Q2 2021 iRhythm Technologies Inc Earnings Call
[music].
Okay.
Good day, and thank you for standing by and welcome to the Io and then technologies, Inc. Q2, 2021earnings conference call.
At this time, all participants are in listen only mode.
The speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your Speaker today Leigh Salvo. Please go ahead.
Thank you all for participating on today's call earlier today I live and released financial results for the second quarter ended June 32021, a copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements. All forward looking statements, including without limitation those statements related to the impact of COVID-19 on our business expectations for recovery and processing clinical backlog work and opportunity product performance market expansion and penetration.
Productivity improvements reimbursement.
Release of clinical data operating trends and our future financial expectations, including revenue gross margin profitability and operating expenses are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by.
These forward looking statements and.
Accordingly, you should not place undue reliance on these statements.
In addition, we will refer to adjusted EBITDA, which is defined as EBITDA, excluding stock based compensation expense adjusted.
Adjusted EBITDA and non-GAAP measure that is used to help investors understand that I was on ongoing business performance.
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 with the SEC.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August 15.2021.
And I really am disclaims any intention or obligation, except as required by law to update or revise any financial projections and forward looking statements, whether because of new information future events or otherwise and.
And with that I'll turn the call over to Doug Devine interim CEO and Chief Financial Officer, Doug.
Thanks Lee.
Afternoon, and thank you all for joining us.
During our prepared remarks today I'll start with a quick review of second quarter highlights and then update you on progress, we're making on our key operating priorities.
Dan Wilson EVP of strategy and corporate development will cover reimbursement and then I'd like to welcome Mark day, our EVP of R&D to the call to share some of our current zillow platform advancements on initiatives.
After that I'll close with a more detailed review of Q2 results and our outlook for the remainder of the year.
We'll then open up the call for your questions.
Starting with Q2 highlights.
Our results reflected continued demand for our <unk> platform as well as solid execution on our operating goals to buy the entire algorithm team who are working tirelessly to meet the needs of our physicians and patients.
During the second quarter revenue was $81.3 million, representing a year on year increase and revenue of 59, 8% and.
Sequential growth of 9.4% over the first quarter.
Z O a T had a record quarter, reaching approximately 10% of overall company revenue from the first time.
Registration for our heels services exceeded our capacity, particularly during the March April and May timeframe, which resulted and processing times extending by approximately a week.
This led to a higher than usual number of units awaiting clinical processing at quarter end, which limited reported revenue growth and Q2, 'twenty, 1 and increase some of our costs.
We expect to be back to normal turnaround time by the end of third quarter.
We also made continued progress in identifying and planning for cost efficiencies that will be implemented and the medium term.
These were outlined on our last call and that will cover the more a little later.
We ended the second quarter with $255.7 million and cash and short term investments, which highlights the financial strength of the company and.
Investing for long term growth remains top of mind and importantly, we have from financial resources to do so.
Lastly, we had 2 new 500.10-K clearances during the quarter for our next generation hardware platform and our fourth generation deep learning AI algorithm.
1 for a new and improved design of our zero monitor and the second for updating artificial intelligence capabilities.
Both of them both are key building blocks for our scalability and operational efficiencies.
The new zero and monitor is designed to significantly improve patient comfort and while the advancements to our AI capabilities are expected to further improve rhythm and beat diagnostic accuracy.
Notably our new AI algorithm release is already delivering benefits, including contributing to improvements and our unit processing times and our ability to return to more normalized report turnaround times by the end of Q3.
We are pleased with these highlights and also encouraged by the progress we're making on focus areas, we discussed last quarter.
As a reminder, these include driving continued demand for our service.
Leveraging our platform to expand both our market share and our addressable market.
Making adjustments to our business model that we believe will provide operating efficiencies that will deliver sustainable profitability and growth.
And pursuing multiple paths toward reimbursement that are more in line with the benefits and undervalued and underlying value of our technology.
During the second quarter, we continued to see opportunity and the United Kingdom, which again outpacing overall company growth.
As you May recall last September I rhythm was the recipient of NHS funding as the winner of its artificial intelligence and health and care Award.
And that award was recently disclosed to be $4.8 million pounds or approximately $6.8 million and has enabled us to commence trials of our zeal service and selected sites across the U K and.
And bind with a nice recommendation last December we are seeing very strong revenue growth and the first half of this year.
As we brought new grant sites online and so.
And we move into the execution phase and bring fewer new sites online and we expect revenue growth from the UK to be more measured for the remainder of 2021.
Further we are on the process of building out our operational infrastructure within the U K that can support the future growth and take our learnings and successes from the U K to serve as a playbook to other countries and the future.
We are also making progress on our new manufacturing facility, which will house all of our production capabilities, starting in 2020.2 and.
And enable increased scalability and enhanced operating efficiencies in the medium term.
And on product development and innovation as we have highlighted in the past I rhythm has long established its ongoing commitment to improving the patient and provider experience demonstrated by our significant investments and next generation capabilities across our diagnostic platform.
The 2 new 500, 10-K clearances, we announced during the quarter are great. Examples of this work.
Overall, we're very pleased with our financial and operating results from the second quarter and remain focused on continuing to make progress on our priorities over the remainder of 2021, including with regard to our priorities on reimbursement, which Dan will discuss.
Dan.
Thank you Doug as part of the reimbursement discussion I'll cover where we're at with our efforts to establish national pricing with CMS.
Discuss our continued engagement with the Max to establish more appropriate Medicare pricing.
And an update on commercial pricing.
And then close with a summary of how we are collectively approaching reimbursement.
Starting with CMS national pricing.
As we shared in our press release last month CMS published the calendar year 2022, Medicare physician fee schedule and proposed rule and mid July.
And the proposed rule CMS did not propose national rates for long term ECG monitoring CPT codes and.
Instead CMS proposed to continue with contractor pricing for calendar year 2022.
The proposed rule its followed by an open comment period before CMS issued the final rule and the November December timeframe.
And the proposed rule CMS noted that they continue to seek public comment and information to support future rule, making to establish a uniform national payment for these codes, but further understanding the practice expenses incurred and providing these services.
During the open comment period, I'd rhythm intends to provide comments and we will continue to work with CMS and support of its efforts to establish national pricing that fairly represents the costs incurred to provide these services the unique benefits they provide and and consideration of continued access to these services for Medicare.
Beneficiaries.
On a related note CMS commented separately and the proposed rule that more and more services under the Medicare physician fee schedule and include innovative technologies, such as software algorithms and artificial intelligence and recognition that the current pricing methodology employed by CMS does not account for these technologies.
And.
We are encouraged that CMS is recognizing the difficulty and pricing vertically integrated AI based business models like our own within existing pricing methodologies.
We will use the open comment period and other channels to provide our perspectives and suggested paths forward.
I rhythm has also joined the other industry stakeholders and societies, representing AI solutions that aim to support health care delivery by providing input on possible solutions.
In summary, we will be using the open comment period between now and mid September to provide comments to CMS has proposed rule and are joining other industry stakeholders to continue support of potential national pricing for calendar year 2022.
However, we believe the more likely outcome is that we will remain with carrier pricing and 2022, while continuing to pursue national pricing and the following year cycle per calendar year of 2023.
Now turning to our ongoing discussions with <unk> and the other regional Macs.
Since our last earnings call in May we met with several other macs to garner their support for evaluating and alternative pricing model.
We understand that the Macs are communicating and will likely work together to evaluate the pricing of the long term E. C. G codes.
We remain encouraged by the willingness of Nova tasks and the other macs to explore and that's alternative pricing model, which we believe is a better representation of the true cost of delivering the service.
We along with other industry participants will be submitting cost data under this alternative pricing model to an independent third party to validate the data and submit to the Max.
We currently anticipate the alternative model information will be submitted to the Max and the September or October timeframe.
We cannot provide any assurances that nova tox or other macs will update pricing based on misinformation, nor the timing of any potential actions.
As an update on our commercial payer discussions and nearly all of our commercial payers have re contracted on zero equity service since the establishment of the category..1 code on January 1.2021, with most cross walking to preexisting rates.
Overall commercial pricing and the second quarter of 2021 was consistent with commercial pricing and the first quarter of 2021 and was down low single digits on a percentage basis, when compared to 2020 pricing.
We currently do not expect commercial pricing to change materially and the second half of 2021.
As we look to 2022, we believe that our commercial payers have more flexibility and pricing of services and will consider the overall clinical and economic value of Z O S T.
Thus, we are focused on providing the evidence that demonstrates <unk> Ts high diagnostic yield the efficiency efficiencies the service brings to their patient populations and the improved clinical and economic outcomes.
We have a strong health economics and outcomes research team that is focused on producing these data and our recent partnership and the National Association of managed care physicians will add to the robust data that we continually share with commercial payers.
As mentioned previously however, we do believe that if we're unsuccessful and improving Medicare rates before calendar year, 2020..2 it is prudent to expect that some of our commercial rates may begin to be negatively impacted next year.
To close on reimbursement, we have multiple avenues available to potentially achieve higher Medicare reimbursement and we are actively pursuing all of them.
We believe we have the right strategies in place to achieve this but recognize that it may take some time.
We are confident and the value of our technology platform and the clinical and economic benefit that it delivers to patients physicians and to the health care system.
And we are hopeful that the value of the zero equity platform will ultimately be recognized under the existing Medicare reimbursement system.
Regardless, we will continue to pursue other opportunities other opportunities to monetize the value of our platform through new indications such as silent AF.
New products, such as D O a T and the technology, we are developing a thoroughly geographic expansion as well as other alternative revenue models that will all incrementally reduce our exposure to Medicare fee for service over time.
And we look forward to sharing more details on each of these efforts as we make progress.
I'll now turn the call over to Mark who will discuss those recent FDA clearances and how they further bolster our competitive positioning and why we are even more excited about the future of our Z O service Mark.
Yeah.
Thanks, Tim.
And the second quarter, we received FDA clearance for 2 new technology platforms that represent either in the future.
The first clearance was for the zeal monitor our third generation biosensor.
Although second list for our next generation of deep learned algorithms.
Together these clearances and demonstrate our commitment to leading the category would be first created over a decade ago.
And I'd like to share more details about each.
I'll start by describing the zeal monitor the first product clearance of this new hardware platform.
This new monitor is a smaller thinner and lighter version of the current <unk> T biosensor.
On a device that more than 3 million patients have relied on to record a comprehensive view of their heart's electrical activity over 2 weeks.
While the Zoo York T device still provides industry, leading performance the museum monitor meaningfully improves on it and many important ways.
This new form factors nearly 60% later.
25% smaller and 30% thinner and other.
Total includes a new breathable and waterproof outer layer on.
And all of which are allows our customer and he said to confidently and comfortably secure to all patients.
These refinements were designed with our patients and mined and what the understanding and I'm more comfortable where and cruise compliant, which in turn leads to even more complete and accurate diagnostic data.
Again this was a biosensor platform that will become the cornerstone of our service and we intend to pursue additional product clearances on this platform and future.
And.
Next I'd like to describe the clearance we received for our second generation of deeper and ECG detection algorithms and our fourth generation algorithm overall.
Since you have and 18 I remember its been a leader and using FDA cleared deeper and algorithms for classifying and characterizing diverse hurt rhythms.
With this latest clearance, we're now using AI to detect beep beep types and heart rates we.
We are also further enhanced the deeper and rhythm detection capability and we previously introduced.
This new clearance and amounts to a significant improvement and her abbey's detection capabilities enabled by the greater than 750 million hours of curated heartbeat data and our database.
Likely the world's largest repository labeled ECG recordings.
Our new deep learning algorithm was recently deployed and we're already seeing positive impact to both diagnostic accuracy and scalability of our service.
We see this latest clearance is further differentiating us from the market and is a key step and developing new products and services fundamentally enabled by our air expertise.
And we look forward to sharing more about this and the future.
Finally, I'll quickly touch on and meaningful progress, we've been making on our partnership with verily.
As a reminder, the context for this partnership is the understanding that silent atrial fibrillation is a key public health challenge, particularly in the United States.
And that detecting this type of asymptomatic atrial fibrillation likely benefits from our long monitoring duration.
With that perspective, we're working to build the first offering of a medical grade long term continuous and noninvasive solution to detect and characterize atrial fibrillation.
The solution for developing utilized was fairly steady wash platform and combination with our algorithm analytics clinical backend and workflow tools.
We're on track to submit to the FDA from Pfizer and clearance by the end of this year.
When we receive clearance we will enter a market evaluation phase and establish the efficacy of the solution through clinical evidence and to explore the optimal business model associated with this potential paradigm shift and monitoring.
And many ways. We expect this process to be similar to when we first brought the vizio serviced and market a decade ago.
That is a thoughtful investment into clinical evidence that lays the foundation to change clinical practice.
We look forward to sharing updates as we progress along this journey.
In sum these 2 new clearances and our ongoing product development efforts represent our commitment to driving innovation to extend our leadership position and the ambulatory monitoring industry.
From a start we've been and innovation focused company and we continue to see many opportunities to improve and expand our technology platform on delivering important and valuable benefits to patients providers and the health care system.
Now I'll turn it back to Doug to cover our second quarter results and the second half outlook.
Okay.
Thanks Mark.
As I noted earlier total revenue and the second quarter was $81.3 million, reflecting year over year growth of 59, 8% and a sequential increase of 9.4% over the first quarter.
Gross margins were 68% down 1.6% year on year and 0.4% quarter on quarter.
Adjusted EBITDA defined as EBITDA less stock based compensation expense was negative $4.6 million and increase of $4.1 million year on year, and 0.6 million quarter on quarter.
Cash and short term investments were $255.7 million a quarter and down $6.6 million from Q1 'twenty 1.
Taking a more detailed look at the second quarter financial results revenue grew sequentially with quarter on quarter growth of 9.4%.
Q2, 'twenty 1 revenue growth was a mix of volume growth improvements and collections performance with some contracted and non contracted payers and some favorable pricing adjustments per <unk>.
Approximately $4.5 million of Q2 'twenty 1 revenue was due to improved collections from prior period revenue and higher adjudicated reimbursement from certain player Payors.
And is not expected to reoccur and future periods.
<unk> T and the U S drove the majority of our volume growth and the second quarter while zone.
And the U S and <unk> and the U K outpaced overall company growth on a percentage basis.
<unk> volumes grew significantly quarter over quarter.
And 10% of revenue for the first time.
We saw strong performance continue into July and anticipate it will be a growth driver for the remainder of the year.
New accounts onboard decreased slightly compared to the first quarter of 2021 with June on boarding down as we delayed account launches to focus on reducing our clinical backlog.
Yeah.
Looking at new store same store mix, new store accounted for 25% of year over year growth.
Down from 28% from the first quarter of 2021, primarily due to strong rebound and existing account volumes from the Covid impacted Q2.2020.
On enrollment was approximately 20% and the second quarter of 2021 down slightly from the first quarter of 2021.
Turning our attention to the rest of the P&L gross margin from the second quarter was 68% of 0.4% decrease compared to a gross margin of 68, 4% in Q1 and 2021.
The decrease was primarily due to higher overtime costs related to previously discussed capacity shortfalls offset by volume benefits.
Q2, 'twenty 1 gross margin benefited from approximately $4.5 million of revenue and not related to Q2, 'twenty 1 volumes discussed above and.
And would have been approximately 2 percentage points lower on a pro forma basis.
Operating expenses for the second quarter of 2021 were $72.3 million down 7.7% from Q1 of 2021 and up 31% year over year.
The sequential decrease and the operating expenses included a $2.5 million decrease and bad debt due to improved collections and a $10.3 million decrease and stock based compensation offset by an increase and hiring and investments.
Both bad debt and stock compensation included 1 time adjustments and as such should not be considered representative of our cost structure moving forward.
Comparing year on year, Opex Q2, 'twenty, 1 opex was up 31% due primarily to hiring and legal spending offset by a decrease and barely milestone expenses.
Quarterly adjusted EBITDA of negative $4.6 million and Q2.2021 was approximately flat to Q1, 2020, 1 adjusted EBITDA of negative $5.2 million.
Cash and short term investments decreased $6.6 million from the first quarter of 2021 to $255.7 million.
Purchases of property and equipment.
$5.9 million repayment of long term debt $2.9 million and EBITDA loss of negative $4.6 million consumed cash offset by working capital improvements and proceeds from employee stock purchases.
Cash stabilized as claim submissions began to normalize.
Accounts receivable increased by $3.4 million from $60 million and Q1, 2020, 1 to $6$3.4 million and Q2.2021 still significantly elevated above the Q4.2020 balance of $29.9 million.
Accounts receivable is expected to decline and second half 2021 and <unk>.
Backlog claims processing becomes fully caught up.
Finally, net loss for the second quarter of 2021 was negative $17.4 million or a loss of 59 per share.
Compared with a net loss of $20.4 million or 75 per share for the same period of the prior year.
We are currently holding approximately 10% of 2021 year to date Zero X T claims down from approximately 70% as of Q1 and 2021 quarter and.
We have submitted all Nova toss claims remaining health claims are for a limited number of commercial payers.
Yeah.
As we discussed last quarter, we have initiated a process of evaluating our operating profile to identify opportunities to scale more efficiently.
Leasing our revenue conversion per unit and reducing our cost to serve.
Key strategies include reducing device manufacturing costs through design and automation.
Producing clinical scan times through increased AI and workflow improvement.
Improving revenue cycle management, and reduced contractual allowances cost of claims and bad debt.
And finally examining various go to market options that would reduce sales and marketing cost per unit.
Collectively we identified opportunities, where we believe we can drive double digit percentage reductions to our cost share with reductions fully implemented and the 2023.2024 timeframe and.
And as a result build a strong and sustainable operating foundation and can profitably support a range of reimbursement levels.
And second half 'twenty, and 'twenty, 1 and higher costs associated with capacity limitations will exceed the impact of cost structure reductions.
We look forward to sharing more details on our cost improvement initiatives as well as our market expansion opportunities later this year.
Yeah.
Turning to guidance for the full year of 2021, we expect revenue to range from 320 million to $325 million.
Representing year over year growth of 21% to 23%.
Revenue guidance for the year does not assume any changes to Medicare reimbursement.
As previously mentioned discussions with no other tasks and the other macs are on remain ongoing.
We expect revenue and the third quarter 2021 to grow sequentially.
Over the second quarter by approximately 3%.
Registration volumes and the quarter are expected to be approximately sequentially flat with revenue volume growth coming from reducing the clinical backlog of zero reports offset by non volume related revenue drivers in Q2, 2020.1 not reoccurring in Q3.2021.
For the fourth quarter of 2021, and we expect revenue to be approximately flat as compared to Q3.2021 with growth and registration volumes offset by clinical backlog reductions Q3, not reoccurring in Q4.
Gross margin and the third quarter of 2021 is expected to decline approximately 3% compared to Q2.2021.
Due to the non volume related revenue drivers in Q2, not reoccurring in Q3 and higher costs associated with capacity limitations.
Opex is expected to increase by approximately $13 million and Q3.2021 as compared to Q2, 'twenty 1 'twenty 'twenty 1.
Due to bad debt and stock compensation and not benefiting from the factors that impacted Q2.2021.
Growth and hiring and investment growth and stock compensation due to hiring and retention and.
And increases in legal spending.
Additionally, the next very early milestone is forecasted to be achieved in the second half of 2021.
If the milestone is reached and Q3 'twenty 1 and this will add 3 million to Q3.2021 on Opex.
Additionally, we will continue to pay down debt per our amortization schedule on schedule and will continue to build out on new manufacturing facility and the second half of 2021.
As you've heard work is underway and we believe this quarter's results demonstrate the progress we are making.
I would also note that the CEO search is actively underway with healthy interest.
We look forward to providing additional updates as appropriate.
Yeah, I rhythm team remains focused on and excited about the opportunities we have.
And I have the greatest confidence and our future.
And with that we'd like to open up the call for questions operator.
Thank you.
And as a reminder to ask a question. Please press star 1 on your telephone keypad.
A question and perhaps the bounty please.
Please standby and while we compile the Q&A roster.
Your first question comes from Robbie Marcus from Jpmorgan. Your line is open.
Yeah.
And thanks for taking my question I've got sorry, and on for Ravi here.
And just the start up a question on the reimbursement you mentioned.
And the unfortunate scenario, where Medicare rates don't.
Move this year, what can you quantify or kind of sized impact and we would see on commercial rates.
Coming from new store this quarter, but I attribute that to being that the the existing stores were all very depressed and Q2.2020.
Being the yeah, let me the deepest quarter of impact and Covid, and you're and you're still wishing some in some very real COVID-19 and packs in Q3 of 2020 and so just you know the the fact that those existing stores are rebounding.
Significant like you know it.
Is gonna make the component of growth is coming from new store, lower but and we've been very happy overall with our new store account openings and so what we're very confident and we continue to make the progress we want to make and your store account on things Mistral openings.
Yeah. Thank you.
Your next question comes from Margaret K, Sir from William There.
Okay.
Favre on this is Brandon on from Margaret Thanks for taking the question Uhm, we're still kind of punch and and the numbers, you're obviously and and the model, but it it it feels like in the beginning of this year or at least here to day, so far that day, GCG market and and and <unk> E. C. G. Specifically is accelerating and it especially given the guidance that you're gay.
Okay. So just curious, but you know what if you guys could talk about what you're seeing and the seal the seals seems like the adoption and passed a T. T. Jesus is moving along nicely, perhaps even faster than in the past and.
And.
Is that a fair characterization and if so what what kind of drivers are are are are making that happen out on the field.
Well I I think.
And anything with with payers and integrated payer and providers. So we're very excited about the progress we've made and and the last 6 months or and maybe the 10 months.
Since and stops and our early go to market strategy and we have a great team behind this effort and and.
And are pushing it forward.
And we're certainly looking to you know looking to build this out even even more fully and theirs.
Aspects of the service or capabilities that we're that we're adding here to still leveraging our core <unk> platform.
But building around that and we look forward to sharing more.
More details as we make progress there.
Got it great. Thanks.
Thanks, Brian.
Okay.
Your next question comes from Cecilia furlong from Morgan Stanley and young children.
Hey, good afternoon, and thanks for taking my question and this was a Calvin on first just 1 on reimbursement and 1 on data on the.
The first 1 on just understanding you know believe next July when <unk> comes out.
That would be the more major catalysts versus this November and December if my understanding though it was the lack of update and July didn't necessarily preclude I guess development and and the final rule. So I'm. Just curious have you seen to date any public Commons of significance either from the societies like ACC HRS or.
Other participants you know I think last search on the commentary we saw common from the non societies and also from some other competitors as well. So just curious anything to date or worth calling out or expect to see perhaps that could make a real impact on to until the final rule.
Yeah, and covenants day, and I can I can address that so I would say as it relates to the proposed rule.
And we were we were encouraged and and do view the proposed rule and this year is it's positive progress you know CMS continues to seek information and is looking for ways to appropriately price. The service. It is clear there are challenges and how best to price and.
Vertically integrated AI based business models like our own but that CMS is actively.
Actively seeking ways to solve for this both both specifically with our own code as well as seeking comments from stakeholders around AI based services. So we we intend to use the open comment period between now and mid September to provide our perspectives and and also work with other industry industry stakeholders to.
Provide comments that we hope are helpful. The CMS. So we will continue to seek national pricing for calendar year, 2020, 2 and that remains a possibility which is encouraging but we do believe the more likely outcome as we said and our prepared remarks that we we will remain contractor pricing for 2020, 2 and and reenter the cycle net.
Sure.
Understood and just 1 quick 1 on and stops I think we were expecting to see some cost effectiveness data either at mid year, the share or and the back half just rely on the checking on that are you still expecting to see that and in the near term and.
Can you maybe just comment on the confidence.
How good the data set it's Wendy.
Thanks.
Yeah sure. Yeah. This is Dan on I'll take that 1 again.
So for on M stops you know the data that was released and H 8 last year, we believe the publication around the clinical outcomes data and it's coming shortly don't have any specific timing or details to point, you to but but do believe that and the near term for the economic data piece and that remains in the works.
But the delayed a bit from our original thinking that it would be mid this year.
And have updated timing to give you today, but other than to say that remains in the works.
But I would also say that we do believe that.
Having this data and the economic data and particular peer reviewed and published will be you know a big boost to our efforts, but we also have our own economic models and.
And can work with payers and integrated payer and providers to review their data their specific data and have a discussion around you know the economic benefits and been targeted detection program and that's that is an element of our go to market strategy today within within Simon and I F.
Got it thanks, so much.
Yeah.
Your next question come from day, 1 preventing from Canaccord. Your line is open.
Thanks, Good evening.
So just I'm going to focus on the model and you guys are really having success and driving revenue and I'm kind of curious if you broke that up you know you've seen a big increase and the <unk> business, which I believe has a pretty significant price premium. So what what is the underlying unit growth look like.
Just and patients year over year and I don't.
And now if you share that and I apologize if you did.
Yeah.
Yeah, we haven't shared that specific number.
And we've given you the impact on how to adjust for the quarter of our volume that is Oh medic.
Medicare pricing.
Well I'll, let you do the math and <unk>.
5% Medicare pricing.
Price went from 3.
311, gross to Oh, and $1.15 growth.
And I'd love to get you on a ballpark of how to translate this magnitude on the revenue growth and to.
Closer to our volume growth on them and and obviously Z O. A T has grown significantly and you are correct.
Z O <unk>, particularly with the decline and you know.
<unk> seen pricing is huh.
And a T growth is coming from the new store volumes as opposed to on the <unk>.
And <unk> side.
Great. Thanks for taking my questions.
Your next question comes from David <unk> from choice Youre line is open.
Hi, guys, it's Sam on for David Thanks for taking our questions just.
On the first 1 and were going to reimbursement again.
Wood Mac pricing in 2020.2 how do we think about the potential change we can see there is it possible debt and Max good Kid increased payment and and at a.
Significant rate or are we more likely to see.
The smaller sequential step up.
Yeah, Hey, Sam and Stan and I can take that went on and Doug Kevin.
Yes, I didn't think he sees fit.
I would make a couple comments, obviously, we're going to stop short of providing providing guidance on what the potential outcomes.
Central outcome is.
But we'll reiterate a couple of points 1 we remain very encouraged by the willingness of Nova tasks and the other macs to.
And to explore and alternative pricing model, which again, we believe is a better representation of the true cost of delivering the service.
And as mentioned previously.
The reason it is a better representation of the free cost of delivering services Inc.
It includes historical R&D costs, as an example, and and remember that the challenge. We're facing is that we are a vertically integrated service provider and there were no commercial invoices that CMS can point to and say that this is a commercially validated price the supplier or equipment that is used and this service.
Such as our wearable biosensor and software tools. If there were you know 1 could argue that.
And the historical cost to develop the hardware software and the cost to produce the cost to sell and market. The product you know as well as the overhead would all be captured and that commercial price of the hardware software and so we believe this alternative model solves for a lot of those challenges and and nobody talks and the other macs, while not providing.
And any commitments or willing to review the data so we're optimistic.
Optimistic that this is a viable strategy to more appropriate pricing.
With the caveat, we cannot provide any assurances that <unk> or the other macs will ultimately update pricing based on this information or nor the timing.
But our focus is on presenting this information and continuing the discussions with them and again, we remain encouraged that they remain at the table with us to discuss it.
Okay.
That's helpful and just as it has on more on on reimbursement and yet.
Well I went up and down and you can better.
If we think about.
Is there and there may be on a level on on Mac reimbursement and maybe like a 200 or $250 reimbursement from Max where where do you see like commercial payers may be less likely to tissue and rates significantly are going for them and <unk>.
Any color you can provide about that differential and didn't really helpful. Thank you.
Yeah.
This is Todd.
And I, obviously have a higher level of Mac pricing is.
The less <unk>.
Impact, we would expect there to being on the less risk, we would expect them to be to commercial payers.
But I think we need to be careful to spec and not to speculate here and there.
And then the other thing I would say is that while we're still on carrier pricing.
The commercial players are very aware that this is.
This is a process that's still underway on the.
The Medicare side.
I do think that national when we achieve national pricing and that is likely to be more impactful and more no taken into stronger accounts by the commercial payors than a Mac price, which is going to be seen as an intermediate step and a longer process and and.
And that is very much what we have been seeing with me with this year's Mac pricing development. So I.
And I would I would give you the guidance that Mac pricing change.
Changes to Mac pricing is going to be less influential to the commercial payors them and that that CMS national buys from all day.
Your next question comes from Suraj Kalia from open Hammer and company heal and children.
Good afternoon, everyone can you hear me all right.
I can hear you suraj.
Perfect.
Forgive me if you mentioned this already just jumping in between calls once the contractual allowance and the courses.
And I'll just throw my other question and I'll send it don't you mentioned about gross margin seen lower IC catch the reason for that and if you could also just expand on your comment about revenue cycle management improvement.
That's.
And just kind of put some.
Additional color on that to help us understand and know how opex should be reduced margin should be improved and any color would be great day.
Thank you for taking my questions.
Okay.
So so first you know contractual allowances is how we see.
Now account for the difference between the contractual price that we sign with a commercial payers and the amount that they and other commercial payer actually pays us.
And.
So.
During the during the quarter.
We actually have very good performance of improving the collections on.
And you know that on past contractual allowances with a number of both from it was.
And a number of commercial payers.
And which which resulted and I was taking some 1 time.
Favorable adjustments to revenue.
And then even with that but that is what that is what the contractual allowances and and it's really the difference between you know when we close and when we close each quarter, we have and expected level of what those contractual allowances I E. What's the.
Contractual and what the level of.
Hold backs.
And that's really a commercial payers are going to be willing to pay us and then there's always a true up that if we've collected more or.
And that will go in and work those and aisles and X percentage will be reduced to why percentage and so so you can see that if if we can reduce that initials and I'll write by pick your number 25.40 per cent.
And that's going to result, and first better claim better collections performance the second.
Most of my cost and revenue cycle are based on working those denied claims and so if I have 25 or 40 per cent less denials upfront and then and that's gonna cost me significantly less on a per claim basis towards the denials.
Forgive me if it contractual allowance please pay per cent before this quarter. It did it go up and remain the same.
We we haven't we haven't disclosed the exact percentage of contractual allowances and the commercial market. It has historically been and the low teens.
Thank you.
There's no for a good question on this day they make it to you.
Okay, I would like to thank everyone for joining we're very happy with quarter with her and and look forward to sharing more information as we go forward.
Thank you.
This is today's conference call. Thank you all for joining give me now and this guy.
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