, are there still improvements in utilization coming from those centers? Or are they approaching maybe somewhat of a capping out kind of level?

Timothy Herbert: Yes, I don’t — thanks for the question. I think we still have quite a ways to go as far as utilization. We can talk about the characteristics of the higher-end sites, and the key characteristic is team. And what that means is the surgeons can focus on those aspects of their practice and they can rely on sleep physicians who will do a lot of the longitudinal management of the patients, a lot of the programming of the device. And so the highest utilizing centers have multiple surgeons and they have a well-defined team to know who does what with the patient, and it’s easy for the patients to see their process through from the initial screening through the implant, through the longitudinal patient management. I think that’s kind of the key that we try to educate the tier 2 and the tier 3 sites with is you’ve got to be able to have a team.

We have great respect for our friends who are those ENT surgeons who have dual board certified in sleep medicine because those are the early adopters. They’ve been with us since the very beginning. But they need to transition a little bit to have partnership with sleep physicians and other surgeons to really help them build their capacity. And what’s important here is we know centers with the highest capacities also have the highest patient outcomes. Well, that’s natural because everybody at the facility knows their job. Everybody at the facility is experienced, and they know what a good patient outcome is. And so, we keep pushing utilization. And I think you highlighted that in your initiation report on that as well. So I think that’s really kind of a key is we’re going to keep pushing utilization as we move forward.

David Rescott: Just second one from us on the expanded BMI, BMI labels. I know you guys provided some comments around the impact there. But I’m just thinking or wondering, I guess, more towards the top of the funnel, I guess, to the extent of which you’re able to see, if maybe you’ve heard anything anecdotal just around physicians more or less at the margin maybe considering offering the therapy to a broader number of patients, given that those labels have been bumped up a little bit?

Timothy Herbert: High BMI, absolutely. We made sure all the physicians knew about the high BMI approval right away. We’re working with the commercial payers on an update to their policies on that, amongst other things, including the pediatric population as well. The key is going to be that. That’s important because those patients just don’t have many other options. As far as the high BMI, as we’ve been talking about with the GLP-1, we’re being very careful about jumping too fast into the high BMI ring because those patients will have a higher probability of being screened out with the DISE procedure because the complete concentric collapse or the lateral wall collapse. And those are the concerns — those are the patients we think can benefit from the GLP-1 drugs.

So we’re being very careful about BMI, pushing really hard on high BMI, pushing very hard on pediatrics with Down syndrome, and then we’ll talk more in the near future about transition of DISE to that whole PREDICTOR. That will also be a key component with payers.

Operator: And I show our next question comes from the line of Matthew Mishan from KeyBanc.

Matthew Mishan: I wanted to talk a little bit about SleepSync, and how many of these new centers that you’re adding are also kind of adopting SleepSync? And then kind of where are they in like the pathway — and where are some of the larger centers in the pathway towards reimbursement for remote patient monitoring?

Timothy Herbert: Great question. The Bluetooth remote that was launched last year really is the big change to SleepSync. It provided the utility of the system to directly interface the patient’s device with SleepSync so the physicians and the healthcare providers can now have a real-time view of how those patients are doing. When we open new centers, as we have for the last several quarters, new centers being trained are automatically put on SleepSync. And our process is going back to the older centers that have been out for a while and starting to train them to add SleepSync to their process. But as far as new centers goes, it’s standard requirement right upfront. We train all of them to make sure they’re a part of it. It’s necessary to have this direct communication.

And as we mentioned, we already have the new physician programmer approved, and we’re going to launch that in the beginning of next year. All the actions taken with the physician programmer are automatically stored in SleepSync. And all the information from the patient remote from the implanted product is transitioned via the patient’s smartphone to SleepSync. And we’re going to be introducing tools such as the sensor that goes under patients’ mattresses to be able to record and monitor a patient’s quality of sleep that will be part of SleepSync. We are interfacing with our minority investments, Ognomy and EnsoData, so their data automatically uploads to SleepSync. And what SleepSync is going to be, it’s going to be all-encompassing patient management tool that’s going to have not only the objective evidence for the quality of sleep, but they’ll also be able to input the subjective data from the patient, how do they feel when they do a telemedicine, right?

What kind of complaints do they have? Is everything working fine with them? And then the next step after this with SleepSync is we’re going to be able to start taking action from a physician’s office to a patient’s home with remote patient programming. That’s going to be tremendous. We’re already working on that in-house. We’re already in communication with FDA as well on that. So that’s going to be a key step going forward.

Matthew Mishan: I’d just ask one last one on all these new centers that you’re adding. Is this really a push from your sales force? Or is it a pull from these centers basically asking or saying we need to add this to our practice?

Timothy Herbert: Where we are today, we’re still a pull when we do our direct-to-consumer, yes, we are creating a brand, and a lot of patients see that as they come to our website. Well, physicians see this as well. We haven’t mentioned this at all today, but we get — general practitioners, family practice doctors, they see those outreach programs as well. They come to our website saying, “Look, my patient is going to ask me about this, I need to know how to communicate with my patient.” So we have a large educational process with general practitioners or family practice doctors on how to talk to their patients and how to refer their patients to the ENTs. And so, today, we’re still responding to outside demand that we need to have this in our practice.

And the first thing we do when we get an inbound call from a center is we kind of make them fill out an application. I know that sounds arrogant, but it’s not. What it is? It’s an organizational form that helps them identify who is who in the zoo? Who is the ENT? Who is the sleep physician? Do you have support from the C-suite? Do we have a proper navigator? Do we have the OR team? Who’s going to do sleep endoscopy? How are you tied into your sleep practices? So we really kind of coordinate all the key functions that are necessary for centers to come on board and be — come on board with a high utilization. So we’re still in that early stage where we’re bringing on patients, and we just don’t have capacity in the centers yet. We need to — or capacity in cities yet.

So we need to continue to grow the number of centers that we’re training.

Operator: And I show our last question comes from the line of Suraj Kalia from Oppenheimer & Co.

Suraj Kalia: Congrats on the quarter. So Tim, I’ll throw in all my questions quickly, all of them directed to you. So Tim, on your comments on GLP-1s, I appreciate the color. Maybe you can walk us through — I look upon this as a 2-tailed curve, right? You were talking about high BMI getting pulled in and your comments about lateral collapse, I appreciate that. How do you look upon the net change? Because patients that are 30 to 35, 37, they’re going to drop also. So I’m curious how do you all stratify what is the influx minus the outflux? So that’s one question. The second question, Tim, and please stop me if I — ask me again. Second question would be what percent of your patients currently are getting hypoglossal nerve stim but haven’t even tried a CPAP?

And the remote programming component, can you give us a specific example where remote programming has been done, whether it’s neuromodulation, anything? And the reason I ask is general otolaryngologists, at least our field you and I have talked about this in the past also offline. They are sort of disconnected with the programming component of it and they handed off. So I’m curious if you could, in the remaining time, just walk me through. Sorry, I threw all of those, and answers to any questions would be great.

Timothy Herbert: No, those are all really, really good. Let me walk through — I kind of want to go in reverse, but I’m not going to. Okay, BMI influx-outflux, you have knowledge on this, and that’s why it’s so key to talk about this. It’s a percent of patients with a high BMI that actually have a lateral wall collapse. And as you highlight, not everybody does. And a lot of patients with the BMI of 37 only have tongue base collapse, and so they will pass a sleep endoscopy and go right on to Inspire. The challenge that you’re highlighting is how many patients do you have to see that will actually pass a DISE to be able to move on to Inspire and how much capacity did you eat up in that ENT’s practice with patients that aren’t able to get Inspire?

So it’s a very good question. That’s why we’re being very careful with the high BMI. The good news is with PREDICTOR that airway exam, we can do a soft review in an office setting to see if a patient is likely to have a lateral wall collapse, and we’re already in the next 300, so a lot more to come on that to really start stratifying those groups. But I think the GLP-1s are going to take those patients with the lateral wall collapse to the complete concentric collapse. And ideally — now we need to see how this works on practice. Ideally, lower their BMI and have them present really ideally as only a tongue base collapse. So we need to track that going forward. Your second question was with what percent of our hypoglossal nerve stimulation patients have actually tried CPAP?

And the reference to this is with the Philips recall, did we get a significant amount of patients that were able to bypass CPAP and go right to Inspire? I think the real answer to that is probably not. I think the great majority of our patients have all tried CPAP. And I think that is a gate that the insurance companies always ask. I am sure there’s a small percent that have been able to go through because they’re unable to get a CPAP machine because there wasn’t inventory there from ResMed. There wasn’t inventory, obviously, from Philips because of the recall. But I think — historically, I think very few of our patients actually get through bypassing CPAP. So I think probably it really has no impact on the inventory side. Neuromod, I think Abbott has approval for some of the diabetes products.

And so, if you look at the way SleepSync is set up and we look at the screens of SleepSync, they really are modeled after our good friends at ResMed. And ResMed did a really good job with the Brightree system having a patient management system that the sleep physicians know how to manage their patients. And if we could model our screens after those, the sleep physicians would be comfortable using SleepSync, and that’s kind of the tool we’re using. And those are the sleep physicians, those are the ones that manage the patients longitudinally, and those are the ones that the remote program is designed for. Now you may have ENTs that are doing more certified sleep, and they do the longitudinal management. But we’re really kind of building SleepSync for the longitudinal management and remote programming.

And FDA has approved that for implanted products in the past. So we do have precedents for which to move forward with. So thank you very, very much on that, Suraj. I know we’re over time, but I just want to make one last note. I want to thank you all for joining the call today. As always, I’m grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The Inspire team’s commitment to patients remains unmatched and is the most important element to our success. I wish to thank all of our employees as well as the healthcare teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe and in Asia.

And for all of you on the call, we appreciate your continued interest in and support of Inspire and look forward to providing you with further updates in the months ahead. Please stay safe and healthy. Thank you very much.

Operator: This concludes today’s conference call. You may now disconnect.