Good afternoon, ladies and gentlemen. My name is Vince, and I will be your operator on today's call. [Operator Instructions] Please note that this call is being recorded today, Monday, December 5, 2016, at 1:30 p.m. Pacific Time and will be available in the Investor Relations section of iRhythm's website at www.irhythmtech.com. I would now like to turn the meeting over to Lynn Lewis, Investor Relations.

Thank you, Vince. Thank you all for participating in today's call. Joining me are Kevin King, President and Chief Executive Officer; and Matt Garrett, Chief Financial Officer. Earlier today, iRhythm released financial results for the quarter ended September 30, 2016. The copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements including, without limitation, our examination of operating trends and our future financial expectations, which include full year 2016 guidance, and our expectations of achieving profitability 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 from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. iRhythm 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 is accurate only as of the live broadcast today, December 5, 2016. With that, I'll turn the call over to Kevin.

Thanks, Lynn, and good afternoon and thank you for joining us today. For those of you that are less familiar with iRhythm, we are a leading digital health company focused on the advancement of cardiac care. We believe there is a large opportunity to change how patients with cardiac arrhythmias are monitored, diagnosed and treated, and our goal is to be the leading provider of first-line ambulatory monitoring for patients at risk for arrhythmias. We completed our initial public offering in October, raising approximately $111 million to help fund the growth and expansion of our business. I want to thank everyone involved, including our employees and customers that contributed over the many months leading up to that event. Since our first call -- since this is our first call as a publicly traded company, I'd like to use the next few minutes to provide an overview of our business, including some recent financial and operational highlights. Matt Garrett, our CFO, will follow with a review of our financial results and will provide guidance for the full year 2016. I will then wrap up, and we look forward to opening the call for questions. Third quarter revenues were $16.8 million, representing 80% growth over the same quarter a year ago driven by continued adoption of our ZIO Service, which I will describe in a moment. Gross margins for the third quarter of 2016 were 69% compared to 60% in the third quarter of last year. Turning to our business. As most of you know, cardiac arrhythmias are highly prevalent. There are an estimated 11 million patients in the U.S. with arrhythmias, and many patients remain undiagnosed due to technology limitations or poor patient compliance. Atrial fibrillation, or AFib, the most common form of arrhythmia, can lead to more serious health conditions…

Thank you, Kevin. Revenue for the 3 months ended September 30, 2016, was $16.8 million, an increase of 80% year-over-year on an as-reported basis. This increase was primarily due to volume increases in our ZIO Service related to sales force productivity gains. Gross margin for third quarter 2016 came in at 69% compared to 60% for the same period in 2015. Margin expansion was largely driven by productivity gains in 2 categories: reduction in device-related manufacturing costs and continued productivity gains through our machine learning algorithms associated with report generation. In addition, we also experienced some mix shift driven by the success of our contracting efforts. Operating expenses for the third quarter 2016 were $14.2 million, an increase of 28% compared to $11.1 million for the same period of the prior year. The increase in operating expenses was primarily due to sales, general and administrative expenses related to the expansion of the sales force and to support the growth in our business. The net loss for the quarter ended September 30, 2016, was $4.1 million or a loss of $2.80 per share compared with the net loss of $5.7 million or a loss of $4.07 per share for the same period in the prior year. Turning to our balance sheet. At September 30, 2016, we had $5.8 million in cash and cash equivalents. Our capital structure also contains approximately $33 million of long-term debt that does not mature until December 2021. With the proceeds of the recently completed IPO, we maintain the flexibility to repay the debt prior to maturity but presently have no plans to do so. On October 20, 2016, our common stock began trading on the NASDAQ Exchange following the pricing of our initial public offering. The IPO generated net proceeds of approximately $111 million after deducting…

Thanks, Matt. So in summary, we are addressing an existing $1.4 billion opportunity in the U.S. by reshaping the market with a disruptive, differentiated and competitive platform, which is supported by broad payer coverage. Additionally, we believe that we have the potential to address additional patient populations with unmet clinical needs such as the estimated 3 million patients in the U.S. who are currently not being monitored for conditions such as atrial fibrillation. Driven by our capability to curate vast amounts of data into actionable results for clinical decision-making, we are experiencing strong adoption and rapid growth. We have a large body of clinical evidence supported by 18 peer-reviewed studies and have several additional studies underway to further expand our indications and potential market opportunity. This concludes our prepared remarks. Operator, please open the call for questions.

[Operator Instructions] Our first question is from Mike Weinstein of JPMorgan.

I think since this is the first call as a public company, I think it would be worthwhile, Kevin and Matt, just to spend a few minutes talking about kind of the keys to continued growth and market development. I thought, Matt, I thought your comments were helpful just talking about the mix of reimbursement challenges and getting payers under contract. But maybe flesh that out a little bit for people, so people will understand kind of what ultimately has driven this acceleration in the business you've seen over the last several quarters and kind of what are the keys to keeping the momentum going.

Sure. Thanks, Mike, for the comment on the quarter as well. We appreciate it. Look, I think at the highest level, the primary drivers for our growth are threefold. One of them is a measured approach to sales force expansion. As Matt identified in his prepared remarks, we have about 66 people today. And we think that at full penetration, if you will, our business needs somewhere between 2 to 3x that amount to really fully cover the opportunity in the United States. Along with that and actually commensurate with that expansion is the need for us to continue to obtain in-network contracts with the remaining 100 million contracted lives, right? As we said earlier, we think on the coverage side, we're near universal coverage with close to 300 million. That said, we've only got 2/3, roughly 200 million in contract, and those are really important for us to finalize. We think it's a matter of time before we get there, and we do have plans for addressing that. I think continued growth and expansion, the third point here I would make is around clinical studies in some of these new application areas that we were describing. Some of them near term, related to some of the post-procedural monitoring surgery, things of that nature that are not necessarily standard of care today as well as the work that we've been doing on the high-risk patients. The readouts for those studies are probably not until 2018, so a little bit longer but nonetheless important to continue to expand the total size of the pie. With that, I can stop and if there's a follow on, Mike, I'd be happy to -- Matt and I would be happy to help.

Yes. Matt, anything you would add to that? Because, I mean, if we really think about the acceleration of the business the last several quarters, a big part of that has been your progress on reimbursement and then on the contracting side. So maybe just characterize for us kind of where you feel you are at this point. And what dictates the decision on how many reps you think you might add in 2017?

Yes. Well, let me first add that we're looking to provide guidance for next year, including rep productivity and additional numbers in our Q4 earnings call at some point in early February, Mike. But in terms of the broader question, as we've talked about, where we need to be comfortable is that in any particular region, any particular state, that we have significant enough amount of contracting that lowers the pressure on our customers to prescribe our product. I think we've identified that when you start achieving 70% or 80% contracting rates that, that allows you to more rapidly expand into those territories. That model is something, as I mentioned, we will continue to carry forward. And as more contracts come online in those territories, those will be the territories that we identify first for additional headcount. And, again, I think we'll be able to share more on that with you here in the Q4 earnings call in February.

That's great. And then last, just for those that really aren't familiar with kind of the existing market and kind of the Holter monitor market and the event monitor market. Is there anything competitively that you're aware of or that you guys are tracking that you think investors need to be aware of at this point?

No, we don't, Mike. So that's -- if we think about those 4.6 million annual procedures within the U.S., about 60%, close to 3 million of them are Holter monitors. Those are first-line tests. That's a completely addressable market segment for us, and there really isn't any innovation in that segment. Event monitoring is either a first-line or second-line test. We address roughly 2/3 to 3/4 of that market. And then you have the rest which are second-line tests. Those are the mobile cardiac telemetry and implantable loop recorders. Some of those segments are being taken down as a result of the improvement in ZIO. And if there's any innovation, it's more in those product lines that we see, mobile cardiac telemetry and implantable loop recorders. But it is important to note that those are considered second-line tests. And the more effective and the more well established ZIO becomes, I think the harder it is for those second-line technologies to gain a larger foothold.

Our next question is from David Lewis of Morgan Stanley.

So Kevin, I wonder if you could start off with the market here a little bit. A couple of quick questions on the market and then maybe a few for Matt. So I guess, is ZIO -- everyone is basically familiar with the penetration of ZIO in the sort of first-line indications. But if you think about things like post-AF ablation, post-ischemic stroke and others, what percent of your business today do you think is sort of nonfirst-line? And then kind of a related question, ZIO's success and that share capture's coming against Holter or event, I mean, do you care or what do you think the mix is between Holter and event right now? And is that even an important distinction, frankly, for investors?

Sure. Let me take the second question first. We really don't care whether the share is taken from Holter or event. They're both considered first-line tests. They both generally have the same inadequacies relative to patient compliance, low diagnostic yields and things of that nature, so not really. In terms of ZIO, the first question again was...

Just nonfirst-line indications, what percent of your business for ZIO are things like post-AF or post-ischemic?

Yes. Those are pretty small numbers. I think in the U.S. alone, there are about 120,000 ablation procedures done each year. You can imagine we've got a small percentage of those. I think the way to really view both those questions, Mike, is we want to be the full-line supplier for our customers. So if today, we start out as a replacement -- first-line replacement for Holter and event, eventually we want to capture the prescribing patterns for these follow-ons. And it makes a lot of sense -- a lot of patients are diagnosed initially with ZIO. It doesn't make a whole lot of sense to then get a follow-up with an older technology. And those things will come in time. Today, they are relatively small percent and represent some good upside for us.

Okay. And then maybe, Matt or Kevin, a couple of other ones. Just, Matt, thinking about the fourth quarter, I know we have the revenue guidance, but I'm assuming that expense guidance is going to go up sequentially pretty materially as a public company plus building out the channel. Any sense or any kind of rough strokes you can give us in terms of directionally where that spend is going to head in the fourth quarter? And then just any updates from a product perspective heading into next year. Any changes to product pipeline? Would we be expecting perhaps a real-time product update in the back half of '17? Any changes to those assumptions? And I'll jump back in queue.

Why don't you take the second one?

Yes. So the second one, Mike, no changes to what we've previously communicated around new product timing and capability. Those are essentially on track, and we will look forward to something in the latter half of the year. And Matt, on the other side, relative to spend in the fourth quarter?

Yes, I think that's a fair question, David. We didn't cover that directly. I think that we feel very confident in what we have provided the market in terms of where spend will come in for the fourth quarter. I think the range is somewhere between $16.5 million to $17 million. So obviously, a material increase in burn as we've chatted and nothing beyond what we had previously communicated.

Our next question is from Jason Mills with Canaccord Genuity.

So just starting with a few housekeeping items on the revenue model, Matt. I'm wondering if you could give us a sense for the 80% growth in the quarter was at the very, very top end of your flash range, so obviously a strong quarter. I'm wondering if you can give us a sense for the contribution from both volume on the unit side as well as price, if there's anything, any color you're willing to give there.

Yes. So as we've talked about, we're debating the level of detail we provide on this subject to clarify the baseline. We've indicated that we believe that a majority of our growth can and will continue to come from volume. The numbers that we've discussed is in that kind of 80-20 range. But beyond that, Jason, I don't think that we're going to have anything to add other than that's our expectation moving forward, that we stay in that sort of a range. And obviously, if it does change or becomes material one way or the other, we'll address that with you accordingly.

No, since you didn't call it out, it was in that range?

Yes. Look, the majority of our growth here is coming from volume, and that volume is skiing off of, if you will the sales force expansion that we put in place last year and continue to put in place here. So the reps that we hired last year are increasing in their productivity. Matt, same store and new store sales mix, you've talked in the past is roughly...

Stays in that 60-40, 50-50 range.

So we're continuing to penetrate existing accounts, and we're continuing to open new accounts at about an equal rate. As you think about the whatever 80% growth, half of it coming from existing and half of it coming from new, those factors, Jason, swamp any other nonvolume-related change or contribution to growth in the quarter.

That's right.

Okay. That's helpful. Just to add on to your last comment on same store, new store, Kevin, are you going to be providing the number of accounts on a regular basis? I'm wondering if you could give us an update on domestic accounts exiting the quarter.

Probably not. I know we did some early conversations with you and David, Mike and so forth, but I don't think we're going to be updating that stuff going forward. We'll probably give you ratios, same store to new store ratios and so forth.

Okay. And then similar to Mike's commentary and questioning, just as investors get up to speed on the story, one thing I would think may be useful if you could just help folks understand the level of diagnosis that you're providing with ZIO, specifically AFib burden. And maybe give all of us a quick tutorial on the importance of AFib burden to your customer base, to providers and what that means to -- or why that's important sort of relative to your service versus another shorter-term monitoring device like Holter's, et cetera?

Yes. Look, I'm not a physician, but I'll do my best here. So we have -- when we're looking at the diagnostic measurement that's provided, and we'll talk specifically about atrial fibrillation, we have both the frequency of which the arrhythmia occurs. And so arrhythmias are rather elusive in nature, can stop and start at any particular point in time. So shorter-term monitoring tools like Holter monitoring or even intermittent tools like mobile cardiac telemetry or event recorders really fail to capture the initiation, the duration and the termination of events and both when they happened as well as those factors. So that's one key advantage for us. The second key advantage for us, we believe, is the ability to measure the percent of time the heart is in atrial fibrillation versus not. And that's the measurement that we call atrial fibrillation burden. Now we did a study that was presented at the Heart Rhythm Society this past fall. It was done by Dr. Alan Go with Kaiser. It was a data study that looked at -- looked within our data repository of all Kaiser patients that had atrial fibrillation, that were diagnosed with AF, and we married that database with the electronic health record from Kaiser. Many of you know Kaiser's got an extensive, long-term data repository. We looked at patients over multiple years to look for the incidence of stroke. And in that study, we found a direct correlation between atrial fibrillation burden and stroke risk, such that each doubling of atrial fibrillation burden increased stroke risk by 33%. So if a patient went from 10% burden to 20% burden, their stroke risk essentially went up by 33%. And if it went from 20% to 40%, then later on it increased by another 33%. And so the key here that physicians want to know is when do I put people on or when might I take people off of anticoagulation therapy. And the taking off is somewhat as important as putting them on. Putting them on will help reduce stroke risk by a measurable amount. I think it's somewhere in the order of 60% to 80% reduction being on. But if you don't have atrial fibrillation and you're on anticoagulation therapy, you run the risk of bleeds and bad things like that happening. And so what Alan Go envisions the use of the atrial fibrillation burden score to be a determinant of when to use and when to discontinue anticoagulation therapy. And that's a unique -- I should just add, that's a measurement unique to iRhythm and its ability to measure burden on a beat-to-beat interval over that 14-day period of time.

At this time, I see no further questions in queue. I'd like to turn it to Mr. King for any closing remarks.

Great. Well, thanks very much, everyone, for joining the call today. We really appreciate your interest in iRhythm and look forward to updating you on our progress shortly. And we wish you all the best. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.