Q4 2019 Earnings Call

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I would now like to hand, the conference over to your Speaker leased <unk> Investor Relations. Please go ahead.

[music].

Thank you Stephanie and thank you all for participating in today's call. Joining me are Kevin King CEO Basket, Garrett CFO and Dan will still be paid strategy development and Investor Relations.

Earlier today I recently released financial results for the fourth quarter and full year December 31st 2019 copy of the press release is available on the 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. The private Securities Litigation Reform Act at 1995 any statements contained in this call that are not historical that should be.

Seemed to be forward looking statements all forward looking statements, including without limitation.

[music] market expansion penetration productivity improvements.

Reimbursement for at least clinical data our examination of operating trends in our future financial expectations, which includes expectations for hiring both organization and reimbursement and guidance for revenue growth margins profitability operating rate than 2020 are based on our current estimates in various assumptions. These statements involve.

True with a certain makes it could actually but though.

Or the best materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on the site for a list.

And description of the person uncertainties associated with our business. Please refer to the risk factor section of her most recent annual and quarterly reports on form 10-K form 10-Q, respectively.

Thank you.

This conference call contains time sensitive information and an accurate only as of the live broadcast today. If you were 27 2020.

I would then disclaims any intention or obligation except as required by law update or revise any financial projections or forward looking statements, but because of new information future events or otherwise.

I'll turn the call up because [laughter].

That's really good afternoon, and thanks for joining us.

I'll start with a brief recap of our 2019 accomplishments before turning the discussion to our focus in company goals for 2020 and beyond.

We entered 2019 with significant momentum and as we've done successfully in the past built on that throughout the year.

Our full year 2019 revenue was 214.6 million.

Representing 46% growth over prior year and exceeding our initial guidance range of 200 and want to 206 million.

As well as the guidance of 213 to 14 issued most recently in late December.

Gross margin for the year was 75.5% a 1.8 point improvement over the prior year.

Fourth quarter revenue was 59.1 billion up 41% compared to the prior year period.

Gross margins increased to 76.5%.

A 2.4 point improvement over the same period in 2018.

Confidence in our ability to grow when expand the business remains very high.

Competitive differentiation driven by a complete platform demonstrate a clinical superiority.

And our intense focus on serving the needs of our customers plus puts us in an incredibly strong position to continue to grow in 2020 and beyond.

Accordingly, we anticipate full year 2020 revenues to range from $280 million to $290 million, which represents annual revenue growth of 31% to 35%.

Matt will provide are complete full year or 2020 guidance metrics later in his remarks.

We continue to make substantial progress driving each of our growth initiatives as evidenced by several achievements in 2019.

Briefly this past year, we expanded the size of arch sales channel to include two new areas.

Seven new regions and added approximately 30 sales reps along with increases to our customer facing support infrastructure.

Salesforce productivity improved meaningfully both in terms of time to ramp and peak productivity.

We initiated the full commercial launch from zero 80 in October.

We began deployment of our new information system Xeo suite in the fourth quarter.

Zero suite is a multi year architectural software redesign effort that provides a faster and more intuitive experience for physicians and their clinical style.

Designed for desktop.

Blood and mobile access zero suite stream lines clinical workflows and makes report interpretation easier.

Two major studies were published in peer review journals, bringing the total to over 30.

One year health care resource utilization data from M. stops was presented.

We initiated the development partnership was barely focused on next generation atrial Fib solutions.

We expanded our market opportunity by beginning I participation in a new randomized control study called guard AOL.

And this study measure zito's ability to diagnose each real simulation potentially reducing the incidence of stroke and the target population of asymptomatic patients.

And lastly, we raised net proceeds of approximately 107 million from a follow on offering in September which will be used to fund our various growth initiatives.

Turning to our strategic initiatives to three primary components that are key to our short and long term growth strategy, our increased market penetration with our single zeal platform.

Increased operating leverage through continued productivity and automation improvements.

And expanding our addressable market into new indications and geography.

Starting with market penetration Salesforce expansion continues to be an important factor in fueling our sustained growth rates.

2020, we plan to add 20 additional reps ending the year with a total team of roughly 160 sales reps.

As we've always dawn, we intend to grow our commercial team to meet the most cost effective size required to capture the full an untapped market potential.

In addition to our quota carrying reps, we've built to support team that complements the sales team and ensures that our customers achieved a full clinical financial and operational value of our COO service.

The support teams focus on account readiness implementation systems integration, including DHR revenue cycle management and customer experience.

Collectively these teams enable us to truly partner with our customers and are a key factor as to why we win and retain customers.

Turning to our zeal platform the full commercial launch of Xeo 18 in October of last year has enabled us to be a single supplier to large integrated delivery systems.

Faced with patient in information overload and constantly pressed for time, our customers place significant value on using a single platform to improve the effectiveness of their cardiac monitoring capabilities.

Our early experience with 80 has been quite promising as demonstrated by both the pull through of XT as well as the benefits of 80 relative to traditional Mcg devices.

On the first point, we recently presented data that demonstrated on a cumulative basis for accounts that launched 18 2018 and 19.

X T volumes grew 27% in the 120 day period, following 80 launch as compared to the 120 day period prior to 80 launch.

And including 80 volumes grew by almost 50% in that same period.

The significant acceleration is encouraging and clearly demonstrates the value of our single platform.

Customer feedback on 80 remains extremely positive with customers, noting the accuracy of our analysis as well as the consistency and reliability as a platform.

80 utilizes the same form factor as XT, resulting in high patient compliance anywhere and as backed by the same detection algorithms in AI tools, we've developed with X T over the last several years.

This has led to important clinical advantages for 80.

When you compare zeal 82, MCT peer review data zeal, eightys diagnostic yields or the ability to find clinically significant arrhythmias in those high acuity patients is 83%.

Approximately 20 points higher than the peer reviewed published data for traditional MCT.

In addition, the days to detect these clinically significant arrhythmias is shorter by a factor of two or more days.

Timely detection and notification is exactly the reason physicians are choosing to put it patient on a mobile telemetry device.

We believe 80 is well positioned to disrupt the MCT category much like XT has done with traditional holter an event monitors.

It is important to note. However that why we believe 18 is a highly innovative service and device. We remain steadfast in our view that seal XT is the most appropriate solution for the vast majority of patients.

Turning to our second growth strategy, well focused on continuing to increase operating leverage I'm pleased to see that we're scaling increasing our scale leverage within revenue generation.

Cost of service and operating expense categories for the business.

That's going to provide details on how we're focused on doing better in each of these categories in 2020.

Finally, turning to market expansion opportunities the silent east CIPP market is a major part of our expansion strategy. We're currently participating in three important large scale clinical trials.

This includes the M. stop study, which demonstrated in its first year data that patients who are diagnosed with ace.

And I rhythms deals service monitoring group had significantly lower rates of hospitalizations and emergency room visits in the 12 months. Following in the initiation then the Nonmonetary group, we expect three year M. stops data, including clinical and economic outcomes to be published the.

Trucking Heart Association annual meeting in November of this year.

Our second studies screen, a off which is monitoring the incidence of newly diagnosed aims to about six months. We'll also report final results in the coming months potentially at the upcoming joint European stroke in World Conference. This may.

We announced our third study guard area.

52000 patients study sponsored by the Bristol Myers Squibb, Pfizer Alliance, which seeks to determine if earlier detection of ace it through screening in previously undiagnosed men and women or at least 70 age years of age in the U.S. impacts the rate of stroke compared to.

Andrew Medical care.

Through our partnership with Virally, we're working to develop next generation atrial fibrillation products that combine both companies technologies to improve the screening diagnosis and management of patients with asymptomatic a trophy relation.

Barely study watch is an important potential piece of the solution and recently received five 10-K clearance as a class two medical device.

In 2020, our teams will continue to develop and integrate our collective technologies and the development of a complete end to end solution.

We will provide further updates as we move forward with this development and achieve certain milestones.

Before I close I want to provide an update on the process of transitioning our category three CPT code to a category one code.

From previous update you may recall the code transition was approved by the am and September of last year.

And we want to the next stage of initial joint pricing review by the A.M.A. in CMS.

That review occurred last month at the Am a rock meeting.

While we cannot comment on specifics, we believe the am a rock, we'll make an RV you recommendation to CMS based on the model reviewed during the January rock meeting.

In the final stage CMS, either approved or modifies. The recommended argues with public communication of its initial determination in July of this year.

The process has continued to go as we have expected and our confidence in views of the ultimate outcome or unchanged.

We look forward to providing updates when appropriate.

In closing, we look forward to continuing our momentum in 2020 with strong execution across our business our innovative approach to driving market penetration an expansion is rooted in our ability to demonstrate clinical superiority with our proven and complete surface based platform and.

Driven by our best in class commercial teams.

I'm confident in our ability to deliver on our shorts and long term goals, while making a tremendous impact in patients lives.

And with that I'll turn it over to map Garrett our CFO for a review of our 2019 financials and guidance for 2020.

Thanks, Kevin.

We're very pleased with our performance in 2019 and more importantly, how the continued initiatives and strategy for the company has set us up well moving into 2020.

Our continued focus on Salesforce productivity sales support infrastructure integrated system penetration and gross margin expansion remain the key drivers for the company as we move into 2020.

And after three years of heavy investment in the organization to support revenue growth, we see 2020 as a key year to demonstrate productivity up and down our piano.

Highlights for the fourth quarter 2019 are as follows revenue growth of 41% year over year and sequential growth of 8%.

Not adjusted gross margins of 76.5 and 76% as adjusted.

An increase of 2.4% and 1.9% over the prior year respectively.

The successful excuse me the successful launch of zero 80 in late October, making our MCT monitoring solution available to all customers across the country.

And finally, continuing improvement in Salesforce productivity levels to the development and Onboarding of new reps investments in the sales organization continued penetration of large integrated systems and of course, the launch of zero 80.

Taking a more detailed look at the fourth quarter financial results non adjusted revenue for the three months ended December 30, Onest 2019 was 59.1 million an increase of 41% year over year and 8% sequentially. As we described on our December 23rd call revenue was negatively impacted in the quarter.

By the onetime reserve of approximately 1 million for non contracted revenue.

This isn't direct response to actual collection rates falling short of historical rates.

Due to rising patient deductibles and copayments why we continue to monitor this trend closely non contracted revenue now accounts for only 5% to 6% of total revenue diminishing the potential for any material impact moving forward without the adjustment revenue would've been approximately 60 million an increase of 44% year.

A year and 10% sequentially.

As we've done in the past, we'd like to highlight some of the trends, we are seeing which support our confidence in the business and our ability to continue to deliver benchmark revenue growth. These trends include extension of sales productivity levels with a significant number of reps now surpassing 2.5 million in annual revenue productivity.

Coming off the summer months and as we move into the and we moved into the fall same store new store revenue growth mix return to our anticipated 60, 40% split we view. This mix is a positive sign of our ability to penetrate existing accounts with both 80 and X T and as we focus on new large integrated health systems.

Related to integrated systems, we also achieved significant milestones and he HR implementations during the year with double digit growth in Onboarded accounts. Further in December we are approaching 10% of all registrations being completed two customers each our systems.

In summary, these trends continue to demonstrate our ability to scale. This high volume business in a meaningful way.

Turning our attention to the rest of the piano gross margins for the fourth quarter 2019 was 76.5% compared to 74.1% a 2.4 percentage point improvement over the same period in 2018.

Gross margins as adjusted for onetime items in the quarter was approximately 76% or 1.9 percentage point improvement over the same period in 2018.

Non adjusted operating expenses for the fourth quarter of 2019 were 62.9 million compared to 44.1 million for the same period of the prior year, an increase of 43% year over year.

Excluding cost associated with the barely development Opex was 61.7% or an increase of 40%.

Opex adjusted for barely was higher than expected there were number one time costs in the fourth quarter that will not impact our run rate moving forward. These onetime costs include approximately 1.5 million for our Q3 19 financial statement revision work 2.5 million in bonus adjustments over plan booked in the core.

Sure and 2.2 million an expedited consulting work before performed on behalf of the company for continued improvement of our revenue cycle management processes.

Finally, the net loss for the fourth quarter, 2019 was 17.3 million or a loss of 65 cents per share compared with a net loss of 16.3 million or a loss of 67 cents per share for the same period of the prior year.

Turning to guidance for 2020, and as Kevin noted earlier, we anticipate revenue for the full year 2020 of 280 million to 290 million. This represents annual growth of 31% to 35% demonstrating our ability to scale the organization, where they are single platform, while continuing to produce benchmark Tom.

Applying growth.

We're also taking this opportunity to raise salesforce productivity levels from 2.5 million on average for season representative to 3 million.

Raising this measure again is due in large part to the productivity levels. We are achieving with reps that had been onboard for three or four years plus the added opportunity. We are seeing with 80 launch and the impact of sales support infrastructure.

Gross margins for the here is expected to range from 76% to 77% continuing our continuing our trends of both price and cost improvements.

While the launch of 80 could create some volatility on gross margins. During the year early indications are that 80 will have less of a drag on gross margins than previously forecasted.

We expect operating expenses inclusive of barely development expenses to range from 265 to 275 million, including 52.5 to 57.5 million for R&D and 212.5 to 217.5 million for SGN a.

For barely development expenses, we anticipate total expenses, a 15 million, including 10 million and milestone payments 4 million, an internal development cost plus 1 million for Gionee.

For for our organic business, excluding barely expenses total operating expenses are expected to fall between 250, and 260 million, but 38.5 million to 43.5 million for research and development and 211.5 to 216.5 million or SGN.

Beginning this year, we would also like to offer some additional guidance relative to our organic business as we trend towards achieving cash flow breakeven and positive EBITDA in order to achieve these milestones we intend to show productivity gains in operating expenses much like we have done in sales and gross margin for the full.

Year to 2020, we expect cost associated with interest amortization depreciation and stock compensation to be in a range of 37.5 to 42.5 million.

While the company does not provide quarterly revenue guidance, we would like to take this opportunity to highlight a couple of quarterly assumptions that management believes will help investors with quarterly expectations.

First we expect Q1 20 revenue growth to be lower than our historical trends in large part due to the Q3 19 revision, which pushed pushed approximately 1.1 million of revenue back into Q1 or 2019, thus increasing the comparable year over year figure and secondly, we reminded.

Series of our summer seasonality as Onboarding large integrated health systems, which make up a good portion of our new store sales tends to slow in summer months.

For 2020 operating expenses, we anticipate a meaningful reduction and expenditure growth exclusive barely development program and anticipate a material reduction in opex growth rates during the year that will provide additional confidence in our ability to scale, taking the midpoint of guidance opex as a percentage of revenue.

I would be did reduce significantly and overall growth is expected to slow to just over 20%.

And for the first time publicly stated management now anticipates the company to achieve cash flow breakeven no later than the first half of 2021.

Before closing we would also like to take this opportunity to address any concerns investors may have regarding the corona virus as it currently stand management sees no material impact in the near term to our business as it relates to both revenue and supply chains.

Hi rhythms revenue is predominantly U.S. space and the company has made significant investments in the robustness of our supply chain over the past couple of years to be specific I rhythm supply chain exposure to Asia is limited to circuit board components and exposure significantly mitigated by our reuse of our circuit boards for multiple turns.

Further we have worked with our suppliers to build up significant raw material buffers in our supply chain, which gives us confidence in the near term that no material impact to come from the virus. We will continue to monitor the situation and update investments if theres any changes to this outlook.

We now like to open the call up for questions and joining me today are for Q in a is Kevin King President and CEO and Dan Wilson Executive Vice President of strategy in corporate development operator.

Thank you as a reminder to ask your question you will need your press star one on your telephone.

Withdraw your question please press the pankey.

Our first question comes from David Lewis with Morgan Stanley. Your line is open.

Good afternoon, just a few questions for me I guess, Kevin first I. Appreciate your updated thoughts on the RV you processing sounds like things are going kind of inline with expectations.

At this point is is the best way to think about this is the full disclosure of other you values is probably going to come in July and no sooner.

Just sort of full disclosure from us coming in July David Im sorry, I missed I didnt quite here for many.

Many why do you obviously you talked about notification.

They will be sent to CMS and probably already has been from your perspective.

The earliest notification that we're going to get around the are you value is likely to come from CMS in July.

Yes, I believe I believe that to be though most likely case.

Okay.

Very helpful and then.

Matt or maybe Kevin a couple of questions here first first off for the fourth quarter I. Appreciate the update on the contractual reserve a million dollars, but can you just give us a sense of the dynamic of delayed returns that are disclosed in late December any sense of the magnitude of those delayed returns had on fourth quarter.

Adding argo would have on the first quarter do you have any sense of the quantification of that.

Sure. So on the December 23rd call. The update call that we had we noted that we were running about a day behind.

Which we estimated to be about a million dollars in total.

We received in the final few days of the month. So good portion of those devices, but not all of them.

Many of them carried over to January we now believe that we've received all the ones that we should be expecting.

So think of it as kind of a two third one third 70 30 type of thing 70% in December.

30% in January or thereabouts.

Okay. So investors are trying to get a good sense of your underlying growth rate in the fourth quarter apples to apples, if we add it back to contractual serve and maybe half the million dollar benefit you had expected you, perhaps the right way to think about the fourth quarter growth rate is something like 45% to 47% relative to the the 40% that was reported.

So my thinking about it.

Yes, I think so I've got Dan I'm not shaking their heads, they're doing math correctly, I think thats. It yet the HCR would raise you to 44 and if you go to Theres, one third which is roughly what we perceive it to be there is another couple percentage points in there. So yes, thats right 45, 46, 47 summer right in there.

Perfect all right and lots of Kevin If you I know, we're probably not going to get an absolute quantification of the impact for 2020, but you you started to share some slides in case studies around the impact 80 could have or equity can have were 80, XD sorry can have an XT pull through.

How should we think about the impact of 80 on on 2020 from a growth perspective. Thanks, so much.

Absolutely you know it's this is a really tough balancing act for as David we want to be as transparent with investors in the markets as possible and at the same time. This is a really highly competitive market space. So we're cautious about tipping our hand.

I think you've heard from our qualitative comments that were incredibly pleased with where we are with HC.

And it is absolutely contributing to our growth.

What's most important I think for everyone to understand as that 80 is enabling us to be a more complete solution and that suit and as evidenced by the xeo XT pull through and wins that we've had that it is on an individual 80 device level.

You know customers greatly value, having a single platform.

Even know as a percentage of patients that actually get 80 prescriptions is relatively small compared to XT that I think I think you should think about it as a platform play more than you should individually.

We're going to do our best to provide more detail as we go for it but it's still rather early days for us.

Okay. Thanks, so much I'll jump back in Q.

Thanks, David.

Thank you and our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Great Thanks, and congrats on another good quarter.

Kevin I just wanted to.

Ah, yes from up your comments a little bit here, you said no change from your thoughts before on on the ultimate outcome of reimbursement just want to make sure we should be thinking about no change as before it was flat.

In terms of how you were thinking about the potential outcomes for reimbursement.

No no change yeah, I'm talking about no change in our degree of confidence and no change relative to the comments, we started talking about back in I don't know 17, or so relative the likelihood of this going up as much as it is going down and we're confident that is going to probably stay pretty much the same.

Theres no change to that at all.

We're not able to comment about that rock process, but going into when coming out of the rock process, We had absolutely no change.

And we're quite pleased and fully anticipate that the am a.

Put forth.

The materials that we had sent to them.

And that's made its way over to CMS and there were still some final meetings going on but we should be hearing back as and based on the prior question in July timeframe.

Great and maybe just one follow up.

Just to further discuss the 80 here when you walk into accounts is this is this a product you lead with or is it mostly coming in established XP accounts and then.

It is new accounts, what's driving that so much to adopted as they can finally adopt a full work stream of products is that the work flow benefits is that yes.

The better device what is that and then.

Ill leave it there thanks a lot.

Sure.

So what when when when we think about our market place today.

The market for ambulatory monitoring is largely fully penetrated.

And what we're competing against where it is changing what we refer to a status quo.

And the status quo. Unfortunately is one where physicians and their staffs are just overloaded have a high degree of job dissatisfaction have too much information coming at them every day.

Unless you give them a solution that requires less inputs and less effort you don't stand a chance of adopting it.

And so to answer your question you're part of your question that you stated there was you know is it around workflow is absolutely around work flow and it's absolutely around being clinically superior.

If you don't have a better mouse trap, so to speak compared to anything else why would I change.

And if I'm already overloaded why what I'd take on doing more work. So you have to have the combination of those.

Now playing into that work flow theme is do I have to interface to multiple systems for order entry results reporting do I have to train my staff on multiple devices et cetera, et cetera, and that's where the single platform for zero allows clinicians.

Two.

Adopt more streamlined fashion.

We don't necessarily lead with 80 80 is a you know that the high acuity patients is a relatively small percentage and really not likely to cause people to shift from status call, what's really XT in combination with.

80, and a full line.

Is that helpful Robby.

That was great. Thank you.

You're welcome.

Thank you. Our next question comes from Jason Mills with Canaccord. Your line is open.

Thank you taking your question Kevin Mountain Dan.

Afternoon can you hear me okay.

Yes, we kind of tape Jason.

Hey, Jeff I wanted to.

Talk a little bit more that the TXT pull through.

It isn't lost semi or.

First question was fairly.

It seems fairly bullish as you were talking about either each our integration and you're talking about that within the context of your.

Targeting and by the end.

Wonder if we could bring it back to investors care about which is obviously the growth guidance you've given for 2020, what do you sort of factored in.

For.

The XT pulled through specifically vis-a-vis 80, and IDN and and what.

Upside exists relative to.

I'm sure you've given us more conservative estimates then.

Various other models you have you built out with respect to this specific issue I'm wondering if you'd be able be willing to give us a little bit more color in your thinking on this front.

I can try at a high level, Jason I think that what everybody needs to be as Kevin just alluded to and I'll do to here. We're still really early days right. We're really early days I mean, we didnt actually start the 80 launch until October and thus when you're trying to identify these sort of trends.

That we're happy to call out where where we can you have to understand that we're coming off of the baseline in which a majority of those 80 units pre and post the overall launch are coming from existing accounts. So I think we've been pretty bullish an optimistic on X to pull through and that's on accounts that we already.

Had up and running right. So as we move forward into 2020, and we actually start to bring on new integrated systems. You can imagine that there is a potential for higher X T pull through in those and I'll just simply state that at this point, it's still early days, but that as Kevin alluded to.

As we get that sort of granular data will try their best to provide more data.

Does that help a little bit.

Yes, yes does it raises the question which is.

Sure good obvious when that you could on one hand, you have the law of larger numbers as you're trying to set the guidance on the other hand, you talked about 3%.

First why monitoring that goes on in these ideas relative to the overall market and you just mentioned the level penetration or lack thereof. You are at this point in time so.

Those two things are somewhat at odds, but nonetheless, it seems like the conclusion that that one could draw is that your guidance leave room for upside specifically if you have more success.

And this year than maybe your guidance implies.

Look I, but if we're talking about whether our guidance is you know.

Good guidance or not.

First let's take a look at 2019 right. We we started the year with 37% to 40% growth and over the course of the year. Many of the investments that we've made in plans that we had.

Did better than expected and we turned out with 46% growth.

Similar to those years, we have a lot to accomplish this year, we have a lot to digest as we have in the past.

I said in my opening comments.

We've added two new areas, we've added seven new regions, we've added 30, new salespeople.

Our launching a brand new information system Xeo suites are launching C. O 18, we have a lot of work to do such that the guidance. We're giving you are right now is our very best view of where the year will be.

As we progress.

It could get better but right now I want to give you. The best estimate that we have knowing all that we have ahead of us to still achieve relative to the people the products that I just described in the market segments. So we're now going after.

That's helpful. Kevin It's no assuming that the midpoint of your guide.

We are consensus was coming in so it's not a criticism niches.

Discussion last question, yes, no I'm not we're not thank you very where we wouldnt. We wouldn't expect you to ask any other anything less Jason.

No.

Last question about say, yes.

Me, there's there's data out there and they stated that com.

How do you think the data that we will see later this year.

Will if it all impact your business or will that require perhaps data from gardy.

What what how should we think about what is coming later this year and how that may impact the market or the way that your customers look at using view.

XT. Thank you for taking the questions.

Sure no worse.

I think these large market opportunities on fold over time as opposed to make a big splash right, we're talking largely about.

Changing the value proposition for health plans and their members there beneficiaries being patients or this or not sector through their members.

And you know we have to provide to them compelling evidence to begin a screening protocol or a testing protocol that screens for something that you say symptomatic.

So clinical evidence is clearly important.

That said I think that the economic the utilization of services.

As important and we intend to.

Builds.

Relationships with our health plans that we have contracts with to try to do more and stops like studies within health plans to unfold this market overtime.

I think it's too early for us to begin projecting revenue or adoption. It's a it's a very big opportunity. It's a complex won the fact that we've got three major studies in a major partner.

And we've got some good results under our belts says we've got to lead here.

[music].

Well, let's say, it's not going to be a big Bang I'm, absolutely convinced of that.

As much as we would like of course.

Yes.

You bet Thanks, Jason.

Thank you and our next question comes from Margaret tax floor with William Blair. Your line is open.

Hi, Good afternoon, guys. Thanks for taking my question.

Hi, Mark play Margaret.

Okay.

First one for me is actually following up a little bit on Jasons question.

In regards to kind of that's that's high risk population.

So, yes, multifacet, maybe right, but that one do you think you need larger trials like guarded chat app to build from that business there.

And as you look at it what do you think will move faster and the transition as it hopes systems and changing guidelines is it higher is changing what they pay.

For more individual clinician base, and then do you need some kind of other product or price point.

Yes to try to better address its population, especially given some of this early partnership comments you guys have made.

Sure.

I don't I believe the the larger studies will ultimately help put I think.

The power of M. stops and the design of it is so compelling that its results can stand on its own relative to the utilization of resources.

I think relative to where do you begin or which market segment I don't think it is.

Health systems, I think it as health plans for the reasons that these patients have no symptoms that are less likely to be in front of their doctor.

Rather a health plan that's at risk.

Right. They have contracts with employers are they have contracts with the government to provide a service at a fixed costs.

Want to uncover these patients that are at risk.

Because the cost of.

Diagnosing and monitoring them.

Is less than the cost of the incidence of bad outcomes like stroke.

So the value proposition in my view or in our view is targeted largely at health plans not so much health providers.

[music].

And then the third question was do we have the right product.

I think you knows zito equities phenomenally good platform and what we're trying to build was barely as an even better platform, but there is nothing inadequate about zero X T. In terms of its detection rates right. We found a threefold increase in Asia.

In the population.

It was monitored with XT compared to non monitor so I think that outcome is good we hope to improve upon that by having longer and higher detection rates, but it shouldnt preclude us from started.

Got it.

No it's helpful.

And then just go back to 80, and I know, it's been kind of limited launch and kind of early launch in terms of trying to launch it within the existing accounts, but what have you seen so far in respect the rep productivity as result of 80 and both from a revenue perspective as well as from a sales cycle perspective.

Well Mark I think it's important to think about 18 and that in the context of complete platform sold to an account not as a separate product line.

At this is not.

One one device and then another product line. This is all one part of an integrated system or solution that we're offering to our customers.

The total market for MCT or 80 has only 110th the size of X T.

And so were we shouldn't see a disproportionate amount of 80 coming out of sales reps.

Also the coverage policies for MCT are quite in homogeneous across the country.

Of the 37, or so Blue Cross Blue Shield plans, the vast majority of them have naked negative coverage policies for MCT.

And in some states, where there's a very high rates of Bluecross Blueshield patients you see very little market adoption of MCT.

So it's a small.

Heterogeneous market.

That said, it's a very important segment in that this is a high acuity per patient so were.

I tend to think less of it as a product line or more of as a component of our overall platform that's helping us.

And I think the question really relates that and I think this is what I'm hearing from is that a rep that has both X T and 18 or bag, whether it's driven by 80 or or not by having 80 in their bag. They you know you've seen them the more productive than that wrap that only.

At the end of that.

Whatever.

Yeah, I think at the account level, we see higher growth rates within those accounts that do a wider range of patients I think thats directionally correct I won't quantify it but I think historically that's right yes.

That's right.

Great. Thank you guys, Hey, you're welcome.

Thank you and our next question comes from Calix from with Suntrust. Your line is though.

Great Hi, guys. Thanks for taking your question. So I think forgiving, some new commentary and timing on a positive cash flow into 2021. So can you just speak to your visibility and confidence in those metrics again just given.

That does those comments kind of step into 2021, so do you need to hit a certain revenue level, assuming you have reimbursement for X gene stable just want to make sure I'm clear on some of those discussions.

Sure I'll do it I can.

First of all we are assuming this obviously assumes no material change in in pricing. So that is first and foremost.

Secondly, we've not really put it and I'm hesitant to put a particular revenue point of crossing that CASM. If you will for any number of reasons I think that puts us in a buying in terms of our ability to guide moving forward and be the it remains very fluid again, if we're seeing tremendous uptick in certain markets.

And we want to continue to invest we clearly want to give ourselves that degrees of freedom to do so.

What what I would what I would share with you guys is that if you look at the midpoint of the ranges you are starting to see some material decrease in the opex growth as I called out on the on the prepared remarks, a significant decrease in overall operating growth.

So.

What I think is most important to think about is if we're only calling again for the midpoint of the range of 255 on Opex as 45 million of incremental [noise].

Ben a good portion of that spend is related to sales support and the additional sales reps that we're going to higher and.

A little bit related to stock comp you take those out and you see that there.

Not not a significant amount of growth elsewhere. So I guess I would just caution folks that we're going to try much like with the 80 to be a little bit more open as we move into the year.

As it relates to these expenditures, but when you carve out those those one areas that continue to invest as it relates to the development of the organization you really see a scenario, where we're cutting back significantly on on that kind of core organic growth.

Hello, organic OPEC, Josh organic Opex growth excuse me.

Well I guess that we've been ended the second question on <unk> on top.

Do you think about you know the long term.

Hello.

Oh, yes, 30% growth in 2020 is great and I realize you don't want to comment on plenty 21, but you have 80 ramping up new partnerships coming online or just any sort of directional thoughts on that long term durable growth of the business would be helpful. Thanks, guys.

Yes look I I would say our sentiment or view is the same as it has been in the past.

We think the market opportunity is large.

We believe we have the right strategy.

We believe the competitive dynamics fall in our favor and that you know there's increasing value.

Within an among our brand so from that standpoint, we remain as bullish as ever.

That said I'm going to stop short of guiding a number.

800, 2020, but there is there doesn't seem to be anything in our away.

That said as I said earlier you know in this year, we have a lot to digest in that.

We've put in new areas new regions, we up new sales reps were still have sales reps that we hired last year that are new to the company we have new products.

As a lot of execution on still as required.

But the good news is thats all within our control right and we've got very talented teams and deep competencies in our business that gives us confidence.

Not a cake walk lot of hard work, but are the things that we have to do to continue to grow as we have been totally within our control.

Great. Thank you guys.

Welcome to stores.

Thank you and our next question comes from Ferrari Kaila with Oppenheimer. Your line is open.

Good afternoon, Kevin Good afternoon, Matt Congrats on a nice quarter.

Okay.

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Good Sir.

So Kevin one question for you and.

One maybe for Matt.

Kevin a lot of you guys have consistently expressed.

Your view that a Medicare rates would remain stable. These through this rock process.

No we haven't talked about the commercial side of the equation, which is about 70% of your business.

What I'd be fair in saying that if Medicare remains let's say status quo.

You all do not expect to see any shift short term a long term on the commercial site at the reason I ask as.

Our checks suggest commercial on average is slightly higher than Medicare any color there would be great.

Sure so of the.

Couple of hundred commercial contracts that we have they have staggered rate so renewal.

Some of which or many of which are auto renewed.

Some of which in many of which are multi here.

So the sort of feathering in and feathering out of changes in price.

Never occurs as a.

It will fund our clap, if it will but rather changes over time.

We've now seen over the last year year, and a half now that were nearly fully contracted.

Less change in pricing because our contract levels are stable.

I think the drivers of modifying or increasing.

Our pricing amongst commercial carriers is.

Often associated with evidence so if we can drive a new indication or we can drive a broader.

Value to payers, we stand the likelihood of getting paid more.

Not necessarily I don't see much pressure on the downside.

Oh from we've never had decreases in commercial contract rates, but we certainly have at increases in our commercial rates as our clinical evidence has increased over time.

Got it and finally, Kevin zeal 80 to the extent to you all can how is the U H T.

Using one product for let's say up to 30 days is it two products.

And also just the logistics for billing for steel 80, any color there would be great gentlemen, Thank you for taking my questions and congrats again.

No worries.

So.

Zero 80 uses the same wearable platform that we have four zero X T. So it's a single wearable sensor.

It is most often prescribed for 14 days.

Multiple patches can be used to get as many days as you like up to 28 days I guess, if it's 14 times too.

The evidence that we have says that our diagnostic quality the quality of our signal the quality of our algorithms.

Is that we're achieving far greater diagnostic yields at a faster time to diagnose what the single device.

It is a second a full 30 days.

And also on our research, even though that the CPT coding language says up to 30 days.

The average where time for most MCT monitors is about 11 and a half days.

And the RV you calculation for MCT was based on less than 12 days of where.

So you know that a lot of code say up to a certain period of time, but that does that's not a requirements.

Nor it is our technology limited to a certain period of time, it's just what's optimal for the patient optimal for physicians to get the diagnostic results that they need.

Your second question was about contract.

No I was just trying to understand.

And I think so you answered that Kevin if you always get whether it was only one.

Form factor for LCD away keep one product than the billing I thinks it becomes obvious so that it sounds answered my question. Thank you.

Wonderful BRCA. Thanks.

Thank you and I'm not showing any further questions. At this time I would now like turn call back to Kevin King for closing remarks.

Okay. Thank you operator, thank you everyone for joining our.

Fourth quarter 2019 earnings call and full year earnings call. We appreciate your support and your interest in I rhythm and look forward to updating you as we move forward in the year all the best.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a good day.

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