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spk01: Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Inspire Medical System's 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I'll now hand the conference call to your first speaker, Esgi Yaja, the Vice President of Investor Relations at Inspire. You may begin the conference.
spk00: Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, President and Chief Executive Officer, and Rick Buholz, Chief Financial Officer. Earlier today, we released financial results for the three months ended March 31st, 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 10-Q, which was filed with the SEC earlier this afternoon, for a description of these risks and uncertainties. INSPIRE disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, May 2nd, 2023. With that, it is my pleasure to turn the call over to Tim Herbert. Tim?
spk11: Thank you, Esgie. 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 Inspired 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 complemented by the activation of new centers. Given the strong momentum we are seeing in our business, we now expect full year revenue to be in the range of $580 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 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 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 and 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 re-engage 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 Agnome, 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 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 had 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 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 Neural Stimulator. The Inspire 5 device will eliminate the pressure sensing lead and incorporates the sensor inside the neural stimulator using an accelerometer to measure respiration. We continue operational and production qualification as well as integration with the INSPIRE digital tools, specifically SleepSync. 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 Sleep Sync 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 SleepSync. Subsequent digital programs will incorporate a sleep monitoring device and remote patient programming. Regarding operations, we continue to make good progress with the production wrap of the silico-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 Inspire4 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 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.
spk13: 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 U.S. increased to $3.4 million, which is a 15% increase year-over-year on a reported basis, while units sold outside the U.S. grew 24% year-over-year. The U.S. 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, increased direct to consumer marketing programs, continued product development efforts, and general corporate costs. The increase in operating expenses is reflective of our ongoing plan to drive continued long-term growth and to make investments in key areas of our business. Interest and dividend income totaled $4.3 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 53 cents compared to the net loss per share of 61 cents 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 to 590 million. An increase from our initial guidance of 560 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. Dulem, you may now open the line for questions.
spk01: Thank you, sir. As a reminder, to ask a question, you would need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. We ask that you keep your questions to no more than one, but please feel free to go back into the queue, and if time permits, we'll be more than happy to take your follow-up questions at that time. Please stand by while we compile the Q&A roster. And I show our first question comes from the line of Robbie Marcus from JP Morgan. Please go ahead.
spk02: Oh, great. Thanks for taking the questions, and congrats on another great quarter.
spk11: Thanks, Robbie. We'll give you a follow-up, too, if you want it.
spk02: Now 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.
spk11: 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 sleep sync 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 surge in capacity to be able to add additional cases. in a given day, then further we'll be able to drive further improvements and 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 sedated endoscopy. So all of those in composite are going to be coming together at the same time frame as we launch Inspire 5, allowing us just to continue the increased utilization of the therapy.
spk02: Great. Thanks a lot. Appreciate it. Congrats again. Thanks, Robbie.
spk01: Thank you. As a reminder, to ask a question, you need to press star one, one on your telephone. And I show our next question comes from the line of Danielle and toffee from UBS. Please go ahead.
spk08: Hey, good afternoon guys. Thanks so much for taking the question. Congrats on another really strong quarter and great start to the year. Just a question for me on thinking about sort of the staffing constraints that we've been going through. It feels like, you know, 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.
spk11: Oh, thanks, Danielle. I think that we've been pretty good with the sleep studies and with the line of sight that we have for patients in the process. We're able to schedule them in advance, and so we're able to work around the staffing issues quite well, and therefore we're able to achieve that 84% growth in the quarter, which is tremendous and the number of patients that we're able to help is really extraordinary. So I think the staffing issues is present for sure, but I think because we have some advanced planning with line of sight of our patients, we're kind of able to manage that with our centers. And I do think our limiting factor tends to be more of the ENT surgeon time in the operating room to do procedures. And if we could continue to improve surgeon capacity, that really is the limiting factor that could have made our quarter even greater if we had more surgeon time. So when we look at staffing, I think we kind of focus more on the surgeon themselves who are doing the procedure, but the support staff is obviously very necessary, but with our advanced plan, we can work through that.
spk08: Okay, got it. Super helpful. Thank you so much.
spk11: Thank you, Danielle.
spk01: Thank you. As a reminder, we ask that you please skip your questions to no more than one question and one follow up. Thank you. And I show our next question comes from the line of Larry Bigelson from Wells Fargo. Please go ahead.
spk15: Good afternoon. Thanks for taking the question and I'll echo my congratulations on another strong quarter. I'll ask both up front. Rick, just the usual you know, question on just how to think about revenue cadence for the rest of the year. And then, Tim, I'd just love to get your reaction on the preliminary NXOA data we saw. And at a high level, Tim, just to follow on Robbie's question, how you're thinking about preparing for competition eventually in the market. Thanks for taking the question.
spk13: Hey, Larry, this is Rick. So, Yeah, we're really excited and proud of the results achieved by the team in the first quarter. And we did increase our guidance from our initial guidance beginning of the year. We're excited about the opportunity. We haven't changed our guidance strategy. And we're going to continue to focus on increasing utilization at existing centers where we see that, as well as add additional centers. And so if you take the increase in guidance, It's going to be really rateable throughout the entire year.
spk11: Okay, good, Larry. As far as releasing of early data, I think anybody who's been in med tech knows that early release of a Phase III pivotal study is pretty unorthodox, and that's not sure what the purpose was by doing that, but it's a very limited release, and it's very hard to make any judgments from the data that was released. And maybe it's because there isn't a lot of other data available, and so it's all they had to be able to put that out. It doesn't matter until the final numbers are available a year from now and what the FDA says when they assess that data. So that's all we're going to really comment on that. As far as competition, we know we're going to have competition in the future. What we've been able to do to show the benefits for patients in this market is tremendous. The market is extremely large, and it's open to having viable and good competition that has therapies that can help patients. And I think that on the horizon that will happen. But in the meantime, Larry, we're developing our technology to improve physician and patient experience. Inspire 5 is a perfect example of a therapy that's going to be leading edge, one of the best, if not the best, neurostimulator in the world today. to be able to take care of patients, reduce O.R. time, improve reliability by eliminating the sensor, improving outcomes, and then tying that into our patient outcomes with the SleepSync system. I think we're going to be in a very strong position for several years, probably until the time we'd even expect to see any competition if they pass their trials anyways. But thank you.
spk01: Thank you, Tim. Thank you. And I show our next question comes from the line of Travis Speed from Bank of America Securities. Please go ahead.
spk05: Hey, thanks for taking the question and congrats on a good quarter. Maybe to quickly follow up on Larry's competition question, maybe how would you think about the weight loss drugs and that competitive environment? And then the other question I'd have is when you think about the higher revenue guide, how you're thinking about the OPEX guide? within that if you would have the OPEX go up a little less than revenue and just kind of overall thoughts on margins and profitability again for this year. Thank you.
spk11: Fantastic. Let me touch base on the weight loss drugs coming out and then Rick will touch base on OPEX. We really like the weight loss drugs. And the challenge that we have as a therapy is our treatment is for tongue-based obstructions and it doesn't address lateral wall. No hypoglossal nerve stimulation system can treat lateral walls because we stimulate the genioglossus, which is the tongue movement that moves it forward. Lateral wall collapse is related to higher BMI. And so if we have patients that can lose 20, even 30% weight loss with some of the new injectable drugs, we think that's really a positive and really complimentary to inspire. Those That weight loss will reduce lateral wall collapse, but it doesn't address tongue base collapse. So the two of us need to work in concert together to be able to treat the higher BMI populations and really look forward to the day when we get more patients that can have a relief from their high BMI to bring them down into the group that we can treat with INSPIRE. So I think it's really complimentary, and we're quite encouraged by the development of those drugs. A handoff to Rick here for a discussion of OPEX.
spk13: Yeah, hey, Travis. As we've trended the last several quarters, the revenue growth has outpaced the OPEX growth. And so with the new revised guidance of 42% to 45%, for revenue on our updated guidance for the full year for 2023, we expect the OPEX to be less than that growth of revenue. Not significantly, but just maybe a little bit less than our revised updated guidance. And then as far as profitability, we're not changing our tone on profitability. We know it's important, but we're going to continue to run our playbook. I want people to understand that we do have a disciplined approach in our spending and our investments across our business, and we demonstrated profitability in the fourth quarter of 2022. We're not guiding to profitability at this time, and we did lose some of that leverage in the first quarter because of our seasonality. But as we progress through the year, our plan is to show some improvement on that operating leverage.
spk05: Great. Thanks a lot.
spk01: Thank you. And I show our next question comes from the line of John Buck from CIFL. Please go ahead.
spk09: Great, guys. Thanks. Good afternoon. I'll also ask both mine up front. I guess, you know, is 1Q clean from an end-user demand perspective, or was there a small benefit from inventory levels rebuilding a bit, Tim? I just wasn't really sure based on the inventory comments. It actually seemed like inventory could still be below normal levels. So any clarity there would be helpful. And then the number of centers were particularly solid, you know, well above our estimate. So maybe just talk about the types of centers that are coming on board. Importantly, what's being done to ramp them quicker than previously? And then I didn't hear a percent of ASCs. So if you got that handy, I'll take that from you guys. Thank you.
spk11: Got it. Thanks very much. Yeah, there's a little bit of that carryover from the first quarter. There's no question about it. As we talked about our fourth quarter call that we were on allocation to make sure that we supported every in-plant that was scheduled. And from that, we were able to achieve that. But there's a little bit of carryover, but even the carryover is relatively small. And even with taking that into account, we were still close to 80% growth in the quarter, but certainly that exists. Our inventory position is improved. And we have that line up and running and ramping. And so we're able to support all orders right now with positive inventory today. And we're going to continue to grow that forward. As far as the number of centers that we experienced, we did get an increase to 68, which is phenomenal. The percent ASCs at this point is now 24, 24%. So a little bit of an uptick. from the prior quarter, which is good because ASCs will continue to grow slightly faster than the hospital setting, which we will continue to grow as well. So I think just opening up the new quarter, able to spend some time on opening new centers, and that's why we have that 68 and we'll continue to be able to scale the number of centers that we open over the quarter. But for the meantime, we're just leaving our guidance where it was.
spk09: Thanks, guys.
spk11: Thanks, John.
spk01: Thank you. And I show our next question comes from the line of Adam Mater from Piper Sandler. Please go ahead.
spk04: Hi, Tim. Hi, Rick. Thank you for taking the questions and congrats on the nice start to the year. Wanted to start on a couple of the label expansion opportunities, you know, specifically raising the upper limit of AHI and then also the change to the language around BMI from the current label. Just any latest thoughts on timing, and then I have a follow-up. Thanks.
spk11: Absolutely. We've been working with the FDA. We answered the question. In the past, we've been talking about process, how these PMA supplements go, and they're 180 days, but the FDA asks questions at day 100. We have received the questions, responded to those questions. It's back in review with the FDA. We see promise moving towards approval, and we think that approval is coming in the very near future. I think the high AHI is really the benefit for patients in that submission, remember the submission includes both AHI and BMI. The high AHI, right now those patients just don't have any other alternative. And so that's a natural fit for them to be able to fit right in to INSPIRE. The limitation really goes back to the early days of the clinical study. So there's no reason to really have upper limit on AHI. I also think that we'll be able to quickly garner reimbursement support or coverage from both commercial payers and Medicare to be able to really take care of that population. We can get those patients approved through the appeal process, but this is going to really streamline their patient experience and be able to get those patients in insurance approval quite quicker. As far as the high BMI, While that presents a good opportunity, it also is something we need to be careful about because remember with the higher BMI, it introduces the concept of lateral wall collapse, and that's what's very difficult to treat with hypoglossal nerve stimulation. Patients will get improvements because we'll take care of the tongue base collapse, but they won't get a total improvement to the satisfaction that we desire. And so we're going to want those higher BMI patients to address that lateral wall collapse before they're going to be eligible. That being said, we do have our own work going on to advance our system to stimulate to take care of lateral wall collapse, but pretty early to talk about that right now.
spk04: Okay, that's great color, Tim. Thanks for that. And maybe switching over to Rick and the P&L, just had a quick question on R&D spend in the quarter, which a healthy step up. So I guess first, what drove the increase? Where are those dollars being spent? And how do we think about kind of cadence of R&D spending going forward? Is this kind of the new base to work from? Thanks so much for taking the questions.
spk13: Yeah. Hey, Adam. Part of that increase is up in R&D. It was about 20% of revenue. That historically has been in that 15% to 20% of revenue. And it has increased just year over year and sequentially. It's really a function of the timing of entering that full qualification of Inspire 5. And so we will continue to make R&D investments in the future. And so we expect R&D to continue to be in that mid-teens range as we exit 2023. Thanks, Rick.
spk01: Thank you. And Aisha, our next question comes from the line of Richard Newiter from Truist Securities. Please go ahead.
spk06: Hi, thanks for taking the questions. Two quick ones for me, and congrats on the quarter. One, just the first, Rick, following up on the profitability line of questioning here. You know, I think last quarter you said that you do think that adjusted EBITDA on a year-over-year basis will be higher than it was in 2022, based on your comments around OpEx growth being below the top-line growth rate. It sounds like all of that should still be intact. I just want to make sure that, you know, we're thinking about that correctly, and that would imply positive adjusted EBITDA. excluding stock-based comps still. Is that fair?
spk13: That is fair and that's accurate. When you look at EBITDA, it was about a $900,000 loss for the first quarter compared to a $6.1 million EBITDA loss in the first quarter of 2022. And the big driver there is stock-based compensation was $18 million in the quarter. And so still accurate comment.
spk06: Okay. Very good. And then just thinking about, you know, competition, I know there is none in the U.S. currently, but assuming a competitor gets there, I think they suggested they could use either your code or there would be potential modifier situations with other codes that would get them kind of a, I want to use the word fast track reimbursement, but bypassing what you have to go through from a coding standpoint would I'd love to just hear what your view is in light of some of those comments and any perspective you might have there. Thanks.
spk11: Sure. Well, I think there's two people out there doing clinical studies. I think Livanova is probably at the forefront of it because they got more data and more experience. And they already have an existing code, which is, remember the old 64568 that we were using with our add-on code? So they already have a code with their implanted neurostimulator and stimulation lead that that they're going to be able to leverage as they go forward. As far as NXOA, that jury's out and they got to go figure out what they're going to do with their code, but that's up to CMS and not for Inspire to comment, but that's always a little more challenging than you say it's going to be. Now, that being said, both companies have to deal with coverage, which is their number one challenge. In order to get coverage, you need to have extensive data. And if you remember back, for us to get coverage, we had to publish large studies, and we had to publish five years of clinical data. And Aetna was the first one to go. Remember that was back in 2018, I believe. That was four years after our FDA approval. So getting FDA approval does not bring you home. That allows you to enter the reimbursement phase of your business development. Long way to go.
spk06: Thank you.
spk11: Thanks, Reggie.
spk01: Thank you. And I'm sure our next question comes from the line of Chris Pascual from Nifrin Research. Please go ahead.
spk12: Hi. Thanks, guys. Two questions. One, Tim, you talked about new services to improve the patient experience and proactively reaching out to patients. Can you talk a little bit more about what you're doing there and what problem you're really trying to solve?
spk11: Oh, absolutely. So we have a lot of patients that come from the advisor care program and have challenges getting appointments with the doctor because we either can't work through the phone or the email. We highlighted in the script that with our electronic scheduling, we're actually seeing a 30% improvement in the pilot centers. That means there's a significant number of patients that are just getting hung up in that process. And so we're doing things such as a more organized emailing program to re-engage them and help them through the process and get them back in the game and get them back connected to a healthcare provider that can take care of them. That's just one example, but we have a significant number of other patients in our system over the many years that we've been working that continue to show interest and inspire. And now we're going to be proactively reaching out to them and really kind of just giving people a better chance to work through the process. Because the first couple years, as effective as that direct-to-consumer has been, we all know the challenges of that conversion and our tools are getting much better to be able to help more patients. So really, that whole team is really focused on just improving those different factors and patient communication, electronic communication, scheduling are the two leading programs.
spk12: That makes sense. Thanks. And I'm just curious what was behind the decision to go direct in Japan and whether you expect that's going to have a noticeable impact on implant activity there.
spk11: Yeah, absolutely. No, we love the partner that we have. They're great people. But it's an implanted product. And so if you think about every company that's successful in the United States and in Europe, they really have direct representation because you need to focus on the customer base, focus on those physicians to maintain their commitment and drive utilization. And it's very difficult for a distributor that will have 10, 12 products in their bag to be able to sell, to be able to provide the same level of commitment to the patients. And being there for a couple of years, we saw the direction that that was heading. And we worked, you know, appropriately with our partner there and we agreed the right thing to do was for us to just hire a direct force and that's what we have done. We have a country manager. We have the first sales reps were in Minneapolis last week as part of Inspire University. You know how every quarter we go through and train all the new reps together and it was great for them to come and be part of the new US sales force as well. We just authorized a new trainer today. We also have a marketing team. We opened up the website, and so we're showing great promise, and I think you're going to see a little bit of a response when we start talking about Japan performance going forward.
spk13: Great. Thanks.
spk11: Thank you.
spk01: Thank you. And Asha, our next question comes from the line of Matthew Mishon from KeyBank Capital Markets. Please go ahead.
spk03: Afternoon, and congrats on a great quarter. Thank you. Can you talk a little bit about utilization trends into the next couple of quarters from coming off of 1Q? I think as I'm building out my model, I'm finding it difficult to kind of stay within your guidance range without keeping the utilization trends fairly modest into the next several quarters.
spk11: Absolutely. I think that we, as we showed through last year, we had a consistent step-up from Q1 of 1.3 up to utilization at 2.0 in the fourth quarter. We always have seasonality primarily in January, and so you see a little bit of a pull back in the first quarter to, I think it's about 1.7, and so pretty consistent with past years, what we see going into the first quarter. And from here, our job is to stay focused and continue to grow the utilization going forward. We do believe that the majority of our growth in procedures and revenue will come from increased utilization, again, complemented by opening additional centers. But you're going to see a plan just to continue to keep growing utilization through the year. Some we haven't mentioned that we talked about previously is we have changed the compensation structure with the territory managers to really focus on higher utilization at existing centers. And that modification has been well received by the team so far and we'll continue to to monitor that as we keep going forward?
spk03: Excellent. And then just one clarification for me. I'm pretty sure I know the answer to it. The number of new centers you're adding, the 68 didn't pull from the 52 to 56 per quarter. You're still expecting to do incremental 52 to 56 in 2Q, 3Q, and 4Q.
spk11: Well, we always put our guide at 52 to 56 is what we said, and it takes time to open centers. But we do know centers will go, opening a new center can take anywhere from three to six months, depending upon if they have to go through the value-add committee or if they have to go with contracts and pricing agreements. So we have line of sight to the number of centers, and we will open centers when they're ready. And what that means is that means everybody is trained, they've identified patients, and they're ready to do their first case. And so that's why we're able to kind of control that cadence a little bit, but we never know from a quarter to quarter basis where the end point is going to be. We tend to be a little bit above the guide as you see in the past, but that's why we're just kind of holding the guide steady.
spk03: All right, thank you.
spk11: Thank you.
spk01: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone. And I show our next question comes from the line of Anthony Petroni from Mizuho Securities. Please go ahead.
spk10: Thanks, and congratulations on a strong 1-Q here. I have a couple of questions just on procedure implant time. And maybe, Tim, can you remind us where total implant time was with the three-incision procedure and where it stands with two incisions. And then the follow-up to that would be when we think about getting rid of the pressure-sensing lead with Gen 5, where do you think procedure time can go with that platform?
spk11: Absolutely. Yeah, thanks. And I'll come back to a follow-up. So when we went to Inspire 2, the procedure time went from approximately two hours down to 90 minutes on average. So in general, with the two incisions, we were at 90 minutes. Now, the top centers that have a high utilization, they have a lot of experience, they routinely run at about 60-minute procedure time today. So you can say the range of Procedure time today with two incisions is between 60 and 90 minutes. When we go to Inspire 5, we will expect that to drop down to between 45 and 60 minutes, depending upon the experience of the surgeon. So it's going to have both a benefit from implanting the sensing lead itself, but there also is improvement in our intraoperative testing. What's key to note here is remember that we do full operational testing in the operating room. So we know that the stimulation is moving the tongue forward, and we know that we can review the respiratory signal. So we know we have an operational system before we close. And that's, we're going to be able to improve that time when we go to Inspire 5 as well. And you had a follow-up.
spk10: No, it was very helpful. And maybe just a quick update on Phillips. We tuned into ResMed last week and Phillips reported also last week, and there's still just a lot of opaqueness around that process with FDA and SEC and DOJ. So just any kind of updates on what you're hearing around the Phillips recall. Thanks.
spk11: Yeah, I think, I mean, this has gone on for how many years now, and it's just an ongoing frustration by everybody. And hopefully someday it'll resolve. From our viewpoint, What it's done, it's changed the paradigm for which sleep physicians look at treating sleep apnea. And they no longer are dedicated just to CPAP. They're opening up and saying, what other methods do we have out there that can treat our patients? And there's a prospect of a new drug, right, that could possibly take care of milder cases. They still have CPAP, but now they have Inspire. And for patients that don't benefit from CPAP, they can quickly move on to Inspire and we become part of the talk track earlier. And that really is going to be the long-term paradigm change that is going to be the benefit to the patients that they become aware of all the therapies earlier on in the process.
spk10: Thank you so much. Congrats again.
spk11: Thank you.
spk01: Thank you. And I show our next question comes from the line of Suraj Kalia from Oppenheimer & Co, Inc. Please go ahead.
spk14: Good afternoon, Tim. Rick, can you hear me all right?
spk11: Yes, Raj. How are you doing?
spk14: Perfect. Congrats on a nice quarter. So, Rick, one question for you and one question for Tim, and I'll ask both of them up front. Rick, if I were to define new stores as one open within the last 12 months, how would the new store same-store scale configuration look like in Q1? And Tim, forgive me, I got a little confused, so maybe you can help me here. So from a phenotype perspective, right, obese patients do have greater oropharyngeal collapse, you know, as a contributor to OSA. And hypoglossal nerve stem has been approved for high BMI. So is the notion now that HGNS cannot effectively target higher BMI Or is it that first you've got to treat it with GLP-1s, do the weight loss, and then HGNS can be used in the higher BMI category? Thank you for taking my questions.
spk13: Hey, Suraj. It's Rick. So to your point, overall utilization is up from a year ago. It's down a little from Q4 because we have seasonality. But as Tim mentioned, it progressed nicely up on a quarterly basis. if we don't give the details but at a high level if you look at our the four quartiles on utilization in the first quarter from a year ago all those quartiles are up from it from a year ago on number of procedures that are completed we do and then not looking specifically at the numbers but when we bring a new center on expectations are just different than they used to be you know Several of the older vintages or classes were used to the three-incision approach, and reimbursement was not as in a good position as it is now. So now that we have the two-incision approach, full reimbursement, good CPT reimbursement for the physician, there's just a different expectation. So we expect those new centers coming on board to get higher utilization faster.
spk11: Very good. Okay, let's address high BMI. First, in the United States, the FDA did not limit BMI. So yes, you are correct. High BMI is not a factor for INSPIRE, although they have a warning in the labeling that says we do not have data on patients who have a BMI higher than 32. the new warning that is in review with the FDA is going to change that saying we do not have data on patients who have a BMI higher than 40. So it's only changing a warning. It doesn't change the indication, and you are correct, that high BMI patients are approved in the United States for Inspire Therapy. Now, the key, though, is we must identify which patients have the proper anatomy or proper collapse that is supported by any hypoglossal nerve stimulation system, including Inspire. We know hypoglossal nerve stimulation stimulates the genioglossus muscle that moves the tongue forward, but the component of collapse in high BMI patients is a combination of tongue-based collapse and lateral wall collapse that presents to what we all know as complete concentric collapse. We can now stimulate the hypoglossal nerve and clear that component of the obstruction, but the high BMI patients will remain or continue to have obstructions on the lateral wall. So while they may have improvements in their sleep, they won't get improvements in those patients that are tongue-based only because of the residual collapse from the lateral wall. Okay, thanks guys.
spk01: Thank you. And I show a last question comes from the line of Michael Polar from Wolf research. Please go ahead.
spk07: Hey, good afternoon. Thanks for sneaking in. I have a question on gen 5 launch next year when that goes into the market. What evidence will you have present to physicians and patients that, you know, the. the synchronicity of the two-component system approximates better than the three-component system. I mean, you mentioned federal liability, so it sounds like with pinch testing, it'll be even better than the three-component system. But I guess, what do you have on paper at the time of launch to persuade physicians and patients that that's the case?
spk11: Sure. Thanks, Mike. We do have a clinical study we did, and we're able to do is take existing patients who have INSPIRE IV, and we can use a second system, which is external, with using an accelerometer to measure capture during the inspiratory phase of respiration. And this is the clinical evidence that went to the FDA that's been reviewed by them a couple times already to show that the accelerometer, which has been used in rate-responsive pacing for years for respiratory detection, provides a cleaner respiratory signal, and our improved algorithm is going to improve synchronicity by providing stimulation synchronous with the inspiratory phase of respiration. So we've already been able to demonstrate that with existing patients and provided that information to the FDA. So we're going to have evidence when we launch that we're going to be able to show a benefit. And then secondly, by removing the pressure sensor, it's just going to be an easier procedure for both the surgeon and the patient, as well as improvement in reliability because we know that many of our revisions to date have been a result of that pressure sensor. So pretty confident in the device itself and already have data to be able to show that.
spk07: Hopefully, I appreciate that. If I can ask a follow-up, I thought that your competitors event, the most interesting part was one of the physicians that presented on different targets in the airway, the antiservicalis specifically. And look, early stage stuff, who knows? But it seemed intriguing. And my question for you is, is there stuff like this in your R line, your research line, that you're thinking about? Just curious for any perspective on that. Definitely. different stimulation targets to promote different movements in their ways to potentially treat more patients on the road.
spk11: Absolutely. Great question. Absolutely. We have a program going. We've already done several acute patients. We're going to be moving into more of a chronic study in the near term. And the concept is really around what we just discussed after Sraj's question about talking about the lateral wall collapse. And we mentioned that we have our own research study going with this. And the INSPIRE 5 device does have the technical capability to have dual channels of stimulation. We will need mechanical modifications by adding a second port for a second stimulation lead. But we've identified an area that we want to stimulate to be able to take care of lateral wall collapse. and therefore take care of what we described as high BMI patients and really be able to find a good solution to take care of those patients. So you're going to hear a lot more about that in the near future, but yeah, great questions. We're very active with that.
spk01: Thank you. This concludes the Q&A session for the conference. I would now like to turn it back to Tim for any closing remarks.
spk11: Thanks very much, and thank you all for joining the call today. As always, I'm grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work, and continued motivation to achieve successful and consistent patient outcomes. The Inspire team's commitment to patients remain unmatched and is the most important element to our success. I wish to thank all of our employees as well as the healthcare teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe, and Asia. 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 months ahead. Please stay safe and healthy.
spk01: This concludes today's conference call. You may now disconnect.
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