Q4 2021 iRhythm Technologies Inc Earnings Call
Good day and thank you for standing by welcome to the <unk> Technologies, Inc. Fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to be.
Press Star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Leigh Salvo. Please go ahead.
Thank you all for participating in today's call.
Earlier today <unk> released financial results for the fourth quarter ended December 31 2021.
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 the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Any statements contained in this call, but are not statements of historical fact should be deemed to be forward looking statements.
Forward looking statements are based upon our current estimates and various assumptions and factors that could cause actual results to differ materially from those expressed or implied by any of these forward looking statements are detailed in <unk> annual report on Form 10-K , most recently quarterly report on Form 10-Q , and other filings with the Securities and Exchange Commission.
Except as required by law, we assume no obligation to update any such forward looking statements. After the date of this presentation or to conform to these forward looking statements to actual results.
In addition, we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash based results unless otherwise.
As noted all references to financial metrics are presented on a non-GAAP basis.
The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP.
Please refer to the tables in our earnings release for a reconciliation of these measures to the most directly comparable GAAP financial measure.
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 report and quarterly report 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 Broadcasting Day February 23 2022.
<unk> disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
That I will turn the call over to Quentin Blackford, our president and CEO .
Thank you Lee.
Good afternoon, and thank you all for joining us Doug Devine, our CLO and CFO and Dan Wilson, our EVP of corporate strategy and Investor Relations joining me on today's call.
Prepared remarks today cover progress we've made since our last call and commentary on the near and long term growth initiatives. We are focused on for our business.
I'll, then turn the call to Doug to provide a detailed review of our Q4 and full year 2021 results.
As well as guidance for 2022.
It's been an exciting four months since I joined algorithm and I could not be prouder or more energized by our team's collective progress in this short time, we have identified and begun to implement measures that we are confident will enable us to accelerate growth in our core market and.
To expand our opportunity into adjacent ones we.
We have also begun to implement operational changes that we believe will generate long term sustainable growth and enable I rhythm to scale, even more efficiently.
I recently shared reflections for my first 100 days with Iridium family and I'd like to share some of that with you today.
Additionally, the turn algorithm into a truly global organization, expanding the value, we realize domestically and extending across the world.
Our artificial intelligence capability in deep learning algorithms are a significant differentiator from competitors lifting our value well beyond medical devices and into the future of what AI can deliver.
We see opportunity to leverage our core technology for new use cases, not considered five years ago that can deliver significant value for both the health care system and our investors, while keeping IRA them at the forefront of revolutionizing the way health care operates.
Good progress has been made but our work is far from done the potential is tremendous and our focus remains on delivering value to our clinicians payers and patients.
We have a global responsibility to get these technologies out there more broadly and to give more people access to care.
With that in mind, we are focused on three primary growth pillars.
First continued expansion in our core market with <unk> XT and <unk> at.
As the leader in this space. We recently reached an exciting milestone of surpassing 4 million patient served today physicians are trading well above 1 million new patients each year with our best in class technology that leverages more than 1 billion hours of curated ECG data and truly delivers the gold standard in ambulatory cardiac monitoring.
We still have plenty of runway ahead of us with less than 25% adoption in our core U S market as well as an opportunity to further expand in this market in time.
Second expansion into international markets, we have made great progress and operationalized our service in the United Kingdom and plan to submit for shown in approval in Japan later this year.
Beyond these two countries, we see immense potential to introduce our technology platform in international markets and to make <unk>. The standard of care in cardiac monitoring similar to the successes we've seen in the U S.
And third leveraging our technology platform to expand into adjacent markets.
Our efforts here are led by our expansion strategy in the silent AF, which is extending our <unk> XT service into asymptomatic and high risk patient populations that can potentially benefit from proactive monitoring.
We also see the potential to leverage our technology platform into adjacent disorder in disease categories.
With that as a backdrop I'll summarize our 2021 and fourth quarter performance trends, we're seeing in the early part of 2022 and recent progress on the objectives I've just outlined.
For the full year 2021, our revenue grew 22% over 2020 exceeding the guidance we offered on our last call.
Fourth quarter revenue reflected year over year growth of three 8% and nearly 20% unit volume growth against an unseasonably strong fourth quarter in 2020.
Adjusting for approximately one week of clinical backlog in Q2 that rolled into our third quarter Q4 sequential growth was approximately 8% and.
And importantly, our turnaround times and clinical Q remained within expected bounce throughout the quarter.
We saw a nice rebound in new account openings in the fourth quarter as we restarted targeted efforts after successfully addressing a major turnaround time issues.
We were also encouraged to see average volume per new account near an all time high since we began tracking this metric at the end of 2017, which signaled the ability to launch larger accounts and ramp new accounts more quickly.
New accounts typically ramp up over a four quarter period, following launch which suggests more meaningful contributions from these new account launches in the back half of 2022.
Throughout much of the fourth quarter, our business recovered well from the combination of the clinical backlog in Covid disruption.
In late December the omicron, various spike had a meaningful impact on our business that continued through January .
We are seeing stronger trends in February and recently surpassed all time record daily registrations, while we are encouraged by the recent trends and the strength of our commercial pipeline, we do anticipate continuing staffing and labor shortage headwinds combined with the impact of fewer new account launches in both the second quarter and third quarter of 2021, we will have an impact in the first half of this year.
Diving deeper into our core market in the U S and starting with <unk> X gene.
Unit growth continued to outpace revenue growth as a result of the reimbursement headwind that we navigated throughout 2021.
Encouragingly, our sales reps have started to gain traction expanding beyond cardiologist and EP call points to reach primary care physicians, where an estimated 8 million people a year visit for help heart palpitations.
As I have highlighted previously we expect this to be an important driver of near term growth in our core market, while also expanding our addressable market in time.
On the innovation front, we recently launched <unk>, three which includes single sign on as well as multi factor authentication.
These features will be rolled out to all of our U S customers over the next 90 days and represents the outstanding Cross functional efforts, we hope to build upon and our core technology offering we.
We plan to continue bringing new technologies to market, including a limited introduction of our third generation biosensor expected in the coming months.
Lastly on the reimbursement front, we were pleased with the progress in Medicare pricing in early January with the decision by <unk> to update their 2022 reimbursement rates that affect <unk> moving rates from the 7% to 14 day code from $115 in 2021 to $233 in 2022, we have.
Appreciate the continued engagement and efforts of the Max to better understand long term continuous ECG monitoring the clinical benefits that it provides to patients and the cost and resources that go into delivering the service.
The updated rates demonstrate progress in further understanding cost associated with delivering the <unk> service.
We along with our broad industry wide working group will continue to work with the Macs the centers for Medicare and Medicaid services or CMS and other stakeholders to provide information in support of our continued pursuit of fair and appropriate pricing.
We are committed to providing as much information as we can to CMS to allow them to set a national rate for calendar year 2023, we believe that they have sufficient information to establish national pricing and we look forward to the proposed rule in July or August of this year.
On <unk>, we saw strong growth throughout 2021 that outpaced overall company growth revenues from <unk> doubled in 2021 versus 2020, and now represent approximately 10% of our revenues.
We are pleased with the ramp of <unk>.
And see an opportunity to continue to grow the product clinical use cases, including Teva syncope and early discharge have been key drivers for <unk> and we are evaluating.
Are you waiting several other opportunities to expand the use cases and the value that we can deliver to patients and physicians through clinical evidence and continued innovation.
Now turning to international we can.
Continue to make good traction in both the private and public sectors in the U K were roughly 500000 ambulatory cardiac monitoring tests take place each year.
The backing and support of the NHS Grant in the AI Award as well as the nice recommendation gives us confidence that the UK can be a significant market for us in the future or.
Our focus remains on executing against the award to demonstrate the clinical and economic value of our <unk> service and generate the data required to achieve long term sustainable reimbursement in the UK.
The success, we are seeing in the U K combined with CE Mark approval already in hand gives us added confidence to pursue other markets throughout the EU, where we can deploy resources and begin growing our presence.
We have also accelerated our efforts into Japan, where we are moving forward with an application for regulatory approval, Japan is the second largest ambulatory cardiac monitoring market in the world where reimbursement has historically been very good and physicians have been expressing strong interest in our technology.
To oversee the execution of our international expansion goals, we are delighted to welcome Sandrine Morris as our new International General manager prior to joining US Sandrine spent more than 20 years with Medtronic, most recently, leading EMEA commercial efforts, including sales and marketing for spine biologics and several other key divisions.
Turning to our third pillar of growth and the one that I believe has the most significant long term potential are the adjacent markets.
Our initial efforts are focused on silent Afib, where we estimate there are more than 10 million people in the U S alone that are at high risk of undiagnosed cardiac arrhythmias, who can benefit from early screening.
Additionally, there are other adjacencies like predictive stroke heart failure hypertension, or sleep apnea that can contribute to an enormous addressable market opportunity in the future. These.
These are areas that we believe our technology platform can be leveraged to address a clear unmet needs and we look forward to sharing more details as we initiate efforts in these areas.
In addition to our focus on growth we are committed to improving operational discipline that will lead to long term profitability and meaningful financial leverage over time we.
We are rethinking, how we conduct our business and evaluating longer term operating models that can enable future efficiencies and scale with the business as we globalize our company.
Internally, we have begun to prioritize efforts with respect to our algorithms that will automate workflows for our clinical operations teams, we're evaluating the utilization of software to enhance interactions with our customer service functions.
We've launched formal efforts to review our operational processes across our back office transactional functions that clearly map out opportunities for efficiencies and new ways of doing business into the future.
And we're doing this while also committed to improving upon our overall control environment as we introduce world class operational capabilities.
In line with these efforts, we will incur some restructuring charges within the first quarter of 2022 that are primarily associated with the reduction in size of our San Francisco facility to better align the company to remote working environment that we have proven can be successful.
With pricing your existing levels and with these operational changes underway and confident that we have adequate capital and a clear path to positive EBITDA and positive cash flows without the need for diluted financing to get us to profitability.
In summary, I am confident that we have entered 2022 with good momentum and a platform to grow and serve millions more patients. We are intently focused on this vision and we look forward to sharing our progress throughout the year.
I'll now turn the call over to Doug.
Thanks, Quentin our fourth quarter results reflected the resilience of our teams through a highly uncertain environment having.
Having resolved our clinical operations backlog in the third quarter.
Fourth quarter saw registrations of new account Onboarding returned to growth, which has set the company up for further revenue growth in 2022.
Taking a more detailed look at our fourth quarter financial results on a sequential basis revenue declined four 2% due to the onetime benefit in Q3 from reducing clinical backlog by about one week not reoccurring in the fourth quarter.
Offsetting the growth in volumes from new accounts.
Growth in our average daily registrations was solid increasing by about 7% during the fourth quarter as compared to preferred quarter.
New account Onboarding increased both in the number of new accounts opened and the volume from new accounts with the with volume from new accounts more than doubling as compared to the third quarter of 2021.
Looking at the new store same store mix, new store defined as accounts that had been open for less than 12 months accounted for 46% of year over year unit growth from.
From 29% in the third quarter of 2021.
XD home enrollment was up slightly to approximately 21% in the fourth quarter.
Home enrollment has continued to decline to approximately 22% so far in the first quarter of 2022.
Turning our attention to the rest of the P&L gross margin for the fourth quarter was 62, 7%, a 3% decrease compared to gross margin of 64, 7% in Q3 of 2021.
The decrease was due to lower sales volumes higher shipping rates and higher staffing costs in both our manufacturing and clinical operations organizations.
As we staff those functions ahead of anticipated revenue growth in 2022.
Operating expenses for the fourth quarter were $83 5 million up 5% from Q3 of 2021 and up 23% year over year.
The sequential increase in operating expense was the result of a milestone expense to verily of $3 million and an increase in bad debt expense.
Barely costs included in the Opex were $3 million in Q4, 'twenty, one compared to $4 million in Q4 'twenty.
The company expects the next early milestone to occur in 2023.
Adjusted EBITDA of negative $17 3 million in Q4, 'twenty, one was down $8 6 million.
Versus Q3, 'twenty, one adjusted EBITDA of negative $8 7 million.
Cash and short term investments declined $17 7 million from the third quarter of 2021 to $239 1 million.
Adjusted EBITDA losses repayment of long term debt and capital spending with the primary uses of cash partially offset by improvements in working capital.
Accounts receivable decreased by $6 4 million to $46 4 million from $52 8 million in Q3 2021.
As we continue to make progress with payers on adjudicating claims that were held in the first half of 2021.
Finally, net loss was negative $32 4 million or a loss of $1 10 per share compared with a net loss of $9 7 million or <unk> 33 per share in the same period of the prior year.
Turning to guidance for 2022, we expect full year revenue to range between $400 million and $410 million.
Reflecting year over year growth of 24%, 27%.
We expect gross margin to range between 67, 68%.
This reflects <unk> updated reimbursement rates retroactive to January one 2022.
Have these pricing changes didn't effect for 2021, it would have increased our 2021 revenue by approximately 10%.
We expect operating expenses to range between $375 million and $385 million.
We expect adjusted EBITDA to range between negative $30 million and negative $40 million.
Our adjusted EBITDA for 2022.
We will exclude restructuring costs that Quintin noted earlier and we will continue to exclude stock compensation expense.
Yeah.
Due to omnicom impact to patient registration volume in December and January we expect Q1 revenue to be a bit below typical seasonality.
Which was approximately 22% of full year revenue in the first quarter of years prior to the COVID-19 pandemic.
We expect to see gross margin steadily improved throughout the year and closed the year around 70%.
The first quarter of 2022, we'll also see some higher corporate expenses to gross margin due to staffing and testing impacts.
Finally, we have signed a term sheet with Silicon Valley bank to restructure our existing debt facility.
The new facility will be non dilutive extends the maturity reduce the cost of capital and.
And increase the amount of capital available by two to three times our current facility.
We expect to close the facility by quarter end and will provide further details when appropriate.
And with that Clinton, Dan and I would like to now open the call for questions.
Operator.
As a reminder to ask a question you wanted to press star one on your telephone.
Withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Allen Gong from JP Morgan. Your line is now open.
Hey, guys.
Gratulation from the good quarter I guess my first question is going to be on reimbursement. It was really great to see you guys get the higher rates kind of under your belt. So early on in the year, but when we think about the.
The national pricing.
Should we think of you as feeling confident they can get.
Lease that rate if not better how have your kind of communications with CMS gone so far and what gives you the confidence to move so quickly on pricing.
Hey, Alan Thanks for the question.
Look I think we're very encouraged with the pace of the discussions and the content of the discussions that continue to take place with CMS.
We're in the middle of those as we speak we continue to educate them I think really encouraging was the fact that.
Wanted to be made aware of the information that we shared with the Max that was pulled together by the third party.
Compilers of the financial data across the entire industry and for them to want to get into those details and see what was behind that was really interesting to us because we know they have a bit of a different approach historically to how they go about pricing. This but it continues to demonstrate their desire to want to learn as much as I can around the cost profile and the value. That's delivered here, so I see that as a <unk>.
Encouraging sign and my sense is is also that CMS and the Macs are communicating throughout this process, which I'm not sure. It's always been the case historically, we've always had our discussions certainly with the Max and those continue and we've had them with CMS, but it seems that those two parties seem to be communicating as well, which I see as an encouraging sign so I'm not going to try.
To speculate on where they go with the right I feel very good about the fact that they have all the information they need at this point to make a decision. They have a lot of information in front of them that certainly would articulate.
A higher price point than what's been established with the Max and we absolutely believe that the value we deliver is as far beyond that that rate as well so.
I am excited about where this is moving but again I'm not going to speculate on where it goes but I am encouraged by what I'm seeing.
Got it and then just a quick little follow on.
We look into your guidance range. It certainly bracket kind of where consensus was going into the print, but just from your point of view, what really gets you to the bottom versus the top of that range and with some uncertainty around the trajectory of the pandemic, whether or not we might see another seasonal impact of the fall or winter or if there might even be another very.
And Tom the way what does your guidance contemplate for those kinds of factors. Thank you very much.
Yes.
Tried to anticipate to the greatest degree possible those sort of headwinds in our in our guidance, we can't foretell, what the future is going to bring in the back half of the year, but I can tell you I feel like we've become much better as an organization learning how to navigate through these potential challenges as they are created we have tools like home enrollment that we've seen step up.
Over the last several weeks into the new year that continues to demonstrates a viable model that that can help us navigate these sort of headwinds and so we try to do our best to forecast those I will tell you when you get into the last part of December and then the early part of January There is no question Omicron had an impact in the business, but we navigated it.
Fairly well and if you look at the last several weeks of February here. It is.
Encouraging to see numerous daily record.
Our registration numbers coming through and really if you look at the last three to four weeks every week has stepped up sequentially off of that so the momentum is building. We're very excited by what we're seeing there but at the same time, we want to be thoughtful when we set guidance expectations to anticipate a bit of what could be out there.
To the degree that we can navigate through that world and I think we're going to be very happy with the result at the end of the year, but.
I think the company is getting better at navigating through those sort of things.
Thank you. Our next question comes from the line of Cecilia furlong from Morgan Stanley . Your line is now open.
Hey, Thank you for taking the question is Calvin on for <unk>. Congrats on a strong quarter. So it's a couple of quick ones for me first one is I wanted to start on the margin guide. So it sounds like it's primarily in the <unk> update pricing. So I'm just curious on the API side. It looks like the 22 PFS showed kind of a 20.
Plus percent increase in the MCT rate. So I was hoping you could walk us through how much potential benefit on pricing on margin and.
On volume ramp up.
Drive as you look at 'twenty, two and potentially beyond.
Yeah, I'll take that out of the gate and Doug you certainly can feel free to chime in there in terms of specific impacts on margins, although I don't know that we've given that level of detail in the past around particular product profiles on the margin certainly we were encouraged by what we saw with the <unk>.
The increased rate around the <unk> product with Meridian in particular, I think it continues to demonstrate that the value of the product is being realized by the Max.
We don't Miss the opportunity when we sit down with them to articulate what our product can deliver into the marketplace and to see that get reflected in an updated rates is encouraging.
And from our perspective with respect to margins those are the sort of things that we generally let flow through and so there certainly has been a benefit from the <unk> movement on the rate, although it's not a significant part of our business just yet so I wouldn't say that it's moving margin profiles in a significant manner, but it is something that we let flow through so Doug I don't if theres anything you'd want to add to.
So that in particular, but feel free.
Just.
As you are familiar with Calvin.
<unk> is currently about 10% of our revenue.
And youre looking at roughly half of.
As impacted by that.
Why is that Medicare price increases.
Not an impact on the commercial side.
Gives you a feel.
It's incrementally positive it's not a significant needle mover at the company level and gross margin.
Got it.
Thanks.
Two really quick follow up on.
First of all could you talk a little bit about your business or organization optimization goals, specifically around how youre thinking about your goals on Salesforce augmentation as you broaden your kind of physician reach and bring more PCP is under the 10, how much of that would occur.
And 'twenty two versus beyond that Youre thinking about augmenting the organization and then if I can.
Just on clinical trial, Readouts or data Readouts for the remainder of this year on guard AF.
And stops cost effectiveness data are those still on track for 'twenty, two and thanks so much.
Sure. So let me let me hit the augmentation question around Salesforce first in particular primary care.
The interesting thing that you find in our in our business to date is that our most successful reps have found ways to navigate into that primary care channel already.
With some reps seeing up to 20% or more of their book of business coming through the primary care space, which I think validates 100% that theres, an opportunity to move into that space and we need to find ways to focus more on that more broadly across the commercial force, but part of that is also freeing up that commercial force to be able to call on those primary care physicians.
We've looked at various models our guidance anticipates some incremental investments this year around the commercial force with respect to supplementing them with different profiles of sales reps, if you will or associate reps.
Key account managers that can free up the territory managers to go in and look for new business say in that primary care space.
And it does that in a much more cost efficient way. So we are looking at all angles of how we can free up our folks to be more effective and call on more new accounts with the primary care physician.
Our primary target of that.
I think as we think about the future and just how large that primary care spaces.
We're putting all sorts of opportunities on the table that we're evaluating right now from looking at increasing our own commercial force do you potentially partner with with others to move into that primary care space can you can you approach it through a payer perspective or through an <unk> or a GPO perspective and have it kind of come top down into the PCP space.
Those are all things that we're evaluating at this point in time and I think you should expect to hear more about that in the latter part of the year as we really fine tune that strategy.
And execute on that more broadly with respect to the clinical trials.
Guard AF continues to move obviously, that's not our own sponsored study that's coming from Pfizer and Bristol, but from everything we can tell there. It is moving in a very favorable manner and we would expect to hear some readouts here in the not too distant future is kind of how we're expecting or anticipating to see things come from that and we are continuing to move down the path of pulling together.
The economic components of the <unk> study that demonstrate the value financially speaking of the ability to screen more proactively engaged earlier with these sort of afib.
Situations and so I'm encouraged by what we're seeing there I would expect you'll see something in the latter part of the year around that.
Great. Thank you.
Thank you. Our next question comes from the line of Margaret tax Solar from William Blair. Your line is now open.
Hey, guys. This is maggie on for Margaret today.
I wanted to kind of hit on what.
What you're assuming for pricing benefits and underlying growth for 2022.
Our initial read on the model suggests and mid to high 20% growth rate on sales growth, which implies a deceleration of unit growth.
Does this mean that there is conservatism baked in or is there something else, we should keep in mind here. Thanks.
Yes, great question and thank you for it.
The way we approach guidance was and this is this is an approach you will find that we will take into the future we want to be very thoughtful around the way that we set expectations, we want to expect or anticipate what those headwinds are and then we put plans in place to navigate through those and execute well against them and to the degree that we do then I think we'll all be very happy with the outcome and we expect it to.
The upside to the expectations that we set if those headwinds come to fruition, then theyre not negative surprises thats sort of how we think about guidance.
We set our guidance for 2022 from a volume perspective with expectations of nearly 20% on the volume growth side.
And then obviously you get about 10% benefit coming from the Medicare rate change offset by low single digit pricing pressure in the rest of the business that we've consistently seen over the last several years, so a pretty consistent approach to to what we've seen.
You'll note on the slow growth profile I would just point you back to the fact that that 21 unit growth profile comes off of the 2020 number that was.
Impacted by Covid in a pretty significant way and I think if you readjusted that 'twenty one growth for a more normalized 2020 unit growth was probably somewhere around 25% in 2021, which on an absolute unit number is pretty comparable to the way that we're guiding 2022. So I don't think you are seeing any changes in the trends of the business we feel very good.
The overall momentum in the business and we've tried to be very thoughtful around the headwinds and like I said to the degree we navigate them well I think we're all going to feel very good about the year.
Got it thank you.
You mentioned earlier on the call that during Q2 and Q3 of 'twenty. One you pulled back on new account openings.
So can you talk about as we head into 2022.
Back on the offensive and new accounts and can you give us some color on how long these new accounts to take to ramp up and really start contributing as Pat. Thanks, So much.
Yes, you heard a little bit of this in our prepared remarks, we were very encouraged with the way that we saw the new account activity sort of begin to really take hold in the fourth quarter coming off of two quarters of where we had really pulled back new account openings and so in the fourth quarter. We saw a nice step up in the number of new account.
We're doing business with but importantly, near a record high in terms of the average unit volume per new accounts. It was the second highest quarter on record for us since we ever began measuring that that metric dating all the way back into 2017. So we were very encouraged with the pace of which new accounts were coming on but also the size of the new <unk>.
Counts that were coming on which I think really speaks to the field's team the field team's ability to target those high profile accounts, and then win those accounts and bring them into the eye rhythm family. So we were encouraged by that.
I think that you come into January .
You continue to see the benefits coming from the new accounts certainly we had the omicron impact in the early part of January but we've navigated through it pretty well to where we're back to the record daily levels of registration is continuing to build in February . So I think we've navigated through the near term impacts those new accounts generally take about four quarters to really come up.
To speed, if you will and they step up on a pro rata basis kind of on a quarter by quarter basis, but by the time they get to the four quarters of having done business with us. They are usually at a pretty stable run rate and have grown into their potential. So I think what that does it sets us up in the back half of the year for some nice incremental growth coming from some of these record levels of.
Of new accounts or size of the new accounts that.
It gives us confidence on the year.
Great. Thank you.
Thank you. Our next question comes from the line of David Ross Scott from true with <unk>. Your line is now open.
Hey, guys. Thanks for taking the questions and congrats on the strong end to the year I guess first one just on the guidance I. Appreciate the commentary you provided around some.
Some of the moving pieces there it seems like kind of a plus 20% growth rate in <unk>. You mentioned, just some comments on the ASP impact there as well, but how should we think about the <unk> and international segments impacting growth in 2022, I know that you mentioned there is obviously an ASP increased to two <unk>.
That business doubled in 2022.
Do we think about that this year and then what does guidance contemplate as far as when new products come into the international expansion or the international markets.
Yes, so that those guidance figures that I provided David our overall company guidance figures.
<unk> combined obviously ats embedded in that we do continue to believe that will grow at a faster rate than the <unk> business.
We haven't given specific color on how fast we expect it to grow but when I think about the opportunity there, we probably have nearly 25%.
The ACM market utilizing <unk>, maybe no more than 7% or so of market share in the.
<unk> opportunity. So there is tremendous runway and we continue to focus on positioning that product in a way that can get after it I do think there are some things we need to do on the product side to continue to to make it even more competitive in that space, but I think when you look at it the value of what you can get off of 14 days in that MCT space versus the traditional 30 day monitor.
Is superior with our product even in a less less number of days that where theyre sensing for us. So we've got to continue to educate and create awareness around that potential on the international side.
I think of international not as a significant driver of growth just yet obviously the only place we're doing any meaningful business. There right now is the U K and that's still in.
A hyper growth mode, but we're working through the scenario right now where we're trying to get put in place permanent reimbursement long term. So we're still working underneath that AI Award.
In that in that country now we have started to target the private sector as well, which will bring with it some nice growth, but I think it's more of a let's wait and see how that plays out versus get out ahead of ourselves with respect to those expectations I think longer term.
International is going to be a meaningful contributor to overall growth for the company, but the reality is most of that is going to be a market access effort opening up opportunities over the course of this year and in revenue probably doesn't really start to come from those efforts until the back half of 2023, most likely as we start to target new additional countries that were going.
Take the product into so I think for the year international is going to be not going to be a huge driver of growth, but there'll be a tremendous amount of opportunity going on there that sets it up for being a nice driver of growth into the future.
Okay. That's helpful. So I guess just to clarify the 20% plus growth or total blended growth for volumes not specifically because <unk>.
That's right.
Okay.
I guess just on the commercial front I know, you've always kind of talked about in the past how there is.
Thought that commercial payers may ultimately.
Just their rates based on what an NCD.
Rate comes out to be so if we think about.
<unk> and twin criteria from NCT, regardless of where that rate is our direction where that rate goes do you think that commercial payers at this point.
Would shift their rates toward a national coverage decision, whether it's one and a half or one to one five times out of CMS or do you think that commercial payers at this point.
We have determined the rates at which they would continue.
We continue to maintain on a go forward basis, just after the recent NPD.
Yes, My view is generally speaking the commercial payers understand the value of this product.
Consistently looked at this product differently once CMS or the Max had done historically now I do think CMS and the Macs are coming around to understand it differently than what they had historically and you hear that now and those conversations with those parties, where they will they will describe.
The <unk> product for example, as being very different than traditional holter monitor so we know that CMS and the Max of come around to look at this a little bit differently and I think the commercial payers have always sort of taken the position from the very beginning that.
Beginning that they see it differently and that's why you didn't see them.
Make any drastic reaction to the CMS or the Mac rates in the past.
They were clear that they thought that CMS and the Max would come around to see this in a different light and I think that's what we've seen.
I believe commercial payers again, they understand the value for what it is I don't see a lot of significant concerns around getting a national rate locked in and then seeing pressure on the commercial business.
Not the way the majority of those discussions are going are there are there are a couple of commercial payers, who are there who might pegged our rate directly to the CMS. There are but those are not significant volumes and significant payers for the most part and I feel like we've navigated that very well historically.
Other thing that I think is interesting and we'll spend more time talking about this into the future, but im not sure Theres a difference between the commercial rates and the CMS rate, maybe most folks anticipate there might be.
We've done a pretty good job I think of negotiating into a place where there's not the sort of risk that our investor profile might believe that sits out there, but we will spend more time around that in the future as we provide more clarity into the business.
Okay very helpful. Thanks, taking my questions.
Thank you. Our next question comes from the line of David Saxon Birmingham. Your line is now open.
Good afternoon, and thanks for taking the questions.
Maybe one on national pricing.
Clinton in the script you mentioned that you think CMS has enough information to establish national pricing. So just wondering since the $200 price that they came out with late last year was just an average of 10 and voices.
I guess are you aware of any additional invoices that have been submitted that could change that average price or are they relying upon those tenant invoices or perhaps are they changing there.
Approach.
Altogether.
Yes, I don't know that theyre changing their approach as I shared.
<unk> been interested in and going through the cost model that was presented to the Max by the third party that can consolidated.
That information so I know that discussion has has happened, but I don't I don't know that theyre changing their approach I don't have any information that would indicate they're going to change their approach I think it's just more corroborative of the sort of.
Place that they may be landing at and again I'm not going to speculate where that is but but it's encouraging to me that they are wanting to get all of this information together and learn as much as they can.
I have to believe there is more information being submitted to them as we speak we're certainly doing our part to engage with them and continue to articulate the value of our product and I'm sure every other player around the industry and who has a vested interest is probably doing the same thing, but I am not going to speak on their behalf on behalf of CMS, but I would expect that more information is coming in.
And to them.
Okay. That's helpful.
And then I guess, just with regards to the silent AF opportunity you've talked in the past about wanting to start the pilot.
<unk>.
So just wondering where they look something similar to what you did with Aetna and Scott and Ann.
Stops or would they be designed differently.
And then if I could just sneak a.
Third one in you mentioned getting into sleep apnea, and predictive stroke et cetera, any preliminary timelines you could share.
And whether that would leverage the <unk>.
Patch or watch or it would be a different form factor. Thanks, so much for taking the questions and congrats on the quarter.
Sure.
I'll ask Dan to step in and speak to silently up in some of the pilot work. That's been done there has been a terrific job leading this effort with him and his team and I'll, let him speak to that.
Yes. Thanks for the question David So first of all we're really pleased with progress.
Quintin mentioned, we have a great team behind this effort and we're making a lot of good progress in the market.
Question about what does it look like your.
Essentially right, it's essentially stopped in commercializing that type of program.
We've built a minimally viable product so to speak that that extends our capability beyond just the monitoring to the elements.
Patient identification patient engagement on the front end.
And then diagnosing and communicating with the patient on the back end so.
We're building out those capabilities and really pleased with progress there and we are in the market.
Actively actively selling those programs.
Hope to have a lot of positive updates to share as we go through the year.
And then just to close that out on the whole comment around predictive stroke.
Heart failure sleep apnea, those sort of adjacencies that.
Those are all in.
In my mind real potential opportunities for this company and others. There is work to be done around it and there are things that we're doing inside the organization right now to elevate the focus around these sort of things and make them larger priorities.
For us, but it's a bit too early to speak to exactly what that looks like but when you get into the data set that we have more than 4 billion hours of curated heartbeat data.
Sure.
Yes.
I think it's amazing what we're going to be able to find when you start to really dig through that data and put these sort of opportunities in front of the AI capability that the company has built its just a matter of focus so we will speak more to it in the future, but it is something youre going to hear us talk more and more about this is I believe five plus years into the future. The adjacent market opportunities are going to be something we're all.
Spending a lot of time talking about and realizing the benefit of them.
Okay.
Great. Thanks, so much.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from the line of Suraj Kalia from Oppenheimer <unk> Company. Your line is now open.
Hey, Quentin Doug can you help me all right.
We got you.
Perfect Congrats on the quarter So Clinton.
Couple of questions at least from my side as expected you have started talking about operational changes for long term profitability.
That's a welcome sign.
I have quite a bit.
Forgive me if I misunderstood that.
Read that you've talked about the back end right.
Does that imply the multi layer technician review is going to be obsolete it over time.
If so how do you manage type two errors that are inherent in any algorithm.
Yes, suraj thanks for the question.
I'm not trying to.
Indicate any real changes in that clinical oversight I think theres a lot of work we can do with the algorithms in terms of how we collate that data, how we group the data and who and how much spent time, we spend with them. It's clear that some reports come in with <unk>.
More issues associated with them that need to be dug into further and other reports of more clean and so the better we can do at grouping those sorts of of reports and making it more efficient for our technicians to work through those the more effective and efficient that we can become over time I do think when you look at the capability of our AI.
Capability. It is very clear and we've shown this back through the nature publication, a year or so ago that we can identify.
Identifying diagnosed afib equivalent to.
Expert personnel expert physicians and we've only improve that algorithm since we've introduced which means we start to move beyond that and so I do think the AI capability that we have here is there is truly unique in that it's leveraging 34 layers of deep neural network that that I don't think our competition can speak to so I think there is highly differentiate.
Good capability, there, but in terms of how it reduces oversight of the position we're not speaking.
The case, it's more about how it groups the reports and how we look at it in terms of driving efficiencies in the organization.
Got it.
Clinton one for you and one for Doug if I may and I'll drop back in queue.
Quintin you mentioned adjacent diseases right.
Such as <unk>.
Complications and stroke and whatnot.
I guess Anthony.
Patheon equipment I'll just pick on one rate sleep apnea resume did a pretty big study in <unk>.
Keep happening on a fifth correlation it failed.
And the question I have is what is that to the extent that you can talk about it now.
We're going to be doing differently.
Yes.
That hasn't been done so far.
How do you get paid for it and Doug if I could just throw in quickly.
What is the run rate at which you would expect I've rhythm.
Profitable.
All the operationalized changes that you're implementing obviously a few years down the line gentlemen, Thank you for taking my questions and congrats again.
Thanks for the questions Suraj.
I think with sleep apnea, there's still a lot to be learned in that particular space. We know there's $25 million plus patients in the U S who are impacted by this.
<unk>, what the reimbursement model would look like I think as work yet to be done.
What I do know and believed to be the potential is that as we continue to move further into the primary care space.
Start to afford yourself the opportunity to look for more and more things and since more and more capabilities and sleep apnea is one of those things that we think could be very appealing to be monitoring for identifying and that PCP space. We understand the challenges of getting into the sleep clinics today. The backlogs that are associated with it how ineffective.
It can be and the need for repeat visits back into those I believe theres, a real opportunity to sort of change the way diagnosis of sleep apnea is thought about and I believe.
The right attention resources work and effort behind it there are some interesting things we can do off of the patch that make it a realistic possibility and potential for us and so as we get up into those upstream channels I think we afford the ability to start to look for more things sleep apnea is one of those things that's interesting to us but exactly how it comes together those are all things that we.
Continue to have to work through and navigate through and reimbursement is one of them.
With that Doug I'll turn it to you.
Yes, Thanks Clinton.
So suraj.
Yeah.
I mean first one when you look at our guidance for this year and revenue is going to be increasing as we go through the year and gross margin is going to be increasing throughout the year. So we are going to be seeing leverage so you should be expecting that.
Will be.
At least around breakeven EBITDA in Q4 this year with these levels of pricing.
If not a slightly positive EBITDA in the fourth quarter, our adjusted each quarter of this year.
Okay.
Obviously.
We're not going to talk.
Nick volume run rate, where we get to a positive.
My comments on Q4 other than to say that.
It is of course dependent on where the final level of.
Oh.
Medicare pricing ends up landing.
Thank you for question.
Okay.
Our next.
Our next question comes from the line of Bill <unk> from Canaccord. Your line is now open.
Thanks, Thanks for taking my question a couple of kind of housekeeping questions here first.
Yes.
Doug on the Coa.
I think your commentary was that it was about 10% of revenue was that for the fourth quarter for all of 2021.
Okay.
Been running about that run rate.
Through Q2, Q3, and Q4, it was a little bit below.
On the first quarter.
Okay.
And then secondly.
I think your commentary that's something also on an increase in bad debt for the fourth quarter is that Steve is it delayed kind of submissions back in early in the year and is this something that we should expect to kind of hit.
Into the 2022 or is that pretty much all been cleaned up with us.
No.
Actually seen onetime good news on bad debt in Q3, and so Q4 bad debt was just returning to the normal expected levels.
Okay, and then lastly is it.
This may have been covered.
But as you commercialize you talk about the.
<unk>.
<unk> space and I know there were some questions on this but.
Has it been determined if youre going with the verily wearable or with the high rhythm zeal watch have you make a decision on which one you're going to go to market with or will it be two separate products going into the market or.
I apologize if that question's already been asked.
No no.
She has built that question has not been asked but our initial efforts are to go to market with the patch with our zeal patch, we're not going to wait for the watch itself. So we will launch some pilots here in the not too distant future that will utilize the the patch technology that we already have and then with a better form factor in the future we will drop that into these these programs as they get going.
So.
We're not going to hold up and wait around and we're very bullish on the opportunity here I think it's incredibly clear through the <unk> data and particularly just how valuable it is to get out there and start to monitor these broader populations and we know we can do that with the existing patch form.
Form factors so.
We're not going to wait on them.
Great. That's all I have thanks for taking my questions.
Thanks, Bob.
Yeah.
Thank you at this time I am showing no further questions I would like to turn the call back over to Quintin Blackboard for closing remarks.
Well. Thank you all for your time this evening as I close I want to thank each and every one of our incredible I rhythm employees 2021 was a year that presented the opportunity for many distractions over the course of the year yet the team is steadfast in their efforts to help as many people as possible and we once again saw record numbers of new patients.
And their lives changed as a result of our best in class technology. This would not have been possible without the wonderful people who are here with.
With that we appreciate your interest in a rhythm and we look forward to speaking with you all again soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yeah.
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