Q3 2020 iRhythm Technologies Inc Earnings Call

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It will be a question and answer session.

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I would now like to hand, the call friends over to your speaker today Ms. Leigh Salvo. Thank you. Please go ahead ma'am.

Thank you Ben and thank you all for participating in todays call. Joining me are Kevin King CEO, Doug Divine CFO, and Dan Wilson VP of strategy corporate development and Investor Relations.

Earlier today I wasn't released financial results for the third quarter ended September 32020, a copy of the press release is available on the company's website the.

Marketing environment test, we close out the year.

Doug will go into more financial details before we open the call up for your questions.

The I rhythm team continues to rise to the challenges presented by the current environment and we not only continue to deliver a high quality patient care each and every day. We are also building a stronger company for the future.

The strength of the company starts with our employees and I am thankful for their resilience commitment and passion they bring every day.

Our future and our ability to make a positive impact on the lives of patients has never been brighter.

Overall, the positive recovery trends, we experienced in queue to continue throughout the third quarter and helped lead to significant growth.

Total revenue in the third quarter was 71.9 million, reflecting year over year growth of 31, 6% and sequential growth of 41, 4% over the second quarter.

This quarter's results were driven by further penetration of Z O X T in both existing and new accounts continued ramp up zero 18, and continued utilization of our home enrollment service in telemedicine settings.

We're very pleased with these results given the challenges that remain in the market and believe that the results signify the strength of our platform and our capabilities.

In addition to our topline results gross margins were also strong at 74, 7%.

Importantly, third quarter operating results include positive cash generation for the quarter, demonstrating our path to profitability, while maintaining platform in future growth investments.

Turning back to our topline results in a market backdrop, we saw steady improvement in the overall market conditions during the third quarter, but also continue to see a number of challenges on.

On the positive side, a significant number of our accounts are prescribing zero at volumes well above levels at the start of the year.

These accounts contributed to our strong growth. However, we're partially offset by roughly equal number of accounts that remained below pre covid levels.

The primary reasons for these constraints remained essentially unchanged from our prior discussions.

Lower patient throughput due to stringent safety protocols Reece.

Resource constraints due to furloughed or reduced staff or continued hesitancy by patients to visit their health system.

We did successfully opened a significant number of new accounts compared to the second quarter's right.

This right however is slightly below pre covid levels.

The largest hurdle we face an opening up new accounts continues to be account limitations too in person selling particularly in regions that have been slow to open up more have had recent resurgence.

Overall, we're pleased with the trend towards improved market conditions, you continue to remain cautious on the overall outlook.

Importantly, we have high confidence in our platform are near in mid term strategic priorities and our ability to continue to grow our share of the market.

Mr delivery.

And while we saw a spike in the early part of the cobot outbreak, we have seemed to stabilize to around 25% of our registration volumes.

We believe there will always be a need for physicians to see patients in person, particularly new patients or those with an emergency situation.

But virtual care pathways are becoming increasingly accepted in critical to ensuring continuity of patient care as well as providing for greater staff on patient safety we.

We expect this to be another critical differentiator and competitive advantage of our platform going forward.

Turning to zero 80, we had another quarter of strong market traction in growth Physio 18.

Our single platform strategy that Leverages, our entire innovation stack distinguishes zio 80 from traditional MCT technologies.

The experience and trust that our customers have with Xeo XT has benefited zio 18.

And further enabling our customers to standalone standardized to a single ambulatory cardiac monitoring platform allows them to streamline their workflows, which has never been more important.

Now, we'll hear into market launch of C. O 80, we are very pleased with the pace of adoption, which has exceeded our initial expectations and we're increasingly more confident that it can be the market leader within the MCT.

Okay.

Turning to our second strategic priority increased operating leverage through continued productivity and automation improvements.

We were very pleased with the operating results during the quarter, which led to strong cash flow generation.

Longer term our focus remains on building the infrastructure to scale the business efficiently for the next five plus years.

And despite the challenges in the market environment, we saw a return to high salesforce productivity in the third quarter.

As evidence of this points to year over year revenue growth in the quarter far outpace the growth in the number of reps, suggesting continued improvement and salesforce productivity.

As mentioned previously we were successful during the quarter and opening up new accounts in certain regions. However, the resurgence of the pandemic continues to constrain account access by our sales team.

While our ability to interact with existing customers is not difficult, we're finding that getting in front of new customers is a bit more challenging.

We saw this challenge emerging early in the pandemic and put in place investments to build virtual selling skills and marketing presence for example in the form of a new media campaign to promote the benefits of zeal brand and peer to peer education and Webinars to help our team reach our customers in new ways.

Over the past several months these investments have helped evolve our commercial teams competency to sell in this rapidly evolving market.

And finally, our third strategic priority is around expanding our addressable market into new geographies and indications.

We made good progress against this priority during the quarter and see a number of important catalyst in the near future.

As it relates to expansion into new geographies, we achieved an important funding award in the United Kingdom that will not only drive increased utilization of zero in the near term, but also lays the groundwork for wider adoption.

Hi, rhythm was selected from over 500 applicants as a winner of the artificial intelligence in health care Health and care award by the UK its national Health system.

The first of its kind digital health technologies pilot.

The award funding Zio trials in selected sites across the UK over a three year period.

Clinical pathway and economic outcomes will be monitored and evaluated in order to inform any future commissioning decisions around the adoption of zio within the NHS program.

We're focused on building out our infrastructure and capabilities within the UK in order to meet the requirements of the program and to lay the foundation for future scale.

Related to new indication extent expansion, we're coming into a number of important market development milestones related to the asymptomatic ETF opportunity.

As a quick reminder, we estimate that there are more than 10 million individuals in the us that are at high risk of atrial fibrillation due to age and other risk factors it.

It is estimated that one third of these individuals with are not aware that they have that if left on diagnosed and treated as a five fold increased risk of stroke.

We believe this large unmet need can be addressed through targeted long term continuous monitoring.

Once diagnosed initiation of anti coagulation therapy or other therapeutic interventions can be put in place that has already been shown to improve clinical outcomes such as stroke.

And lastly, a virtual care pathway that diagnosis earlier in the disease progression has the opportunity to reduce unnecessary health care utilization and reduce the cost of care.

The M. stops trial was designed to prove out this model.

The trial, which began in 2015 is a collaboration between the Scripps Research Translational Institute.

Miss Health.

Fitness health engine outcomes unit, and Janssen Pharmaceuticals, and utilizes our Zio service.

Initial data from the trial demonstrated significantly improved after attraction rates at year, one and an active monitoring group with Zio versus an observational group.

In addition, one year health resource utilization data showed a decrease in emergency department visits and hospitalizations for they actively monitored group.

And we are now just a couple of weeks away from the three year outcomes data that is scheduled to be presented at the American Heart Association meeting in mid November.

In addition to M. stops we are expecting the results from the screen AF trial to be presented at the European stroke organization and the World stroke organization Twentytwenty Virtual conference. This Saturday November seven.

This trial is a randomized trial evaluating ATF screening of primary care patients using zio.

Patients over the age of 75 with hypertension and went out known area were randomized into either a standard group of care or an individual interventional group receiving am screening including steel.

The aim of the trial is to demonstrate that continuous EEG monitoring with Xeo is superior to standard of care for Amp detection and a high risk a symptomatic population and ultimately to build evidence supporting practical and cost effective screening strategies.

We anticipate these trial results will be very important milestones and catalysts for our market development efforts and we're looking forward to the results from reviewing the data with you when that has presented.

In summary, we remain highly confident in our long term strategy for the company and are pleased with the recent progress we made with several important milestones to come.

Before closing I want to discuss our outlook for the remainder of the year.

Barring any unforeseen change in a market environment. We are confident that we continue to grow the business at a similar level to the third quarter.

While we remain cautious on the overall market environment.

Hi confidence in our platform our strategy and our capabilities and we are resolute in our focus on changing the standard of care and know that we can continue to have an even greater impact on individuals' lives.

On an account in regional level third quarter volume showed progress returning to pre cultic baselines.

The pace of recovery remains uneven across regions and accounts.

42% of our accounts remains more than 10% off their Q1 run rates offset by continued onboarding of new accounts and the growth of over 10% over Q1 run rates in 31% of existing accounts.

New account Onboarding improved 50% from Q2, though still slightly below pre corporate levels.

Looking at new store same store mix, new store accounted for 45% of year on year growth.

Home enrollment was steady at 20, approximately 25% through the quarter.

Seven Q2, 20 or 41.8.

Showing continued reduction of cash operating expenses.

Of note, we fully reinstated stock compensation and Q3 2020, following a partial restoration and Q2 20, resulting in non-cash opex, increasing 7.6 million order encore.

Adjusted Eve quarterly adjusted EBITDA defined as EBITDA less stock compensation.

Was positive for the first time and 232020 at 14.8 million.

Expenses reductions due to Covid, where approximately 8 million in Q3 2020, <unk> you better would still have been positive.

At 6.8 million with a full restoration of Covid related cash expenses.

For claims processing of the new coach to be complete at the end of this year or early next year.

Kevin Damn and I would now like to open the call to questions operator.

As a reminder to ask a question you will need Nebraska style, one on your telephone covid.

Draw your question <unk> or hashish.

<unk> biological bio the queue any roster.

Again to ask a question you May Brashy star one on your telephone keypad.

Uhm operator, this is Lee I want to let the audience know that we might be having some technical.

Difficulty is we're not seeing anyone killing up for questions.

Operator can you please <unk> <unk>.

Yes, Okay again, if you have any questions. Please press star than the number one on your telephone too bad.

Alright, you have a question from.

You have a question from David Lewis from Morgan Stanley. Your line is open.

Good afternoon.

Kevin maybe just to there are two questions for sort of both of you I guess the first would just be.

Any update and the reimbursement process, Kevin other than the commentary you've already provided sort of in the public domain would be question number one and then a question of our two for me would just be as you think about you know it's it's early but did you think about 2021 I know, there's a lot of dynamics move around for reimbursement for revenue perspective, but if you think about the underlying volume of the business I was just trying to think about how we.

Before so I feel comfortable with that number.

And then as far as the volume growth on a lot of this is still so dependent on coal that recovering resurgence.

David as you know yesterday, we had 100000 kit new cases and.

This is kinda rattling the bones of the healthcare system right now.

If it weren't for coal, but I think thats, probably a reasonable range and that kind of mid 20.

20 category, maybe a little bit higher than that so we'll have to see where the roll ups are but the.

The depth definitely a forward looking positive growth trend from our side there. So it doesn't seem to be any anything in front of hospital from field.

Okay.

Your next question comes from the line of Robbie Marcus.

Jamie Morgan.

Hi, Thanks for taking the question and congrats on a really nice quarter here.

Thank you Robert.

Kevin.

Instead of a python.

Great maybe a quick follow up for Doug.

It was great to see.

The first quarter with adjusted EBITDA profitability, probably what it's still hit that even some of the.

Hold back on on spend due to Covid, how should we think about profit.

For the ability here should a teeter back and forth.

Ending on the quarter or do you think this is.

Adjusted EBITDA profitability is here to stay how should we think about the expense ramp going forward. Thanks.

Yeah.

Okay.

HM.

You did see.

Obviously, a pretty significant swing.

EBITDA in Q3.

Nat I cardiac and the rest are ongoing but add.

His end stops or the next few weeks and now to at least start to move down the pathway of changing.

Clinical society guidelines or payer approvals and that really to think about what timeframe should we think about you know asymptomatic, becoming more material as a as a growth driver.

Just to follow up a little bit on the fourth quarter, and maybe 21 that similar to David's comments, but you.

You mentioned some sequential improvements in revenue is going into Q4 EPS in the meantime, we're seeing these kovac with ads and.

Equally importantly, you guys actually had really really strong numbers in the third quarter. So I guess walk us through what happened in Q3 that drove that upside.

Fourth quarter here, you know, we're we're having to rethink.

The the Covid resurgence that we're seeing right now with you know.

Yesterday as I said over 100000 cases, but we're picking back up into it.

Third wave.

And from everything that we can see the third wave looks more significant than the first two.

Now that's that's all that's on the downside on the plus side I think hospitals are better prepared.

I think they've got better safety protocols in place we've got the advantage of home enrollment well established large sales teams are getting better and better at virtual engagements with accounts, whether they were existing account new accounts.

And then all of the the media and peer to peer educational things that we have we're also helping us to get some customers.

And you know the best Crystal Ball, we have right now I'm looking to the fourth quarter is it'll probably be about the same local growth that we have in the third quarter.

And and you know, it's it's not anything competitive. This is this is all you know.

How how can try and argue how contracted.

Well the market beat going forward to to the extent that it's not contracted then we'll we'll we'll be doing remarkably well.

I'd, rather I'd, rather err on the side of caution.

Knowing what we're seeing right now is a more negative trend towards a greater number of daily cases.

And.

Yeah.

There is variation October October tends to be a stronger month, because it has more days in November December.

So that's a little bit of a of a hard thing to extrapolate out right. We've got to Thanksgiving two days and then we've got the whole Christmas week, when things for or less.

So can I <unk>.

Maybe maybe we can get you that information or not.

Yeah, right I wasn't commentary.

Yeah.

Can I I don't have any updates on conversion factors. We've been we've been focused on our own work with CMS and the RV use.

In our own re contracting effort with a commercial carriers.

For if I'm not mistaken because it's not it's not the temporary code.

The only two sorry in the MCT category.

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