Good afternoon, ladies and gentlemen, and welcome to the iRhythm Technologies Inc. Q1 2018 Earnings Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. I would now like to turn the conference over to your host Ms. Lynn Lewis, Investor Relations.

Thank you, Sonya, thank you all for participating in today's call. Joining me are Kevin King, President and Chief Executive Officer, and Matthew Garrett, Chief Financial Officer. Earlier today iRhythm released financial results for the quarter ended March 31, 2018. A 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 includes expectations for hiring, growth in our organization and reimbursement, guidance for revenue, gross margins and operating expenses in 2018, 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 refer to the Risk Factors section of our most recent SEC report on Form 10-K 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, May 2, 2018. And with that, I’ll turn the call over to Kevin.

Thank you, Lynn. Good afternoon and thanks everyone for joining. Our first quarter results represent a strong start to 2018. Revenue for the quarter was $30.6, up 51% over prior year after adjusting for ASC 606, and gross margins increased by 3.1 points to nearly 72%. Importantly, we saw expanding market acceptance for both Zio XT and Zio AT. Our continued success in growing our sales channel to meet demand for our Zio service gives us confidence such that we are raising our revenue guidance to $128.5 million to $133.5 million from $126 million to $131 million, which represents ASC 606 adjusted growth guidance in the range of 36% to 41%. I’d like to take the next few minutes to provide some of our recent business highlights, and then I’ll turn the call over to Matt for a financial review of the quarter. Starting with sales team expansion, recall that we began the process of adding sales reps in the second half of 2017 after expanding our sales management infrastructure in the first half of the year. We ended 2017 with 86 reps, and we indicated on our last call a plan to exit 2018 with 106 to 112 reps with the majority of hiring occurring in the first half of the year. Sales team expansion in the first quarter went exceptionally well, as we not only saw a significant number of highly qualified candidates, but we were able to hire ahead of our plan. Given our success in the first quarter, I’m confident that we’ll reach our stated targets and timeframes for the year. On the market expansion front, I’m pleased with the on-going progress that our sales team is making in new accounts and existing accounts. A key component of our growth strategy is to continue to aggressively…

Thanks Kevin. We are very pleased with our overall financial performance and as mentioned last quarter, we remain very encouraged with the fundamentals of our business most notably in the rapid, but yet coordinated, investment into our infrastructure inclusive of salesforce hiring. If there was a theme for the quarter, it would be our execution on an accelerated sales hiring plan placing us ahead of our own internal goals. Highlights for the first quarter, incorporating ASC 606 impact to all periods, include; revenue growth of 51% year-over-year and sequential growth of 14%; gross margins of 71.8%; continued success in new XT contracts, and strong acceleration in AT payer contracting; and as previously mentioned, a significant step up in sales and sales operational teams, most notably in sales rep expansion. As a reminder, effective January 1, 2018, we adopted a new revenue recognition standard, ASC 606, which primarily impacted the company’s recognition of revenue related to patient claims paid by thirdparty commercial and governmental payors. We adopted ASC 606 using the modified retrospective method, which means that the total amount of revenue reported for first quarter 2017 has not been restated in the current financial statements. In the interest of comparability during the transition year, on this call I will be providing revenue, gross margin, operating expenses and net loss information for the first quarter 2017 on a non-GAAP, pro-forma basis as if ASC 606 had been applied. In addition, we have included an updated reconciliation table in our press release. Taking a more detailed look at first quarter results then: revenue for the three months ended March 31, 2018 was $30.6 million, an increase of 51% year-over-year and 14% sequentially. Growth for the quarter continues to run consistent with our trended guidelines. Volume to price mix remained in an 80/20…

[Operator Instructions] Your first question comes from the line of David Lewis from Morgan Stanley. Your line is open.

First, I have questions more tactical or one strategic, Kevin, for you. But just first off on AT adoption I wonder Kevin if you can share with us a little bit about how the product being used? What I’m focused on is kind of sense of where growth is coming from and you talked about pull-through from AT. So how much of this is pull through from AT how much is sort of your market share capture or share gain against the MCOT and when can expect an update on run rate revenue for this product that happens always the second quarter?

So ZIO AT is being used in patients that were previously unaddressed by ZIO XT. These patients present with near life critical symptoms if you will unexplained loss of consciousness symptoms that might be indicative of ventricular tachycardia for example. And so the share that we're getting here is from MCOT that was previously used in these accounts that were in. The way that were getting so that kind of answers that one - the way that were getting the pull-through is we’re seeing accelerated growth of XT alongside the new adoption of AT. And we believe that competitively what's happening here is the single system that we have is single enterprise system is being recognized as invaluable for prescribers and their staffs such staff they are using less of other products overall that’s the way we’re thinking about it. And we probably won't report out AT or even international revenue which was a question I think we had the last time until we get you know material maybe 10% of our sales or something like that pretty close but at this point it still kind of early days for us. But a wonderful product doing well its helping existing accounts its helping us to gain new accounts and AT is taking share from MCT and the single system that we have now is helping us to take share in both.

Kevin a couple more from me I mean first sales force. Can you give us a sense of the second half 2017 reps how that utilization is tracking well to the plan is it safe to assume that 20 rep number is a conservative number for 2018 should we thinking more like a 30/40 rep number makes more sense in the light of the spending?

Well we guided to 106 to 112 from 86 so what is that that’s 20 to 25 and our goal is to get all of those tucked in before the first half of the year and as we reported here we’re pretty darn close. So I would think the upper end of the 25 by the first half and then we’ll report out after that. The rest that we hired last year in the third and fourth quarter we’ll start to become productive now here in Q2/Q3. As you know it takes one to two quarters for us to really get some traction with those folks get them trained up and get them in their territories et cetera.

And the last with me I’ll jump back in queue and thanks for bearing with me here. Just you, since the time of the IPO, Kevin, the market here, the diagnostic monitoring market broadly has really advanced. So can you spend just a little bit of time on the competitive differentiation of your product and your confidence in the work you've done here round your coding? And I'll jump back in queue? Thanks so much.

Look I think from a competitive standpoint good competition spurs innovation right and we think that's a good thing. I would say from a customer standpoint we’re always talking about changing status quo and changing that status quo is about creating new value for the customer. And unless that value that say competition is pulling in front of a customer is proven better and more complete than ZIO there’s really no reason for them to change. So I think from a competitive standpoint we’re in a really solid position and I’ll give you a couple of examples of why I think we’re better complete and proven overall. So on the better side we know that and we know this through peer review publications that 14 days of continuous monitoring is proven to be better, to have better diagnostic yield, faster time to diagnose and resulting in fewer repeat tests than any other modality whether it’s a three day or five day or a seven day pull-through type device or even an intermittent device, even an MCOT device is not as high in the diagnostic yield. And as a result, we become the standard of care by which all competition is compared to. ZIO was somewhat of a verb if you will, at our accounts. And we have very strong IP around the physical aspects of our devices if you will. On the proven side, I would say that are data analytics capabilities this 1.5 million plus patient database that spurs the algorithmic capabilities is proven to a point now where recently we published a study where we outperformed expert cardiologist in the diagnosis of 14 arrhythmia classes consistently. And so our AI tools are performing better than expert cardiologist and that's important because that gives the prescriber the increased assurance…

You’re confidence in operating under existing reimbursement codes that you are using and maybe sort of an update on the traction you’ve been having as you been consistent maybe negotiating these peer contracts?

As we stated before many of our contracts are one year or three year renewable in some cases they renew automatically and sometimes they’re renegotiated. We’ve not had any price decreases in the four or five years that I've been here relative to I think maybe you referring more to CMS pricing. We have a category three code that we had for I guess that’s 2012 that was established by the ACC American College of Cardiology, on our behalf. And in 2017, we approached the ACC and asked them what we should do and they suggested we wait, and they renewed, or the CMS process renewed for an additional five years the 2022 I guess it is. As far as stability of that that price that we have is negotiated locally it’s been reviewed every year it’s gone up or down by $1.50 to down a $1.50 over the period of time. And most importantly I think David is the process that we went through to obtain our pricing with CMS is exactly the same process that we would use for we would have moved to a Category one code. In other words it was built up using the same tools, the same processes, the same processes, the same inputs that drive $369/370 that compasses the global code and the $310 that we use for our technical code. So I don’t really see much of an incentive nor do I see much of a risk in pricing and it’s really incumbent upon the ACC, to tell us when they think they want to have us moving forward and if they want us to, we can but at this point I don’t see any risk upside or downside risk on the pricing side of it. I was just going to say in the early days of our company CPT three codes were tough because they represent a challenge through commercial payers or commercial payers use them as a barrier, but now that we’re so deeply penetrated with commercial carriers we don’t even think about the challenges of CPT three codes we’ve moved beyond that pretty extensively.

Your next question comes from the line of Robbie Marcus from JPMorgan. Your line is open.

This is actually Allen on for Robbie. Just a quick question on mSToPS. Obviously I think, we all saw the really good data you have put on ACC and it's obviously, still early but have you guys begun or do you have any plans currently to begin kind of preparing that space through your ultimate plan kind of enter either in terms of discussions through payers and really pushing that data or with docs?

Yes it’s a two prong approach here the three year read out will be the most impactful driver of adopting if you will because then we would prove not only the clinical utility and validity of using ZIO on these high-risk patients but we would also have the economic data to support it. That said we are working in the background now with payers. We are working with medical societies and we are looking at trying to promote this as best we can in the early days because there is meaningful work here to be done, meaningful value to be created I should say not work to be done, meaningful value to be created in the short-term, sure.

And then just a quick follow up I know you mentioned you’ll be having more data reading out in the back half of the year. I’m assuming that from SCREEN AF, do you still expect to kind of publish on that later this year. And once that comes out again I know you said you're waiting mostly for the three year data but how about data kind of play into your strategy?

Sorry Allen this Derrick so I’ll take that one. So the SCREEN AF study which a study which also addresses that sound AF population that is still underway. I think that currently we would expect some initial results for that probably to be out next year, not this year. And in addition, there is also some analysis from mSToPS that could come out in the meantime. And we do have some initial additional other studies that are – that we expect to come out. In fact I take this time to mention that at HRS next week there will be two posters which continue to further highlight the value of our ZIO service. One poster is focused on examining the prevalence of silent or subclinical AF in the elderly population and that's being presented on 11th. And there is another poster that’s looking at atrial fibrillation burden as measured by ZIO and association cognitive function, and that's being presented on May 10th. So we expect the clinical evidence to continue to trickle out over time.

Your next question comes from the line of Jason Mills from Canaccord Genuity. Your line is open.

So I'll try to be quick so question on revenue, question on gross margin. So with respect to the reps that you think last year was pointed that you had a fairly good end to the year in terms of sales rep hiring. And then this year obviously even an acceleration seemingly on that sales rep expansion success. So wondering Matt if there has been any change at all just with respect to the – productivity for those new reps is the model sort of changed at all positively/negatively or is it fairly similar to the onboarding in ramp sort of algorithm so many initial reps had?

I think the way I would answer that is we’re not ready to provide any additional or new guidance on sales rep productivity which currently stands at 2.25 million in the three to four period – but I would say anecdotally that we are seeing. We’re cautiously optimistic that we’re seeing the level of productivity in sort of the high end of those ranges and not just for your season rep but for your new reps as well. But it’s just too early days to with such a large number of new hires coming on board for us to provide any more guidance than that, but again cautiously optimistic where we are from that t particular guidance standpoint.

And then secondly on the gross margins you clearly laid out you expectations for the year and then it’s glad to hear expectation longer term hasn’t changed. But for the year Matt is there any reason to think that the cadence with respect to your gross margins and I guess more specifically how the volume is impacting your COGS percentages and, therefore, gross margin percentages as the year progresses rather to what we see in the past. So I guess - a more simplistic way to ask it is you start the year close to 72% sequentially is there anything we should be watchful for that would suggest the sequential we will see gross margin down in any given quarter, given that it seems like notwithstanding the seasonally – the seasonal issue in Q2 that most medtech companies face, that gross margin should continue to tick up from here sequentially just wanted to make we don’t have anything that may affect it?

Let me address the second part of your question first seasonality in, in itself would not have an impact on our gross margins. And I think overall, I think initial comment is the correct which we should continue to see that standard cadence as we move sequentially throughout the year. There is no specific material reason I'm aware of that would cause any sort of upwards or downwards debt at the present point in time. But as we continue to invest heavily in our deep learning AR tools there could be a small adjustment here or there, but again nothing that I feel at the present is going to have a material impact one way or the other as we sequentially grow those gross margins overtime.

Your next question comes from the line of Glenn Novarro from RBC Capital Markets. Your line is open.

[indiscernible]?

Glenn the reception on your call is pretty poor. We’re going to try to repeat the question to make sure we got it there was a background echo there. Matt, do you want to repeat. If you got it Glenn you can tell us and then we’ll go ahead and answer it.

So I think Glenn what we heard was yes we had a beat of about 1.5 million to guidance and there is raise on top of that which connotates to a little bit of a optimism to our guidance. And I think you were going in a little bit of detail on the sales rep have an impact or is it something else let me stop there and see if that the just of your question.

Yes, that is correct.

So the answer is - I’ll answer almost the same way I just answered to Jason relates to the sales productivity levels. We’re cautiously optimistic of what we’re seeing coming out of Q4 obviously now out of Q1 we are ahead of where we head our own internal aggressive hiring standards. And if that is the case then we feel that we’re seeing some good traction with both new and existing reps vis-à-vis our productivity levels I think all of that along with Kevin comments about some of the AT albeit material at the present time gives us a little bit of confidence as we move towards the second half of the year. And thus the reason for us not only providing, a deep but a slight raise in guidance as well.

Your next question comes from the line of Eugene Mannheimer from Dougherty & Company. Your line is open.

With respect to the nuances around the patient and symptoms that lead a doctor to prescribe the AT over the XT. Curious if your AT service has a slightly different call point then the XT for example the electrophysiologists versus the primary care doc or general cardiologist?

Well the call point for sales team is at the enterprise level so we have call points with electrophysiologists, with cardiologists, with cardiac surgeons, with the emergency department, with neurology, with primary care. We’re essentially making certain that wherever patients that are symptomatic of whatever heart rhythm might, abnormality might there be that these physicians are trying to know which product to prescribe. I would say in general though I think the heart rhythm specialist the EP is probably see or get referred more frequently the higher acuity ones. So it could be that there is a disproportionate opportunity amongst the electrophysiologists that said I think we’re equally strong in general cards as we are in EPs and so forth.

And just to clarify that productivity metric per rep of 2.25 million that inclusive of both the XT and the AT service right at scale?

Oh no the number that Matt gave to you was the current rates that we’re at and so that current rate but when he gave it to you is in the fourth quarter in the fourth quarter we had essentially very, very little AT business. We’ve not put forth a pro forma forward-looking number of what are productivity would be. We really don't know how high that could get and I think that may be gets to your point as well given the disproportionate pricing between and AT and XT if the mix is 90/10 versus the mix is 80/20 or 70/30 then the productivity changes quite dramatically. But we're not projected that forward, and all we’ve given today is largely XT business.

Your next question comes from the line of Suraj Kalia from Northland Securities. Your line is open.

So Kevin two questions and please forgive me if they’ve already been asked just toggling in between two calls. Can you all give us a roadmap on how you see average turnaround time once the ZIO Patch is sent to you all getting reduced from the current two-week period. I know you all are investing a significant amount of dollars in your machine learning algos. Any roadmap you can provide for the next four or six quarters how should we look upon that?

You might unless I misunderstood the question you might be confusing two elements. So there is a wear period so the patients are wearing the ZIO Patch on average 13.7 days out of a 14 day prescription. So we’re nearly fully utilized. The turnaround time for report is the same day that we get the patch back from the patients. We don’t have a two week queue for reporting, we report on the same day.

And forgive me my understanding is that usually takes another two weeks even if it’s in the queue and that's part of the machine learning algos but I can certainly take it off-line. The other thing one of the things you’ll mentioned is you all taking on more in terms of claims processing and other aspects which the physicians want to offload to you guys. While it helps capturing the patient and the topline the technical component remains the same. Is there point of diminishing returns where you say you know what we can do more than this or taking on more is essential to capturing the patient. I guess what I'm really trying to address through all of this is at what point do we start getting a sense of the OpEx leverage in the model and clarity there would be great. Thank you for taking my questions.

So as I said earlier in order to create value - for in order the customer to change their status quo you have to create value. And value has to be created clinically and value needs to be created from a business point of view. The business point of view is customers want us to be more responsible for the entire service giving the physician high quality assurance or of a diagnosis and for iRhythm to take care of the rest. The cost for us to do that business side given that we’re an informatics company not a labor company if you will is the minimus relative to the value created. So more people are using our system because of the infrastructure that we’ve built across the enterprise then would be doing it, if we said to them, here's a ZIO Patch you curate the data or here’s a ZIO Patch you curate the data and you bill it, and you interpret it. They don’t have time to do that and that's not value creating for them. That’s the pivot and that’s the unique competitive advantage of iRhythm as a digital informatics and analytics company versus a medical device company. Leverage in the operating expense side is – comes more from the organization reaching levels of productivity like the sales force is big expense item for us right now and for R&D in investing in new products and programs. Those things are driving growth they’re not intended necessarily yet to be contributing to the bottom line. We have a very, very large addressable market and a relatively small market share. And what’s our goal and our vision to be the leader in this space and in others in order to do that we need to invest and think of ourselves more as a growth company than we do as a value oriented bottom line oriented company.

But don’t underestimate the strength of the business because with 72% gross margins there is a lot of falling down into the next layer or the P&L.

I’m showing no further questions at this time. I would now like to turn the conference back to Mr. Kevin King.

Thank you, Operator. Thank you all for joining our Q1 2018 call. We appreciate your interest and want to know we’re happy with our results. And I look forward to talking with you later in the year. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.