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 speakers remarks, there will be a question-and-answer session. Thank you.

Megan Rowekamp, 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.

SEDAR 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 laws 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 02, 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 increase 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 its Inspire 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 Inspire therapy. Our ability to improve patient access to care with our Advisor Care Program.

The increase capacity and performance at new and existing centers. The positive reimbursement environment for Inspire therapy. And finally, the significant impact the pandemic had and 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 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 in Planning 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 million to $221 million from our previous guidance of $210 million 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 is 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 ASCs going forward and expect to see a growing percentage of Inspire 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 the 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 a 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 their 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 President new positions that oversee the Area Vice Presidents. We're proud that all of these positions were filled with promotions from inside the organization. This is our ongoing plan 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 characterize the community health talks is more educational, and most appointments originate from the Advisor Care Program.

As such moving forward, we will report on the physician context 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 upon 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 one 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 our 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 old PPS rules. In fact, the data files have not yet been uploaded but will be shortly. Just as a backdrop, the new Inspire category one code 64582 was approved to replace the original category one 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 one 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 recalculate a 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're accepting the panel recommendation and we'll 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 V neuro 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 I code was also approved for the drug-induced sleep endoscopy procedure.

The proposed reimbursement for a DISE procedure increase the physician payment from $68 in 2021 to $114 in 2022, a 67% increase. Moving on Europe also had a strong quarter 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're 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're 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 conducted 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 has 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 a fifth generation inspire neural stimulator continues to progress. Once approved, we expect in Inspire Cloud to be commercially available in late 2023. The Inspire 5 device will utilize the existing form factor with fans 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 need. All setting will be inside the neural stimulator using an accelerometer to measure respiration.

Collectively, these technology enhancements will only further strengthen patient outcomes, as well as improved patient and physician experience with Inspire therapy.

Finally, I'd like to highlight the recent launch of our first ever patient experience report in 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..

Thanks, Tim. As Tim noted, the Inspire team delivered a robust third quarter and first nine months of the year. Total revenue for the third quarter of 2021 was $61.7 million, a 72% increase from the $35.8 million generated in the third quarter of 2020. U.S.

revenue in the third quarter was $58.3 million, an increase of 76% from the $33.1 million generated in the prior year period. The growth in the U.S.

reflects a large - reflects a number of factors, including a larger number of implanting centers, broad commercial policy coverage, 100% Medicare coverage that went effective in June 2020, and an increased number of territory managers. In the third quarter, European revenue increased 24% to $3.4 million. The U.S.

average selling price in the third quarter was 23,900, which was consistent with the prior year period. The European ASP was 23,500 during the quarter compared to 23,300 in the third quarter of 2020. Gross margin in the third quarter improved to 86% compared to 85.5% in the prior year period. Due to manufacturing efficiencies and higher sales value.

We continue to expect our full year gross margin to be in the range of 85% to 86%. Total operating expenses for the third quarter were $62.9 million, an increase of 55% as compared to $40.5 million in the third quarter of 2020.

This increase was due to the expansion of our sales organization, increase 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 achieve continued growth and investments in key commercial and development initiatives.

Our net loss for the third quarter was $10.3 million, compared to the $10.4 million net loss in the prior year period. The net loss per share for the third quarter was $0.38, compared to a net loss of $0.39 per share in the third quarter of 2020. The weighted average number of shares outstanding for the third quarter was $27.3 million.

We anticipate that the weighted average number of shares for the fourth quarter will be approximately $27.4 million. As of September 30, our cash and investments totaled $220.2 million.

This strong cash position allows us to remain focused on executing our growth strategy of increasing procedure volume at existing centers and training and opening new implanting centers. With that said, our strong performance and implant trends provide us confidence in our outlook for the remainder of the year.

Therefore, as we look forward to the fourth quarter, we are increasing our full-year 2021 revenue guidance to a range of $219 million to $221 million from our previous guidance of $210 to $213 million. This revised guidance represents 90% to 92% growth over full-year 2020 revenue up $115.4 million.

In summary, we have significant and sustainable momentum throughout our business. And we remain well positioned to achieve long-term growth. We are extremely pleased with our performance in the first three quarters of the year and are excited to continue executing on our growth strategy. With that our prepared remarks are concluded.

Peter, can you please open up the call to questions?.

Thank you. [Operator Instructions]. And your first question will come from Jon Block with Stifel. Your line is open..

Great. Thanks guys. Good afternoon. Just two for me. First Rick or Tim maybe we can just talk to you the 3Q to 4Q cadence. If I take that sort of new midpoint in $220 million for '21, it implies on calking $65 million for the fourth quarter, which is off, but it's only have modestly sequentially from the third quarter.

And that cadence seems different than the past years. So maybe can you just talk to or address, it seems just like a little bit of a conservative 3Q to 4Q '21 growth rate, despite ongoing momentum, new centers, et cetera.

And then I'll just ask my follow-up?.

Very good. We remain confident, we think we're going to have a very good fourth quarter. We always put up guidance, as you know that we're very careful about. We still watch for COVID. And so we make sure we protect against that. But we have good momentum with opening new centers and with our advisor care program.

And we had a pretty strong increase or guidance..

Okay, fair enough. I'll shift gears Tim maybe just for you. Broadly, CPAP, what are you hearing? What are you seeing? It seems like ResMed is actually having trouble feeling the additional demand for their commentary. So I would just love any thoughts on how you see this playing out.

And what your conviction is, you might actually see a tailwind from this today versus when the news first broke, whatever that was three or four months ago? Thanks..

We know from the call center that patients identify themselves as users of a Respironics product, and they're affected by the recall. So we do know that there are patients coming into our pipeline. We don't have a specific percentage or a number of the impact of that. But we are tracking that to see how broadly that reads across.

But we certainly know there are patients coming in right now and looking for an alternative therapy. And there are patients that simply with what's transpired, just do not want to go back to CPAP..

Fair enough. I'll follow-up offline, guys. Thank you..

Great job. Thanks..

And your next question will come from Robbie Marcus with JPMorgan. Your line is open. Robbie Marcus your line is open. Please check your line if you're muted..

We'll come back to Robbie..

And moving to our next question. We have Danielle Antalffy with SVB Leerink. Your line is open..

Hey, good afternoon, guys. Thanks so much for taking the question. Congrats on a really good quarter. And thanks for letting me on the call. I have two questions. Just one question is somewhat COVID related, but really about the hospital labor shortages. I'm just curious how you're factoring.

First of all, if you're one of the few companies reported thus far that hasn't really called that out as a very meaningful impact. So curious what you are - did see in Q3 and sort of how you're thinking about that over the next few months? And then I have one follow-up..

Yes, it is a serious concern. And we talked on our last earnings call how COVID was already present in Florida and started move up the coast and did affect different regions across the country. So we did experience COVID just like everybody else did. And a lot of that is both hospitalization of patients. But it is because of the staffing shortages.

And simply the staff that are in the hospitals that are required to take care of the COVID patients and just are not able to take care of other cases, including Inspire. What we have been able to do in some regions is we now have access to ambulatory surgical centers.

And so we're able to move some of the cases to the ASCs including opening up additional ASCs. And as we get larger, we also have more flexibility to move cases to suburban hospitals, if you will, whether or not don't have such a significant impact, because of COVID.

So now we dealt with COVID just like everybody else did, but we stayed aggressor be able to take care of the patients. Patients remained motivated to receive Inspire therapy and we found alternative ways to be able to get the procedures completed. That's going to continue under the fourth quarter. There's no question about it.

Everybody knows they have the same staffing issues and kind of reflects back into Jon's initial comment. The Q4 cadence, but we're going to work very hard to be able to take care of the patients and find alternative approaches to scheduling their cases at suburban sites or ASCs..

Okay, that's helpful. And then my follow-up was around the number of centers added. I mean, I appreciate that the reimbursement situation will get clarified over the next in the coming weeks, months, whatever it is. But the fact that you guys added so many centers in the quarter with that reimbursement uncertainty plus COVID.

To me it seems pretty compelling. I mean, can you talk a little bit about some of the drivers of like, sort of what's driving these centers to come online? How quit? And then the second part of that question, sorry, it's multiple questions in one. How quickly they can ramp up to sort of your higher volume centers? Thanks so much..

Yes. Very good Danielle. Very good question. Number one, we just don't have enough centers out there having just over 600 is still very low penetration and the overall number of hospitals and ambulatory surgical centers available in the United States. So we will continue to be aggressive in opening these centers.

Hence, we significantly increased our guidance at opening centers in the fourth quarter. And we are ramping up our overall sales team as well as our training team to be able to continue to increase the cadence of opening new centers. ASCs are a key focus to that, as we mentioned we're up to 20% of our centers are now ASCs. I think there's confidence.

And CMS already mentioned in the commentary, that they're accepting of the panel recommendation to recalculate the ASC payment. I think that they had confidence all along that that was going to happen, or they could at least continue with commercial cases.

And so we have significant number of ambulatory surgical centers open up in the fourth in the third quarter. And part of that also is with the national contracts that we have in place. We continue to work through the overall number of centers that that those corporations have.

So there's just a lot of runway that we have to be able to continue to open additional centers, and there's motivated physicians at those centers, as well as the administrators to get those centers opened up.

Did that answer your question? Do you have any follow-on on that?.

No, no, that is perfect. Thank you so much..

You bet. Thank you..

And for your next question, we now have Robbie Marcus with JPMorgan..

Great.

Can you guys hear me, okay?.

Yes..

Robbie.

How are you?.

I'm okay. Thank you. First off congrats on a great quarter. Second, I was hoping you could touch on. And sorry, if I missed this, I had to come off and on again. But there was the recall from Respironics in June. We saw ResMed have a benefit from in this quarter.

And obviously, they're much earlier in seeing any potential benefits, but they're running into supply issues.

So I'm wondering, are you starting to see any benefits? I realize it's probably more word of mouth and referrals and implants at this point? And just how you thinking about that over the next six, 12, 24 months?.

Yes, we certainly have communications all with all the centers and all the physicians across all of our team. I don't know how to communicate with those patients, if they have a Respironics device and are unable to benefit or using anymore. And they're looking for an alternative and Inspire is certainly a viable option for them.

We do have several patients that have come to the call center identifying themselves as Respironics patients. We also member, we still support patients with prior authorizations. And we're able to identify those patients through the prior authorization process. If they're unable to continue with Respironics, and are looking for an alternative.

But we can get them approved through the insurance pipeline. So we do have experience with patients from that now. Also, remember that that just occurring in July, there is a period of time it takes patients to become educated to get to a website to get an appointment of physician to get diagnosed and prep for Inspire, get through the insurance.

So it's a several month process to transition from CPAP to Inspire. So we're still just at the early stages of seeing that benefit, but that will continue in the following year as well..

Great. And then just a follow-up. Your business really diverge from what we've seen from a lot of other companies where third quarter was more materially impacted and seeing lagging volume growth into fourth quarter. So you touched on this in the prepared remarks, but I'd love to just hear, what's driving this.

How you are able to manage so much better than a lot of other peers, even those that are outpatient focused. It seems like you've been able to whether the storm a lot better, which is love any thoughts or insight into that? Thanks..

Absolutely. At the top, it's all about motivated physicians and motivated patients and patients who have untreated obstructive sleep apnea have a significant challenge with quality of life. And so if they're unable to benefit from CPAP, and you mentioned the Respironics challenges there. They're motivated and find alternatives.

And so we work with those patients, and the healthcare providers to find a different approach for Inspire. The next key is, as we mentioned in the prepared remarks that Inspire isn't really considered an elective procedure on a lot of centers, because we are disease state management.

And because of that, we get a little bit more priority and scheduling cases. And we are purely outpatient, so we don't take up hospital bed, otherwise Danielle mentioned, there are challenges with staffing issues that we do have to overcome.

But with our increased number of centers, it gave us the flexibility to move many of these cases to ambulatory surgical centers, or an example in Houston, we could move them to some of the suburban hospitals that aren't necessarily the main COVID centers that had didn't have the same staffing challenges.

So we just have a little bit more flexibility to take care of those patients. And we stayed very aggressive to find alternative approaches. So we really give our team a lot of credibility to not give up, but continue to keep pushing for the patients and finding an alternative..

Great. Appreciate the color. Thanks a lot..

You bet, Robbie..

And your next question will come from Chris Pasquale with Guggenheim. Your line is open..

Thanks, and congrats on another really strong results. Tim, I know it's early to get - any early thoughts you have on your '22 outlook. I mean, for most of our companies, we're looking at easy comps across several quarters next year. Really hard to say that about you guys, given the momentum you've had and how many centers you've added.

So how are you thinking about the sustainability of the trends that you're talking about here for 4Q as the calendar rolls over?.

Well, the first clue we gave in the prepared remarks is we're scaling our sales management team. And we added another structure with Senior Vice Presidents managing Zones, we kind of ran out of words there.

But having Zone Senior Vice Presidents and each of them having three to four Area Vice Presidents, each of them will have an Area Business Manager which we'll continue to focus on opening new centers. And then each of those Area Vice Presidents having a number of regional managers to be able to continue to grow.

So we just plan on the ongoing scaling of our operations. Again, we mentioned we only have 600 centers today. But we've increased our guidance going into the fourth quarter here, we expect that we're going to continue to stay very aggressive at opening new centers.

But the other side of it that we talked about that really was having an impact is our ability to communicate with potential patients and get them to the Advisor Care Program and our ability to get them appointments with the physicians and the centers. And we believe that we're going to be able to improve our conversion rates going into 2022.

And so as Rick mentioned, we have a program that is sustainable, and so we're going to be aggressive and continuing to find ways to make our therapy available for patients who need an alternative therapy and especially with the CPAP where it is today that there's certainly an opportunity there.

We're excited about our international prospects as well specifically with Japan, with the first order going out, as well as the first implant scheduled. So lots going to happen in Japan and in Europe and other parts of the world..

Thanks. That's helpful. Maybe I'll just piggyback on that last point, it is exciting to see you guys finally getting into Japan. We'd love an update on where things stand in Australia, which was another market that you guys had talked a lot about.

And also any developments on the pediatric front, that seems to have kind of fallen down the list a little bit with all the other stuff you're working on?.

Absolutely, Australia, we are working with them on the submission of the reimbursement we're working directly with the physicians now and the Minister, so we'll have an update later probably in '22 on that front, it does have regulatory approval.

But again, we're taking the same approach in Japan that we're pretty strict about global pricing and making sure the reimbursement is appropriate for ourselves and physicians as we open up into new territory. So we're in that process of working with that story on that. Before we jump into pediatrics, I will say that we are doing more strategic work.

Now that we're starting in Japan to look where is our next step? And is it looking at Singapore, is it looking into Hong Kong and even South Korea and long-term Mainland China. So we're starting to do a little bit of strategic planning in a lot of those fronts and look forward to talking more about that in 2022. Pediatrics hasn't gone away.

Pediatrics remains an important factor for us. It's why we do, what we do. And the benefits that the kids are seeing is tremendous and keeps us very motivated to find alternatives.

The studies are open and we continue to enroll patients there, we're opening additional centers, the majority of the implants continue to be at Mass Eye and Ear Infirmary in Boston, but we are opening other centers to do more studies, we are doing a post approval based on the approval received from the FDA, lowering it down to 18 to 21.

But our goal is to get that age down to 13 to 15. And not just for children with Down Syndrome but for a broad spectrum of pediatric patients. So we do have another study ongoing, talking about the persistence of sleep apnea in adolescents.

And as they go from 13 to 15 and mature, what happens to their sleep apnea, does it self-resolve? We don't believe it does. But that's still one of the arguments with that we have with the FDA, and we're running that study. So yet again, it's not a huge market, but it's a very important market and we're continuing our work on that front..

Thanks..

You bet, Chris. Thank you..

Your next question will come from Amit Hazan with Goldman Sachs. Your line is open..

Okay, this is Phil for Amit. Thanks for taking the question. I think maybe the questions been asked a lot of different ways. I think maybe if I could drill in just one more time and ask about progression throughout the quarter and kind of the implications for 4Q.

The question is basically, did you see an impact earlier in the quarter? And how did things shape up towards the end of the quarter? What have you seen so far in October, that's kind of informing where your guidance is right now for 4Q?.

We did see an impact in Q3, right? And we started regionally and we started rotating, right? It was at the beginning of the quarter, we start talked about it, starting in Miami, and everybody tracked the news and you saw where COVID traveled, it went up the coast and when Miami worked through it, then it was up across the three cities, right, Tampa, Orlando, Jacksonville, moved into Atlanta across to New Orleans again, then they had to deal with Hurricane those lot of challenges there.

But into Texas, and continued going West and back up north. So every region had to deal with COVID. And the key is being flexible to be able to overcome the challenges and get the cases rescheduled in a timely manner. So we don't lose those patients and it's going to continue on through the fourth quarter. We all know it.

Again, Daniel took mention of the staffing challenges that we have across the country. And again we got to make sure that Inspire stays at the top of the focus. And with that, we want to be careful about where we put that guidance number out for Q4.

We have confidence in our business going forward, we're not slowing down our cadence of expanding number of centers, expanding Territory Managers. In fact, we're talking about increasing it with our guidance.

So we'll continue to work forward and make sure that we always put out those guidance numbers that are carefully selected to make sure that we're able to achieve that..

That's great. Thanks so much. The second one actually maybe a two-parter on the reimbursement front, multitasking a little bit there. But it looks like [indiscernible] recommended or tried to comment for a slight increase from the PFS rate that was initially proposed and CMS disagreed with those comments.

I'm interested if you can maybe speak to any feedback that you received for physicians during that interim period between the proposed and the final. And if you expect this to be kind of a point of emphasis or if you're kind of content with where things are out from the PFS side, the secondary question is on kind of the ASC front.

And if you saw anything from a sort of confusion or market confusion standpoint, that may have temporarily slowed the rate of adoption on that front, I appreciate that you gave us some numbers that look still pretty, pretty strong, but maybe a little bit of a deceleration versus what you'd given here? Thanks..

I don't know about the physician reimbursement, I think I can the RVUs that they propose, they're really strong, we're okay with that. The physician payment reimbursement rate actually went down this year, and that's across the board. That's just not for EMTs. That's every surgeon. So I think that usually comes back.

That's a little bit of a battle of Congress. But that's all out of my expertise. Bottom line, I think $870 from national average Medicare payment will sustain. And we'll wait to the final data comes out and see what happens there.

As far as ASC is being affected by the rulings, now it hasn't affected anybody yet, because it doesn't take effect till January 1, 2022. And they just continued business as usual. And they have national contracts with the commercial payers. So don't really think it's affected adoption or impact as of yet.

And we'll wait to see the final numbers and still not too concerned going into 2022. We think we'll continue to expand the number of ASCs whatever the number is..

Thanks for the question..

Thank you..

Your next question will come from Larry Biegelsen with Wells Fargo..

Good afternoon. Thanks for taking the question.

Just two for me, Tim one of the products, one of them - can you hear me okay, Tim?.

Yes, very well, Larry.

How are you?.

Good, good. What are the milestones to the late 2023 U.S.

approval and I had one follow-up?.

Well, the first step is we're going to sit down with the FDA in December and show them our whole project plan and show them all of our plans, including how we collected data around Inspire 5 and get the FDA's feedback on the program. We're going to continue with all the development, I have seen fully functional units.

And we're going to be going into detailed testing of those units to make sure that they pass all the qualification testing. And the key milestone is remember, the FDA gets a year to review that. And so when we're talking late '23, we need to have that submission into the FDA in 2022. And we remain at target to do that.

But we'll know more in December because we're being very transparent with the FDA in our whole program. And then this will be the second time that we sat down with the FDA to review the project plan..

Okay, let me ask about the Phillips recall. I guess it's a two part question. One is, are you going - if you see a benefit, are you going to call it out because you've been asked a few times on this call, if you've seen the benefit.

So are you going to try to quantify it because it sounds like you have some information you could try and more importantly, what do you think the long-term implications are of this? I mean, this is a pretty big deal.

For example, do you think this could be a catalyst to remove CPAP failure as a requirement for Inspire therapy long-term? Thanks for taking the question..

Thank you very much, Larry. I think if you really look at the - it's a real big picture what we think is important here is sleep physicians really have to address this with their patients and they don't have an option to provide an alternative therapy for them.

They are really becoming more aware of Inspire therapy and being able to address that and talk to their patients about Inspire. And so we're making sure that we're taking advantage of the time to communicate with all the sleep physicians to make sure that they have all the knowledge they need.

That is turning the cruise ship as you're referring to, when we're talking about where Inspire sits in the therapy ladder.

But right now, I think the key is making sure that the physicians have the right information to be able to take care of their patients, and be able to communicate with them, we will continue to track as best as possible the inbound patients who are affected by the recall, and make sure that we're available to help them get to a healthcare provider and get them insurance approval and get them Inspire therapy, so they can be treated.

These patients are motivated. And really the long-term is lot of these patients after having this information given to them simply do not want to go back to CPAP. So we do think it's going to have a long-term positive impact on Inspire and we're making sure that we're prepared to handle that..

Thank you..

Thank you, Larry..

Your next question will come from Adam Maeder with Piper Sandler..

Hey, Tim, hey, Rick. Congrats on another great quarter here. And thanks for taking the questions. A couple of pipeline questions from my side. So first, multi-partner. I think I heard you say you made the submission for full body MRI labeling with FDA and you expect 180 day review time, hopefully I have them, right.

Just any sense for how much of a gating item MRI labeling has been thus far, do you think this could be another tailwind to growth or is it more just kind of continuing the evolution of technology, improving patient experience? And then secondly, with the new Bluetooth enabled remote, just wondering if there's going to be any kind of noticeable impact ASP dynamics or margins, and then I have a follow-up..

Got it. MRI, we're available for head coils and for lower extremities. And so it's really not been a showstopper. It's just one of those ongoing developments.

And it's not like we're changing the implanted hardware, what it is, you just need to go through a series of MRI evaluations to show that the amount of energy absorbed by the leads or the heat generated from the procedure isn't harmful, or the current induced by the electromagnetic fields is that challenge.

So we have gone through that testing, and FDA is always kind of aware of that testing are going and to kind of help review those procedures. And we'll continue to move forward. But the data looks good. And I think it's always as another positive for patients that said, if I can't have an MRI, okay, well, then I might hold off a little bit.

I think it just removes one more obstacles, which is very positive. Right.

What was your second question about Adam?.

Yes, thanks, Tim.

So the second question was just on the Bluetooth enabled remote, and if there is going to be any impact to ASP dynamics or margins?.

Yes, we're reviewing that right now. I mean, it certainly does add another level of utility to the Inspire Cloud and the patient and physician's ability to manage those patients going forward. So we're looking at that very closely, and we'll keep you informed on that. But yes, it's something that we want to really consider right now..

Okay, fair enough. I'll leave it there. Thanks so much..

Yes. Thank you..

Your next question will come from Michael Polark with Baird. Your line is open..

Hi, good evening, just two quick ones, follow up on the MRI question.

Will the full body labelling be for one and a half Tesla and three Tesla or one and a half Tesla for now?.

I don't know. I think it's one and a half for now. And we're continuing those evaluation, but one and a half is in the majority of MRI machines anyways. So there's not a lot you're going to get with the three tests they can't get with a 1.5. So I think that provides functional settings.

The real key to it is making sure that when you get the qualified settings that they are usable, meaning you can do a proper MRI to get the proper resolution at the proper energy levels. And that's in effect what we did get qualified..

The follow up was on Japan. I heard in the prepared remarks that the first shipments have been made.

Does that mean there has been revenue from Japan in this quarter or in the fourth quarter or revenue only be recognize when patients are implanted under the distributor model?.

No. With a distributor, we recognize revenue when we ship it to the distributor and so the first units have been shipped, and we will book revenue in the fourth quarter..

Okay. Thank you very much..

Thank you very much..

Your next question will come from Ravi Misra with Berenberg Capital. Your line is open..

Hi, good evening. Hi, Tim. Hi, Rick..

Hi, Ravi..

I saw both my questions up front, I guess. First, congratulations to all the Salesforce members that were promoted. Just kind of on the sales territory expansion. Can you talk to us, you've been kind of tracking above your guidance for the last several quarters at least I think since IPO actually.

How should we think about that kind of on an ongoing basis? And when do we kind of bring that down? Is this kind of the new level for the next kind of four or five quarters? I guess the second related to that is how do we think about utilization, as it goes between the ASC and the hospital and kind of how you see that trending going forward? Maybe one last one, is a really good kind of free cash flow and profitability quarter against very strong growth.

So is this the kind of new spend normal that we should expect, Rick, thanks, guys..

Very good. All right, let me do expansion. And then Rick will talk about cast. We want to continue expanding our sales force and we are setting the structure to be able to continue that expansion.

And to have we added a level of senior vice presidents match area vice presidents and we reward our talented people by having them move up and have a more influential position in the organization by becoming area vice presidents or regional managers, and feel clinical reps moving into territory manager positions.

And that's something that we're just very proud of and will continue, I think the cadence is going to continue, we're going to stay aggressive, we're still - when you look at the number of centers being 600 is very low.

The penetration of the overall number of centers that we need to get to be able to serve the demand that we're getting from all the patients, we talked about 5.3 million web hits, so we need to continue to grow that. Going forward, we're going to keep staying aggressive on that. As far as P&L cash, I will hand that off to Rick..

Yes, Hi, Robbie, regarding profitability and cash, we really don't want to talk about breakeven just because it's a moving target. We are still very early in the penetration of potential procedures and implanting centers. And we have accelerated our commercial footprint with the addition of new territories as well as additional centers.

So we're really focused on making investments that's going to - that will drive years of revenue growth rather than optimizing our operations to produce net income.

But with that said, we actually did increase our cash position at the end of the third quarter from the second quarter, a couple drivers there included, we did see an improvement in our accounts receivable collections actually.

And we also benefited from we had $3.8 million of proceeds from the exercise of stock options, which helped the cash increase. But I would be careful there because we do have some variability in our burn rate, given the timing of DTC payments, as well as development payments, and those can fluctuate on a quarterly basis.

And so we're continue to make investments we're leaning forward. And so we do expect that we'll continue to burn cash going forward. But we did have a strong Q3 from that perspective..

Okay, and then just that last one. On the ASC utilization versus hospitals, can you just help us think about how you expect that to track and others kind of shifting of cases from towards the ASC this quarter? But in general, where do we….

Yes, in general. Instead of spending two in hospital in ASC, we kind of split it between hospitals recently trained and open versus some of the older ones that have been open 2014, 15, 16.

And the key is, is that we've really changed a lot of our training, we've improved their ability to have patients flow through the new centers over the last couple years you remember, they open and they haven't had to deal with the challenges of prior authorization that we all remember from just three, four years ago, right.

And so they're coming on board with the ability to get a higher utilization rate upfront, and they start with a higher level of expectation. And so both hospitals and ASCs just have that ability to start at a much higher utilization rate. So we're happy about that.

I do think ASCs will continue to grow as part of the implant, and I think hospitals are going to protect against that. And so they're going to also make sure there's plenty of OR time for physicians to performance for cases. So, again, our focus is really to kind of keep it balanced between growth and utilization as well as growth at new centers.

And new centers will include both hospitals and ASCs..

Peter, you there..

Yes sir. And your next question will come from Suraj Kalia with Oppenheimer..

Good afternoon, Tim and Rick.

Can you hear me all right?.

Yes.

How are you?.

Perfect. Tim, congrats on a great quarter. Couple of questions. I'll just throw them right up front in the interest of time.

Tim, what percent of your cases while you're successful in moving to regional hospitals or other ASCs, just given everything going on with COVID?.

Yes, that's tricky, I think because it's all regional. And it's all rotating, right. And so it's difficult, but I would think a very small percentage actually had to be relocated.

But if you talk this to the territory managers and area vice presidents in Florida, they would argue that they had a significantly greater number of cases, they had to relocate there, as in probably Houston, then they did up here in Minneapolis. Right. So the male is able to kind of continue on up here, Minneapolis.

So I think, again, in the affected regions, you had a greater percent, but I don't have a real number I can hand to you..

Got it. And Tim, you mentioned and please correct me if I got these numbers wrong. 5.3 million hits on the website. 72,000. I believe consults and the math is roughly about 2500 or so implants in the quarter. Tim, specifically for the ACP is the 180 centers. And maybe you mentioned this, I must have missed it.

Can you give us what the flow through looks like for these centers? Maybe you could expand on how many implants were done at these ACPs in the quarter? I remember hearing a 13,000 word or something. Any clarity would be greater. Thank you..

Yes, I know, sorry. Suraj is so damn confusing, because you just throw a bunch of numbers in there. Of the 72,000 context that comes from two sources, community health talks, which really serve to be educational, and those are patients that are not just quite ready yet.

And so they may not make a formal appointment with a physician, they need to think about it and then circle back eventually they come back to the website to the Advisor Care Program.

The Advisor Care Program, we mentioned had about 13,050 contacts in the third quarter of contacts that they handled directly, and moving those patients forward to make appointment. So that's a part of that 72,000, there is also a lot of centers that are still taking their own phone calls, right. We have 450 senators on the ACP.

Now there's still a significant number that, that take their own phone calls, or we're transitioning them over to the ACP as well. As far as flow through, yes, there is a significant number of patients that that simply when they contact us they have they've never had a sleep study.

So, they need to be referred over to a sleep physician to have a sleep study and they need to try CPAP first, there are others that just don't qualify, they need to see a different physician there are patients not as you mentioned the past that, that when they learn about the technology, they're not ready right away and they want to think about it some more.

And then there's those patients that really knew what they're looking for. They're understanding it, we're able to educate them and a significant number able to get to the physician and enhance that's why we have the significant implant numbers and growth rates..

Thank you..

Absolutely. All right, well, thanks.

Peter, you got any other there?.

I'm seeing no further questions at this time. You may proceed, sir..

Thank you very much. Thank you all for joining the call today. As always, I am 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 is the most important element to our success. I wish to thank all of our employees as well as the health care teams for their continued efforts, as we remain focused on further expanding our business in the U.S., Europe, and now Japan.

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

This concludes today's conference call. Thank you for participating. You may now disconnect..