Hello, and welcome to the iRhythm Technologies, Inc. Q1 2024 Earnings Conference Call. My name is Terry, and I will be the conference operator today. [Operator Instructions] I would now like to hand over to Stephanie Zhadkevich, Director of Investor Relations, to begin. Please go ahead.

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the first quarter ended March 31, 2024. 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 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 facts should be deemed to be forward-looking statements. These are based upon our current estimates and various assumptions and reflect management's intentions, beliefs and expectations about future events, strategies, competition, products, and operating plans and performance. These statements involve 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 annual and quarterly reports on Form 10-K and Form 10-Q, respectively, filed with the Securities and Exchange Commission. Also during the call, we will discuss certain financial measures that have not been prepared in accordance with U.S. GAAP with respect to our non-GAAP and cash-based results, including adjusted EBITDA, adjusted operating expenses and adjusted net loss. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of additional information should not be considered in isolation as a substitute for or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and 10-Q for a reconciliation of these measures to the most directly comparable GAAP financial measures. Unless otherwise noted, all references to financial measures in this call other than revenue refer to non-GAAP results. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 2, 2024. 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. And with that, I'll turn the call over to Quentin Blackford, iRhythm's President and CEO.

Thank you, Stephanie. Good afternoon, and thank you all for joining us. Brice Bobzien, our Chief Financial Officer; and Dan Wilson, our EVP of Corporate Development and Investor Relations, joining me on today's call. My prepared remarks today cover business updates during the first quarter of 2024 as well as our annual outlook. I'll then turn the call over to Brice to provide a detailed review of our first quarter financial results and updated 2024 guidance. During the first quarter of 2024, we achieved revenue of $131.9 million representing 18.4% growth compared to the first quarter of 2023. Over 0.5 million registrations in Q1 contributed to another quarter of record revenue volume, while our average selling prices remained steady with the prior year. Drivers of growth continued to come from the focus of our land and expand strategy by going deeper and broader within existing accounts as well as a meaningful contribution from new account openings. The first quarter was again a strong quarter of new account onboarding as we matched our highest ever quarter for new account openings for Zio long-term continuous monitoring, reflective of our team's ability to capitalize on our pipeline opportunities and providing confidence in our 2024 outlook. Our teams drove solid momentum during the first quarter as we have seen strong market demand for our Zio products and services thus far in Q2 as well. These factors have resulted in our updating of annual revenue guidance, reflecting our ongoing confidence in the underlying fundamentals of the core business and optimism for continued market capture in 2024. Our excitement for the primary care channel continues to grow as our two-pronged approach to opening that opportunity gains traction. As a reminder, we are approaching this opportunity by working from the ground up within large health networks that…

Thanks, Quentin. As a reminder, unless otherwise noted, the financial metrics that I discuss today will be presented on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release and on our IR website. First quarter 2024 results demonstrated positive momentum in our core markets as we achieved revenue of $131.9 million, representing 18.4% year-over-year growth. As Quentin mentioned, this was driven by strong revenue volume growth as well as a slight improvement to our average selling price of approximately 100 basis points year-over-year. New store growth with new store defined as accounts that have been opened for less than 12 months accounted for approximately 46% of our year-over-year volume growth. Consistent with recent trends, home enrollment for Zio Services was approximately 21% of volume in the first quarter. Gross margin for the first quarter was 66.3% in line with expectations and with the guidance provided in February. As previously discussed, we have continued to see positive marketplace reaction to Zio monitor, and we are focused on managing the incremental costs associated with ramping capacity. We remain on track to realize the benefits of automation and scale for Zio monitor production in the second half of 2024. Additionally, since completing the last phase of our San Francisco IDTF investment in the fourth quarter, we are ramp utilization from a newly hired clinical cardiac technicians as planned, and we expect to see continued improvements in efficiency as they come up to speed. First quarter adjusted operating expenses were $125.7 million, up 10% sequentially and up 15% year-over-year, in line with our expectations. Compared to the first quarter of 2023, this increase in adjusted operating expenses was primarily due to incremental resources to support volume growth in our operations. Sequentially, expenses were elevated due to seasonal items such as…

Thanks, Brice. We are incredibly pleased with the start of the year and couldn't be more excited about the future in front of us. iRhythm is building a digital health care portfolio of the future. We are uniquely positioned for success as we continue to build our technology platform and leverage our commercial reach, established market position, patient-centric technology focus, expansive EKG data repository and robust evidence generation strategy, which puts us in a position to be a market leader in defining how patient monitoring can look in the future as we address the Quintuple Aim of health care in the years to come. With that, Brice, Dan and I would like to now open the call for questions. Operator?

[Operator Instructions] The first question on the line comes from Allen Gong of JPMorgan.

Congratulations on a great quarter. I just have one quick one to start. In the first quarter, you called out how you had a little bit of a challenge in January with some weather-related impacts, strong February. And it looks like that momentum kind of continued into March. So just kind of curious to hear if you're still seeing that strong momentum from, say, Zio Monitor and AT so far into the second quarter?

Allen, it's Quentin here. We have continued to see that momentum continue into the second quarter to date. And to your point, really saw that momentum begin to pick up in the back part of Q1. And I would say it's been unchanged, relatively speaking here in the first part of the second quarter through the month of April. So it has continued, and we've seen it continue on both the monitor product line as well as the AT product line.

The next question on the line comes from Malgorzata Kaczor of William Blair.

I guess I'd like to spend a little time around some of the data and time saving that you guys referenced around Epic Aura, 75% sounds pretty meaningful. So I'm just curious how meaningful is that to the user, if you can conceptualize it? And kind of the follow-up to that is I imagine those time savings were classed as step 1. But ultimately, that should lead to share taking or market expansion. So I guess, when should we start to get a better sense around those sorts of metrics, and I think that would you even agree with that?

Malgorzata, we certainly would agree with you on it. It's one of the reasons we get super excited about the whole relationship with Epic, and they've been just outstanding partners out of the gate here. So our excitement and enthusiasm, frankly, just continues to grow as we get closer to them. In terms of the work savings and the time savings these integrations that we currently go through today, and as you know, integration is a big part of our focus. Our goal is to get more than 50% of our accounts fully integrated with the EHR systems, that is a matter of many months of work that it takes both from our team, but also the teams on the account side. And that's a big lift, both time, resources as well as financial resources. With Aura, we expect that can start to be counted in a matter of weeks. For those accounts that are not Aura accounts, now for folks that ultimately are Epic accounts and adopt Aura even if they're not a customer of ours today, we're going to end up right in their order set as a solution or as an offering without any incremental integration really required. And that really excites us because when you think about that, not only are we calling on the accounts and coming in through the front doors, I like to think about it as we build those relationships. But for these accounts that we haven't yet gotten to and they're already Epic Aura users, they're ultimately going to have access to our product as well. And so I think it only increases our odds of success and chances to win, which is why I do think it will be a needle mover for us and ultimately allow us to capture even more share as we go into the future. Now, over the course of '24, our work will continue with Epic as we design out sort of what that interface looks like and what that order set looks like within their system and in their platform. We'll pilot that with the selected accounts that I've already mentioned in my prepared remarks here in the back part of the year, and then we'll really turn that on in early 2025 to begin to really expand the offering out across the broader universe. But I don't expect a significant contribution in '24. I think '25 could be a really exciting year when it comes to Epic and the Aura integration that we're working on.

The next question comes from Richard Newitter from Truist.

Maybe just a first one on the training and the onboarding that's going on in the San Francisco IDTF hires. I'm just curious where are you in terms of the throughput shift to that IDTF? And how much does what you're seeing in terms of their productivity improvements as we're moving through the quarter, how much of that increase where you think you'll be exiting the year in terms of what we can put through that region? And then if you also just talk to any implications for gross margin from that transition?

Rich, thanks for the question. I'll take that one. This is Brice. So I would say we're progressing nicely. Honestly, we talked about last quarter as we have that large investment in the fourth quarter. It takes about 6 to 9 months for these individuals to get fully up to speed and start to optimize efficiently. And so I think we're sort of midway through. However, we're going to see some progress in Q2 and that's definitely more so in Q3, Q4. So it's progressing nicely. As far as the volumes going through the IDTF, we talked about being slightly north of 60% exiting 2023. We're continuing to make progress on that, and we feel good about the transition there. And frankly, having those resources allows us to do that. It's the center of excellence for us now, and we want to make sure we're servicing that patient population as effectively and efficiently as we possibly can. As you move into the back half of the year, the way I really think about the gross margin step-up from the 66% we're seeing now up to that 70% or so range in the back half I think about that clinical technician efficiency in San Francisco contributing about 200 basis points. I think about the automation component of the Zio Monitor platform contributing about 100 basis points. And then I think about the scale as we continue to push Zio Monitor further into our in-clinic business and then ultimately followed by home enrollment, contributing about 100 basis points. We feel like all 3 are making progress in line with our expectations and feel good about the guidance we put out there.

The next question comes from Marie Thibault of BTIG.

Congrats on a very nice Q1. I wanted to ask a little bit more on guidance. You had a very nice quarter, and I know that was against the face of dealing with some weather disruption early in the quarter. Can you help us think about how you set that guide? Was there a little prudence baked in? How should we consider this new revenue range?

Yes. Marie, this is Brice again. Thanks for the question. I think what it was important for us to do was to pass through the beat from the first quarter. We did talk about a little bit of disruption early on. However, we saw incredible recovery in the back half, and continued momentum into Q2. And so the way we feel about guidance moving forward, we certainly have tailwinds at our back. We've talked a lot about them in Quentin's prepared remarks as well as just the opportunity we have in front of us, and we feel good about it. But I'll tell you, when you look at the guidance setup, you're going to see growth rates that are relatively consistent at midpoint and then at the top end of the range, it does have growth accelerating. We absolutely believe that's achievable, and we feel great about it. However, it does take some execution, right? We're in the midst of the launch of the Zio Monitor product, right? We're navigating the conversations with the FDA. It requires commercial launch internationally. There are some things we have to execute on, and we truly believe we're going to be able to execute on all those. However, until we see that execution play through, we're going to be [ softer ] on the guidance for the last 3 quarters of the year.

Your next question comes from Joanne Wuensch from Citibank.

Just a few catch up here. Where are you on the FDA warning letter resolution? Anything new on the Department of Justice? And what is the current thinking of timing for monitor for AT?

Joanne, thanks for the question. Look, from an FDA perspective, I would tell you, we continue to be really encouraged with the work that's going on with the FDA. I think the collaboration is as high as it's ever been. And I applaud our own teams, but also applaud the FDA just with the approach here that the 2 sides have taken. And again, I couldn't feel better about it. I feel like we're making great progress with it. We originally had anticipated that we would see an approval sometime around the mid part of the year. It's probably a couple -- maybe a few months later behind that as we work through this and just go back and forth. And my confidence level has never been higher that we're going to ultimately see an approval here. It's just a matter of the back and forth with the agency and making sure we're answering all those questions in a way that addresses the questions they have. So we feel good about the momentum there and the progress that's being made there, again, I think getting the new MCT category code created being the first product put into that category code just continues to validate the progress that's being made and appreciate the relationship again with the agency. With respect to MCT, I continue to believe we'll get on file in the back half of this year with the agency. It's probably a little bit skewed towards the latter part of the back half of the year, but still expect to have MCT filed in the second half of 2024, which means we're bringing that product into the market in 2025. So excited with MCT. I'll remind you, when you think about growth levers in the future, we only have about 7% of that MCT marketplace despite the fact that we have about 70% of the long-term cardiac monitoring place. And every 10 points of growth that we can capture in that MCT space is pushing up on nearly $100 million of incremental revenue to us. So MCT is an important one. And we're very excited about the enhanced features that are going to come in that MCT product once we get it through. And then on the DOJ, not anything to update on at this point in time. We continue to answer questions when they come and provide information when the questions come. But there really hasn't been a lot of dialogue or back and forth here, and there's not much to update on at this point in time. Certainly, if that changes, and there is something to update on, we'll be certain to it, but there's just not a lot to update here.

The next question on the line comes from Kallum Titchmarsh of Morgan Stanley.

Just stick to MCT here, if that's okay. You alluded to about 7% share in this market for AT today. So realistically, I think after those first couple of years of launch of MCT, where do you think your share could move to in this market? Because it seems as though there are a couple of pretty small lightweight high-tech MCT devices coming through the market today from competitors. So I'm just curious what it is about your product that's encouraging you about a potential uptake here?

Yes. Look, how far we can get, Kallum. I think we're going to wait and see with the success that we have in the market. I think what's really fascinating and one of the reasons that we believe we have a high degree of opportunity to win here is the exact same customer call point that is prescribing long-term cardiac monitoring today in the way of Zio is also writing scripts for competitive MCT products because our product isn't quite what they're looking for. And I think we know very well why that is. One is the duration of where while the data is incredibly compelling with respect to why 14 days of monitoring is sufficient. And I can tell you that data only continues to build. The customers want to see out to 30 days of monitoring or up to 30 days. And so we need to continue to work towards closing that gap. And frankly, just continue to compel them with data as well, but we need to meet the customer where the customer wants to be met. And that's one of the things that we're doing in this enhanced MCT product. The other thing that a lot of our competitors will offer is a downgradable capability when insurance is not able to be found for the actual MCT device, can they step down into something like an event monitor. Those are capabilities that we're building into our products as well and begin to eliminate the argument from a physician's perspective on why Zio MCT is not the right product for them. So -- whether we can get all the way to 70% of the MCT market like we have in long-term cardiac monitoring market, certainly, we're not setting our expectations that way, but there is a lot of room to run in there to capture market share and have success. So could you get half of that? It's hard to say. But if we're just picking up 10 points, that's an incremental $100 million of revenue to our company. I like our opportunities to get in there and compete for that and ultimately have success with it.

The next question on the line comes from Nathan Treybeck of Wells Fargo.

Congrats on a great quarter. I don't think I heard you specifically call out your partnership with Signify Health in your opening remarks. Can you provide an update on where you stand currently? And are you still in pilot? And when do you expect the full rollout? And also Signify just announced the CEO transition. Does this impact your outlook from this partnership?

Nathan, I don't think it changes anything in terms of how we look at the partnership here I made a comment in the prepared remarks, Q1 was very encouraging. We actually signed up several new innovative primary care partners in this space. We're excited about the collaboration with Signify. It is still in pilot phase, and we're still working through that, but we fully expect to turn that into a broader commercial launch in the back half of this year. So a little bit early to speak to the results at this point in time. I can tell you if we see results like we saw with some of the other innovative primary care players. I point back to PCC. We saw nearly 80% of the patients that were applied patches that were asymptomatic, ultimately were found to have an arrhythmia that is very informative, and I think allows these innovative channels to really address care the way they need to. So we're excited by the prospects of the Signify relationship. We're excited by the prospects of some of the other innovative primary care players that are coming into this. I think it validates our thesis that primary care is absolutely the place that this device is ultimately going to get applied into the future just with this ease of use. It's high diagnostic yield, it's incredible accuracy, the ability to create tremendous workflow efficiencies and ultimately, all of that comes back in play with respect to delivering incremental value and this whole focus on value-based care. I just really like the way that Zio is positioned to address this into the future. So we couldn't be more excited, but we're going to let that play out in the back half of the year. And hopefully, we're talking a whole lot more about it.

The next question comes from David Rescott of Baird.

Great. Congrats on a strong start to the year here. Brice, I just wanted to clarify one comment you made then I had a question for Quentin on Signify. Did you say that the percentage of volumes that came through San Francisco exiting 2023, were above 50% or above 60%? And then on Signify, for Quentin, I appreciate the comments you just provided there. But I'm wondering if you could frame up maybe the size of the opportunity there. I think the last that the company called out was about $3 million annual in-home evaluations. Wondering if you have a sense for how many of those are kind of eligible for diagnostics, preventive services and maybe therefore, at risk for [ AF ] and then longer term and the back half of the year into 2025. Beyond this initial rollout I'm just trying to get a sense for how this rolls in into patients? Is it more getting rolled out across these eligible patients? Or is it more offered to the patients? And therefore it's up to the patient to decide whether or not they want to participate in some type of program like this?

Dave, maybe I'll kick it off. Yes, just a clarification, just north of 60% exiting 23 with continued progress in Q1 and expected progress throughout the rest of the year.

Yes. And I think, David, it's early right now. I can tell you, we've had a lot of discussions with Signify around what the potential opportunity can look like. I think we're still nailing that down. Probably the best way to describe it is you go back, you look at the mSToPS criteria, you look at some of the data that's out there around identifying arrhythmias in these comorbid where other disease states are present, maybe its diabetes, maybe its COPD, maybe its obesity. It's at least 25% or so of the population. And so if those rates apply to Signify, I think you can see that it's a pretty significant opportunity. The question is, is there more there? We know that, that population tends to be one that needs care in the home, can't get out to see a physician. So does that mean that it's a little bit of a different population where those rates are even higher, we'll see as we go.

The next question comes from the line of Bill Plovanic from Canaccord.

Just wanted to take a step back just on the launch of Zio Monitor. Just -- one, you're seeing good uptake in new accounts. Are all new accounts getting Zio Monitor and you're still transitioning just the existing accounts? Or where are you with that? And then in terms of the compliance rate. I think one of the things you saw early on was a higher compliance rate in returning the device. And I'm wondering if that is still carrying through?

Bill, it's Brice. So yes, on the rollout, that is absolutely the case. All new accounts coming on are starting with Zio Monitor. And we're approaching, call it, that 80% or so level of existing accounts also being converted. So the progress on Zio Monitor has gone incredibly well. But you have it right with thinking all new accounts are on it, and then existing accounts will slowly come up to speed here. As far as the compliance rate, you're absolutely right, there is a benefit to Zio monitor, much of which is related to the form factor, but frankly, also just the high diagnostic yield of the device and those coming back with data. And so we are seeing an improvement there. I will tell you, there's a few dynamics at play here. Home enrollment ticking up a little bit. Compliance tends to be a little bit lower there. And as PCP and some other of these sort of alternative channels come into place, there's a little bit different return dynamic for those. However, once everyone is on monitor, we feel really good about that return device rate improving nicely over the time horizon.

The final question today comes from Suraj Kalia from Oppenheimer.

So I guess I'll just quickly throw one for you, Quentin, one for Brice. So Quentin, in terms of sleep, I guess I'm curious, why sleep. Just given OSA is so predictable, and the relative complexity of algorithms is -- if I can loosely use it de minimis compared to AF, which is complex, right? So I'm trying to understand what value proposition you see there? And Brice, quickly, if I could, the SFO IDTF. Has a decision been made -- I mean, if you guys are at 60% and going higher there is obviously a trade-off between OpEx and top line, right? So I'm curious what the read-throughs per report currently are in terms of technicians?

Thanks, Suraj. So I'll hit that first one on sleep. Look, I think the prevalence of OSA is incredibly high. And the reality is these patients need a diagnosis. And the further reality is that so many of them start with the cardiologists, the EP or even the primary care physician. Ultimately, they get referred on to a sleep specialist or they get a diagnosis performed right there by that cardiologist EP or a primary care physician. We have access to these very same customers. And as we sit down in our advisory groups with these customers, and we ask for ways to streamline their practice or ways that we could add incremental value consistently at the very top of the list. If not, the absolute top of the list is help us figure out how to deal with this cumbersome challenging process that we have with our sleep patients. So many times, we'll refer them on to a sleep specialist. They can't be seen for 5, 6, 7 months. They get lost in the fray. They never get a diagnosis, and they're back in my office trying to figure out what is going on. With our call point, with our digital platform, ZioSuite being integrated right into the accounts, and our IDTF capabilities, we think it's a natural synergy and a very easy opportunity to enable these physicians to be able to prescribe a home sleep test, we send that device to the home just like we do in our home enrollment program. And we leverage IDTF capabilities to perform the analysis and ultimately put a diagnosis back into the hands of the physician. You think about it, serving north of 2 million patients a year now, 60% to 70% of all patients who have Afib will have OSA as well. There's a natural synergy here between what we do and what our customers or what our call point is looking for and what we're able to offer. So we're incredibly excited by it. I think it could be a tremendous opportunity for us. Our product into the future. We believe we'll have the opportunity to diagnose sleep disease right off with the patch as we continue to enhance its feature set. And so again, it's just natural to step into this and take advantage of what we've built to date and the service offering that we become known for, which is easy to use and highly predictable, highly accurate. Brice?

Yes. Yes, Suraj. So a question on the [ CCTs ] and the San Francisco Center of Excellence. So remember, the CCT costs themselves run through gross margin, not through OpEx. The administrative component, there's a piece of it that resides down in OpEx, but the vast majority of that rolls through gross margin. And so I would say the read-throughs as they stand now, there's a little bit of inefficiency, which is causing the pressure on gross margin as it stands now. And that's that natural progression we expect in the back half of the year. Again, to the tune of about 200 basis points. There is no reason to believe the efficiency level will be any different in the Center of Excellence than what we would see in either 1 of the other 2 IDTFs over time. And so frankly, we hired a tremendously talented group where you could see potential efficiency gains there over time. So again, we feel great about the gross margin play through over time. It's just going to take a little bit of time for them to get up to the efficiency levels, that we see with the other IDTFs.

We have no further questions on the line, so I'll hand back to the management team for any closing remarks.

Well, thank you for joining us today. We're extremely pleased about the start to 2024 and couldn't be more excited about the growing momentum in our business as we begin to explore opening new adjacencies like sleep and continue to expand into the primary care channel. In the back half of the year set up to demonstrate significant financial leverage as we continue to progress in our efforts to become more operationally excellent as we grow. In addition, we have many catalysts to growth that remain in front of us, which are yet to contribute to our success, including a new innovative Zio MCT solution, entry into the second largest ACM market in the world in Japan, expand further into primary care and step into adjacent sleep markets. iRhythm's future has truly never been brighter than it is today, and I'm grateful to each of our employees around the world as they're doing a great job in progressing our efforts forward. We'll see over the course of the next couple of months. Goodbye.

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.