Inspire Medical Systems, Inc. (INSP) Earnings Call Transcript & Summary

Great. And I think we are back live. All right, folks, I'm Amit Hazan, the medical technology analyst here at Goldman, and we continue our day of the Health Care CEOs Unscripted Conference with a med tech presentation. We're really excited this year to have for the first time at this event, Inspire Medical with us. And we've got both the CEO, Tim Herbert; and the CFO, Rick Buchholz with us today. So first and foremost, Tim and Rick, in these continued challenging time, thanks so much for joining us in this event.

Amit, thank you very much. It's really a privilege to be here today, and thanks for having us.

Yes, absolutely. So Tim, one of the things that we'd like to do in this event is at least start very high level and talk about the industry with those that participate, in this case, med tech. And so let's have a little bit of fun for a few minutes and just ask you to pontificate about a few things that are beyond just the business of an Inspire and the first one is just to maybe talk to us for a minute about what you would tell investors are the most important trends for the med tech industry over the next 5 years as you see it and what's perhaps most underappreciated.

Absolutely. I think the foundation, the foundation is always the core, where you have to have a strong technology with very, very good patient outcomes. And to be successful, you must have strong clinical evidence to be able to show the benefits to the patients and to be able to get partnerships with the health care providers and with the Medicare partners, and as well as all the physicians in the hospitals. That's not anything new. That's nothing exciting. That's just the core fundamentals of being a successful med tech company. If you don't have that basic evidence to support your technology, you're just really limiting yourself. Well let's change this a little bit and let's talk about the dynamic environment that was created with COVID back in 2020, and what has changed about med tech and what do we see as we evolve out of this. And I think there are a couple of key things, well, basically like three. Number one, Zoom meetings and the ability to communicate on Zoom, I think, is going to continue past the -- once we somehow figure out how to take care of COVID, but it's going to continue onward. That's going to be a really important factor. We use that where physicians can communicate with groups of patients, we will educate on the therapy and not focus so much on just one-on-one appointments to be able to provide educational events and can do that more remotely from the physician's office to the patients' homes. And that I think is going to continue on. Number two, as I adjunct to that, with COVID, CMS, remember, back in 2020 came out and they said reimbursement for telemedicine is just as viable or equal to that of an in-office visit. I think telemedicine is going to really continue on, because it provides a really accessible way for patients to communicate with physicians, not just with a phone call, but to be able to see them. The key to it is to make sure the physician can take some action. And that's always really difficult in a med tech environment. Pharmaceutical that's easy. They can just say, well, I'm going to write you a script and you can run down to the drug store and pick up your new prescription. Med tech doesn't have the ability to do that, which leads to the third element, I think we're going to spend a lot more time [indiscernible] we are in developing digital tools. And more so to just communicate with the patients to have the devices communicate with the cloud and to be able to provide immediate access to data, to the physicians to help real patient management. And I think that what has to happen there, and again, working on this at Inspire is for the physician to be able to take some action. In Inspire's case, we have active implantable neuro-stimulation. So what we're trying to do is make sure the physician can take action by doing device programming remotely via the cloud and via the digital tools that we're developing. So I think what COVID has done is really created a remote world, and med tech has to kind of adapt to be able to fit into that world and make sure that we build the tools to work alongside this new remote environment.

And are you confident, Tim? I mean, obviously, there's a push and pull there where most of med tech generates revenues off of procedures that are done, and we can argue whether there have been too few or too many in past years, pre-COVID. Does all this technology allow for efficiencies that increase revenue or decrease revenue perhaps on the procedure side and increase revenue on the digital side, whatever that might be? Or how does it work from a total market perspective in your view? Is this a net-net, a win for med tech?

Well, I think it's a net-net win because we're talking about capacity. And by doing remote patient management and remote programming and being able to use digital tools and AI that can help assess how well patients are doing, it makes it so much easier for physicians to do their jobs. Therefore, they can treat more patients to be more efficient. Therefore, that creates capacity. That creates the ability to treat more patients and have more patients coming through the pipeline and from a med tech company provides us the opportunity to treat more patients and provide more products into the market and obviously create more growth and generate revenue and continue to invest and grow the technology, and it continues to grow on itself. So I think it's going to be a really important element. The second step to that is if we can come up with tools that really have value in helping physicians do their job. There is a subscription possibility in there. And so made -- med tech can start to evolve a little bit to have their own software as a service, right, to help patient management. Maybe there is a different avenues in there that can help physicians do the practice yet generate revenue to be able to continue to develop additional tools down the road.

Let's spend a minute on regulatory and then we'll kind of get into the fun stuff of some of the things you've reported and what they mean. So regulatory, not surprisingly with COVID, whether it's personnel audit capability delays, trial delays, we're seeing it across med tech in various areas. How meaningful has that been for you and the industry? How meaningful do you think that's going to be? There's also been a sense that FDA is more onerous in some ways in what they're asking for. I don't know if you agree with that. But what's your sense of where kind of just the regulatory environment sits today in the U.S.? And then outside the U.S., especially in Europe, you've got the MDR regulations coming through. Just any thoughts on that and what that might mean for the group.

Well, I think working with the FDA, you have to establish a relationship with them and what -- well, you have to have credibility, you have to have a reputation, you have to do what you say you're going to do and do it. And then once you establish that credibility with clinical trials to show the evidence of your therapy, that really helps you with the relationship. We have ongoing submissions with the FDA on any manufacturing changes, any changes to the labeling and the new surgical techniques. It's an ongoing process. Even after you get FDA approval, you need to have that relationship with the FDA, so they understand what's coming forward. More importantly, what's important that needs to get reviewed right away and what's important but not necessarily as critical. What we do is we just have ongoing communication chains with the FDA. So no surprises. We tell them our schedule. These are the things that we see coming in the next several months. This is what we're working on. This is when you can expect to see that. And so the FDA can also plan. They got their own problems, right? They got all this inbound material coming with strict time lines for which they have to review and return comments and questions, and they got their own staffing challenges. They also have to deal with COVID, like everybody else, with everybody getting sick and working remotely, and we know how difficult that is to be able to be as productive remotely, and we're learning how to do that. So I think it's just more important to really communicate with FDA and CMS and all of the other agencies to really communicate what your plans are, lay it out front. And then live by those plans, work towards those plans. Doing any clinical studies in an environment like this is obviously very difficult when hospitals are focused on patient care and treating COVID patients and the vaccination, not vaccinated or whatever, it is putting a burden on our health care system and that does have a ripple effect down the road of treatment and any inpatient procedures really get challenged. And so we got to really get on top of this. And so that really makes it difficult going forward. In our case, we're outpatient, so we can find ways to protect against disrupting the health care system as far as hospital beds and inpatient. But We all have to work with it. So really, it's about communicating and making sure you lay out your plans. As far as EU MDR, that's the new rules that are in place. It is what it is. You got to get on board the sooner you plan ahead on that. All the notified bodies in Europe are going to be busy as everything because everybody is coming through at the same time, and everybody wants their 9-month review cycle to get it, it's going to be disruptive to our business. There's only so many products that are going to fit through the limited review process. So make sure you get on top of it, you can't fight it. You just got to get on board, you got to get a submitted plan ahead. And we have submitted ours where the clock is ticking and we're excited about that. But it really limits your ability to make any changes to technology and to bring new technology to the European market until you get through the EU MDR. So it's really kind of a difficult time for everybody, but we're in the middle of the process. Everybody has to go through that as it's part of the process.

Okay. All right. So let's kind of -- staying in the context of state of the industry, we'll try to use some of the results you just preannounced this week in an industry context, and then I promise right afterwards, we'll get right into Inspire and what means for you, and we're all very curious about some of the drivers. But from an industry perspective, now that you've at least gotten some top line numbers out there, maybe you can more freely talk about this. Just talk through what you saw during the quarter in the U.S. in particular, on a month-by-month basis, I hate to ask that. I hope we'll be done asking the month-by-month question soon, but just because of the development of both second wave of Delta and then Omicron, I think a lot of folks are curious about what happened in December, in particular, and what you saw and you've been so good about talking about your own visibility in your business and having planned for this. And I want to give you credit for that because I recall those comments that you have made and you were planning for a wave, and I think you're one of the few that really kind of just called it out, maybe not Omicron but you expect the Delta to really cause some disruption. So give us a sense as best as you can, what you saw at the hospital outpatient and ASC settings by month if you can?

Absolutely. We knew that this time last year, when we came out of December of 2020 into January of 2021, and we always have a normal seasonality when you come out of December because all the patients have their high deductible insurance plans, and they've been -- the out-of-pocket expenses have been reached. And so they want to get their procedure done before the end of the year where it resets January 1. So if they do a procedure in early January, it's going to cost them $3,000 out-of-pocket or whatever their high deductible is. So there's always a big rush at the end of the year. We saw that in December of 2020, but we also saw that COVID was really growing, remember that way back when. So when we hit January 2021, we saw an extreme seasonality in January. The good news is we got through it relatively quickly, and we recovered in February and March. We had a pretty good spring and all of the sudden, you start getting into the summer months and Delta started raising its head. Everybody saw Delta down in Miami and they had to be able to predict. You know damn well it's not going to stay there, and it's going to grow through Miami. It's going to go up to the 3 cities across the state, right, Tampa, Orlando, Jacksonville, and from there, it's not going to stop at [indiscernible] it went all the way across the United States. Here in Minnesota, we're at the other side of it, we're just coming down from Delta as now we have to face our new wave coming in. So we knew though that it went through Miami relatively quickly. And then it went through the 3 cities in Florida, and we got the Delta wave out of Florida. And so we're able to get a good rebound there late in the third quarter, but we knew that was going to carry into the fourth quarter, but is also -- it's a regional effect. And it's not like May or March of 2020, where it shuts down the entire United States. It's going to be an ongoing moving target. And so you're going to get little pockets where you're going to have delays. What we are able to do is get away from the hospitals that have the high treatment centers for COVID. Those are the ones that those -- the 100% hospitalization rates, full ICUs, we've got to be able to move to either regional hospitals or in our case, we were able to move a lot of our cases to ambulatory surgical centers. You saw that we opened up a large number of centers in the third quarter. We reported recently, we opened up 81 new centers in the fourth quarter. That's way above our guidance that we put out, but that's how we can manage the COVID because we can move those to all patient centers, where the patients can still get their therapy and they're comfortable going into ambulatory surgical setting and not going into the big hospital because we've got staffing issues there that have to focus on COVID. And that's one we were able to continue our growth going forward. The other key that we had as we're moving forward is we know that we have about 30 days line of sight for our patients because we help on a lot of patients who have prior authorizations and working with insurance companies. And so we kind of know what the demand is going to be. So right after Thanksgiving, we're able to book our OR time the last 2 weeks of December. Those are the most competitive times as we already talked about the high deductible rates. But also midyear, remember, we went to a 3 incision to 2 incision. And what that did is that reduced our OR time by 30 minutes. And so now we're able to add in a couple of cases during those reserved OR times late in the year. What basically we're doing is don't give up, COVID is here, everybody's got to deal with it. You got to be resilient, you got to be flexible, and find alternatives. In our case, we just opened up a lot more centers to be able to give us flexibility. That also helps long-term growth, right, because those centers are going to stay with us to be able to provide that. Now here we come into January of 2022, we have our normal seasonality because we're coming off a big spike in December. And now we have another huge wave of Omicron coming through. And we have -- your conference here, we're virtual, your competitors' conference next week has gotten virtual. We always do our national sales meeting in January, we just announced this week that's gone virtual, unfortunately. Our Board meeting has gone virtual. We, again, have to face it. Now theoretically, the disease isn't as severe, but the sheer numbers are so large that it's still going to overwhelm our health care system in January. And if we watch what we see in South -- I mean South Africa as well as in the U.K., hopefully, it moves too quickly. It gets through New York quickly. And now we're seeing -- dealing with it with a Mid-Atlantic with some case deferrals and it's going to go through the entire U.S. again. Hopefully, you can get through in just a 6-week period of time, but we are going to see case impacts again, everybody will. The key is going to be how well can we manage that, make sure we understand where those patients are and get them rescheduled or be flexible to move them to ambulatory surgical centers or again, regional hospitals. But we're all in this again and we're all going back to mask mandates here in Minneapolis today. So it is what it is.

Yes. Yes. Well, at least the masks will keep you warm outside a little bit if they're outside too. Well, let's go back to the fourth quarter comments and just stay high level here, and I'm going to ask you to speculate about the inpatient side. I know you don't have exposure there, but between inpatient, outpatient and ASCs, especially in December, it sounds like you were shuffling around. Was there an increased level of shuffling around in December for you to get patients from outpatient to ASC? Is that how you were able to sustain the growth there? Or just talk to us a little bit about those different settings and again, speculate on the inpatient, but what you can tell us high level of what they were experiencing here in December as Omicron was starting to increase in the U.S.?

Absolutely. Very proud of our field team, they're the best of the best, and they understand the challenges in front of them and they're not going to sit back and wait, they're going to find solutions. Now the good news is a lot of our surgeons who are trained with Inspire are able to do cases both in a hospital as well as in their ambulatory surgical center, as well as we have a lot of national contracts. And so we can move to regional hospitals that aren't impacted as much by treating COVID patients. And so there's just a flexibility and the patients are flexible because untreated obstructive sleep apnea comes with a significant burden to your quality of life. These patients are very motivated. They -- these are patients that don't have any other treatment option out there. They want their therapy and they don't want to wait. And so they're willing to go to an ASC or through a regional hospital in order to have their procedure completed. And so it's about being flexible, working for the patients, working with the schedulers and the physicians and being adaptable to move to different OR locations and having the procedures performed and not defer them to another quarter.

I -- I'll ask one more here and I promise, I'll move on. But were your results in December weaker than they were on kind of a year-over-year basis, however you think to call it, versus November or October?

No, we were strong in December. We were strong in October, we were storing in November. We had tremendous number of implants in December, strong all 3 months of the quarter. A lot of that came just in the flexibility, not giving up, making sure that we found ways to get those procedures done. That said, we still got procedures that are getting carried over into the first quarter here, but December was just as strong.

Okay. Okay. So hospital staffing is the other issue that many are talking about and curious about I wonder if you could just provide your opinion on what you think we've seen thus far, especially in December, and I think this relates not only to the challenges of the kind of the limitations of a number of hospital nurses and OR staff that were available, but now folks getting sick or testing positive. So can you just give us a sense of where you think we were at in December and what it looks like for January and February? And then whether you're taking that into account for what procedures for you will get done or not done during those months?

If you think about where we were in December and late December at Christmas time, Omicron is really just starting, right? It's really just entering New York and entering the U.S. and didn't really have a significant impact too much. Maybe the last week of the year is when it really started, the numbers really started to pick up quite a bit. And so it's really more of a January phenomenon, I think, with the illnesses. I know we all saw the travel problems over the holidays because of the illnesses and that's ongoing today. We, ourselves, a lot of our field staff would get ill and so we -- being resourceful, we're flying our staff from other parts of the country to support the affected area, not shutting down, make sure we take care of the patients and what it takes. And so we have people flying all over the place. But you just have to deal with that. And the same thing happens when you're dealing with ASCs and hospitals. And if you're looking to add new cases late in 2021 and you just didn't have the flexibility to do that. Again, going back to what we were talking about earlier is we have about 30 days line of sight to our patients. So most of our patients that are scheduled in the last week of the year are scheduled either right after Thanksgiving or in the first week of December. And once the case is around the books, people, hospitals and the administrators and the staff worked really hard to keep them there, but they kind of cap it and they don't add any additional cases. So we're resourceful, we had a lot of our cases already booked. And then it's just a matter of us being able to be there to support those cases, make sure that the doctors and the staff are all there, and that work, we're able to work through all that. And like I say, in some circumstances, we had to fly in, back up people to support areas of need or sometimes we'd have to move cases to ambulatory surgical centers. But for the most part, most of our cases were scheduled earlier in the month.

Okay. So you get through a new Inspire now. I mean you have another really strong beat and 20% above the kind of implied guidance for the fourth quarter. And there's -- obviously, there's a lot of things going on. I mean you talked about -- I'm curious, I don't know if I read it right, but the comment on just the growth in facilities and adding ASCs was part of the division for the quarter that you need to be a little bit more aggressive in adding ASCs because you anticipated a wave at the end of the year? Is that why we saw that number so high here? And then just talk to -- I don't know if you can break it out, but you've got the 2 incision development that's new. You've got DTC and advisory carrier program. There are a lot of things in the business that would explain the strength that you saw. How do you kind of characterize or bucket those in terms of being help you -- helping you to get to the numbers that you put up?

Absolutely. We argue that we are a consumer company. We just happen to have a med tech product. It's a different way of thinking about it. But think about that. We do have the ability to communicate with patients and tell them the 3 essentials of life are diet, exercise and a good night's sleep. And patients want to have that good night's sleep. And especially in a COVID environment, they're so aware of it. And there's so many tools out there of sensors that go underneath your mattresses to your Fitbit watch, to you've got apps on your phone that tell you how well you're sleeping. And so people are aware of their sleep apnea. So us doing some outreach programs saying, are you taking care of yourself, do you have challenges with your sleep apnea, we're able to bring people through our website to get them educated [indiscernible] get them educated on what Inspire is and what we offer. By the end of the year, we had over 7 million people coming to our website in 2021. That's extraordinary. And we need to build capacity to be able to service the demand of the patients that we're seeing. Certainly, Philips, unfortunately, had a recall in middle of the year. And yes, that affects us. We -- sure we had an increase because of that. It's very difficult for us to quantify exactly what increase that was. We think most of our growth was organically developed with a direct-to-consumer and the benefits of any patients coming from the recall are minimal or just starting to come through right now. We think that's something that will be more of future growth. But if you remember back in August, we knew we had a little bit of a challenge fulfilling all the inquiries we're getting from our patients. So we went to a more advanced Advisor Care Program, which is our terminology for a call center. And so when patients come to our website and they get educated, and they take a small survey to see if they qualify or what their needs are, and then we give them a list of phone numbers to call depending upon where they live and what position they want to see. And when they call that number, they actually get routed to our new call center that was put in place August 1, and we've added sophistication and capacity with our call center that we can take care of the patients to continue to communicate with them via e-mail or being text or even calling them to make sure we get them an appointment. So we're able to improve that conversion rate. So if we're all of a sudden driving more patients to these physicians to be treated with Inspire, we need to continue to grow the number of centers and grow our capacity with new centers but we've got to grow utilization with our existing centers to be able to service the demand that we're getting. And so we're always trying to look at our balance, make sure 50% of our growth is growing utilization and 50% of our growth is opening new centers. That changes the way that we have to operate the business. We have to scale the entire business to meet this demand. That is not going to end. We're going to continue to educate physicians, educate patients and bring patients through the pipeline. So we're going to stay aggressive at opening new centers and more importantly, at increasing the utilization at existing centers, making sure our call center is really effective at communicating with patients and getting them connected to physicians. And we get to celebrate. We have a brand new Category I CPT code that took effect January 1, has now stable reimbursement for hospitals, ambulatory surgical centers and physicians that really is going to have a strong impact because it really just stabilizes that whole reimbursement. Our goal -- our resolution this year was we don't have to talk about reimbursement anymore because we're really worked so hard over the last 5 years to get it into place.

Okay. So just a quick one on the Philips recall. You have been good about saying that if you see any benefit there, it would come towards December, towards the end of the quarter. But I imagine your visibility into Q1 is actually not bad. You've got some insight into whether that funnel is developing for potential Philips-related patients. Is there anything you can comment on there that you see in your funnel in terms of materiality of the CPAP recall for Q1?

Well, I think the -- if you look at the direct-to-consumer approach, when a patient sees an ad or a TV commercial and then they get themselves educated on the web and they reach out and contact a physician, get an appointment, get diagnosed, get to the insurance and then get to procedure, it's about a 4-month process. And so now if you relate that to the Philips, Philips recall, I think it came out about middle of July. Most patients didn't know about it until the beginning of August add 4 months to that, that is the December-January time frame, when we're going to start seeing these patients coming through. Our digital tools are really involved in and getting much better to be able to identify these patients. The Advisor Care Program that we talked about will inquire with the patients of their CPAP experience and are they Philips users. We have the new remote that was just approved in December that has Bluetooth. And so part of this is going to be able to collect more information on the cloud of where those patients' experiences are and we're really developing the cloud to track patient's history. And then finally, our -- we still do a lot of prior authorization work with patients and help them connect with the insurance companies. And with that, we have evidence that they are a Philips user and if they're part of the recall, we can get them approved to have an Inspire procedure. So we do have a little bit of evidence and our tools are getting better to be able to narrow a win on helping to quantify what impact that has. But I think it's there for sure. It's probably still a little bit minimal and -- but will be growing.

One final question on Omicron, we'll finally move on from all the COVID stuff hopefully, we'll try to. It's just on the first quarter, you're -- we've been talking about how you've been kind of working and doing pretty well and trying to predict the wave, and you've talked about what we're all seeing now develop. And I think the question we all have is how do we think about that from a severity standpoint? We know the seasonality, we know that you have some seasonality in your business that's going to be there anyway. But is this the kind of thing where you're expecting your revenues to be materially impacted in the first quarter? Or are you expecting this wave to kind of flow through in January, maybe be able to make up a lot of the slack in February and March?

Well, I think the wave is going to last at least through January to get all the way through probably end of February a little bit. But I think that we're going to be up doing implants again in the Northeast right away. And so we'll have plenty of time to recover there. We're going to have the normal seasonality. So yes, I think it comes back to your definition of material, right? And I know we'll -- we're putting out our guidance officially when we do our earnings call in January or February 8, excuse me. But yes, it's going to have an impact on us, at least in the beginning of the year. But I think we'll be able to recover it in February and March, just like we did in 2021. Not sure it's going to have the same level of impact it did in '21, just because we have so much more capacity to be able to handle the patients. But yes, it's going to certainly be impacted just from our normal seasonality. But we don't -- we're planning to have a strong '22 going forward. We don't think it's going to have a long-term impact on us for the full year and we really look forward to having the year. But yes, we're going to address it here in January and beginning of February and believe that will be set up for a strong second half of Feb and March.

Okay. Okay. Let's spend just a minute on new facilities. Obviously, that was a very big number. Again, I think for the year, you're added 260 well above what we started the year, thinking about when you first gave guidance and [ 81 ] for the quarter, as you mentioned, well above the guidance. And you referred to potentially, being a little bit more aggressive on the ASC side in preparation for the wave. But just give us a sense of the run rate there. I mean, is that -- can we tee off on what we've been seeing? You've been in the 60s for the last couple of quarters and now 80. I know you're not going to give guidance today on this, but just a sense of how much of what we've seen recently is kind of a nice trend line that we can follow versus maybe some onetime or whatever, if you would call them out?

Sure. Well, number one, the demand is there. The demand from the patients is certainly there, the desire from the hospitals and the physicians to participate is certainly there. And we always control the number of centers that we open because we need to protect patient outcomes. So we put our own governor on that. So what we've done now is midway through 2021, we restructured our sales organization. And we've gone to a concept of 2 zone Senior Vice Presidents and we've gone from 4 Area Vice Presidents to 8 Area Vice Presidents. And the way we operate as each one of those Area Vice Presidents has what's called an area business manager. Their sole function is to look for new centers. We call them the hunters, right? They're hunting new centers to be able to open up to treat more patients. We have twice as many of them available today than we did this time last year, right? They don't do this alone. We also increased the number of regional managers. We've increased our internal site activation team we call it, to be able to work through the logistics side of business, associate agreements, pricing agreements the value committee at the hospitals, all that takes time. We've also built up our training teams, surgeon training, sleep technicians to teach the sleep physicians and the sleep technician, staff to treat the or to train the OR staff, the in-service reimbursement people that treat -- train the people in the hospitals that do the quoting and the billing. And it's important to do that correctly, because you don't have to go back and do that 2 times. What really helps here is Rick's been able to work a lot of national contracts with Ascension Health, with USPI, some of the FDA, some of the larger corporations that have numerous 300, 400 ambulatory surgical centers. And when we do national contracts, we're able to get through the value committee, the pricing agreements on the business, associate agreements and we get that all done upfront, and that applies to all of their centers. So instead of taking 6 months to open up a new center, now with those centers, we can just take several months, 3 months to be able to just identify the team and train the staff and be flowing patients and having them diagnosing and setting up implant procedures and follow-up care. It cuts the activation time in half. So as we continue to evolve and continue to do more and more of these national contracts, we can continue to accelerate the rate at which we open up new centers because they're part of a larger group and we don't have to do that logistics part of it. And that really is the key to the third quarter to the fourth quarter. And then the other side to it, ambulatory surgical centers are just a little bit easier to open because they're not part of a large academic organization. There's not a lot of lawyers that really kind of make it more difficult to be able to work through a lot of the contracts and the agreements and the value committee, and they are a lot more -- have a greater ability to move quicker.

Okay. Okay. That's great. So you've mentioned it just -- there's a lot of positives there. So I'm kind of reading into it that there's not much to think that in the way of onetime there that, that trend is real. And certainly with national agreements that you've mentioned now a couple of times, if I recall, you've said it's about 1,200 or so facilities that would be covered there, and then you're only 15-or-so percent penetrated. I'm wondering if that's a big reason why we saw the upside in facilities that we saw in '21 and if that's what you expect to be a major driver of facilities in '22?

I think so. I think that's going to -- we're going to continue to leverage that. We certainly took advantage of the COVID situation to open up additional centers to be able to take care of the patients. But now those centers are active, we're going to keep them productive accounts, and that's going to continue into the future as well as add to additional national contracts to keep building on that. We did our own strategic filing this year. We talked about what does it look like when we're at $1 billion in annual revenue. What does our organization look like, and how do we have to scale the organization by function and how many centers will we have, how many sales reps do we have. We kind of look at that saying, if we built that around centers on average during 2 implants a month, that really works out to be about 1,600 centers. And if you look at a ratio of 4 to 5 centers per sales rep, you're looking at about 400 sales reps. And look where we are today, we're approaching 700 centers, right? We're approaching 150-plus sales reps, where utilization approaching 1.5. We're on our way. And what we just need to do is just continue to keep doing what we're doing and being more efficient with all of our processes and the whole time continuing to improve patient outcomes. The patient satisfaction scores are extremely high, and that's what we value most. And if we can keep those satisfaction scores higher, the outcomes high, there's nothing to get to slow us down. We will have a great ability to take care of patients.

Yes, that's really helpful. And on the utilization point, would you differentiate a hospital setting versus an ASC in terms of the kind of utilization you tend to see from your customers? I know it's a little bit early days on the ASC side. But is that a fair way to think about the business and how it's going to evolve?

Generally, you would say that ASC has more flexibility in scheduling because the surgeons can have maybe an equity stake in the ASC and they can kind of help control the scheduling, therefore, they can get more of their Inspire cases on the books. That being said, hospitals just have capacity. They just got a large number of OR suites. We are pretty general as far as surgery goes outpatient, so we can go slot into any one of the general surgery suites and they just have sheer capacity and size to be able to do a lot of cases. They also have access to a greater number of surgeons. So our top implanting centers today are obviously the big hospitals right? The Ohio State, KU, Sanford Health Systems in the Dakotas are the real high producing centers. You're talking 100 implants a year because they just have the capacity to be able to do that. They have the trained surgeons to be able to do that. More importantly, they have great partnership with all the state physicians that can manage the patients effectively. They just have really good systems. ASCs can have good systems to, but for the most part, they start out with just surgical expertise, and we need to partner them with a private stint lab, if you will, to be able to do a team approach to be able to manage patients. Not a difficult thing to do, but just an essential part of the process. So yes, ASCs can be more productive because of flexibility and scheduling, but the hospitals just have sheer capacity to be able to do a lot of cases. So both are very important to us.

Okay. Okay. Let's just touch on reimbursement real quick. We don't have to linger here too long. There was some noise last year. I think many understand that's been mostly cleaned up. I don't think we have to recap it. You've got a new CPT code just starting now. But is there anything to say just to make sure we cover it on just the new and now clarified kind of reimbursement rates at this point?

Well, the good news from a hospital standpoint, from an ambulatory surgical standpoint, they're exactly where they were because they kind of map to the same APC, ambulatory procedure code. And the ASC payment, Ambulatory Surgical Center, is based on a percent of the hospital payment, which is the APC, the ambulatory procedure code. There aren't too many acronyms here. That's all stable. That's what it used to be. Those 2 elements actually had a percentage increase going into the year. So now hospital, the national average payment is over $30,000, ambulatory surgical centers are at $25,000 and commercial payers tend to pay 1.4x that for hospitals, even up to 1.9x that for ambulatory surgical centers. So hospital facility reimbursement is really strong. Physician surgeon reimbursement was always a little bit of a gray area because every surgeon got reimbursed at different amount. And those surgeons in an academic center would not get reimbursed for the Category III add-on code because it wasn't a specific CPT payment allocation to it, is this kind of an add-on payment. And therefore, that wouldn't go to academic centers. And so there's a lot of confusion over that. And so there was a broader range of what physicians are actually getting reimbursed. When we went to the new Category I code, the CMS and the AAO, American Academy of Otolaryngology, the ENT Society, they did a rough survey when they went out to all 300 surgeons that were trained at the time they did the survey, and they said, "How long does it take your skin to skin to doing its prior procedure, be it a 3 incision or a 2 incision?" They collected all that data, They calculated it, they've not normalized it, and they submitted a request to CMS say we want this many RVUs, relative value units and CMS pays $35, whatever it is per RVU. And CMS accepted the requested RVUs to like within 2. So basically, the reimbursement that they have out there, the ENTs to do the Inspire procedure is exactly right where the survey came in at and it works out to be about $10 a minute, which is competitive with any other procedure that they do. So reimbursement really came in where they needed it to be. We now have clarity over what code they use and we finally have a solid, stable foundation going forward.

Okay. Okay. Let's talk about just profitability for a second and maybe bring you Rick in here. But -- so I wanted to touch on -- we all kind of understand where you are just in your kind of maturity as a medical technology company. And so it's not in expectations. But ultimately, as you so eloquently said, you're well on your way to where you want to be a number of years out. You guys have talked about ultimately want to be in 2,400 centers and you're on the path to get there at some point. And I think what a lot of us are curious about is when do you -- in your model, do you kind of see it to reach profitability and to start to work towards typical med tech margins that we see? Where in your model, does that happen? I imagine it's not all on that last day when you've penetrated all of these facilities. So how do we think about timing for that, understanding that today is not the day?

Yes. It's also difficult to set forth guidance specifically on that. But we're really focused on making investments that will drive years of continued growth. We're very early in the early innings. We're in 684 centers. Our initial goal is to be in 1,600, as Tim mentioned, doing 2 procedures a month to get to that $1 billion in annual revenue. Ultimately, we think we can be in 2,400 centers down the road. But we're really focusing on building capacity and improving our conversion of our direct-to-consumer efforts. And so we're making a lot of investments from our direct to -- our DTC. We had over 7.3 million visitors to our website in 2021, that's up over 50% from the previous year. And so again, not all the sleep doctors are aware of Inspire. Most are, but we still are working on referral programs for the sleep doctors. And so not only from a direct-to-consumer and our traditional medical professional marketing, we're also working on expanding our Advisor Care Program. We want all of our centers to be on that Advisor Care Program to improve conversion rates. And so with our 86% gross margins, we're really focused on getting to that next level, adding -- we added 260 centers in 2021. We want to continue to add and get to that 1,600 centers. And profitability will come, but we're really not focused on optimizing our P&L right now. We have $220 million of cash in the bank. That allows us good, sustainable funds, really to provide and work towards our -- not only our marketing efforts, but our R&D initiatives.

Okay. Okay. Let's -- we've got a few minutes left. I'd maybe spend those on the pipeline. And you got the patient remote approved, I want to actually jump to the physician programmer because I think that seems to be the one to me that you guys are really excited about as a possible game changer. So I want to give you a chance to tell us a little bit more about whether you can, timing-wise, file that in '22? And then more specifically, is this initial product going to have remote programming capability and what that might mean for you all in terms of just driving the model?

Yes, thanks. The -- as we just said, the new remote was just approved that it has Bluetooth. And what it is, is part of our all-digital platform that we're developing. And the intent of that is to really make it easier for sleep physicians to manage more patients, therefore, getting strong patient outcomes as well as creating capacity. And the first step is making sure we get the right information into the cloud nets, with the remote getting the information from the implant and the remote via the patient's smartphone to Inspire Cloud. The next step that was changing our physician program or concept. Today, we provide a tablet, and the tablet has an antenna that communicates through the scan to the device. We want to go away from the tablet concept. Physicians can basically use any computer that has Bluetooth to the antenna, and they can log in to the physician program. And by being able to log in, they're basically logging into a system adjacent to Inspire Cloud. So all the information immediately gets stored in Inspire Cloud by patient. And by having that access, that also is the connection that eventually can drive the remote programming. So already working with the FDA on how do we partition the software and the security part of it because, of course, obviously, when you bring in patient information to the network, you got to be very serious about the security parameters. We have that all in place. That was actually approved as part of the remote way that we do that safety protocol. And so we'll be doing that with the next physician program where we're doing the development testing of that right now. We have a whole line of approvals coming through. I think the next approval coming through, you're going to see full body MRI coming, then the next will be the physician programmer, probably early next year. And then that lets us go back to the FDA to get the remote programming that hopefully, can align with when we launch the fifth generation neural stimulator, which is really going to be the game changer because what we're going to do is, right now, we have a stimulation lead, the neurostimulator and a sensing lead. We are going to take that sensing lead. It's going to be incorporated inside the neurostimulator can using an accelerometer. Accelerometers have been around to measure respiration in cardiac pacemakers for years. We're basically applying the same approach to detect respiration, to provide stimulation synchronous when a patient inhales. That's a big game changer. That's going to significantly reduce the OR time even more. But we also think it's going to give us a more stable platform to be able to measure respiration and even improve patient outcomes one step further. What that Inspire V device does, it also goes to a microprocessor-based system that will allow firmware upgrades going forward. One example is, we will now be able to detect when a patient is sleeping, we'll know when they're awake. We will have self-activation. The patient no longer needs the remote then to turn the device on. The patient will fall asleep and the device will sense that and turn itself on. The next step after that is we want the device to detect if patients are having events. And with the same platform, but with new firmware, we will be able to use AI and go to auto detect mechanisms or an auto titration, where they will have [indiscernible] that will do its own device programming to alleviate any events that a patient may have during the night. We'll be able to know if a patient is sleeping on the back, supine or on the left side, right side. And obviously, with gravity, it takes less energy to stimulate the tongue if you're on your side, right? When you're wife hits me and said you're snoring, roll over, well that's just about gravity to prevent the snoring. We're very excited about where we're going with our technology development. We're looking to even move that forward a little bit to what can we do to help physicians even diagnose patients to get patients into the process earlier. So really making significant investments, the engineering team is excited about the opportunity in front of them and what we can do to change patient care and just change the way that sleep apnea is being managed. So years of development to come.

Okay. Well, that's a great place to end it. And so thanks again to both of you, Tim and Rick for joining us this year at this event, and we wish you all the best for 2022. And we'll be talking soon, I'm sure.

Happy New Year to everybody. Be safe and COVID, we're going to fight through it, and we'll all get through it. Just got to be persistent and positive thinking and persistence is what it's going to take, and we'll get through it, no problem. So take care.

Thanks, Tim.

Thanks.