Q4 2022 iRhythm Technologies Inc Earnings Call
Form factor in the back half of 2023 as.
As a reminder, this new patch with 72% smaller, 55% lighter and 20% thinner than our existing <unk> form factor all of which we believe is a positive impact on patient experience and may have an associated improvement in wear times and device return rates.
Monitor is currently in the limited U S. Commercial launch and we are very excited to get this into the marketplace in the hands of physicians and their patients.
We also anticipate submissions to the FDA.
We're an updated MCT service in the latter part of 2023 for potential commercial launch in 2024.
There is significant runway ahead of us in the MCT market, where we own less than 10% market share today.
The submission on the hardware side will include an upgrade to our new biosensor platform, which was built for automation and therefore improve our scalability once volumes have ramped across all modalities.
We also expect to submit software improvements to add enhanced detection features monitoring flexibility within a single device and longer wear time optionality.
We're excited about this next generation of our <unk> product, which we believe will better position us to compete in this space and drive market share gains into the future.
As we've discussed in the past our zeal watch is also expected to entered limited market evaluation in 2023.
Using a continuous PPG AI based algorithm the deal watch not only detects afib, but also characterizes the amount of base that over time, the calculated in afib burden estimate with accuracy compared to that of the <unk> patch as a reference.
This <unk> of patient Afib presence or absence collected through the monitoring period is important and clinically meaningful to <unk>.
<unk> and a potential diagnosis.
As Youll watch is intended to be complementary to zero patches by adding modality with longer wear times for patients who required long term monitoring.
Dissipated market evaluation in 2023, and will enable us to gain real world experience with the product and service together patient and physician feedback and to consider the appropriate reimbursement approach for this uniquely positioned prescription based monitoring service.
Finally, we've outlined previously driving operational efficiency is an important strategic pillar for IRA them to serve millions more patients across the globe in the future.
After nearly 10 years, we served our 5 million patients in late 2022.
With our current growth assumptions, we expect to serve our next 5 million patients in just a few short years.
This requires us to think bigger than we have before.
In anticipation of this we are sharing two transformative steps that we're taking to advance our strategic plan and enhanced our internal infrastructure to meet the significant demand ahead of us.
These steps include the establishment of our global business Services Center, located in Manila, Philippines, as well as efforts to enhance the experience at our physicians and patients have with IRA them.
These efforts will enable us to scale and develop our clinical operational and administrative functions more quickly, thereby enabling us to continue providing excellent support to our patients and customers globally.
In addition, we'll leverage third party service providers, where necessary that will allow us to grow and scale more aggressively over time.
While we expand our operations internationally and leverage our new service providers to meet our operational goals. These actions will enable our ability to grow globally and our team members, where they are needed both in the U S and abroad. These.
These transformative steps market defining moment night rhythms journey, we know that patients, especially those seeking access to the care they need as well as physicians rely on deals services to help unlock opportunities for better care and improved outcomes, removing friction and barriers to access is a critical part of our mission and we need to ensure operations allow us to do this.
The changes I, just outlined will equip us to improve access for patients worldwide.
With solid momentum in our core business and significant opportunities on the horizon I'm truly excited about our future die rhythm in 2023 and beyond.
Now I'll turn the call over to Brian to discuss our financial results and 2023 guidance.
Thanks, Quintin as a reminder, unless otherwise noted the financial metrics that I discussed today will be presented on a non-GAAP basis reconciliations to GAAP can be found in today's earnings release and on our IR website.
Fourth quarter results demonstrated solid momentum in our core businesses revenue grew to $112 $6 million, representing 8% sequential and 38% year over year growth on a full year basis, we recognized $410 9 million in revenues, representing 27% growth compared to 2021, driven by both volume growth as well as ASP improvements.
Looking at new store same store mix, new store defined as accounts that have been open for less than 12 months accounted for approximately 40% of our year over year growth home enrollment for <unk> services was about 20% of volume in the fourth quarter.
Moving down the rest of the P&L gross margin for the fourth quarter was 69, 9% and for full year 2022 was 68, 5% for the midpoint of our guidance range, both sequential and year over year benefits were achieved through ASP improvements as we continue to optimize our pricing strategy and we realized nice improvements to cost per unit as volumes.
Throughout the year.
Fourth quarter, adjusted operating expenses were $97 1 million up 8% sequentially and up 16% year over year full year adjusted operating expenses were $363 7 million up 16% compared to 2021, while higher on an absolute basis. This compares to year over year full year revenue growth of 27%.
Demonstrating our ability to realize leverage in the P&L. Our investments remained strong in R&D and we are starting to see efficiencies in our SG&A profile.
Adjusted net loss in the fourth quarter was $17 9 million or a loss of <unk> 59 per share compared to adjusted net loss of $19 1 million or a loss of <unk> 63 per share in the third quarter of 2022. This compares to adjusted net loss of $1 10 per share or <unk> 51 improvement versus the fourth quarter of 2000.
'twenty one adjusted net loss for the full year 2022 was $84 5 million or $2 82 per share compared to a net loss of $101 4 million or a loss of three.
$3 46 per share during 2021.
We are beginning to realize value from an increased focus on operational discipline, achieving positive adjusted EBITDA of $1 1 million in the fourth quarter. This represents an improvement of $3 7 million sequentially and an improvement of $18 $4 million year over year adjusted EBITDA for the full year 2022 was minus 11 3 million.
Representing an 830 basis point improvement to adjusted EBITDA margin compared to 2021, we're focused on disciplined spending and our operating expenses, but also continuing to invest in strategic initiatives that we believe could enable future growth opportunities.
Note that we did incur approximately $2 3 million of expenses related to business transformation activities in the fourth quarter, bringing our full year impairment restructuring and business transformation costs to approximately $31 7 million in 2022, very importantly, we are extremely pleased to announce that we have cleared the material weakness over internal.
Roll environment over the past several years, we took actions designed to improve our internal controls and remediate deficiencies that led to a material weakness.
They are included enhancing the depth and experience within our finance organization by hiring additional accounting and finance personnel with relevant expertise, providing additional management oversight over financial reporting, including the establishment of a stock steering committee within our internal audit function and implementing new controls and processes, we remain committed to advancing.
<unk>, our culture of operational excellence, and we'll continue to add skilled talent as complexities grow and needs arise.
Turning to guidance for 2023, we anticipate full year revenue growth of approximately 16% to 18% compared to 2022, representing a range of approximately $475 million to $485 million. This contemplates national CMS pricing in place beginning January one 2023, and we believe that our ASP.
In 2023 will be generally in line with what we experienced in 2022 with pricing stabilized. We believe that the volume contributions will be the main driver of revenue growth during the year.
We anticipate gross margin will range between approximately 6900, 70% for the full year continued gross margin improvements will be realized through volume growth contributions to our per unit cost as well as improvements to our fixed cost structure.
Notably our full year guidance contemplates a bit of pressure to gross margin as we launch our zeal monitor so it gets into the U S. Commercial marketplace, which will include an evaluation of our current inventory levels and will reflect underutilized cost for our CEO monitor system.
We believe that adjusted operating expenses in 2023 will range between approximately 415 and $425 million as we scale our business to meet increased volume demand.
We believe that adjusted EBITDA margin in 2023 will range between approximately minus <unk>, five and <unk>, 5% of revenues.
As a reminder, adjusted EBITDA will continue to exclude restructuring cost transformation cost and stock based compensation expense.
In 2023, we do anticipate incurring approximately $15 million to $20 million of one time, non-GAAP business transformation and restructuring costs related to the ongoing globalization efforts to drive efficiency improved scalability and provide continued high quality customer and patient experience. We believe good expenses incurred related to the.
These activities in 2023 will further enable operating leverage leverage into the future, especially as we grow to serve more patients in our core markets and internationally. Please note that we also anticipate $8 million to $10 million of capital expenditures related to standing up new facilities and system solutions in closing, we exited 2022 and a <unk>.
<unk> financial position with $213 1 million of cash on hand to drive continued growth from our core business invest in innovation and lay the foundation for future expansion into new markets. We are excited for the strong momentum in our business to continue and look forward to upcoming category that we anticipate can drive growth in 2023.
And beyond with that Clinton, Doug, Dan and I would like to now open the call for questions operator.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove a question. Please press star followed by Pan again to ask a question. Please press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question and we ask that you limit yourself to one question and one follow up who will pause here to briefly ask questions are registered.
Our first question comes from the line of Alan <unk> with Jpmorgan. Please go ahead.
Hi, Thanks for.
Taking the question I just had a quick I had a quick one and then a follow up.
I think about the 60% to 80% guidance range you put out I think in the past you've talked about how the 20%.
<unk> is still achievable for the year you are coming in a step below that I think in the past you've said you would you want to see more progress made on some of the challenges you're experiencing at the tail end of 2022. So could you just provide an update on how those have really progressed and your confidence in that 20% number.
Yes.
Yes, Hey, Alan This is Clinton I'll jump on that.
I think at this point, we feel really good about where things are at in the business clearly we spoke about the return device right with our <unk> business and we knew that we had some of the growth headwinds with.
<unk> coming off the operational issues in the fourth quarter I would say, we've navigated through those pretty well our fourth quarter came in right in line with expectations.
Maybe showing a bit of opportunity to improve upon that but the way we set up expectations for 2023 is that we'll continue with that return device rate more or less the way we exited the year.
That will be into the low end of the guidance range and that the business continues to perform in line with what we saw coming off the fourth quarter as well to the degree that we make progress over the course of the year that you could start to see that step up beyond the 16% in and ultimately get into that 18% range and the assumption is that we've made that progress by.
Sort of the mid part of the year, we can make that happen faster than been great. There is further upside to where we're at but that's how we thought about the guidance.
Do you believe with.
Progress made on the operational side.
You can see our way back to the 20%, but it's early we're seven call. It eight weeks into the new year, we're not going to get ahead of ourselves at this point in time.
We're going to go execute and ultimately deliver and we'll see where that takes us.
Got it so if I kind.
Like touching on that a little bit more when we think about how you are starting off the year, you kind of just qualitatively pointing towards the 16%.
So should we think of that as basically assuming fairly usual seasonality, even maybe a little bit of headwinds from labor impacts from the device return right now.
Improvement in <unk> and then.
Then transition into more growth in the balance of the year. Thank you.
I think youre thinking about it the right way on keep in mind.
These efforts that we're putting forward with respect to the return device right and getting the <unk> growth rate.
Back to where we've seen it historically those are efforts that are ongoing right now, but but naturally we would expect to see progression over the course of the year, which means you're going to start at your low point from a guidance perspective here in the first quarter and then hope.
Hope to see progress beyond that and so that's how we think about it.
I think that.
Starting on the lower end of that here in the first quarter is the right way to think about it and then as we make progress we would expect to see that increase over time.
Okay.
Thank you.
Our next question.
Cuz.
Comes from the line of marrying the ball with BP IV. Please go ahead.
Hi.
Question, Brian Thanks for taking the question I wanted to ask one here I guess on the new sensor. That's in limited launch right now we'd love to hear what.
Learning so far in that launch what will sort of trigger the move to a broader launch and in particular would love to hear if device return rates or compliance or physician.
Opinions of the sensor are any different than the current generation.
Yes, Thanks, Brian .
I will tell you one of the things I get most excited about over the course of 2023 is getting the deal monitor into a full commercial launch the the initial feedback that we've received around that device is that it is a transformational sort of technology in this space again, it's 72% smaller 50% lighter it is 20% thinner.
It leads to a much better patient experience and of course, when the patient experience is better the physician experience ends up being better as well and so we're excited by what we think that can bring in the <unk>.
That part of the year, we really haven't contemplated any sort of change in our guidance expectations with respect to having that new product out there. It's one of those things, where we think about it is let's get it in the market and see how it performs and we can adjust our expectations from that but I am very encouraged by what we're seeing in the feedback that we're seeing there is actually going to be data at ACC thats going to be presented.
Round zero monitor as well that demonstrates some of the improved patient experience and wearability factors associated with it including the return device right, which is a bit better than what we're seeing with the <unk> product now it's in a limited launch phase if you will or limited evaluation at this point so that the number of patients are not significant but the.
Early indicators are all very very positive around this so.
We're bullish on this our expectation is we will roll it out in the back part of the year into a full commercial launch and we will step into it as quickly as we can which will really be.
Driven by how fast we can produce the product off of our lines. So.
We're ramping up that capacity as we speak right now to be able to meet the demand. Once we go with the launch but we're very excited by what we're going to see zero monitoring.
Okay, that's great to hear and then if I could ask a follow up here on the national rate with Medicare.
Was curious about your comments on the possibility of working with Medicaid.
Can you give us a sense of pricing discount or possible timing on when we might start to hear from some of the Medicaid organizations on that.
And secondly, as part of that where are we in the shift toward <unk> San Francisco facility any chance you could give us any metrics on that thanks, so much for taking the questions.
Yes, I'll speak to this one as well from a Medicaid perspective, it's a bit too early to get out ahead of what our expectations are there I will tell you.
Really any progress that we make in and around Medicaid is going to be an incremental benefit to us we serve a lot of those patients today without charging anything at all for the product when they can't afford it.
And so once we get coverage in place that will start to create a nice bit of a benefit for us just in the fact that we can begin to get reimbursed for some of those patients.
But the reality was it was very hard to sit down and have discussions with any of these state Medicaid programs without having a CMS national rate in place. So now that its in place. We can begin to have those conversations early conversations have begun to be have had.
But in terms of where the pricing lands.
Too early to say exactly what that will look like but just know that any pricing at this point would be upside to what we're getting right now in service serving that Medicaid population on the San Francisco side, our expectation is that we'll have enough.
Folks hired in the seat to do about 25% of the CMS XT volume in San Francisco here in the first quarter first part of the year and then ramping beyond that in the back half of the year right now that still feels like the right assumption.
I think we're making good progress against our goals to higher relative to those percentage mixes in the early part of the year.
But we've got a long way to go to get to where we want to in the back half of the year. So still a lot of hiring to be done, but good progress being made to date.
Okay. Thank you.
Thank you.
Our next question comes from the line of David Ross, Scott with <unk> Securities. Please go ahead.
David Your line is now open.
Thank you.
Our next question comes from the line of Cecilia furlong with Morgan Stanley . Please go ahead.
Good afternoon, and thank you for taking the questions I wanted to ask a follow up question on <unk>, If you could just speak to where.
You are at this point.
Running through the legacy Skus.
The prior <unk>.
Before that the addition of the notice and then looking forward to as you think about just what what is incorporated in that 16% to 18% can you speak to how youre thinking at this point at least about <unk> volumes.
Recovering to a level or similar levels that you sign in 'twenty two pre the issue.
Okay.
Yes, I think from an <unk> perspective.
Coming off the fourth quarter and certainly how we've thought about the guidance is that that business is going to grow right around 30% for us that's where we saw it in the fourth quarter that compares to the first nine months of last year being closer to the 50% growth range and.
And so we certainly have seen a difference in that growth profile coming out of that field advisory notice now we've made all the updates on the labeling that we need to do and in the packaging that we need to do.
Now its about just the confidence coming back in the commercial force and with the customers to see that growth return.
Our 16% growth expectation would assume that we sort of continue at the current rate over the course of the entire year getting to 18%.
Higher end of our guidance range would assume that around the midpoint of the year, where we're seeing ourselves get back into those prior growth.
And so that's how we've thought about it obviously, if we can do.
Or do better than that then that will be very pleased with it but our focus is certainly on getting that business back.
So where we saw historically I think that the recent FDA approval with the AF burden for example that will make its way into that product certainly.
The position that is one that can be attractive in that space that we want to see those results play out before we got to them.
Great. Thank you and if I could follow up on gross margins as well, how we should think about first half versus second half, especially as you launch the deal monitor on to a greater scale and and also into 'twenty four with no debt.
MCT service.
The impact from initially ramping those products versus the longer term benefit from a cogs standpoint.
Yeah. Thanks.
Right question gross margin.
So in our guide the way, we think about it is as.
You probably have seen that the seasonality of gross margin is a little bit softer in the early part of the year or call. It first quarter, because its the lowest volume quarter of the year.
So you would expect to see something similar in 2023. The other the other thing I would note is.
With with its scaling throughout the year as it traditionally does as you push more volume through the system. There is a bit of a caveat in there to your point on the monitor side, where the launch of <unk> monitor.
We will create a bit of inefficiency in the short run is where less than optimally utilizing that machinery upfront. So you can expect a bit of a blip maybe in Q3 or so associated with it and the real benefit of the deal monitor solution really come into play in 2024, as we are able to fully leverage that machinery and equipment.
We have in place, but also that's when the full automation will go into place as well and honestly at the backend of that MCT becomes it comes online at the same form factor as well and that's where you'll really get that scale inefficiencies associated with as Neil monitor so cadence I would think about it a little bit softer in Q1 as it traditionally has from a seasonality standpoint.
A little bit of pressure in Q3, and then the other two quarters relatively standard with what you've seen historically.
Great. Thank you for taking the question.
Okay.
Thank you.
Our next question comes from the line.
David Saxon with Needham. Please go ahead.
Good afternoon, everyone and thanks for taking my questions.
Maybe I wanted to start with a follow up on guidance.
Just the assumptions around pricing being in line with with 22.
Just with the San Francisco facility getting to 20, 25% of the volumes in the first quarter here and then ramping I guess why wouldn't there be upside from an ASP perspective relative to 'twenty two.
Yes, David I think.
It's a good question, but keep in mind over the course of 'twenty two at <unk>.
Different dynamics, playing out with respect to reimbursement around that XT product with the different macs that we were able to contract with right. So over the course of the year that rate got higher and higher as well. So the comp gets more difficult. So even as we increase the utilization of San Francisco in 2023 and might have a higher effective.
Average selling price.
It is being compared to a prior year that also had a higher effective selling price as we move throughout the course of the year and so.
For the full year on average we do think that equity price is going to be pretty comparable year over year, maybe there's a little bit of a benefit.
Now that the Paygo aspect has been.
Been resolved.
From our original expectation when we were saying the XD pricing was going to be relatively comparable now there's about a 4% benefit relative to that original expectation, but the pricing also came in a little bit lower in that final rule, which sort of negates. The paygo benefits. So net net you're you're about neutral year over year related to those items. So I hope that helps clarify.
Sure.
Yes.
Super helpful.
Then maybe I'll follow up with a maybe a longer term question.
You guys had a slide deck published in January that had a 25% EBITDA margin referenced and it just wanted to ask how we should think about that margin target relative to the SRP.
Is that something you can hit in 2027.
<unk> contribution from some of these adjacent markets or is that more of a longer term post 2007.
It's a good question.
Our <unk> that we put out there around 2027 had us getting to roughly a $1 billion in revenue at that point in time, it really didn't contemplate contribution coming from the adjacent market opportunities that we're certainly bullish on and hope to be able to open up.
But the point of 15% was simply a point in time as we're going through that $1 billion market still growing it in our mind is roughly 20% or better in no way would that be a point that wed be happy to start that though the business model here. When you think about it from a structural perspective, and what is possible theres no.
<unk> that we can get into the mid <unk> and even the upper twenty's from an adjusted EBITDA perspective.
When that happens.
Willing to sort of say exactly when thats going to happen, but I see that happening in the future of eyewear them, it's probably when we move north of that $1 billion in revenue, but it is something that can be achieved here and that was the purpose of putting that out there is that we wouldn't be happy at 15%. That's just a point in time, when we cross through that $1 billion, Mark, but the long term trajectory ought to be able to get us into the mid <unk>.
<unk>.
Okay got it that makes sense, thanks for taking the questions and congrats on the quarter.
Thanks, Chris.
Thank you.
Our next question comes from the line of.
Nathan Tray pack with Wells Fargo. Please go ahead.
Hi, Thanks for taking the question.
Can you comment on how far along you are in your EHR integration and how much of a drivers. This in your 'twenty three guidance.
It's a great question because the EHR integration for US is such a critical aspect of how we think about creating stickiness with our accounts I would tell you.
There is significant runway ahead of us as we continue to build out the EHR integration with with our accounts, we are making good progress.
It's been a focal point internally and we know that once we get an account integrated with us I Couldnt give you an account.
The history of <unk> rhythm once integrated from an EHR perspective as has walked away from my rhythm. It creates a tremendous amount of stickiness and at the same time the growth trajectory hits, an inflection point once you get to that point of EHR integration.
In terms of the amount of accounts that are integrated I don't think we put that data point out there, it's well less than 50% and it's something that we are working to increase as quickly as we can.
Great. Thanks for that and then can you comment on what Youre seeing in your know your rhythm commercial pilots and is there any contribution in the guidance.
Yes, we have not contemplated any contribution in our guidance relative to know your rhythm at this point in the pilot.
We expect to launch multiple pilots over the course of the year, but at this point, we're still building out the operational capabilities of how those pilots would work so to be completely.
Transparent that there arent patients on our product and I know Youre rhythm pilot, just yet that will start before too long, but right now it's about getting the operational aspects of how we're going to work with our partner get the devices on patients capture the data.
We're in the midst of nailing down the final throes of the operational aspects as we speak that will ramp over the course of the year.
To the degree that there is contribution from it and ultimately will end up being upside to expectations.
That's how we thought about it at this point, we just we're not going to get ahead of ourselves with it.
Great. Thanks for taking the questions.
Thank you.
Our next question comes from the line of David Ross, Scott with <unk> Securities. Please go ahead.
Hey can you guys hear me now.
I gotcha.
Great sorry about that thanks for taking the questions and congrats on the quarter. So I guess first just on the longer range planning you talked a little bit about paygo, essentially essentially being a slight slight tailwind, but just wondering on that long range plan. If one note there that the kind of benefit that you have from paygo going away.
Not being enacted this year is.
Is potentially upside or whether or not that was included in the long range plan or your initial view the long range plan and then I'll ask the second part of that is did your long range plan from a topline growth perspective also account for maybe expansion to this Medicaid patient population.
So on the Paygo aspect in particular, we had assumed based upon what we knew at the time that.
<unk> would be in effect in other words, it would be a headwind a bit in 2023.
Ultimately, what we learned is that it wouldn't be right in that we would get the benefit back in so that was about a 4% benefit that we hadn't contemplated in pricing over the entire long range plan at the same time, we hadn't contemplated really that 80 would be cut by CMS. The way that it was so when you look at the two of those.
Literally they offset each other almost to the dollar when you calculate the impact based upon the mix in our business and so I don't see paygo.
Really driving any difference in the long range plan.
As a result of the <unk> pricing being updated as well. So overall I think the two of them net each other out but what was the second part of that question again.
The assumption around Medicaid or expanding in the Medicaid whether or not that was included in the ERP.
No we haven't really contemplated the incremental benefit that could come from Medicaid.
Part of the challenge there is just to the it alludes back to the question that was asked earlier exactly what price are we able to establish in that population. That's something we're working through as we speak and then how quickly can you get all the states to come along we know that not all states are going to come.
Out of the gate and it's going to take work on a one off basis and so the way we will think about Medicaid contributing to that long range plan is that we'll give you updates as coverage gets put in place and then we can update our expectations in line with when that happens but.
It's too early to try to anticipate and know exactly when that would happen and then if we if we don't happen to get it exactly right. We're talking about a variance so I'd, rather I'd, rather let that play out and then roll it into expectations as we get it dialed in.
Okay, and then I'm not sure if I might have missed it earlier, but in the past you had kind of talked about the way in which you improve those underlying return of equity is through <unk>.
Actually shifting some more home enrollment cases toward those inpatient.
The case was further is prescribed by a physician in the office. So I'm wondering if that was a big driver of the improvements here and then the second part of that would be if there is a increased.
Rate of home enrollment as a portion of total revenue in order to kind of keep those lower return to the higher higher level or back to the historic levels does that incrementally add any type of expense that would make you think about potentially shifting.
The kind of overall view on how you.
<unk> leverages the profitability profile of the company. Thank you.
Yes, I don't think nothing really came in much different than what we expected from a return device right with respect to mix of volumes through home enrollment or in clinic or the newer sort of take home model that we were seeing I think that pretty much came in line right as we expected it would and we made some improvements in that take home model that.
Was putting a bit of pressure on us throughout the course of the fourth quarter. Once we learned about it and could sort of.
Adjust our approach to those patients and those physicians with.
Product that was.
We provided better indications for use how to apply the device follow up calls those sort of things we were able to see some improvement in that return device right. That's not in line with an in clinic return device right, but.
It has the potential that it can be better than a home enrollment return device right.
I believe the home enrollment program for us is an opportunity to really.
Deliver sort of a competitive differentiated solution experience for our patients and so easy to take this device apply it at home and not have to be in the physicians office to to have that done and then to be able to provide the report back to the physician with application never really having had to come in I think home enrollment can be a significant part of how we grow.
The business into the future, but at the same time the return device right with our home enrollment program is roughly 90% compared to call. It 98% within clinic devices. I think there are some things we can do operationally that can improve that 90% over time and see us close that gap, but.
But I think the value of home enrollment is that it can help us drive faster volume growth or faster adoption of the product given the flexible model that it allows and it gives the physicians to utilize to address some of the capacity challenges they have in their own clinics. So while it has a lower return device rate I think it has the potential to drive faster unit volume growth that can offset that.
Lower device right and then give us opportunity over time to <unk>.
Operationally focus on improving the 90% so I think home enrollment can be a significant driver of growth for us.
Into the future when we think about some of the challenges we see in the market around capacity or just seeing seeing patients or having to schedule them.
Many weeks if not months out I think home enrollment can start to alleviate many much of that so I think it becomes a nice solution for us.
Alright, thank you.
Thank you.
Our next question comes from the line of Joanne <unk> with Citi. Please go ahead.
Hi, This is actually Anthony on for Joanne. Thank you for taking my questions can you talk about how the international business performed this quarter and what your expectations are for this year and then as a follow up can you just discuss any competitive dynamics you witnessed in the quarter.
<unk>.
Yes from an international perspective.
The value continues to be realized quite nicely of what <unk> can bring into the marketplace. So we continue to see volume growth. There performed really really well I think one of the things that we have to navigate through in the UK businesses coming off of the AI Award in two.
Formal NHS.
Coverage of the product right and Thats something that we continue to work through with them and we continue to see great volume growth, but getting a permanent rate established by the NHS is something thats really going to open up the public sector for us into the future. So I expect is going to continue to continue to grow really well volumes are going to continue to grow really well for us.
As we get into the private sector. We've now entered into agreements with three of the largest private hospital groups in the U K, that's going to continue to progress nicely for us and over time I think international is going to be a pretty significant.
Contributor for us in total from a competitive perspective, I would tell you that there's nothing unique that we're seeing in the marketplace relative to the competition, we're very much aware of it we pay close attention to it.
We track it as well as we can through third party market data that we have I don't think that you are seeing any change in competitive trends over the course of the third quarter. The fourth quarter frankly, I think some of the challenges that we saw in the third and fourth quarter.
From a staffing perspective, I think they were felt industry wide I don't think they were specific to us based upon all the market data, we were able to pull together. So I don't see any dynamics changing on the competitive front. Although it is something that we pay very close attention to.
Okay.
Thank you.
Our next question comes from the line of Bill <unk> with Canaccord. Please go ahead.
Hi, it's John on for Bill Tonight, Thanks for taking our questions.
First start just on the PCP opportunity and maybe some more color around there what are you seeing in terms of success and how would you describe commissioning comfort and are these generally take home our home enrollment patients and are you seeing any pushback from existing ETR cardiology customers.
Yes, what was the the middle question. There you were asking about the success of what success looks like and then home enrollment, but I missed the.
Just the determination of PCT comfort around.
Oh around prescribing.
Thanks.
Yeah terrific questions because it's a dynamic that we are learning to navigate through.
I will tell you the success around the primary care space the GP space.
It has been more than what I would've expected at this point in time, I mean, getting getting partners like one medical signed up has certainly helped move the needle we've had a couple of other large network PCP network.
Folks sign up as well, we won't disclose those out of respect for their wishes, but we're certainly seeing the interest in the <unk> product, making its way into the primary care space.
I think given the given the clinical data behind the product and just how easy it is to utilize both from a patient perspective as well as interpreting report the comfort levels are quite high and I think it just validates for me that we're absolutely going to open up the primary care space and again, there is there is $14 million pace.
<unk> seen their primary care physician today that already have cardiac specific palpitations noted in their medical records.
Impairs, the $5 5 million ACM SPN prescribed in the U S.
I remain convinced that youre going to see this market expand dramatically as we continue to push into the primary care setting just given how easy it is to use the product how accurate. It is in the downstream benefits that you get with monitoring these patients sooner. It helps address so many of the capacity issues that we're hearing by the specialist by the EPS even to the point.
Where there are networks that we're now working with where we led into those networks by convincing the cardiologist or the <unk> of the EP of the value of CEO and they've been using the product, but they see how easy it is to use the word there actually presenting within their networks to have the primary care physician begin to.
<unk> the product have it placed on the patient and then let the cardiologist or the EP do the actual override which they can do very easily at our suite.
And help streamline who they're actually spending time seeing versus not so in many ways. The specialist have embraced the ease of use of this product and how it can impact their own practices and make it much more efficient and effective and I think that's going to be a model that continues to really move into the future and drive some nice growth.
Ultimately the home enrollment model is the model that.
We would prefer to see utilized more than anything else in the primary care setting only because theres. So many primary care specialists that are out there rather than sitting product on the shelf in every one of their offices. The home enrollment model just makes a whole lot more sense for us.
At the same time, we want to see that return device rate improve beyond 90% and so that's where we got operational efforts internal.
Focused on enabling that and making that happen, but the home enrollment model is the way we want to think about serving that that PCP or GP space.
Thanks, and then just as a follow up.
How should we think about the international contribution in 2023 outside the UK I know you talked about that a little bit but.
Other European Nations that you'd previously previously called out as target.
Any revenue contribution from there and then have you submitted your shown an application for Japan, yet and should we still expect approval late this year and reimbursement in 2024. Thank you for taking our questions.
Yes.
Terms of the incremental international countries beyond the U K, we still expect to be in to at least three of those countries selling product in the back part of this year.
How quickly that goes is something that we'll monitor as we get into those countries, but we certainly expect to be in additional countries three at least by the end of the year, we probably go into the private sector first and then move into the public sector is how we think about that.
It's not going to move the needle in a meaningful way with respect to growth for the overall company in 2023, I mean today international which is predominantly the U K.
As a point to a point and a half think about 1.5 or so of total revenue and so that's not going to move the needle in a significant way just yet I do think international and time has an opportunity to be an incredible contributor too.
The overall size of the company and the growth profile of the company with respect to Japan.
We've had initial discussions with them around the high medical needs assessment, clearly, we want to go into that market with a high medical need designation. If we can it will certainly help from a reimbursement perspective.
That first meeting with them. There is a follow up meeting that will happen here in the not too distant future and right behind that I would expect us to submit for shounen regulatory approval, which we would hopefully get towards the back of the year, if not right at the beginning of the new year, and then ultimately get into discussions around reimbursement and hopefully have our product in that market in the back part of 2000.
For some time.
Thank you.
Thank you.
Our next question comes from the line of Suraj Kalia.
With Oppenheimer. Please go ahead.
Good afternoon, everyone can you hear me all right.
We got you.
Perfect.
Question, one of your comments Kaufmann attention.
For the Nexgen.
For longer use.
Can you characterize that a bit more is the battery size bigger.
Are you looking to accommodate so TJ usage, just curious given past commentary.
Always looked like.
This form is good enough for 14 days of use.
Can you just flesh out some additional details.
Yes, Suraj our development teams have been there.
You've done an incredible job with the <unk> monitor.
I continue to believe it's going to be a much bigger deal than what we've been even anticipated as I.
Hear feedback from them in the marketplace and this is going to be the exact same form factor that we use on the next generation of the product.
Product or the zeal MCT product.
And youre going to find some data even at ACC with respect to do you monitor that demonstrates sort of the way our experience we're getting out all the way up to 30 days.
Which is pretty encouraging and pretty remarkable.
It's not it's not larger size as I mentioned that the form factor of 72% smaller than the existing form factor today. It's just really a testament to what the team has been able to do from a technology perspective getting at much smaller much lighter that allows us to stay adhered to the body for a longer period of time and generate a good patient.
So we know that one of the gaps in our existing product is while we think we can and the data would tell you. This we can monitor as well as any product in the market.
During the course of those first 14 days, we know that a large part of the market.
Looking for something that goes beyond 14 days and our first step will be to extend that out.
The deal Brazil monitor platform that you see is going to be that platform that will enable that with products. So.
We're excited by what we can see or what we're going to realize there in time.
So forgive me.
Delivering at this point so you.
You see the new form factor of the Sierra monitor for the eight key application.
We have the same size factory I presume it needs.
Needs to have real time connectivity just trying to understand.
Your comments basically will have real time connectivity.
But the form factor is a battery form factor has not increased.
I refer you said correctly.
Youre thinking of it correctly, that's right Suraj the battery.
Life in the existing <unk> monitor we believe can get out well beyond the 14 days that were at today.
Interesting okay.
And one last question.
One of the things that you'll be crystal clear in terms of Opex.
Opex leverage in terms of shifting IGT has to 50 25 25.
As Joel.
It traces to FY 'twenty two can you set stage how was the ITT of distribution for your strips so that as FY 'twenty and beyond Progressive if you could just sort of compare and contrast, the method for.
Modeling purposes. Thank you for taking the question.
Yes, I think maybe at the highest level suraj.
We didn't have any contracts in place from a macro perspective with I'd Etfs really outside of Nova Cosman Mgs in Chicago that we weren't utilizing we did end up getting some additional contracts.
In place over the course of 'twenty two but.
Knowing or expecting that we're going to be able to get at national rate put in place it didn't make sense to set up physical.
Facilities and hire people into these other locations. So we ended up.
Managing most of the XD workflows through the Nova toss in Ngls.
Max if you will.
Over the course of 'twenty three as you know, we're hiring and expanding our presence in San Francisco and in that ETF that frankly, just the volume growth in the business requires us to hire more folks into the business just to keep up with the overall volume we'll be hiring the majority of those folks into our San Francisco location.
That will be good to be able to do some of the XT product for us as well keep in mind, we've done 80 out of San Francisco Historically now we will begin to do some of the XT. So in the prior year.
In terms of the mix between the.
No the constant in GSI.
Speak to that specifically off the top of my head.
But we started off with Nova costs, and certainly move towards Ngls over the course of the year here in 2023.
About 25% will be in San Francisco and the first part of the year and the expectation is to move north of 50% in the back part of the year as we hire out resources to do the work in San Francisco, keeping up with the overall volume growth in the business.
Yeah.
Thank you.
Thank you.
Our next question comes from the line of Michael <unk> with Wolfe Research. Please go ahead.
Hey, good evening. Thank you for the questions I'm curious on Manila tie.
Timing over what period of time will this facility ramp up and is this a facility for <unk>.
Clinical operations G&A functions, both and is it going to be positioned to serve U S. Patients are designed to serve your future <unk> growth opportunities.
Yes, I'll take that.
Oh, sorry, yes.
I'll take that one so it will ramp up over 2023.
The biggest.
Utilization there will be for our back office functions, there will be some clinical ops.
And customer ops functions.
Functions that will roll through there as well.
As you know theres compliance aspects that we need to adhere to and we're very mindful of on the Medicare front, and so nothing that needs to be processed.
Domestically, we'll move into those locations thats not at all of the plant.
Commercial contracts that are that have that.
Our ability to move over there that's what we will do so it's going to ramp up over 2023, and then it will be fully up and operational by the end of 2023.
That is helpful for my follow up just to level set models and there was some market commentary already but.
The pricing and volume has bounced around here through the Covid era through the reimbursement cycle I guess <unk> revenue in your plan versus <unk>.
Ah down flat or up sequentially, what's the what's the best direction.
Yes. So traditionally if you look at the seasonality of the business has stepped back a bit and if you. If you work your way into that sort of a commentary of Q1 being on the lower end of that guidance range. It will help you get into the place that we think it's going to be from a from a Q1 perspective and again that's NAV.
Seasonality playing through the business nothing unique.
To this year than what we would expect outs.
Outside of that now there is a bit of a tailwind as we talked about from original expectations with regards to <unk> and then XP.
There's a bit of a tailwind there, but most of that is offset by the pricing pressure. So if you work your way into the bottom end of the guidance range there you'll get a feel for what the seasonality looks like and historically, it's call. It 22 ish percent in and we don't think it's going to deviate much from that.
Cool thank you.
Yep.
Yes.
Thank you.
There are no additional questions waiting at this time I would now.
Like to pass the conference back to the management team for any closing remarks.
Well, thank you and in closing I want to take the opportunity to thank each of you for joining our call and I want to thank each of our team members that IRA them for the tremendous work that they do each and everyday to make our company what it is.
We have a tremendous future in front of us at algorithm I look forward to an exciting year in 2023, we exited 2022, a strong registration volumes in both Q3 and Q4, including another record number of new account openings in the fourth quarter and.
And we have exciting clinical data that's going to be presented at ACC and just a week and a half that continues to demonstrate the superiority of our <unk> product and we are preparing for the launch of <unk> monitor which would be the largest launch in our company's history.
In addition, we're focused on getting the newly designed <unk> on file with the FDA, leading to a potential launch in 'twenty four.
Space that we are well under represented in today as well as submitting in the next few months for regulatory approval in Japan, the second largest market in the world our futures never been brighter.
And I look forward to speaking to all of you again on our Q1 earnings call take care.
That concludes our rhythm Inc. Q4, 2022 earnings conference call I Hope you all enjoy the rest of your day you may now disconnect your lines.
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