Q3 2022 iRhythm Technologies Inc Earnings Call
Inc, Q3, 2022 earnings conference call.
My name is Elliot and I'll be coordinating your call today.
If you would like to register a question during the presentation you may do so by pressing star followed by one on your telephone keypad.
I'd now like to hand over to Stephanie Stephanie <unk> director of Investor Relations. The floor is yours. Please go ahead.
Thank you all for participating in today's call.
Earlier today, either them released financial results for the third quarter ended September 32022.
Before we begin I would like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws pursuant to the Safe Harbor provision of the private Securities Litigation Reform Act of 1095.
Statements contained on this call that are not statements of historical fact may be deemed to be forward looking statements.
Based upon our current estimates.
These assumptions and reflect management's intentions beliefs and expectations about future events strategies competition products operating plans and performance.
These statements involve risks and uncertainties that could cause actual results or events materially differ from those anticipated or implied by these forward looking statements.
You should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent annual and quarterly reports on Form 10-K, and Form 10-Q, respectively filed with the Securities and Exchange Commission.
Also during the call we will discuss certain financial measures that have not been prepared in accordance with U S. GAAP with respect to our non-GAAP and cash based results, including adjusted EBITDA adjusted operating expenses and adjusted net loss.
Unless otherwise noted all references to financial metrics are presented on a non-GAAP basis.
The presentation of this additional information should not be considered in isolation of as a substitute for or superior to results prepared in accordance with GAAP.
Please refer to the tables in our earnings release and 10-Q for a reconciliation of these measures that are most directly comparable GAAP financial measures.
This conference call contains time sensitive information and is accurate only as of the live broadcast today November one 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.
And with that I'll turn the call over to Quentin Blackford, our rhythm as president and CEO .
Thank you Stephanie good afternoon, and thank you all for joining US right, Bob <unk>, Our Chief Financial Officer, Doug <unk>, Our Chief operating Officer, and Dan Wilson EVP of corporate strategy and development joining me on today's call.
My prepared remarks today cover progress we've made during the third quarter of 2022 and discuss the near term growth initiatives for our business.
And then turn the call over to Brian to provide a detailed review of our third quarter financial results.
Third quarter results demonstrated steady growth with revenues, increasing 22% year over year and were up 2% on a sequential basis.
As anticipated the typical seasonal slowdowns in the summer months and ongoing staffing challenges impacted registration volumes.
Despite this registration volumes were up 22% year over year, our strongest registration growth of the year and were up 3% on a sequential basis stock.
Soft volumes in the early part of the quarter lasted longer than anticipated into August , but we saw a nice pickup in September where daily registrations were the highest in the company's history.
Despite the encouraging registration performance, we continue to experience ongoing staffing challenges and capacity issues at our customer accounts.
That impacted volumes. Furthermore, we saw a lower percentage of returned devices, which is what allows us to provide our services and recognize revenue.
Within the quarter our rate of received devices was 1% to two percentage points lower than our historical averages primarily driven by staffing and capacity challenges, resulting in patients, leaving the office with the packaged device to be apply to AUM.
We've seen that received device rate trends back towards historic rates, but it continued to be lower than prior experience and drove softer revenue realization in the quarter.
While we are disappointed that our third quarter results fell below our expectations. We remain encouraged by the health of the business.
Demand for yield service as demonstrated by our healthy registration rates.
On the pricing front, we anticipate the publication of the CMS Medicare physician fee schedule for calendar year 2023 that could contain payment rates for the two main CPT code sets related to long term continued ECG monitoring and recording that we used to seek reimbursement for the <unk> service.
Following the proposed rule released in July 2022, there was a public comment period that ran through early September 2022, during which we fully participated in the rule, making process to share relevant information at CMS potentially finalized its rates for calendar year 2023, we.
We hope to be able to share news on this front very soon.
Turning to the progress we've made in raising awareness and target international markets. In late August we attended the European Society of cardiology or ESC to support data presented on the AI Awards evaluation with two internationally renowned U K institutions.
This is the Premier Cardiology conference in Europe , and we were encouraged by the positive reception of these data points that effectively demonstrated the operational value of zero in real world settings.
Data presented by clinicians from Liverpool Heart and chest hospital showed that <unk> had an arrhythmia detection rate nearly three times greater than that of traditional holter monitoring.
<unk> also resulted in faster turnaround times.
Five fewer days compared to the traditional holter monitors.
And was associated with dramatically reduced outpatient appointments by nearly 20%.
Data presented by clinicians from Barts Health NHS Trust also showcase the efficiency and accuracy of the yield service demonstrating improved clinical workflows to save them time during management of their stroke patients.
Coupling this newly presented data with national guidance for <unk> with its first of its kind with nice we are confident that our services provide clinicians with the accuracy needed to diagnose patients more efficiently and effectively at scale.
<unk> is an ideal solution for these hospitals to get results faster improve patient management and release resources for hospital systems and supportive of a more sustainable cardiac monitoring service.
We look forward to receiving additional data from our other AI word evaluation site.
<unk> in due course.
Also on the clinical innovation front, we presented at the Heart Rhythm Society for digital Health or HR Act in September which was a new meeting for us in alignment with our increasing focus on digital health and AI innovation.
This allowed us to highlight our unique platform that represents a competitive advantage within the ambulatory cardiac monitoring marketplace.
Data retrospectively analyzed for more than 10000 patients with CPP indication demonstrated how artificial intelligence using our monitor could identify clinically actionable arrhythmias in this patient population.
Putting afib pause and atrial and ventricular blocked that required physician notification.
This study also identifies the relationship between Afib burden and pause episodes patient.
Patients with a lower afib burden had fewer pauses, but have longer duration.
As patients with the history of syncope or at a high risk for sudden death, and a reported one year mortality rate of approximately 30% <unk>.
Identification of arrhythmia is in this patient population it is critical for timely diagnosis and potentially lifesaving interventions.
We are excited to be able to present data such as these as we continue to advance our AI and algorithms within the Geo service platform.
Lastly, we are excited to have a significant presence at this coming weekend Aea conference in Chicago, Illinois, which has historically been one of our biggest clinical data meetings of the year. We look forward to sharing the data with you in the week ahead, ensuring a steady cadence of data over the coming months in accordance with our dedication to bringing innovative solutions to our patients and our customer.
Great.
Before turning to Bryce I'd like to address the change in revenue guidance.
While we were pleased with registration growth in the third quarter and expect that growth rate to remain steady into the fourth quarter. We did reduce the revenue outlook for the full year.
We now expect revenue to range from $407 million to $411 million or growth of approximately 26% to 27% year over year down from prior guidance of 29% to 30% growth.
As noted earlier, our received device right, which is what allows us to provide our services and recognize revenue with lower than expected in the third quarter, we continued to be a bit lower than historic averages, resulting in a reduction to our full year expectations.
The ongoing reduced received device rate is primarily being driven by physician practices that are having patients leave the office with the device in the box to be a fight at home to address capacity challenges.
In addition, while registration volumes are expected to step up in Q4.
Tapping and capacity challenges and physician accounts are negatively impacting the rate of volume growth.
Within the month of October we saw several meaningful new accounts, beginning to do business with IRA them to further all onboarding efforts to late in the quarter as a result of staffing challenges.
We continue to be bullish with respect to the momentum that we're making with key accounts in the marketplace, but these staffing challenges are impacting our pace of progress.
Finally coming into the fourth quarter, we voluntarily issued a customer advisory notice to our customers.
We have updated language related to the precautions in the clinical reference.
Daniel and important information pamphlet as it relates to the <unk>.
Patient registration process.
Patient and other trigger transmission limits.
From experience. These types of customer notices are relatively common in the life sciences space for which we do not expect the long term impact to the company.
However, we have seen reduced growth with <unk> within the fourth quarter to date.
With the customer advisory notice and based on other considerations discussed we have adjusted our forecast for the quarter to grow closer to approximately 20%.
Which is a step down from the upper 40% growth we had seen through the first nine months of the year.
While disappointed in reducing our full year revenue outlook, we continue to be encouraged by the underlying momentum that is growing in our business and our ability to overcome these headwinds.
Our fourth quarter guidance implies strong year over year registration growth and revenue growth well north of 30% our strongest quarter of the year.
We remain confident in the long term growth trajectory of the HCM market and our ability to capture share we.
We see significant runway for growth within our core markets that we serve today as we continue to ship the standard of care to deal and we are committed to developing and implementing innovative solutions throughout all areas of the business to capitalize on the sizable market opportunities ahead of us.
As highlighted during our Investor day, we continue to invest in our mid and long term initiatives that will leverage our technology platform and new geographies and across new markets.
We look forward to sharing more of our progress in the future.
I'll now turn the call over to Greg to discuss our financials.
Thanks Clinton as mentioned third quarter results demonstrated steady growth in our core business as revenue grew to $103 9 million, representing 22% year over year, and 2% quarter over quarter growth.
Despite staffing shortages that customer accounts, we still saw substantial growth in account openings during the quarter.
New accounts onboard and declined slightly in the third quarter compared to the second quarter, but the absolute number of new accounts opened was still the second highest in the company's history with seasonal drop was in line with historic norms observed pre pandemic was significantly improved compared to 2021 looking at new store same store mix new stores defined as accounts that have been opened for <unk>.
Less than 12 months accounted for approximately half of our year over year growth.
This was up from 38% in the second quarter of 2022 <unk>.
Home enrollment was about 20% of volume in the third quarter, approximately flat compared to the second quarter.
Turning to the rest of the P&L gross margin for the third quarter was 68, 3% a 50 basis point decrease in gross margin in the second quarter, and 68, 8% and a 260 basis point improvement from the third quarter of 2021 at 65, 7%.
The sequential decline was primarily driven by lost inventory associated with the reduced device return rate while year over year benefits of between achieved primarily through <unk> improvement as we continue to optimize our pricing strategy.
Third quarter adjusted operating expenses were $89 7 million down 4% from the second quarter and up 13% year over year as we start to see the business become more disciplined with spec as previously communicated our investments remained strong in R&D, while we begin to create efficiencies in our SG&A profile. Please note we did incur approximately two.
$3 million of expenses related to business transformation activities in the quarter.
Net loss was $21 5 million or a loss of 71 per share versus a net loss of $23 9 million or <unk> 80 per share in the second quarter of 2022. This compares to a loss of 81 per share or 10% improvement versus the same period of 2021.
Adjusted EBITDA, which excludes depreciation amortization share based compensation and business transformation charges was negative $2 6 million during the third quarter. This represents an improvement of $2 3 million compared to the second quarter of 2022, and an improvement of $6 1 million compared to the third quarter of 2021, adjusted EBITDA margin of minus.
Two 5% was the highest of the year and a 770 basis point improvement over the prior year driven by efficiencies incurred in gross margin as well as improved operating leverage.
Liquidity remains strong with cash and short term investments of $203 5 million at the end of Q3, which will allow for continued investment in our growth initiatives.
Turning to guidance for the remainder of 2022 as Quintin previously mentioned, our full year revenue is expected to range between 407 and $411 million, reflecting year over year growth of 26% to 27%. This reflects sequential fourth quarter revenue increase of between 5% to 9% in line with historical pre pandemic.
Trends.
On progress made related to our cost initiatives and operating discipline within the business. We are maintaining gross margin guidance with a range between approximately 68% and 69% and reducing anticipated adjusted operating expenses to range between approximately 360 and $365 million.
We expect full year 2022, adjusted EBITDA to range between negative 10, and negative $12 million as we continue to anticipate adjusted EBITDA breakeven or better in the fourth quarter. This reflects an improvement of approximately 850 basis points at the midpoint year over year as a reminder, adjusted EBITDA excludes restructuring cost and track.
Information costs and will continue to exclude stock based compensation expense with that I would like to turn it back over to <unk> for some closing remarks.
Before I turn it over to Q&A I'd like to highlight our confidence in Ireland sustainable growth model for which we are building the foundation.
Our core business strengths are still very much intact and our long term investment thesis is that is that impact as ever.
While the reduction in revenue expectations for this year is disappointing we see strong demand for the deal service, despite a difficult macroeconomic environment.
The clinical evidence that we continue to generate and our pipeline of innovation to continue at a healthy pace. We are very excited about the upcoming commercial launch of the monitor that is in the middle of a market evaluation is showing encouraging signs of positive impact for patient compliance.
We look forward to enhancing our product to grow our market share in the MCT space and I am pleased with the progress that we continue to make in terms of operational discipline, driving rigor and process into the organization to scale for the business of tomorrow.
Bright Doug Dan and I would like to now open the call for questions.
Later.
Thank you.
Ask a question. Please press star followed by one on your Telecom Chief I don't know if you changed your mind. Please press star followed by <unk>.
When Brian asked your question. Please ensure your devices on mute locally.
Our first question comes from Margaret Kaczor from William Blair. Your line is open.
Hey, everyone. Thanks for taking the question.
Wanted to start with guidance, maybe we're seeing the $8 million roughly decrease at the midpoint.
And I think it's relative to our numbers, we saw $2 million lower number this quarter. So can you walk us through the individual impacts returned devices versus account staffing versus just kind of utilization declines, especially as it relates to Q4.
Yeah, So mark.
This is Quentin here I think we were a bit short in Q3 of our own expectations call. It 1 million and a half to $2 million about $6 million in the fourth quarter.
Really three buckets that you've identified and I would attribute.
The majority of this to the staffing and capacity challenges that we're seeing.
In many respects you appreciate the fact that we've got a product that works well.
In an environment, where capacity is constrained in being able to take the product home with the patient.
However, what we experienced in that scenario is the lower return device right. It becomes more comparable to our home enrollment program to be honest with you.
I think there are some things that we can do with that to address it for example in the home enrollment program that's.
That's a different SKU, where we provide greater information to the patient on how to apply the device we have incremental video links that.
And they can they can watch to help inform them as well as from an operational perspective, we will proactively reach out and make phone calls to the patient to make sure. They.
Put the device on replied to device.
When a physician gives the patient the device in the clinic and tabs and take it home to apply it.
Not necessarily engaged in those behaviors, because we weren't aware of it.
I think as we're becoming aware, but we can begin to address it more aggressively into the future, but when you think about the impact on guidance in the quarter and the <unk>.
<unk> fourth quarter in particular, I think about it it's roughly a $1 million or so from the received device right just being a bit lower than what we've historically seen.
The capacity challenges with respect to Onboarding new accounts.
We had a handful of new accounts in October .
<unk> began to use product with us, but deferred their full system implementation until late in the quarter around the December timeframe when capacities begin to open up a bit I think that's somewhere around the $2 million impact in the quarters, how we've sort of size that up.
And then the additional one is the.
Customer advisory notice, we've been growing that business right around.
Call it the upper 40, nearly 50% through the first nine months of the year.
Here through the first part of the fourth quarter in October we're seeing that growth rate closer to 20% I think that's about a three $5 million to $4 million impact on our fourth quarter.
Our revised guidance is that we're seeing that play through.
We will see the ability to address that as we work.
The advisory noticed into the form of packaging and labeling.
And the build out.
You should notice ultimately will end up going away then I think it becomes less of a headwind but here in the near term we are seeing that impact. So those are the impacts of guidance.
The reduced guidance okay. Thanks.
And then.
Obviously the next question then becomes that Youre seeing these persistent to Q4, how do we adjust this for 23 without you, giving too much guidance, obviously, but can those national accounts, maybe that you're onboarding and they still have capacity issues should we assume that I guess isn't going into Q1 and beyond.
Any way that you could kind of help us.
Figure out that numerically again.
Sure I understand the question.
I think the the new account Onboarding there.
They are beginning to use the product. This is the full system wide implementation has been deferred.
Set out until that December timeframe when capacity generally will open up I mean, what happens is November is far and away. The most heavy months of the year in terms of.
Yeah.
Office visits patients into the physician's office application of the device that usually will step down a bit into December . So I do believe these accounts to see that.
Our scheduling and they're willing to then go forward with the full system implementation late in the quarter site.
This is more of a near term impact certainly on the <unk>.
Syed I think like I said once we get that.
Packaging and updated the labeling updated the field action notice starts to subside I don't think it becomes nearly as big of a headwind what youre seeing in that business as our core accounts that are using continue to use it very nicely, but like I said, we're up 20%.
Despite this headwind, but it's the new accounts on boarding.
As you begin to address those accounts he talks through the value of <unk>.
There is a build advisory notice involved as well it does it gives them a bit of.
Delay in and bringing the product onboard. So I think we will work through that in the near term, but it is going to be an impact in the fourth quarter.
As a reminder, so ask any further questions. Please press star followed by one on your telephone keypad now.
Today, we ask you limit yourself to one question and one follow up thank you.
Return to Allen Gong from Jpmorgan. Your line is open.
Yes.
Hi team thanks for taking the question.
Just kind of diving deeper into the shortfall in the quarter, specifically I think a question that a lot of investors have is you hosted your analyst day near the tail end of September and why you didn't provide a concrete guidance update I think.
Okay.
A lot of investors kind of got the impression.
The quarter was basically progressing as you had expected with some challenges from staffing.
And capacity constraints, but we didn't hear anything about this return dynamics. So I guess what changed between the analyst day and at the end of the quarter was it really that pronouncement impact or was it something that had just to kind of built up over the course of the quarter and wound up being a bit more severe than expected.
Yes.
If you go back to our Investor day.
Coming into that day, if you recall evening with our earnings call back in early part of August we did talk about a bit of a softness with July and August .
We have reflected in our results and that lasted a little bit further into August , but not not that much further that begin to come back in line.
Some of our Investor Day September was performing very very well as a matter of fact September was a record month for us during the course of the quarter, we were at nearly 30%.
Daily average growth in our registration volume. So we were seeing very bullish results at the time of our Investor day, and while we do that the return device rate was a bit lower than what we had historically seen it was beginning to come back in line with historic trends. The trend line was moving back in the right direction.
So coupled the fact that we saw incredibly strong registration growth in the month of September and that received device rate beginning that depend back towards what we've seen historically, we felt good with respect to the full year number than where we were at we felt very strong, particularly with respect to the strong registrations and if you look at the month or sorry in the quarter itself.
Registration volumes were up roughly 3%. Despite the fact that we have given color in our guidance that we thought volumes to be roughly flat sequentially from Q2 to Q3. So registration volumes were actually ahead of where we thought it's the received the bit's rate that came in a bit lower than what we anticipated.
At the time of Investor Day, we absolutely felt like we were going to be able to recover that over the course of the fourth quarter and for the full year would be just fine unfortunate. We've got into October we didn't see that that received device rate closed all the way back down to historic levels and there continues to be a bit of a gap. There. So that was that was what we did not have visibility to at the time of the Investor day and.
And have realized beyond that that it's a bit of the changing behaviors and the physician offices, we're seeing clinic, they're sending their patients home with the device that was not something that we had fully expected or anticipated at that point.
Got it and then just as a quick follow up offsetting a little bit of a softer top line. We're obviously seeing you cut operating spend by I would say that was always the stated goal of yours, but I think a little bit of a sharper cut than we were expecting so early especially as.
It appears that there is still.
So much room for growth, so I guess to address investor concern that maybe the balance of operating spend cutting and focus on the top line is something that might need to take a look at like what do you have to say to this.
Softer quarter. This after guide in the SG&A reduction.
A reduction.
I think from a spending perspective, theres nothing unique or different there that we've done in response necessarily to the top line, it's continuing to be very disciplined with how we make the investments into the business and how we structure the organization for future success, we're as bullish as we've ever been around the opportunities to open new markets.
Adjacent markets, whether Thats international.
No silent AF getting into some of the other adjacencies like sleep hypertension that we mentioned at our Investor day or the know your rhythm program. We continue to make all of those investments as a matter of fact.
And our implied.
Fourth quarter guidance, Youre going to see spending step up a bit from Q3 levels. So we continue to make the investments. This is being very thoughtful around those sort of things and where we can bring more discipline into the organization to be more efficient with how we spend our dollars are how we transact our volumes, we're going to make sure we do that and I think.
And that's something that we're committed to not only here in 2022, but out over the next five years in terms of the long term horizon that we laid out for you at our Investor day. So I think you're just seeing the benefits of that flow through nothing unusual that we're.
We're reacting to differently in the business right now.
We now turn to Cecilia furlong from Morgan Stanley . Your line is open.
Okay. Good afternoon, and thank you for taking my questions I wanted to start just with the device to see rate that you talked about how does this compare with home enrollment as you think about <unk>.
In a continued environment that we're in.
Experiencing today, just how youre going to target those patients to.
Increase the rate of return sang park.
Yes, sure our home enrollment received device rate is usually about two to three times.
Lower than where we're at on.
The in clinic received device right.
And that's something that we've been able to favorably impact over the.
Past 12 to 18 months, particularly as we think about better ways to inform those patients with respect to how to apply the device.
Putting a phone call out to those home enrollment patients to ensure that they actually do apply the device.
These are things that we've done in the home enrollment space. There are several things that we've done there that we can take them to begin to do with the in clinic.
<unk> as well.
The same.
Product itself, it's just there's more informational materials that we provide in the home enrollment program that we can provide in clinic and we'll begin to do that very quickly.
As well the one thing that if we're working with the clinics that we understand theyre, sending the clinics for the clinics are sending the patient's home with the devices, which.
We are now becoming very aware of where those clinics to wrap because in many cases at the clinic wide sort of decision our system wide decision, where theyre doing it in all of their clinics. We can begin to make those outbound phone calls to the patients as well to ensure that they put the device on so.
What we essentially have right now it's sort of a hybrid model between the in clinic and the home enrollment.
<unk> device right with these folks is it's better than home enrollment, but at a couple of points below where we've seen in clinic.
We can impact that as we move into the future, but here in the early part of the quarter, we certainly have seen the impact of it.
Putting that in the updated guidance.
Okay helpful and also I just wanted to follow up and you had talked about for the back half of the year shifting volume to NGF the benefit from an ASP standpoint.
Add to that can you just walk through what you saw in <unk>, how you are thinking about for Q.
Does it look like.
The rates were finalized nationally.
I realize it just occurred but just would love your high level thoughts on national pricing from CMS and thank you for taking the question.
Sure. So from an NGL perspective, we still believe the full year impact right around that $7 million impact is the right way to think about it with respect to Q3, we came pretty close to the $3 $5 million that we expected we were just a bit shy, but it wasn't material in any way.
And for the full year $7 million is still the right way to think about it with respect to the final rates I know the OMB had released.
Their approval I haven't seen the final rates just yet we expected that we would have seen them.
Either last night after market or this evening I have not seen them yet as soon as we have the opportunity to run those through our models and evaluate the impact we certainly will put out some comments around the market.
Particularly if it's any meaningful movement off of the proposed rule, but I have not seen those yet.
Okay, great. Thank you for taking my questions.
We now turn to David <unk> from <unk> Securities. Your line is open.
Hey, guys. Thanks for taking the questions I guess looking out to 'twenty 'twenty, three and kind of following up on a prior question.
At the Analyst day, you had outlined the five year growth strategy of 20%.
It would be linear over that five year timeframe and at the time of the analyst day, I think consensus estimates pretty much had us at 20% growth or had consensus growth estimates of 20% into 2023. So just wondering given the lowered guide when youre thinking about next year do you think that this kind of 20 year of 20%.
Both on the topline is something thats more reflective of the lower guide or do you think that perhaps the initial guidance you gave or the initial.
I thought that you gave on 20% growth at the time is more reflective of what you're thinking for next year perhaps.
Yes, we're not going to speak to 2023, just yet I still feel very good with the long term plan that we put out there and the ability to grow at 20% over that planning horizon, nothing changes my perspective in and around that at all.
As I said earlier I am very excited to get the yield monitor into the marketplace next year, we know from market evaluation.
Received device right on that Youll monitor is meaningfully better than what we've seen with <unk>, both in clinic or home enrollment.
So I am excited to get that out there I think we can address some of these.
Near term shorter term challenges with that product likewise, youre going to see us continue to innovate on the <unk> side.
We continue to work with that product I would expect we'll submit with the FDA in 2023.
<unk> version of <unk>, 80, or <unk> and that continues to close some of the competitive gaps I think positions us really well for growth in that MCT space, but I'm not going to speak to the 23 at this point in time I think that's something that as we get through the quarter and head into next year, obviously, we'll give our thoughts around it but long term I don't I don't have any concern with the long term.
Growth horizon that we put out there in the 20%.
Target that we noted.
Okay, and then I guess just on the commercial side I know in the past couple of years Q.
Q3 timeframe.
Typically talked about how our commercial payors will either.
Negotiate providentially notified the company around this time, if there is any significant material changes toward their expectations for reimbursement.
The forward looking year, So just wondering where you stand base.
Based on the new conversations with commercial payers, how we should be thinking about commercial rates in Q2 2023.
Yes, I think at this point, there's no new news to share there around the commercial payer negotiations I would say all are moving right down the path of how we would expect them par for the course.
Certainly nothing there that would give us any indication that we're going to see something different flowing into 2023 than what we've seen historically, so I think that low single digit sort of pricing pressure in the commercial business is the right way to think about it.
If we see anything different in the business will be sure to note that but based upon conversations we've had to date and to your point those are conversations we'd be having around right now as we begin to think about 2023. There is nothing there that gives us any concern at all in the commercial side.
Okay. Thank you.
We now turn to Joanna <unk> from Citibank Your line is open.
Good evening and thank you for taking the questions.
I'm curious about something.
Why do you think the staffing issues now passing the return rate because we've been having staffing issue for about a year.
And I don't know what <unk> a key.
Field.
Service or issue was if you could just refresh on that and then on the same bucket is there anything else like that.
Salesforce turnover shifting competition.
Physicians waiting for final CMS approval anything else that maybe left Iraq and I'll make sure that that's not happening.
Yeah.
Sure Joanne.
I think to that point Q.
Q3 was far and away our strongest growth rate in registrations year over year that we've seen all year long and September was by far our strongest month, but keep in mind registration volumes were up 22% in the third quarter compared to roughly 11% to 12% in the first half of the year. So we saw a meaningful uptick in our registration volumes in the third quarter.
And I expect that that would be very steady into the fourth quarter. So I don't see this as being any competitive dynamic in the marketplace. We certainly have not seen that in the market analytics that we're doing we haven't heard that in any of the competitive commentary around this space, either and certainly our data points with the strength and the momentum that is building in the registration.
Those would indicate that this is not a competitive dynamic it's simply with the growth the volume.
Growth in these accounts they are capacity constrained from a staffing perspective.
And I think when you look at.
The seasonal nature of the business September always steps up October will generally step up from there and then November is the heaviest month of the year I think it is.
Accounts are seeing incremental volumes come into the account they are trying to find ways to navigate through it to be able to meet with all of those patients and they are struggling.
The thing that they identify with our product is look we can easily have the AUM you can apply it at home and it saves time in the clinic I believe that's what Youre seeing and Thats certainly the feedback we've heard from the numerous number of accounts, we have begun to enact this sort of practice with our device. So on the one hand.
I appreciate the fact that we've got.
A model that can work very well to help create capacity and improve efficiencies in the offices of these positions, but at the same time, we've got to make some tweaks or better inform our our customers to improve that received the base rate, but I think what youre seeing over the course of the summer into the late part of the summer here into the early part of fourth quarter.
Or is this volumes continue to grow in these these accounts are there.
Are there constraints, they're having challenges from a staffing perspective to keep up with it.
Thank you.
Our next question comes from David Saxon from Needham Your line is open.
Yeah, Hi, good afternoon, and thanks for taking my questions.
I hate to beat a dead horse, but I think I will.
The PCP channel is somewhat of a newer market for I rhythms. So I just wanted to ask if there's any link between the lower return rates and prescriptions done in that PCP channel or if it's really just purely a staffing issue at all accounts.
Yes, it's not specific to primary care, we certainly have looked at that pretty closely.
It's more specifically tied to some of these larger national accounts national groups, which have made a decision overall can push down into all of their clinics sort of.
Send the device home or a hybrid of a home enrollment in clinic sort of setup. So nothing in particular to primary care.
I will note.
Two of the last three quarters.
So Q2 was an all time record quarter for us in terms of new accounts Onboarding Q3 was our second largest quarter in the history of the company. We continue to see good momentum primary care continues to be a big contributor to the new account openings, but.
But we're not seeing a difference in sort of that in clinical home enrollment.
Aspect with the primary care versus our tradition.
Okay got it.
And then I think cost effectiveness data for and stops should be at IHA. This weekend. Just wondering if you can use that data when going out and selling the know your rhythm campaign.
I guess, the 23 schedules out but longer term do you think this economic <unk> piece fits into kind of a broader reimbursement conversation going forward. Thanks, so much.
Yes.
Without question I think it absolutely will have we look forward to seeing the final data as it gets published and I think it absolutely is going to be some information that's going to be very useful as we continue to articulate the value associated.
Associated with proactively monitoring patients and so.
Yes, I think absolutely going to be something that will be utilized.
But nicely.
We now turn to bill from mechanic.
Your line is open.
Great. Thanks, Good evening, Thanks for taking my question.
I wanted to circle back on the question of just the relationship between the revenue slowdown.
The implementation of the operating expense efficiency improvement efforts have you looked at the correlation there is there a correlation and then you mentioned a couple of new products May help you overcome.
Some of the challenges you are facing today in terms of going into <unk> on the zeal monitor and.
Approval in <unk>.
I was wondering if you maybe could provide us with maybe a little more granularity on the timing of those E. <unk> monitor going early 2023, and then mid 'twenty three or how should we think about them coming in for full launch. Thanks.
Yes, I'm going to jump in on the guidance here are some thoughts there again, we haven't changed anything specific to what we've seen with the reduced revenue expectations here in the near term I think it's more of a near term impact that we'll navigate through but we havent change things from a spending but.
I just feel free to share your thoughts and then I'll hit the new product timing and cadence Yeah, Bill just to Echo Quaintance commentary there nothing has changed materially in the way we are investing in the business and where we're ultimately driving long term growth.
Most of this is playing through with efficiencies that we've been putting in.
To the company for the last several quarters and we're seeing it play through the numbers I would say.
Mass majority of the benefit we're seeing in the reduced operating expenses coming from that SG&A side, primarily in the G&A front. So the investments are being made into R&D and sales and marketing just as we would've expected, we're just creating efficiency within the business in a different level of I.
I guess rigor on.
Managing operating expenses.
And with respect to the timing of the new products built via monitors and market evaluation as we speak so with that in the market in very limited ways I will note that.
The complete patient compliance and a receipt device right on that deal monitors.
Noticeably higher than what we're seeing with <unk> I think a lot of that comes back to the smaller form factor just the variability aspect of it as a better experience, but we're excited to get that out I would expect to see that launch more fully sort of in the mid year timeframe of 'twenty three you'll hear more and more about it as we come into that with respect to <unk>.
T.
There's quite a bit that we're doing there to really enhance that product and that's something that we'll get on file with the FDA in.
In 2023, and I would expect that's more of an early 24 sort of.
Market introduction that we think about that.
And then can you I think there is $2 3 million of charges in the quarter.
Can you just kind of clarify what that was for.
Yeah I'll take that.
That's really for costs, we've incurred as we're as we're planning on the globalization of the organization and looking for opportunities to create efficiency down the P&L.
It's working on the plan to ultimately be able to execute as we move into 'twenty three and beyond.
Was that head count reductions was an investment in it.
Can you help me out a bit.
Yes, it's a bit of.
Head count related or structural considerations around how we set the organization up for the ability to think about it.
Offshore outsourcing those sort of things where.
We can complement the organization to make sure that we can grow more effectively and efficiently at scale, but it's really transforming the organization that way.
Thank you.
We now turn to Suraj Kalia from Oppenheimer. Your line is open.
Yeah.
Good afternoon, everyone can you hear me alright.
We got you.
Perfect.
So.
I know everyone is because.
Delay in returning to scripts to death, so I'll stay away from that.
Longer term Quentin if you look at the 20% CAGR that you mentioned on the Investor day.
What percentage do you think comes from.
Zero monitor versus <unk> versus new channel versus new indications I guess, just trying to understand how should we start stress testing some of these some of these.
<unk> and at the same time, maybe Doug or someone else if I could just throw Detroit in the 50% year over year growth and new store sales can you just help us understand what new store how do you define that thank you for taking my question.
So I think in terms of long term comps.
Completion of growth towards that 20% I think you're going to continue to see that business grow in the mid to upper teens, and then youre going to get a nice complement from the <unk> business as we close the.
The gap in terms of the market share that we have in our equity business I believe we can see.
<unk> represented sort of market share in the <unk> business within that MCT space over time, as well, particularly as we continue to evolve that product line and then youre going to get some nice contribution from international coming in those outer outer periods also so that's the way I think about it.
The question of the 20% growth over time.
Doug feel free to speak to the.
Incremental new volume growth or price.
Either one.
Yes, I'll take it so pacer off so.
The incremental volume growth related to new accounts is really those accounts that have been opened for less than 12 months and how much they're contributing to the overall growth rate. So what we mentioned was is it accelerated in Q3 versus Q2, it's about half of the of the gross who have came from existing accounts and half came from those accounts that we deem to be new which.
Open for less than 12 months 12 months.
Let me now turn to micro Polack from Wolfe Research Your line is open.
Hey, good evening I, just wanted to understand on the device return rate commentary I heard some conflicting.
Disclosures.
What is what is the delta between home enrollment and in office I heard two to three X, but I think that just feels high is it two to three points.
Just kind of framing that variance and then we're kind of.
Home discharge from office assets I appreciate the clarification.
Sure. So the home enrollment is about two to three times higher than what we see with the in clinic applications are just reaffirming that.
The language I used earlier that is the right way to think about it okay.
Two to three X.
Right.
I think part of it is.
<unk>.
Of loss on that.
Returned device right. It's a couple two to three times higher than that if it's home enrollment.
And then the in clinic.
Sort of a hybrid that we're I guess, we're sort of explaining now which is you get the device in the clinic office and you're set home to apply it and we're seeing a couple of points higher than our in clinic right. At this point in time. So that's a couple of points versus two to three times hopefully that's clear.
Yeah.
What is ballpark.
In clinic return radar, we are at <unk> 95 per center.
Where is that number.
You know better than that.
It's a couple of points.
Got it okay, Okay I understand sorry.
It's to triangulate there.
And then my second topic.
And I'm not I can't tell us. This is this relevant if it matters. So I'm interested in your perspective, but no VITAS is open the review of its LCD for cardiac monitoring defined broadly I think they are consolidating some articles from themselves and from their sister organization and they used a sentence to describe.
Why they're doing this that kind of was unusual ongoing ongoing claims analysis indicates average utilization of cardiac monitoring services and so I'm. Just curious what do you think is going on here what are they looking at what are they hoping to accomplish them.
Yeah.
Over what time horizon like you have.
Visibility into the change in there.
Coverage policy.
Thanks for taking the questions.
Yes.
Mike specific to that I can tell you there's nothing that we've been engaged with tiered IRA them directly with <unk> in and around that so I wouldn't read into anything there and certainly I couldnt provide you any more color in terms of trying to understand better what they might mean by it because we have not been engaged with them and working through any of this I would also just keep in mind we've.
We've seen volumes moving away from <unk> over the course of the year is as we had Max begin to contract with us and other regions Chicago in particular.
One of those that we've talked about over the course of the year. So our volumes with no the costs have not been nearly as prevalent as what they have been historically, particularly with our mix. So.
There's nothing specific I rhythm that I could refer to I think all of these macs have their normal process. They worked through each and every year I think that this is just part of them updating their their language or their guidelines, but theres nothing specific that I rhythm that I could refer you to or even speak to.
As they did not engage with us in any way around that.
This concludes our Q&A I'll now hand over to the management team for final remarks.
Terrific well I'd like to thank you for joining us on today's call while disappointed with the reduction in our full year revenue expectations I am pleased with the progress that we're making in the business as well as the increasing momentum that we're seeing in our <unk> business. We've continued to make great strides over the course of the year on the profitability front, resulting in the improved earnings outlook.
Late today, we view the impacts of the returned reduced return device rates in our <unk> business as near term headwinds that we will navigate through and remain confident in the long term trajectory of the business.
Thank you for your time.
Today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Okay.
Sure.