Inspire Medical Systems, Inc. (NYSE:INSP) Q1 2023 Earnings Call Transcript May 3, 2023
Operator: Good afternoon. My name is Del and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Inspire Medical Systems First Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there’ll be a question-and-answer session. I’ll now hand the conference call to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference.
Ezgi Yagci: Thank you, Del, 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 months ended March 31, 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, continued effects of the COVID-19 pandemic, full year 2023 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. Please see our filings with the Securities and Exchange Commission, including our Form-10Q, 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, May 02, 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 first quarter of 2023. As always, we first and foremost reiterate our commitment to patient outcomes and to ensure that each patient has the best possible experience with Inspire therapy. During today’s call, we will provide an update on our first quarter results and discuss our updated outlook for the full year 2023. To start, we want to highlight a very important milestone in the Inspire story. Today marks the fifth anniversary of our IPO and what a tremendous five years it has been. Since our IPO, the company has surpassed 40,000 patients, treated with Inspire therapy, grown to over 800 employees, introduced many therapy improvements highlighted by the two incision surgical approach, received a dedicated CPT code for reimbursement, and most recently, received approval for pediatric patients with Down syndrome.
To celebrate this momentous occasion along with the FDA approval of our pediatric Down syndrome indication, we had the privilege to ring the opening bell at the New York Stock Exchange last Thursday, and we were joined by Jesse Rivera, the first pediatric patient with Down syndrome to receive Inspire therapy nine years ago, and we all celebrated as Jesse rang the bell. With that, let’s review our results. In the first quarter, we generated revenue of $127.9 million, representing an 84% increase compared to the first quarter of 2022. This 84% growth rate represents our highest quarterly growth rate post the COVID pandemic. Our growth continues to be driven by higher utilization at existing centers and is complimented by the activation of new centers.
Photo by National Cancer Institute on Unsplash
Given the strong momentum we are seeing in our business, we now expect full year revenue to be in the range of $580 million to $590 million a 42% to 45% increase compared to 2022. In the first quarter, we continue to increase our capacity by adding 68 new implanting centers in the US, ending the quarter with a total of 973 for the remainder of 2023, we continue to expect to activate 52 centers to 56 centers per quarter. Regarding the US sales team, we created 17 new sales territories in the first quarter, bringing our total to 242. For the remainder of 2023, we continue to expect to add 12 sales to 14 sales territories per quarter. In the first quarter, the number of visitors to our website surpassed 3.4 million, which is significant. The website is the introduction for patients in the source of the growth in therapy adoption.
In January of 2022, we initiated our first national media campaign, which resulted in a one-time spike in website visitors surpassing the 3.4 million in the first quarter, but the current volume has us in a very strong position entering 2023. From these visits, we had over 19,000 physician contacts and have steadfastly improved our conversion of contacts to patients receiving therapy. Of note, our team has implemented several services to enhance the patient experience, including a patient nurturing program, whereby we are leveraging our significant patient database to reengage and help patients in their Inspire therapy journey through proactive outreach. Secondly, our digital scheduling pilot continues to make strides and we are currently experiencing a 30% improvement in physician appointments in the pilot centers, compared to traditional phone and email scheduling through our advisor care program and are adding technology to support the next wave of participating centers.
Further, we continue to focus on improving process time, including scheduling of sleep studies, and one tool is our collaboration with Ognomy, which is showing great promise to date. And finally, our focus continues towards increasing surgeon capacity and we see signs of improvement in the patient pathway and specifically be by reducing the time from patient contact to implant, which continues to be approximately six months. Moving on, our international business continues to expand growing 15% in the first quarter over the prior year, despite ongoing headwinds from unfavorable exchange rates. There were several positives in our international business during the first quarter, including the strong performance in Germany, the Netherlands, and Switzerland.
We finalized countrywide reimbursement in Belgium and have increased our commercial efforts there. Furthermore, we hired a country manager in France in anticipation of the formal listing of the recently announced countrywide reimbursement in that country. In Asia, we have strong sequential growth from the fourth quarter of 2022. We continue to be pleased with the progress in Singapore and completed our first two cases in Hong Kong. In Japan, we transitioned to a direct sales organization, launched in Inspire.jp and see good momentum with strong patient outcomes and growing patient flow. Turning to R&D, we continue to work on the qualification of our fifth generation Inspire neurostimulator. The Inspire Five device will eliminate the pressure sensing lead and incorporate the sensor inside the neurostimulator using an accelerometer to measure respiration.
We continue operational and production qualification as well as integration with the Inspired digital tools, specifically sleep sync. The testing is continuing as planned, and the team is committed to submitting our application to the FDA by the end of this quarter. Given normal FDA review cycles, including time to respond to FDA questions, this could move approval into early 2024. Our SleepSync system continues to make progress since the launch of the Bluetooth-enabled patient remote and we have experienced significant adoption in the number of users of SleepSync, along with strong growth in the number of connected patients currently in the system. Another example of the expanded utility of SleepSync is the next release will incorporate the second version of our ADHERE patient registry.
The current ADHERE registry is within 200 patients of the 5,000 patient cap and moving forward, patients will be enrolled into the ADHERE 2.0 registry, which will be integrated into sleep sync. Subsequent digital programs will incorporate a sleep monitoring device and remote patient programming. Regarding operations, we continue to make good progress with the production ramp of the silicone-based stimulation and sensing leads. We are in an improved inventory position and growing the inventory levels to our goal of one quarter of safety stock. Inventory levels are strong for all other components, including the Inspire neurostimulator, the patient remote and the physician programmer. In summary, we are experiencing significant momentum in all aspects of our business.
We remain focused on patient outcomes and physician education to continue the adoption of our therapy. In 2023 and beyond, we will continue to increase the utilization at our existing centers, while adding capacity by opening and training new centers. The ongoing expansion of our call center and investment in our DTC campaign support these initiatives, and we are seeing enhanced productivity from these efforts, which is driving our improved financial performance. 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 first quarter was $127.9 million, an 84% increase from the $69.4 million generated in the first quarter of 2022. US revenue in the first quarter was $124.5 million, an increase of 87% from the $66.4 million in the prior year period. The primary growth driver in the US was higher utilization at existing centers. Other growth drivers include the addition of new implanting centers, expanded direct-to-consumer marketing, and a higher number of territory managers. Revenue outside the US increased to $3.4 million, which is a 15% increase year-over-year on a reported basis, while units sold outside the US grew 24% year-over-year. The US average selling price in the first quarter was $25,000 compared to $23,800 in the prior year period.
The increase reflects our 5% price uplift that began in May of 2022. We expect the US ASP to remain steady at the current level. The ASP outside the US was $21,000 during the quarter compared to $22,200 in the first quarter of 2022, which was driven by unfavorable exchange rates and a lower ASP for distributor sales in Asia. Gross margin in the first quarter was 84.4% compared to 85.6% in the prior year period, primarily due to higher costs of certain component parts, partially offset by the price increase that began in May of 2022. Total operating expenses for the first quarter were $127.5 million, an increase of 69% as compared to $75.4 million in the first quarter of 2022. This planned 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 drive continued long-term growth and to make investments in key areas of our business. Interest and dividend income totalled $4.3 million in the first quarter compared to $34,000 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 first quarter was $15.4 million compared to a $16.7 million net loss in the prior year period. The net loss per share for the first quarter was $0.53 compared to the net loss per share of $0.61 in the first quarter of 2022. The weighted average number of shares outstanding for the first quarter was 29.1 million. We expect the second quarter weighted average shares outstanding to be approximately 29.2 million.
Given our continued operating leverage improvement, our cash and investments increased to $452 million during the first quarter from $451 million at year end. The 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 $580 million to $590 million, an increase from our initial guidance of $560 million to $570 million. This updated revenue guidance represents 42% to 45% growth compared to full year 2022 revenue. 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 centers per quarter and establish 12 to 14 new sales territories per quarter in 2023. In conclusion, our strong performance and our business momentum provide us with confidence in our outlook for the remainder of 2023. With that, our prepared remarks are concluded. Dule , you may now open the line for questions.
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Q&A Session
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Operator: And I show our first question comes from the line of Robbie Marcus from JPMorgan. Please go ahead.
Robbie Marcus: Oh, great. Thanks for taking the questions and congrats on another great quarter.
Tim Herbert: Thanks Robbie. We’ll give you a follow up too if you want it.
Robbie Marcus: No, I’m going to — I’ll ask just one question. I’ve asked you about center growth and all of that before. So really just looking out a little bit here and thinking forward to when Inspire 5 comes and just wanted to get your thoughts on what the organization can do now ahead of the launch to lay the groundwork and drive even better procedure utilization at centers, better patient awareness, and make that more of a step function than an incremental type of product launch. Thanks a lot.
Tim Herbert: Well, that’s a great question. I can go a lot of different areas with this. I think the key will continue to be on the funnel and improving our sleep sync to be able to handle patients as they enter the program and help them with their patient journey. And we’re having several tools that we’re implementing as part of SleepSync that is working alongside the Advisor Care program. We’ve mentioned some of the tools such as improved timing to get sleep studies, electronic scheduling, even electronic tools to help them gain referrals in, but when we move to Inspire 5, we see improvements in OR time that’s going to provide some more efficiencies for the surgeon capacity to be able to add additional cases in a given day.
Then further, we’ll, we’ll be able to drive further improvements in outcomes and specifically, we like the reimbursement, I’m sorry, the reliability improvements that we expect to see by incorporating the sensor inside the can and really thereby moving forward, and I’m sure later on we’ll talk about the progress that we’re making with the Predictor study to even improve sleep surgeon’s time by finding different ways than require them to do a drug induced data endoscopy. So all of those in composite are going to be coming together at the same timeframe as we launch in Inspire 5, allowing us just to continue the increased the utilization of the therapy.
Robbie Marcus: Great. Thanks a lot. Appreciate it. Congrats again.
Operator: And I show our next question comes from the line of Danielle from UBS. Please go ahead.
UnidentifiedAnalyst: Hey, good afternoon guys. Thanks so much for taking the question. Congrats on another really strong quarter and great start of the year. Just a question from me on thinking about sort of the staffing constraints that we’ve been going through, feels like, now two weeks or so into MedTech earnings, they’ve eased quite a bit, but your guys’ pathway is very different with the whole sleep study and the requirements there. So just curious if you’re still seeing any pressure there and how that’s evolving. And could the quarter have been even better than expected if we, or better than it was if that wasn’t still an issue? Thanks so much.
