Good day and thank you for standing by. Welcome to the Inspire Medical Systems’ Q1 2022 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question and answer session. Please be advised that today's conference is being recorded.

I would like to hand the conference over to your speaker today, Megan Rowekamp. Please go ahead..

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, 2022. A copy of the press release is available on our website.

On this call, management will make Forward-Looking Statements within the meaning of the federal securities laws.

All forward-looking statements, including, without limitation, those relating to our operations, financial results and financial condition, investments in our business, continued effects of the COVID-19 pandemic, full-year 2022 financial and operational outlook and improvements in market access are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements.

See our filings with the Securities and Exchange Commission, including our 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 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 3, 2022.

And with that, it is my pleasure to turn the call over to Tim Herbert. Tim..

Thank you, Megan, and thanks, everyone, for joining the call today for our first quarter 2022 business update. First, today is the fourth anniversary of our initial public offering and we wish to recognize and thank all the shareholders who have supported Inspire therapy, which has helped almost 25,000 patients address their obstructive sleep apnea.

With that, we are pleased to report on a very strong first quarter with a 72% revenue growth over the same period last year. In this first quarter, our business did experience the expected seasonality. But similar to 2021, we experienced the additional challenge from a resurgence in COVID cases.

However, the pandemic impact dissipated as we moved through the quarter and Inspire procedures quickly rebounded across the U.S. and Europe to drive the strong results. Our commercial execution leveraged both the existing centers as well as the newly activated hospitals and ambulatory surgical centers.

In addition, we continue to improve the process of connecting patients with health care providers through our Advisor Care program as well as our expanded direct-to-consumer advertising campaign, thereby creating a greater number of appointments for patients seeking Inspire therapy.

In the first quarter, we generated worldwide revenue of $69.4 million, again, representing a 72% increase compared to the first quarter of 2021. Seasonality in the COVID resurgence negatively affected procedure volumes early in the quarter, but volumes rebounded nicely as the quarter progressed.

As such, we have confidence in the outlook of our business for the remainder of 2022 due to the momentum in the second half of the first quarter, the positive trends in implant activity and the planned expansion in a number of implanting centers and new territories.

Therefore, we are increasing our full-year 2022 revenue guidance to a range of $336 million to $344 million from our previous guidance of $318 million to $326 million. This guidance represents an increase of 44% to 47% over full-year 2021 revenue of $233.4 million.

As always, I would like to reiterate that our primary focus remains on patients to ensure that each and everyone has the best possible outcome from Inspire therapy. With that, let's now get into the details surrounding the first quarter, beginning with capacity. During the quarter, we added 74 new U.S.

implanting centers, ending the period with a net total of 733 centers. Similar to what we have reported over the past several quarters, the rate of growth of new ambulatory surgical centers is slightly higher than that of hospitals. At the end of the first quarter, ASC is made up 22% of all U.S.

centers, the number of centers is net of the 25 inactive centers be activated in the first quarter, as discussed during our Q4 earnings call. We will continue to monitor and ensure the field team is focused on accounts that can provide the greatest benefits to patients moving forward.

For the rest of the year, we continue to expect to add between 52 and 56 centers per quarter. Regarding the U.S. sales team, we created 17 new sales territories in the first quarter, bringing our total to 174. While this was ahead of our guidance, we continue to expect to add 11 to 12 new territories per quarter during the remainder of 2022.

We also increased the number of field clinical representatives by adding 14, ending the first quarter with 93. During the rest of the year, we will continue to scale our sales management and training teams to optimize our ongoing expansion and to focus on strong patient outcomes and center productivity.

This builds upon the changes that we implemented early during the first quarter where we expanded our U.S. sales leadership team, which now includes eight area vice presidents and 30 regional managers.

As the team grows more comfortable with their roles, we expect higher productivity resulting in more Inspire procedures while maintaining and improving patient outcomes. Turning to reimbursement and coding.

The new CPT codes for Inspire have been in place since January 1st, which has allowed payers and implanting centers to get the new codes implemented into their systems.

There are always some logistical issues when transitioning to the new codes, but the Inspire team did a great job with training implanting centers and working with payers to ensure a smooth transition.

These new codes for both the Inspire procedure as well as the drug-induced sleep endoscopy will be an important benefit for Inspire therapy and have a long-term impact. Finally, with the increased cost of components and materials, Inspire is implementing a 5% price increase for all centers in the U.S. beginning in May.

We have contractual pricing agreements with all U.S. centers, and therefore, the price increase will be phased in over the next several quarters. And therefore, we expect the impact on 2022 revenue will be minimal. Inspire has not had a price increase for four-years, while the facility reimbursement has increased approximately 9% over this time period.

Our growth continues to focus around utilization improvements at existing centers and setting utilization targets for newly activated centers. Paramount to this is improving our ability to assist interested patients with making a connection with a qualified health care provider.

Importantly, our outreach programs continue to be very effective in generating interest in Inspire therapy primarily through the inspiresleep.com website. For the first quarter, the number of visitors to our website was approximately 4.7 million, an increase of 170% year-over-year. And from these visits, we had approximately 24,000 physician contacts.

To note, these physician contacts represent the calls and e-mails to the Advisor Care program or directly to a physician's office and does not include participation in community health talks.

As we now have broader geographic position and facility coverage across the United States, we have adapted our direct-to-consumer project to include national TV advertising buys. This is the key driver behind the significant growth in web activity, especially very early in the year.

National buys are significantly more cost effective and simply provide greater exposure to our potential patient base and include many areas in the U.S. where there has not been any media activity. The growth in web activity leads patients to connect with our Advisor Care Program or ACP, which now serves approximately 80% of our centers.

We intend to continue to expand our ACP throughout 2022, which will include many technology advancements to improve our ability to assist patients make appointments as well as to help them through the overall process.

With the number of calls and a growing experience with the ACP, we now have a significant data set to determine the key sticking points for patients along the process. Notably is the number of patients who have not had a sleep study for over two years as required by Medicare and many of the commercial insurance payers.

We also realize that it can be challenging for patients to quickly obtain another sleep study. Therefore, we are working with our sleep physicians to improve this process and have also begun implementing technologies to add capacity in sleep centers.

Recently, we announced partnerships with two private digital health companies, EnsoData and Ognomy, which will further these efforts. EnsoData increases sleep capacity and efficiency with their FDA-approved sleep study analysis platform, EnsoSleep.

Using artificial intelligence, EnsoSleep automates the scoring and analysis of in-lab and home sleep testing, allowing clinician time to focus on patients. EnsoSleep is available in over 500 sleep centers in the United States, analyzing over 30,000 sleep studies per month, and many Inspire centers are already using this technology.

Ognomy is an early-stage startup built by physicians to increase access to sleep apnea care by shifting diagnosis and treatment from the clinic to patients' homes. At the core is the Ognomy app, which provides the interface between the patient and the sleep physician, allowing clinicians to see and manage patients from any location.

Following a digital consultation, the physician can order a home sleep study to send directly to the patient. Generally, the patient can receive a completed sleep evaluation and clinician follow-up in just a few days. Moving on. Our international business had a strong quarter, driven by increased procedure volumes in Europe.

We remain very optimistic about our European prospects, particularly in Germany. While our international business is not subject to as much seasonality as in the U.S., we did experience procedure delays due to COVID in Germany early in the quarter.

As with the U.S., we have seen a strong rebound late in the first quarter, and we expect this momentum to carry forward throughout the year. The team is excited about completing our initial procedures in the United Kingdom during the first quarter and have several additional procedures scheduled. We continue to refine the reimbursement in the U.K.

and we will begin training additional centers. Most recently, we have been notified that Inspire therapy has been approved for countrywide reimbursement in France. This is a very positive step following years of developing the clinical evidence necessary.

We will work with the French authorities over the next few quarters to determine the proper reimbursement level as we plan for a broader launch of Inspire therapy in France.

In Japan, we remain excited about the opportunity, along with our partner, Japan Lifeline, continue to train additional physicians following the first Inspire implant performed at Dokio University in February. Multiple physician teams are now screening for potential patients at about 10 hospitals in Japan.

As I stated on our last call, we have entered into agreements with distribution partners in Singapore and Hong Kong. Our initial focus is introducing Inspire therapy in Singapore working with physicians at Singapore General Hospital.

We are pleased to announce that our partner, EastMed, has placed the initial order for product, and the first implants are scheduled for late May. The physicians continue to discuss Inspire with other patients as we expect several more implants yet in the second quarter.

While Singapore is active, the team will continue to initiate Inspire programs in Hong Kong as well as start the early planning in South Korea. In Australia, we continue to work with the authorities on establishing reimbursement in that country. Turning to R&D.

We are very optimistic about our new Bluetooth-enabled patient remote that was approved by the FDA in December. As we said previously, this new version allows information from the implanted neurostimulator and the patient remote to be uploaded to the Inspire Cloud via patient smartphone, making it easier for physicians to monitor Inspire patients.

We remain in the soft launch period to provide us with a full system-level test of the patient remote and Inspire Cloud interface. We continue to plan for a full product introduction at the American Academy of Sleep Medicine Meeting in June. The Inspire Cloud patient management system continues to expand as we add centers in the U.S. and in Europe.

We expect Inspire Cloud will become an important tool for physicians to monitor patients' experiences and outcomes. Later this year, we expect to submit our upgraded physician program for FDA review. This new programmer connects with Inspire Cloud and is key to the next step of providing remote patient programming.

During the fourth quarter of 2021, we formally submitted our request for full-body MRI compatibility to the FDA. We continue to interact with the agency during the review and are confident that we will receive approval within the 180-day review period. This approval will not require any changes to the existing Inspire system.

Longer term, we continue work on the design for our fifth generation neurostimulator. The Inspire5 device will eliminate the pressure sensor and incorporate sensing inside the neurostimulator using an accelerometer to measure respiration. We continue to target FDA approval in late 2023.

In summary, we continue to experience significant momentum in all key aspects of our business, and our focus on patient outcomes and physician education support our confidence in the continued growth of Inspire.

Our core focus for 2022 remains increasing utilization at our existing centers as well as increasing capacity by opening and training new centers. The continued expansion of our call center and investments of DTC campaign support these initiatives.

We remain extremely excited about the future prospects and are confident that we have the appropriate strategy in place to drive long-term shareholder value. With that, I would like to turn the call over to Rick for his review of our financials..

Thanks, Tim. As Tim noted, the Inspire team delivered a strong first quarter. Total revenue for the first quarter of 2022 was 69.4 million, a 72% increase from the 40.4 million generated in the first quarter of 2021. U.S. revenue in the first quarter was 66.4 million, an increase of 76% from the 37.8 million in the prior year period.

In the first quarter, revenue from outside the U.S. increased 14% to three million. The growth in the U.S. reflects several factors, including a large number of implanting centers, expanded direct-to-consumer marketing and an increased number of territory managers and field clinical representatives.

As Tim discussed, we did experience some typical seasonality in our business in the first quarter, and COVID created some early quarter headwinds. The U.S. average selling price in the first quarter was 23,800, which was consistent with the prior year period. The ASP outside the U.S.

was 22,200 during the quarter compared to 24,400 in the first quarter of 2021, which was driven primarily by exchange rates. Gross margin in the first quarter improved to 85.6% compared to 85.2% in the prior year period due to manufacturing efficiencies and higher sales volume.

Total operating expenses for the first quarter were 75.4 million, an increase of 51% as compared to 50.1 million in the first quarter of 2021. This 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 growth and to make investments in key areas of our business. Our net loss for the first quarter was 16.7 million, compared to 16.2 million in the prior year period.

The net loss per share for the first quarter was $0.61 per share, nearly consistent with the net loss per share of $0.60 in the first quarter of 2021. The weighted average number of shares outstanding for the first quarter was 27.5 million.

We anticipate that the weighted average number of shares for the second quarter will be approximately 27.6 million. Moving to the balance sheet. As of March 31, our cash and investments totaled 213 million.

This strong cash position allows us to remain focused on executing our growth strategy of increasing procedure volumes at existing centers and training and opening new implanting centers.

As we stated earlier, while business conditions have improved, we continue to monitor the impact of the pandemic as we did experience some challenges in January and early February. However, our strong performance and recent implant trends provide us with confidence in our outlook for the remainder of the year.

Therefore, we are increasing our full-year revenue guidance to a range of 336 million to 344 million from our previous guidance of 318 million to 326 million. This revised guidance represents 44% to 47% growth over full-year 2021 revenue.

In summary, the key metrics throughout our business remains strong, and we are well positioned to achieve significant long-term growth. We are extremely pleased with our first quarter performance and are excited to continue executing on our growth strategies. With that, our prepared remarks are concluded.

Cindy, can you please open up the call for questions?.

Thank you. And our first question comes from the line of Travis Steed from Bank of America. Your line is now open..

A little more color on March and April and how you thought about COVID in your full-year guidance. And I know you don't give Q2 guidance, but should we expect a little bit more of a sequential uptick this quarter given the COVID impact in Q1. Just any color on that would be helpful..

Travis, we missed your - how are you? We missed you right at the beginning.

Can you repeat?.

Yes.

I wanted to get a little more color on March and April and how those are shaping up versus early Q1 and how you thought about COVID impact in the full-year guidance? And any sense for Q2?.

Yes, absolutely. As we mentioned, January always starts off a little slow, especially with our seasonality, but COVID really was focused in the first six weeks in the U.S. and in Germany. And so we had a strong rebound in second half of February and March. And so that really allowed us to up our guidance.

The key to it is that in March, we saw a little bit of a rebound making up those cases and the real growth started in April, but we really liked the momentum, and we are careful about COVID, but we haven't really built in another concern that we are going to have another COVID resurgence.

But we are comfortable where we stand with our ability to connect the patients with the health care providers..

Alright, great. And then I would love to get a little more color on the price increase that you are putting through. I'm assuming that is just U.S. based price increases. And any feedback from your customers.

And the offset, how are you thinking about some of the cost pressures that you are seeing on your side of the business?.

Sure. So as we talked about, Travis, we just started the price increase this week actually on May 1. And it is really more of a long term, more of an impact in 2023.

We provide guidance on an annual basis through 2022, but the increase will be phased in over the next several quarters because we have fixed formal pricing agreements in place with all of our customers. And so we have seen some increased costs of our components and of our materials. But again, those increases have not been significant.

And so with that said, we have not really encountered pricing pressure on our gross margins. And so we are going to maintain our gross margin guidance of 85% to 86% for 2022. And still a little too early to comment on 2023, but we will update you as we get closer to the end of the year..

Great. Thanks a lot and congrats on the quarter..

Thanks Travis..

Next question from Robbie Marcus from JPMorgan. Your line is now open..

And I will add my congratulations as well on a nice quarter. It is great, you gave the stats on patients visiting the website, and it is great to see that it is starting to bear some fruit from the national advertising program.

What we can tell from that is sort of the feedback you are getting from patients and from physicians about the continued CPAP supply shortage and manufacturing issues that the two of them are having for different reasons and how it is impacting new patients moving into the clinic seeking out Inspire.

So anything you could add there? And if there is - I know you have talked about in past quarters how difficult it is to quantify, if there is any even qualitative quantification you could add, that would be great..

Yes, that is exactly what it is. We do get feedback from the call center. We do get feedback from physicians that they are seeing an increase in patients looking for therapy because of the shortage of CPAP and the extended recall that Philips is dealing with. So we know it is having an impact.

We are certainly communicating now nationally and really focusing on those patients that are unable to benefit from CPAP, which includes those patients on the recall. And as we said before, we can get those patients approved with their insurance companies. So we are certainly out communicating with those patients as best as we can.

We know it does have a positive impact now, as it will going forward. But I think the real positive long-term paradigm change that we are seeing is we are now seeing sleep physicians more earlier in the process, talking about alternative therapies.

And that really is driven by the fact that they just don't have the CPAP to be able to provide their patients. So at the upcoming ASM meeting, American Academy of Sleep Medicine, in June, we are really going to be emphasizing that point with the sleep physicians on making sure that they are aware that there are alternative therapies.

And internally, we call that program win with sleep, and making sure that this community sleep physicians are certainly aware of Inspire and where they can refer their patients to be able to receive Inspire..

Great. And maybe just as a follow-up, another really nice quarter in center adds here. And what's a difficult quarter, just with the backdrop of Omicron. Maybe talk about the pipeline you have on new centers, the enthusiasm, and is it predominantly ASCs or are you also seeing some non-ASC centers as well? Thanks..

Well, right now, we are seeing 22% of our centers are ASCs, and after cleaning up a little bit, that is a little bit of an increase, but it is pretty consistent with where we were in the fourth quarter, meaning that while ASCs are opening at a slightly higher rate, we are still very active in opening hospitals and really broadening out with some of the national campaigns we have with Ascension Health and some of the other larger hospital systems, but also getting into the community hospitals as well.

So we will continue to focus on both. There is a lot of enthusiasm out there to be able to take care of patients. And certainly, we have the demand from the patient standpoint. And with the national awareness campaigns, it really kind of excites areas that previously, they just didn't have any TV. They didn't have any of the awareness programs.

And so we are really able to kind of reach a much broader patient group, and that translates into additional centers that want to make sure that they offer Inspire therapy..

Great. Thanks a lot guys..

Thanks Robby..

Your next question from Amit Hazan from Goldman Sachs. Your line is now open..

This is Phil for Amit. Thanks for taking the questions as always. I think maybe circle back to Travis' question and ask Rick to provide a little bit more, a reminder on kind of the relationship you guys have with your contract manufacturer.

We heard some increases in component prices, but I believe that there is sort of a duration or a time frame in which the contract manufacturer can potentially raise against you, guys.

So is the pricing increase related to kind of a prospective price increase that you are expecting from your contract manufacturer, even though the GM is obviously strong in this quarter and for the year.

Can you give us a little bit more context for that one?.

Sure. Well, we always hold at least a 1/4 safety stock of product, if not much greater than that. And so as we start moving forward, we won't see those impacts probably until later in the year, if in fact, they exist. We are going to continue to work closely with our suppliers to ensure that we control those costs.

But we know that there are some material costs going up, and that is what started the cost increase. But again, we don't think that is going to really affect us until later in the year. And we don't think it is going to have an effect on the gross margin. That is why we are holding guidance on that.

But we are working closely with our contract manufacturers. And yes, these are multiyear agreements that we have with them..

Okay. That is really helpful. Back to the top line guidance. I thought it was interesting that the pruning, the 25 centers inactive, and reiterating of the territory and the center assumptions for the year despite lifting the top line, that is obviously an implication on utilization per center.

But is there more pruning to be done on you guys' kind of forward view? And then I guess, I just ask a quick third one, if I can.

The visibility of the pipeline, do you feel like there was any sort of remaining backlog, excess backlog that gives you increased confidence to raise by so much more than the beat in the quarter?.

Absolutely. I think going back to the centers is we always - we continually monitor our centers. And physicians do move, and when they move, if there is not a physician to replace them in that center, it is difficult for that center to continue. So we will put them on hold.

So we will continue to monitor centers to make sure that they are as productive as they absolutely can be. So no, it is not just a onetime thing to clean - to prune 25. I think it is an ongoing thing, and we don't see a significant number going forward.

But there is always changes in focus at centers, and we want to have the most productive centers moving forward. So again, a lot of excitement with centers, and we do - are able to kind of see the pipeline. I think for the most part, we worked through a lot of the rebound from January and patients that had to have their cases suspended.

But they are private. I'm sure there are some in Europe and also in different parts of the U.S. to get them rescheduled, but we are really seeing strong growth from the web activity from the contacts from the Advisor Care program that gives us the confidence with the momentum to increase the guidance.

Did I tackle the third question, too?.

Yes, that is great. Thanks..

You bet Phil..

Your next question is from Danielle Antalffy from SVB Leerink. Your line is now open..

Tim, I was hoping you could talk a little bit more about how new centers are ramping. So ASCs are becoming a bigger piece of the new centers that you are bringing online every quarter. And just wanted to get a sense of whether you are seeing ASCs ramp faster than prior centers or slower? Any color you can give there? And then I have one follow-up..

Okay. Absolutely. We do see excitement. A lot of times, new centers are driven by a physician's need to increase capacity to do more cases. In a hospital, they may be limited by the number of OR days that they would have. And so oftentimes, we will open up an ambulatory surgical center for a physician group, so they have multiple sites of service.

And that does give them the flexibility to schedule additional cases and build their own capacity. On the other hand, we also have new centers where they are building new teams of sleep physicians, ENTs at hospitals. And oftentimes, they may also have an ambulatory surgical center to build - open up brand-new programs.

We have fellows programs, educational programs that teach the graduating ENTs, if you will, about Inspire, and we let the existing Inspire centers send patients. And just this last week, we met with over 50 ENT fellows, many are graduating.

And when they graduate, they go to their hospital and they open up their new Inspire Center because they have so much Inspire experience. So the pipeline is very strong for opening new centers. As we talked about, we are just barely penetrated in the number of centers that one day will be offering Inspire.

So a long way to go there, I'm very excited about that..

Got it. And then as you think about the utilization at centers and just generally speaking, ASCs I'm saying, are more efficient in pushing procedures through than hospitals and more focused as well.

How should we think about the mix of procedure volumes going through ASCs versus hospitals evolving over the next year or two? And does it matter at all when it comes to your ability, like you are taking price, for example, so pricing and contracting or does that not matter? Thanks so much..

I would kind of answer it in reverse order. There is always different contracting rules with ASCs as far as ASCs and third-party payers, right. And they need to specifically contract that. So we do provide assistance to ambulatory surgical centers.

So they have the data necessary to work with UnitedHealthcare, to Aetna, or to their primary payers to make sure that they have the proper reimbursement. And then from a Medicare standpoint, the Medicare rates and ambulatory surgical centers are less than hospitals.

So that can put some challenges in those areas that don't have high reimbursement rates down in the South as an example. So we need to work with those ASCs.

And what they do for the most part is they just make sure that they have balance between the commercial cases and Medicare cases to make sure that it is economical for the ASC, and we are able to do that.

So I think - what was the first part of your question?.

Just the evolving mix is because ASCs presumably are more efficient at doing procedures and potentially, I think, could get utilization higher. Tell me if I'm thinking about that incorrectly..

No..

If the mix will change over time, of the procedures, not just centers, but the mix the procedures being done at ASCs versus hospital and whether that matters. I'm not sure it does, but..

I think we are still growing with the number of ASCs being at 22. I think the overall number of procedures are still growing, too, but maybe not there yet.

While ASCs do provide us the flexibility, the key to it, going back to the two incision implant and reducing the OR time, is we do see more surgeons scheduling three cases in a day, and that is another way that really allows them to grow their capacity.

And they just have more flexibility in scheduling at an ASC versus competing for OR time at some of the larger hospitals..

Great. Okay thank you..

You bet. Thank you..

And your next question from Richard Newitter from Truist. Your line is now open..

Congrats on a good Quarter. Maybe just to start off on the ASC question that you have been getting. I think you said earlier on that ASC growth, or your growth in ASCs, was slightly higher than the growth that you are experiencing in hospitals with the utilization and efficiencies you just highlighted that, that makes sense.

I'm curious, should we expect that delta or the divergence of growth rates to continue to expand? Just trying to get a sense of how correlated the ASC adoption is going to be to utilization growth?.

I think as we said kind of a while back, we do expect that there will be a day that you will see 50% of the centers being ASCs and even 50% of the procedures being conducted in ASC because Inspire lends itself so well to the outpatient setting.

And that will be a trend, I think, we will continue to grow and we will continue to drive growth moving forward..

Okay. I guess just the trend of growth within the ASC setting though, that growth rate relative to the hospital setting.

Is that growth rate going to continue to accelerate, you think, relative to the non-ASC portion of your installed base?.

Yes, to the hospitals or larger medical centers. I do think that growth rate will continue to grow. And the other reason to say that is it is just - it is easier logistics and working contractually to work through the value committee to be able to open up an ASC.

And I will ask Rick to comment on the level of penetration we have with some of the larger payers like ASC and USPI, and it is a lot easier for us to open up those centers that allows us to open them quicker..

Yes. Rich, we have talked about those seven national agreements that we have, and those agreements cover about 1,100 centers. Last quarter, we were about 15% penetrated in those centers. We won't get into all of them, but we are still under 20% of those agreements - of those centers under national agreements.

So that gives us continued confidence that we have a strong pipeline of center additions going forward..

Okay. And on the international front, you guys have a lot of irons in the fire here. They might not all come and contribute all at once in 2022. But as I think about Hong Kong, Singapore, obviously, Japan gaining steam, now France, Germany picking up post Omicron.

I guess looking into 2023 and beyond, it feels like the international momentum could really be starting to near an inflection point. Can you help us size or quantify that.

Correct me if I'm off-base here, is it wrong to kind of view 2023 as a step function potentially in the growth rate for international? But it just seems like there is too many things starting to combine that, that wouldn't be the case. Would love a little more color there..

I think that is fair. I think, today, we are dominated with the performance in Germany. And Germany is - makes up the great majority of all of our international revenue, but the contribution to global revenue is down to mid-single digits now. and we want to be able to turn that.

Now we don't want to slow down the United States revenue growth, and we just talked about how we are just in the early stages of penetration there. But we certainly want to increase international and not be just in Germany.

We didn't touch on the Netherlands, but they have a great breakthrough in their reimbursement, and we are opening additional centers there. We have always been limited to just two centers. So Netherlands is going to have growth. We are expecting a decision in Belgium, Austria, Switzerland, and now having a breakthrough in France and the U.K.

really kind of gives some excitement to the European team, albeit each of those takes their own time to be able to ramp that growth. But I think it is fair to say, yes, that it is going to have a significant growth in the revenue, which we are very happy about.

And not to mention the Asia team is excited, too, doing the first impacts in Singapore yet this month is pretty exciting..

Great. And if I could just squeeze 1 more in, Rick.

Just OpEx, how do we think about the relative to the 1Q OpEx levels for the rest of the year increasing and at what pace?.

Comparable to our previous quarters from a dollar perspective..

Okay. Thanks a lot..

And your next question from Jon Block of Stifel. Your line is now open..

Maybe the first one, Tim, just if you can talk about the national advertising initiative.

How do you think that is going? It seems like the web hits really increased, but what about the quality of those web hits? Do you believe they are converting well further downstream? And any thoughts on early sort of returns on that sort of bigger initiative that you guys kicked off earlier this year?.

Right. Early in the year, when we started the national campaign, we cover every territory I wanted. So we turned everything on for the first couple of weeks, and that is always just a tremendous spike in web hits early in the year.

And then what we do is we go into a cyclic mode in different parts of the U.S., we will go like two weeks out, two weeks out. So it is not a continuous run, and that is how we build efficiencies into it.

What we have also done on the web page is we have introduced some additional filters to help patients determine if they are good candidates and to get them to the right physician. So we do have a question in there, a little survey on their experience with CPAP on their history.

And before they call the Advisor Care program, they will go directly to a physician's office that they are able to kind of see if they are a good candidate, and that helps improve the quality of the candidates that are going to the centers and really help the long-term conversion rates, if you will.

So we are trying to do some things on the web activity as well as with the Advisor Care program to get more quality individuals to the centers..

Got it. Got it. Very helpful. And then maybe I will take just another shot from sort of an OpEx or an EBITDA perspective. Last quarter, you guys turned the quarter on adjusted EBITDA. And obviously, that was 4Q. And 1Q, you always have the seasonal component.

But when we think about exiting 2022 or even full-year 2023, and I don't get any punch back on you guys from top line growth, but there is some more about the sustainability of turning the corner. So we are exiting 2022, any thoughts on recapturing EBITDA positive profile.

What about full-year 2023? Is that the year where we can see turning the quarter on a full-year basis for adjusted EBITDA?.

Yes. First, we won't comment really on 2023, Jon, just because we provide guidance for this year.

And we have said this before, too, is profitability is important, but we are still so very early in the penetration of potential centers and the potential number of procedures that we are really focused on making those investments by adding new centers, adding new territory managers and making other investments that will drive several quarters and years of revenue growth rather than really optimizing our P&L to produce net income in the short term.

And so we did have more leverage in the fourth quarter. We have seasonality and the impact of COVID in the first quarter. But year-over-year, we did show a little bit of leverage compared to the first quarter a year ago. And so we know it is important.

We will continue to focus on our growth strategies and drivers, and we are maintaining our gross margin range of 85% to 86%. And so we will be watching that. And we know it is important..

Fair enough. Thanks guys..

Your next question from Lei Huang of Wells Fargo. Your line is now open..

It is Lei calling in for (Ph). So you had really strong growth, obviously, for Q1. You are expecting a positive momentum to continue.

Can you talk about any bottlenecks or rate limiting factor in your production of your devices just given the supply constraints we have heard otherwise across the industry?.

Yes. So we monitor that extremely closely. The advantage we have is we really only have four or five products, right, with the neurostimulator, the stimulation leads. And the neurostimulator and the sensor are two components, a lot of custom components in there that we have a good supply of, so we don't have too much risk there.

But we do have standard electrical components, and that can be challenging for everybody. So there have been a couple of circumstances that we have had to identify replacement parts and have gotten to the FDA to get a 30-day approval, and that is gone very well. And we are managing several quarters out to make sure that we stay on top of it.

But the team is doing a really good job. This goes back to the start of the COVID way back in 2020 when we started looking at where are our sites of manufacturing, what is our supply chain for electrical components as well as raw materials are also challenging if you are not on top of it.

Some of the plastics that we used in the patient remote housing as an example, but we are able to overcome that because we do hold a safety stock, and we are working out several quarters in advance.

But yes, we have the same challenges of everybody, I just think our team is really strong and have really been on top of it and have been able to maintain our safety stock..

Got it. And I think you mentioned earlier, you have at least 1 quarter of inventory in place..

Yes..

Is that right? Okay. Great. And then I'm not sure if you mentioned this earlier, Tim. So Inspire has obviously improved for post CPAP.

But just given the CPAP supply issue in the market, have you seen instances where patients are permitted to leapfrog that and move to Inspire system directly?.

Okay, maybe a little bit. I think we are careful with that because they just - I don't know if it is called leapfrogging because they just don't have a CPAP device that they can benefit from. So in essence, they are not able to receive benefit. And so therefore, they qualify for Inspire.

What you are also kind of hinting at a little bit is when does Inspire kind of move up the therapy ladder and be more of a first-line therapy. And that day will come, but we need to do some more development and conduct some additional clinical studies to be able to get that.

But in the meantime, I think your point is strong that we are changing the paradigm of sleep physicians and they talk about Inspire much quicker than they had in the past. And maybe that is a force function because they just don't have CPAP devices to provide those patients, but great observation..

Are you seeing payers be more being on board with that type of therapy where if the CPAP is not available, they are allowing patients to move Inspire? I guess, as you are seeing some patients doing that, is that a tough process?.

Most payers will allow that, and they are supportive of that because they know the need to treat patients with moderate to severe obstructive sleep apnea because the risks are so significant. Other payers will probably challenge it a little bit more to see if CPAPs available.

But again, we have positive policies with most payers, and they are supportive of Inspire..

Great, thanks. Nice quarter..

Thanks Lei..

And your next question from Adam Maeder from Piper Sandler. Your line is now open..

Hi Tim, hi Rick, congrats on the quarter and thanks for taking the questions here. I appreciate you squeezing me in. Two quick ones for me. First, I would just love to hear a little bit more about the partnership investment collaboration with the digital health companies.

Maybe just a little bit rationale behind those investments, how quickly you think they can expand capacity, streamline the funnel? And then I had 1 follow-up on the pipeline. Thanks..

Sure. I think it goes back a little bit what John was asking, too, about the conversion rates and how do we help people get through the pipeline. And as we looked at that data, one of the biggest stumbling blocks is they need an updated sleep study because they haven't had one in two years.

And so then when we go back, the sleep labs have capacity issues as well. So we just needed tools to be able to improve on that. So EnsoData has been around for a while. We have known about them. They are well known in the sleep community. And like I said, they are in over 500 centers, and many of our centers already use EnsoData.

It doesn't take over the sleep physician's job. What it does is it makes them more efficient because it uses their AI to automate the scoring.

And what they can also do is improve the quality of the scoring because if you are using a Level three sleep device that doesn't have sleep parameters, they can actually estimate the total sleep time and not just calculate total time in bed, which is just two factors for AHI.

So the sleep physicians actually get a higher reimbursement because it is a better quality sleep score. So it was natural for us to partner. We will interface technology. And so the data will be able to plug into Inspire Cloud.

And as part of our long-term digital development program to allow physicians to have quick access and easy access to patient management on Inspire Cloud. The Ognomy is just a little earlier stage, but it was made by a sleep physician who was skiing and couldn't see his patient. So he created an app to streamline that whole process.

And we think that we are going to be running a pilot program with that as early as next week with some of our centers to really help those patients who want to talk to a doctor about Inspire but they don't have an updated sleep study. We need to find ways to really effectively and efficiently get those studies done..

Really helpful color, Tim. And for the follow-up, just quickly on the pipeline. First, full body MRI labeling. Did I hear correctly that still tracking and just maybe refresh my memory should we expect that kind of in the next couple of weeks then if it is 180 days from a Q4 submission? And then on the Gen 5 ITG.

I think I heard that was still tracking to late 2023. Maybe just talk quickly about what's left to do there prior to submission to FDA? Thanks for taking the questions..

So on the MRI, yes, we have been answering questions. Typically, when you do a 180-day PMA supplement, the submission, you typically get FDA questions around day 100. We have received those questions. We have responded to those questions and we will go and do clarifications.

And hopefully, we can work interactively to solve the rest of those questions, and we will see FDA come back and approve that here in the second quarter. I don't think you are going to see in the next couple of weeks. But that is still our target. And pending any additional questions from the FDA, we expect to stay on that. FDA has been very, very good.

about doing reviews in a timely fashion, and they've been very interactive with us as well.

So we have a good relationship, and hopefully, we can answer all their questions and get the approval yet here in the second quarter, which will really be exciting and really good news for the patients because that goes back in that MRI approval will apply to any patient who has had an Inspire device since the Inspire four was launched maybe four years ago.

So really good news not only for new patients, but patients who have had Inspire for quite some time. The Inspire5 device, the key process right there is the application-specific integrated circuit, the ASIC. And we do have the second-generation in-house. We are evaluating that unit. So far, things are good.

And if that comes through, that is going to hold schedule. And we are still looking at submitting to the FDA at the end of this year. So we have done three pre-supps or pre-supplement meetings with the FDA on the Inspire5, and things are going very well. The FDA is fully onboard with our timing for submission.

And the work that we need to do now is really about a lot of the engineering and production qualification, and that is an extensive testing, and we will take the rest of the year to be able to get that all done. But yes, we are planning still to submit that end of the year..

Great. thanks for the extra color Tim..

You bet Adam..

Your next question from Michael Polark of Wolfe Research. Your line is now open..

Just two quick ones. Bridge on the guidance, 6% revenue increase to the forecast. The contribution from the price increase versus increased volume.

It sounded like the price increase is going to phase in such that it is maybe 1% or 2% of the guidance increase? Or is it even that much? I just want to get the split on the increased outlook, how much of that is the price increase versus volume?.

It is really not even that, Mike. It is really minimal impact to 2022 as we sit here today because we are just rolling that out and that will be phased in based on the pricing agreements with each of the customers. Again, it is more of a 2023 item, but we will keep you posted on that..

The procedure growth..

So it is volume growth..

10-4. The follow-up is just a little bit of background as you continue to generate all this inbound interest from your consumer outreach programs to the ACP. Curious if you have any data, whether it be first website visit or first ACP contact for a patient that successfully gets Inspire.

How long is that lag? I go to the website and I go through the whole process, and I get Inspire. On average, how long is that taking or the other measurement would be first contact to ACP, I successfully get through the process, get Inspire.

What's the average time that you see in your data?.

Yes, it is a great question. When you say from the first ACP contact to implant is on average about four months. And so we can really get in and look at what are the key factors that are driving that.

If you think about we want patients when they would contact the center to have an appointment certainly within the first 30 days, and then after they have that initial appointment to get their sleep endoscopy procedure, submit to the insurance company to get the prior authorization approval and then schedule to the operating room time.

And the key to it is most surgeons can try and get that done in about 30 to 45 days for scheduling the surgery. So that is why we got to keep pushing the build capacity and going to ASCs and adding a third, if not a fourth case in a given day to reduce that time.

We mentioned before another driver in there is the time it takes to get a new sleep study, and that kind of biases those averages. And so that is - these technology partnerships are just tools to be able to help that. So we are going at every different element. But right now, yes, it is running about four months, and we want to get that shorter..

Thanks for the color..

Absolutely. Thanks Mike..

And your last question comes from the line of Suraj Kalia of Oppenheimer. Your line is now open..

Congrats on the quarter.

Tim, can you hear me all right?.

Yes. We can hear you great..

Perfect. So Tim, a lot of information provided. Roughly 2,800 implants in the U.S. in the quarter.

If I could just drill down 1 layer more, how does the split look between sleep-certified otolaryngologist and general otolaryngologist and maybe also if you could care to share how does the unit volume split look between ASCs versus the hospital setting? I know 22% are the number of sites, but I'm just curious, how does the unit volume look like?.

Absolutely. Great question. Let's go back to the first one, talk about sleep ENTs or what we call dual board-certified ENTs, meaning they have both their ENT degree as well as they went get boarded in sleep medicine. Those are the sorts of a lot of the very early, early centers.

So if you go back to the class of '14, '15 and the majority of the early adopters are those dual board-certified sleep. But most recently, as we start to transition to the larger payer systems, that is not so much the case. And those are general ENTs partnering with sleep.

So I can't really give you specific numbers, but I may have to go back and look those up. But I think generally, I don't think the dual board-certified can stack up to a half. We need to go back and look at that. But I think while early on in the early days, it was more predominant. I think now you are just seeing so many more centers opening up.

And with the ASCs leading to your second question, you are just seeing more general ENTs who are very capable of doing the procedure, but they have a strong partnership with sleep to be able to manage the patients long term. And those are the centers that really can be highly productive because they have a team effort.

But I will go back and look that up. As far as the ASCs and hospitals, while we are at about 22% of the centers are ASCs, I don't think 22% of the procedures are done in ASCs yet to date. That is still the up and coming area.

I think it is - we don't have that number in front of us either, but I'm sure it is probably approaching high teens, but I think the majority is still done in hospitals today..

Fair enough. And Tim, if I could just throw this, and I appreciate you guys taking my questions. So Tim, let's say Suraj is in New Jersey area, right? He's heard an ad on radio or TV for that matter for Inspire. Great. What is the decision matrix, be it Suraj lands up at Mount Sinai for an Inspire procedure or another ASC, maybe affiliated or not.

How does the decision matrix work there, Tim? And also, if I could - sorry, go ahead..

No, go ahead. Finish..

And I'm just curious also, when you all define a new account, how are the number of procedures by "a new account" within the first three to six months tracking?.

Absolutely. Decision process. Suraj, when you see an ad and you go to inspiresleep.com website, and you educate and watch the videos and decide you want to move forward, you select the center that you want to go to.

Because you will see, find a physician in my area and you will select if you want to go, you are in Jersey, if you want to go over to Hackensack or if you want to, depending upon where you are, if you want to go into the city to one of the academic centers, you actually select it, and you call that phone number on there.

And when you come to the advisor care program, it identifies that you are calling this specific ASC or this doctor or this hospital. And we work with you if you are a good candidate to get you set up with an appointment at that hospital.

Now there may be other circumstances where that hospital doesn't see a specific insurance or something like that, and then we would work with you to choose a new center. But it is - the patient chooses the center. It is not the Adviser Care Program or there is a randomized element to it. We do make sure that it is patient choice on where they go.

As far as the second question is, we don't identify a new account until they have cases scheduled. And ideally, we want the center to have two or three cases scheduled. And then the key is the time to the second group of patients.

And that is the key to growing utilization and getting them up and active is make sure that they have a pipeline of patients, not just we are going to do 1, two cases, see how they do and then start again. We need to build a team and build a process and be able to have the next group of implants done within the - probably a month later.

So it is always a tricky part, like you are highlighting there, that to get centers up and active and get the utilization up quickly, but it always is a little bit of a start-up process. Very good..

Thank you..

Thanks Suraj. I think that is our last question. I just want to thank everybody 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.

Inspire team's commitment to patients remains unmatched and is the most important element to our success. We thank all of our employees as well as the health care teams for their continued efforts as we remain focused on further expanding of our business in U.S., Europe and now in Asia.

For all of you on the call, we appreciate your continued interest in and support of Inspire, especially on this fourth anniversary of our IPO, and look forward to providing you with further updates in the months ahead. Please stay safe and healthy, and thank you very much..

And this concludes today's conference call. Thank you, everyone. You may now disconnect..