Good afternoon, ladies and gentlemen, and welcome today's conference call to discuss iRhythm Technologies Second Quarter 2018 Financial Results. My name is Catherine and I'll be your operator on this call. [Operator Instructions] Please note, that this call is being recorded today, Wednesday, August 1, 2018 at 1:30 PM Pacific Time and will be available on the Investors Selection of iRhythm's website at www.irhythmtech.com. I would now like to turn the meeting over to Ms. Leigh Salvo, Investor Relations.

Thank you, Catherine, and 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 June 30, 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 includes 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 descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent quarterly 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, August 1, 2018. And with that, I'll turn the call over to Kevin.

Thanks, Leigh. Good afternoon and thanks everyone for joining. Our second quarter results demonstrated strong sales execution and market penetration. Revenue for the quarter was $35.5, up 55% as adjusted for topic 606 over the prior year, and gross margins increased by 2.6 points to nearly 73.2%. We were pleased to see both Zio XT and Zio AT driving improved account penetration and new customer expansion, particularly in targeted large hospital networks. As a result of growing acceptance of our systems combined with the recent expansion of our sales organization, we expect revenues for 2018 will now be between $138 million to $141 million, up from $128.5 million to $133.5 million, which represents growth in the range of 45% to 48%. I'd like to take a few minutes to discuss some of the recent business highlights, and I'll turn the call over to Matt for a financial review of the quarter. Sales team expansion was a key objective for us in the first half of 2018, we set a goal of hiring 20 to 25 quarter carrying reps with the expectation that most of these hires will be made in the first half of the year. We achieved that hiring goal ending Q2 with a team of 110. For the remainder of the year we'll turn our attention to driving rep productivity, we have a strong sales leadership team, as well as sales infrastructure team to lead and support that team. A large percentage of our sales onboarding has occurred in the last six months and now our focus will be on ramping their overall productivity. As we've indicated in our past, it typically takes three to six months for new sales hire to become productive and on average, several years to reach peak productivity; encouragingly we're seeing that reign…

Thanks, Kevin. As Kevin has pointed out in his commentary, we are very pleased with the overall financial performance in terms of topline revenue and gross margin improvement in the quarter. Our focus on sales force expansion, infrastructure support of the sales organization, and overall market expansion continues to be at the forefront of our growth strategy. However, this quarter we'd like to also highlight a number of important fundamental and to treat the strategic trends in our business that lead us to remain bullish on our growth story and with that, increase guidance. But before I go into that detail, let's look at some of the important financial and qualitative highlights for the second quarter as adjusted for topic 606. Highlights for the first quarter include revenue growth of 55% year-over-year and sequential growth of 16%. Gross margins of 73.2%, an increase sequentially of 1.4 percentage points, another successful quarter of AT contracting efforts, again ahead of our own internal expectations leading to some early AT pilot onboarding wins. And finally, a completed buildout of our sales operations and sales expansion teams for the year for our own internal expectations and external guidance. Taking a more detailed look at the first quarter results as adjusted for topic 606; revenue for the three quarters ended June 30, 2018 was $35.5 million, an increase of 55% year-over-year and 16% sequentially. Sales force productivity levels continue to rise augmented by the fact most of the additional sales rep hires forecasted for the year are already onboard as of June 30. And as I mentioned before, we thought it's important to spend some time on this earnings call going into more detail on the positive trends, some of which we've shared in the past and some new ones that we are seeing in…

[Operator Instructions] And our first question comes from David Lewis with Morgan Stanley. Your line is open.

The first thing is, just looking at the acceleration of the business, obviously you beat this quarter raising materially more than the guide, so obviously this remains in this quarter and heading into the back half; so can we talk to so where the acceleration in the business is coming in this particular quarter either through market expansion, sales expansion, AT and how you see that relative growth playing out in the back half of the year? And secondarily, just on the salesforce; you reached to target early, how should we think about sort of the back half of the year in terms of adding reps into obviously what's accelerating growth? Thanks so much.

David, I would say the factors driving the accelerated growth are across the board. We saw a strength in same-store new store growth, we saw strength in the mix between price and volume. And we saw a slight uptick in overall productivity of reps inclusive of the reps that have been hired say in the last six months or so, six to nine months, I'm looking across the table at Matt here. And so you know, those things together with the new product AT which we've described as making good progress and getting tremendous pull-through are the factors of strength. I can't really point to one single thing rather than everything is rising as the demand for the service continues to increase. Related to how that relates to the back half, I think we filtered that into the guidance that we've given you where we've taken the number up here by some number of millions of dollars, I don't have the exact number in my head here but it's the way we've described it. Relative to salesforce hiring, we've spoken about this before about how important it is for us to make certain our sales teams are trained, they are well ingrained in the culture and the values of the company and how we represent ourselves to our customers and that they actually have to understand a lot -- not just clinically but operationally about what our customers do in order to help them to affect change and adoption Zio. So with that we're spending the majority of our time here in the back half focusing on sales rep productivity, helping these people to be successful, and we're kind of turning our way more towards that and less towards hiring, there maybe a few incremental hires in the third quarter here, we'll certainly revisit in the fourth quarter but from a modeling perspective, I think the number of people that we have now at about 1-10 is a pretty good number for you plus but plus a few going in the back half and of course, we're going to revisit this in the fourth quarter and we'll revisit it in 2019 relative to the longer term goals of 120 to 150; we're not coming off of that number in anyway we perform rather spending our time now on the productivity gains that we think are more important than just adding more headcount.

On the AT, do you think you'll be in a position by end of this year to sort of talk about the absolute contribution of '18?

I don't know David if we'll be in a position to do that. I just don't know, I haven't given that much thought to that. At the end of the year, we're just driving daily here success and so forth we continue on that path, we'll probably give more color commentary about it. That said, it's very early days for the product.

And our next question comes from Robert Marcus [ph] with JPMorgan.

I just want to ask the first question on the study that you've had come out recently; the data looks very good but I was just wondering how much of a benefit are you actually seeing flow through to your results and whether or not that's kind of bigger -- untapped opportunity that you guys haven't really seen much benefit from yet?

I would say it's the latter. These are two very large important studies. The M-Stop [ph] study points to a market segment that is largely unaddressed and one in which we're doing lots of market development work in a number of avenues whether it has to do with health plans, whether it has to do with thought leadership, whether it has to do with guidelines etcetera, all of those things will take time to play out. As I said, the results are very positive and there is a follow-on study that is focused on the economics of looking at high risk asymptomatic patients. So that market is still a little bit off on the distance. And then on the side of KP Rhythm, we are beginning to aggressively go after this population of patients that I described, the 1 million patients with atrial fibrillation that both need follow-up and both need medical management from the standpoint of do I need anticoagulation therapy or not. This is a very powerful and a very unique measurement that the medical community now understands and has access through the Zio service and we're beginning to drive that, we've yet to see that because the paper just came out in last month or so but certainly going to be looking for that as part of our -- sort of [indiscernible] of capabilities inside of the Zio service.

And just a little bit on the competition front obviously, you have something better that have been a bit more vocal about products that they themselves are starting to push that their marketing as their own patch-based products. In terms of competitive headwinds, are you seeing anything yet -- anything meaningful I would call out I suppose?

Short answer is no, we don't see any meaningful impact from competitors, particularly patch-like competitors that are attempting to enter the space. We are quite flattered that generally their position is, hey we're just like Zio; that said, we know that customers really demand quantitative proof of both, clinical superiority, as well as the ability to improve their business operation in order to adopt. And there are very stringent measurements that customers hold us to as including a shorten time to diagnose and increasing diagnostic accuracy, improved time savings, improved workflow, patient satisfaction and lower cost. We as a company provide all of that information to our customers on a regular basis using their data as our proof points of the value of our service. On the last call that we had, we talked about three big differentiators relative to the competition and one of them was about being clinically better. And here we've demonstrated in over 20 peer review studies that Zio at 14 days outperforms any competing category, whether it's shorter duration and continuous monitoring, holter or what's called extended holter or longer intermittent capabilities like MCT or event monitoring. Our average wear times are 13.7 days, they are longer than anyone else but that's only one determining differentiating factors of the capabilities that we have. We're also clinically proven to change medical decision-making which no other competitor has done in this category that we're describing. So along with that we've demonstrated that our machine learned algorithms outperform expert cardiologist in the interpretation of 14 different arrhythmia [ph] classes, over tens of thousands of patients and that information has been published and we're quite proud of that capability to give people the assurance that they can get their results in the single test with Zio. And I already described that we have proven quantitatively the impact of atrial fibrillation burden which no one else can really do. And then kind of lastly on that side, you know, customers tell us that clinical service delivery alone is insufficient that the business side of the equation is important, and here again another differentiating factor that no other competition has is the single-digital platform and workflow tools that allow us to scale across entire hospital delivery systems. We've spoken in the past about how complex some of our customers are, and that they not only demand that we have enterprise workflow and financial and clinical tools but the size of organizations that we spend can be dozens of locations upto nine different department types and hospitals, hundreds of prescribers and hundreds of health plans that all require seamless interaction of information back and forth continuously 24/7 365 days a year. And so from a competitive standpoint, we don't really see anyone being clinically better, clinically proven, nor having a single-digital platform that competes with Zio and that's what gives us the confidence and that's what gives our customers a high satisfactions rates that we have.

Our next question comes from Jason Mills with Canaccord Genuity.

Just starting off from a higher level; I was wondering if you could provide just some context around your ability to shift providers to 80 from traditional [indiscernible] versus what you saw shifting practices from XT. And just any competitive barriers driving initial adoption?

Let me try to restate it, make sure I get it. The question is ROE shifting customers from traditional MCT to AT in a manner like we did from holter to XT?

Correct. And what are the different kind of barriers that you're facing in those two markets?

Look, the answer is yes, but it's a little bit more complicated than that. So in our view and our experience, we find legacy MCT prescribing patterns moving in two directions. One direction has been towards XT for quite a while and that is because the replacements or the alternatives for MCT were either shorter term holter monitoring or intermittent event monitoring and there was a gap. So we've taken a lot from MCT traditionally; that said, we didn't meet the need for life critical alerting of arrhythmia's and we now do that with AT. The primary benefit or aprimary benefit of Zio AT is that it's a single platform that allows customers to interact with, it's the same form factor device, it's the same reporting mechanisms, it's the same algorithm, it's the same type of workflow and the same type of patient compliance that is unmatched. When we generally go into accounts today, we see a hotchpotch or a mismatch of different types of devices, different types of user requirements, different types of reporting, different types of inventory prescribing patterns and so on and so forth that really created great amount of upheaval [ph] for our customers. And this ability to have a single platform that addresses all their needs is very compelling in addition to the clinical attributes of Zio AT and what it brings.

Also just turning to your salesforce expansion, as you think beyond 2018, I'm just in light of shifting productivity that you've seen so far -- what do you view as kind of your capacity in the current markets you're in and potential expansion as you expand into new indications? And then regarding AT, how are you seeing that impact productivity so far?

In the past we've described our quarter carrying salesforce of somewhere between 125 to 150 sales representatives here in the U.S. excluding in the international markets, we've not changed our perspective on that number, so today we're at 110, we've got our ways to go in terms of meeting those metrics. As Matt said in his comments, our sales rep productivity continues to increase and quite honestly, we don't know where the upper limit is, we've never been there, right, and this is our new service level offering, it could be -- it could continue to rise for the future. Right now the numbers that we have are what you should really base your models on. And as far as the contributions of AT -- the AT is still an immaterial part of our business overall, so I would say that it's relatively low. And it represents probably 10% of the total market potential albeit at a higher price point, it is only 10% of the market in terms of volume. So, it might have some overall impact on rep productivity but largely it's more about being into apply all of our tools to help a particular account win.

[Operator Instructions] Our next question comes from Glenn Novarro with RBC Capital Markets.

I have two questions; my first is, I had been getting some inbound calls on reimbursement, it centers around CMS. I know you've got a category three code that I believe goes out to 2022, so my first question; has there been any change or discussions -- anything new on that category three code?

Short answer is no, Glenn, there hasn't. As you know, we continue to I guess probe this question about what's the right timing of moving from CPT3 to CPT1, that would be the area that you're talking about and we do that through the specialty societies, HRS and ACC. We're working with them to understand both, what are their requirements and what's the timeline on that and that work has been ongoing since we've started the company and we went back to them last year and their recommendation was extend the current code. I would say that right now the likely timing of some particular type of change is probably in the four to five year timeframe of when things may change. I would also say that given the number of questions we get about this, it probably is better for it to happen, we've always been supportive of it but I think it's a change that could be helpful from that standpoint that it seems to be a milestone that people are concerned about, we're not. From that standpoint, we have a 10-year history of working relationships with ACC, HRS and CMS and we've done that in order to find a way to create sustainable valuation for the service that we provide. We learned from preceding modalities; MCT for example, not to take anything for granted, as we do everything we can to support the understanding of the cost and the value associated with delivering the service to patients, and through working through the societies we're very confident that we've done this well, they understand our value and if we were to go forward, we would expect either neutral or possibly higher pricing given that when we did our coding in reimbursement with CMS in the past, the complexity of our records, the duration of our wear time and others were shorter than it is right now. When Zio first came out, our average wear times were much less and the calculations we did for our view calculations were not based on the same number of the size records that we have now and things of that nature. So long story short, we haven't seen much activity there, we're in close relationship, have a good relationship and close working relationship with ACC and HRS and when they determine it's time for us to go, we're ready to go and we're very positive about it. That said, I still think it's ways off.

My second question relates to your guidance. In your prepared remarks Kevin you talked about new accounts coming on contributing meaningfully; it sounds like these new accounts are ramping up faster than expected, so can you provide some color on some of these new accounts and is this one of the major reasons why you're so confident in raising guidance for the year?

I want to go back to the -- I understand the question, I would go back to the comment I made to -- it was either David Luis or Allen about why is our business accelerating and I would say why is our business accelerating, why are we confident, it's really because it's across the board performance. As we've spoken in the past, the time it takes to bring a new large account on of the order of what I was describing, right, multiple locations, multiple departments, hundreds of prescribers and so forth can be a lengthy process; we've invested a lot of resources and time and energy to create processes and methodologies for us to repeatedly go after these accounts or work with these accounts in order to convert them to Zio and we've gotten better. So I think for that reason, some of them are ramping faster and that the time to sort of their first patch or their first 50 patchers or whatever metric you might want to look at has been shortened. That said, I would not conclude that it's an easy road to ho [ph] in terms of changing physician prescribing patterns, changing administrative ways of doing things and ticking and tying all the boxes, it's still a lot hard road for us. That said, we are getting better and better each day across the board.

Our next question comes from Suraj Kalia with Northland Securities. Please check your mute button. Pardon me, Suraj Kalia, your line is open.

Perhaps he is not there, okay. Do we have another follow-up?

There is no further questions in the queue. I'd like to turn the call back to Mr. Kevin King for closing remarks.

Thank you everyone for joining the second quarter earnings call here for iRhythm Technologies. We appreciate your interest and support, and please note that everyone here at iRhythm here is very proud of what we do and we're very confident in our path going forward. We look forward to talking to you at the end of the third quarter. Thanks very much.

Thank you, ladies and gentlemen for your participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.