iRhythm Technologies Inc. Q1 2023 Earnings Call

And their final report after and objective review of <unk> claims and evidence shows that the value proposition for <unk> is credible and objective related to diagnostic yield.

<unk> wear time detection of many types of arrhythmias lower likelihood of retesting compared with other monitoring types.

Proved clinical outcomes and decrease time to diagnosis.

Additional details and full results of this important collaboration will be announced at a later date.

We believe Camelot data demonstrates that <unk> should be the gold standard for long term continuous monitoring.

But we also believe that the commercial release of our zeal monitor represents an improvement to the already high bar, we've set for ourselves.

In addition to its inconspicuous profile the viability of the new zero monitor allows for comfortable were and are designed to improve patient compliance and satisfaction.

Initial real world clinical experience data with zero monitor.

<unk> presented at ACC demonstrated high patient compliance with the potential to extend where times in the future.

<unk> thousand 14 day data from 673 patients wearing zeal monitors demonstrated higher compliance and higher quality ECG compared to <unk>, while 30 day extended we're monitoring yielded additional clinical findings John 14 days.

Post clearance evaluations of deal monitor showed consistent and even improved performance compared to <unk> with potential to greatly improving monitoring and decision making for more complex patients.

We continue to expect the full launch of Seo monitor later this year with a new platform, providing significant product optionality into the future.

As we continue to drive toward realization of opportunities for future growth. We're just as committed to driving growth in a scalable sustainable manner as.

As mentioned on our last earnings call, we established a global business services Center, and we are working toward ongoing business transformation activities to position the company to maintain patient satisfaction scale globally and perform more efficiently we.

We have hired a dedicated GBS leader along with a team that is now in place and anticipate opening our Manila office during the second quarter.

During the first quarter, we also announced internal restructuring to better align the organization to pursue our strategic objectives and to drive operational efficiency alignment and focus.

This allows us to increase the pace of organizational execution by realigning many functions in the business to create synergy, enabling our groups to work more efficiently and to scale more quickly. We look forward to how this will continue to elevate our ability to serve millions more patients as we continue our rapid growth.

Furthermore, our commitment to operating as a responsible corporate stewards was highlighted in our recently refreshed ESG report released in April .

This report and the excellent work by so many around the company that it represents reflects the elevated focus our.

Our organization has on ESG matters, and Reconfirms, our commitment to growing responsibly and sustainably for the benefit of patients customers communities employees and the environment.

Our company profile and the nature of our products dovetails nicely with ESG initiatives be it the reusable recyclable profile of our zero device. Our continued emphasis on equitable access to care or our unwavering commitment to patients and the communities, which we serve but.

But this report is also a nice example of the governance mechanisms, we put in place over the past year to embed ESG policies and initiatives into our operations as we continue to transform the company.

We look forward to communicating progress against our roadmap in the future as a continued driver of long term value creation for our stakeholders.

Before turning to price there is one final item on which I'd like to comment.

As we will disclose in our 10-Q filed today after the quarter closed on April 4th we received an inquiry from the Civil Division of the U S Department of Justice seeking information and documents regarding the company's products and services.

Our teams are working on responding to the Doj inquiry, and we will fully cooperate with the department's request.

At this point, we are very early in this process of engaging with them and it's too early to speculate on the precise motivations behind their inquiry or any anticipated duration of the engagement as we have more information we will be sure to provide the necessary updates.

In closing we remain bullish on the business for 2023 and beyond continuing on the solid momentum of late 2022, we've begun the new year and a very strong position to drive continued growth in our core business and making the investments necessary to transform the company.

We believe that we are well positioned to capture the opportunities ahead, while efficiently scaling operations and I've never been more excited by the future that we see in front of us.

With that I will now turn the call over to Bryce to discuss our financial performance.

Thanks Clinton 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 as Quentin mentioned first quarter results demonstrated continued momentum as we realized revenue of $111 4 million, representing 21% year over.

To your growth. This strength was driven by significant volume growth in our core U S business slightly offset by a low single digit pricing decline in line with expectations with national CMS rates in place as of January one 2023, we began leveraging our San Francisco I'd Etfs with approximately 25% of <unk> XT volume processed in the San Francisco.

The location also consistent with expectations.

Looking at new store same store mix, new stores defined as accounts that have been opened for less than 12 months accounted for almost 35% of our year over year growth. While we continue to drive record new account openings contributing significant growth. This new store same store contribution mix is also reflective of tremendous volume growth from existing accounts and <unk>.

<unk> reduced account churn and increasing penetration in these accounts home enrollment for <unk> services was about 20% of volume in the first quarter moving down the rest of the P&L gross margin for the first quarter was 67, 9%, representing a 200 basis point decline compared to fourth quarter 2022. This decline was primarily driven by expected.

A&P fluctuations sequentially as we began processing claims for the CMS business at updated national rates, beginning January one as well as expected slight declines in our commercial realized asps. However, gross margin in the first quarter 2023 represented 100 basis point improvement from first quarter 2022. This was driven by a reduction in unit cost.

To serve as we ramp volume significantly and we are able to leverage our fixed cost infrastructure offset by year over year pricing headwinds.

That cost of revenue during the first quarter 2023 included some duplicative costs as we began to leverage third party providers for certain clinical operations and customer care services to enable growth and scale our operations.

First quarter adjusted operating expenses were $109 5 million up 13% sequentially and 31% year over year. The spend in the first quarter was generally in line with expectations with the increase primarily driven by increased personnel expenses to support volume growth and elevated commissions for volume outperformance in our core business and we're all.

Also some duplicative costs incurred in our operating expenses during the first quarter as we stand up our global business services Center in the Philippines. Importantly, we also made incremental investments in R&D as we finalize development of our <unk> monitor to prepare for commercial launch later this year continued developing our MCT product that we plan to submit.

Regulatory approval in the third quarter and advanced initiatives and adjacent market opportunities adjusted net loss for the first quarter was $33 4 million or a loss of $1 10 per share compared to adjusted net loss of $17 9 million or a loss of <unk> 59 per share in the fourth quarter of 2022. This compares to adjusted net loss of <unk> 80.

<unk> per share or 30% decline versus first quarter 2022, we reported approximately $5 7 million of expenses related to business transformation activities in the first quarter 2023, but also recall that in the first quarter of 2022, we incurred $26 9 million in impairment restructuring and transformation charges primarily associated.

And with the reduction in size of our San Francisco facility.

Adjusted EBITDA in the first quarter 2023 was negative $12 million, reflecting a decline of $13 1 million sequentially and a decline of $7 $2 million year over year. While this represented reduction compared to the fourth quarter 2022, and the first quarter 2022. This short term decrease in adjusted EBITDA margin resulted from investments being made.

So our near term volume growth drivers as well as long term initiatives.

Turning to guidance, we are updating our outlook to reflect the anticipated full year revenue growth of approximately 17% to 19% compared to 2022, representing a range of approximately 480 to 490 million contemplating our outperformance in the first quarter of 2023.

Our outlook on anticipated pricing remains unchanged compared to prior expectations, we expect seasonality in line with non pandemic historic trends with approximately 25% of full year revenue anticipated in the second quarter of 2023, we continue to believe that gross margin will range between approximately 69 and 70%.

For the full year incremental gross margin improvements will be realized through volume growth contributions to our per unit costs as well as improvements to our fixed cost structure.

Call that our full year guidance contemplates a bit of pressure to gross margin in the middle of 2023, as we ramp to long term steel monitor service into the U S. Commercial marketplace. This will include an evaluation of our current inventory levels and may reflect underutilized costs for Zillow monitor system as we scale the new product, we now anticipate that.

Adjusted operating expenses in 2023 will range between approximately 417 and $427 million, including updated variable compensation reflected in the result of increased volume demand. This.

This quarter included some seasonal items that will not repeat for the remainder of the year such as the return of our in person global sales and leadership meetings for the first time in the last several years. Additionally, as we stand up our global business services Center in the Philippines and begin to leverage third parties duplicative costs incurred in the first quarter will begin to step down over the remainder of the.

Here as a result, we anticipate that overall operating expense level on a quarterly basis will step down slightly compared to the first quarter. During the remainder of the year. Thus we continue to believe that adjusted EBITDA margin in 2023 will range between approximately minus <unk> five and <unk>, 5% of revenue as a reminder, adjusted EBITDA will continue to.

Restructuring cost transformation costs and stock based compensation expense in 2023, we continue to 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 that the expenses incurred related to these activities in 2023 will further enable operating leverage into the future, especially as we grow to serve more patients in our core markets and internationally note that adjusted operating expense and adjusted EBITDA guidance do not include costs related to the department of Justice inquiry as we are very early in the process.

Yes, and engaging with the department. Finally, we ended the first quarter in a strong financial position with $176 3 million of cash on hand to drive continued growth in our core business invest in innovation and lay the foundation for future expansion, while we continuously review our capital structure to support the best interest of the company and our stakeholders.

Confident in our liquidity position to operate our business for the foreseeable future.

Could not be more excited with the strong momentum in the business to continue and look forward to upcoming catalysts that we anticipate can drive growth in 2023, and beyond with that Clinton and and I would like to now open the call for questions operator.

Thank you.

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Our first question comes from Allen Gong from Jpmorgan. Please go ahead.

Hi, Thanks, Congrats on the good quarter I just wanted to.

One quick one on the quarter and then a follow ups, but definitely encouraging to see the quarter starting off in a bit of a strong note with growing in the 21%, but when I think about you had talked about how he is improving device return rates are improving how does that really tracking relative to expectations. So far in the second quarter.

And what more do you need to see before we can maybe see guidance moving up.

Not to beat a dead horse, but up towards that 20% of our base.

Yes.

Thanks for the question.

I've been very pleased with what I've seen in the business, thus far with returned device rates and the AC business.

I'd say that more or less we have been right in line with our expectations.

If not slightly ahead of where we expect it to be but not not materially you look at the first quarter that the driver of the business is just the underlying volume strength.

We're seeing our registrations in the quarter were up in the mid to high <unk>.

As we start to approach, 30% some of the strongest registration growth we've seen in almost two years now and thats getting back into some COVID-19 comparisons that start to get a little bit unique right. So the registration growth has been phenomenal and thats really whats driving the overall growth in the business I still continue to believe that as we make progress with returned device.

<unk> and <unk> returns to historic growth rates.

The opportunity to provide some upside to the guidance that we've laid out.

Today, but but really the strength of the quarter was driven on the registration goes through the business.

Got it and then for less fun question.

Permanent Justice inquiry is new to us.

I believe you said it was civil so hopefully a downside is kind of limited.

But when I think about.

Do you have any sense of what theyre actually looking into the kind of timeline that you should expect for any updates on the process and just kind of what the downside could be to the inquiry.

Yes, I think it's a bit early at this point Alan to really articulate anything more clear around the matter itself, we certainly will engage with the Doj and try to learn as much as we can and we'll communicate as we have more clarity around what that looks like.

I think a bit of the day, we know that within this industry. These things occur from time to time, we understand that.

I will tell you we've done an incredible amount of work over the course of the last 12 to 18 months with the new leadership team in place building out incremental more robust capabilities, we put in place a cheap.

<unk> function and chief risk officer, we have a dedicated compliance function I mean, we've continued to mature the organization.

Over the last year, so that does that.

It continues to give me confidence that quality compliance all of these things are very important to us and we will continue to be in and we're elevating our capabilities in the organization, but to give you any specifics on what they might be focused on or where their focus is add its just too early at this point, there's not a whole lot more we can comment on at this point in time, but as we do get.

More information, we'll certainly be sharing them.

Thank you.

Our next question comes from Margaret Kaczor, William Blair Margaret. Please go ahead.

Hi, everyone. This is Macquarie on for Margaret Thanks for taking our question and congrats on the quarter.

So obviously the PCT market.

Momentum has continued.

And from our channel checks, what we've heard is there's been better access to IRA them compared to before so are there certain partnerships where that is happening more than others and then just as a follow up is there a certain type of patient you're seeing now more than previous before you kind of add these partnership.

<unk>.

Yes, no. Thanks for the question I'll tell you on the access side. We spent a lot of time over the course of 2022 really working to ensure that patients that needed access to a product could get it and nearly 93% of all patients from a commercial perspective have access into our product the.

40 of which the vast majority of which without any prior authorization for <unk>. So I think we've done a terrific job increasing access creating awareness around it.

One of the things that we're seeing in the marketplace and.

It doesn't.

The product is so easy to use and apply that in many times cardiologists are actually recommending that the primary care physicians, particularly within their own network begin to prescribe the product and have the product applied much further upstream because it helps them really identify which patients. They then need to see further downstream and spend.

Time with and so I think <unk> got the cardiologists, who are making the push for this device to be utilized in more of the primary care setting we're going directly at the primary care networks, We announced the agreement last quarter was one medical we continue to expand those with additional primary care networks that only increase the utilization.

Of the product in that primary care space and certainly elevate the awareness of the value of the products. So I think it's a combination of things both access that we're working to create and doing a nice job improving but also just creating a lot of awareness in the primary care channel with respect to how we view this product is to use and how it can help them streamline the patients there.

Caring for and where they need to go next within their network.

That's great and then just one real quick on <unk> monitor in terms of what's being assumed in the mix between monitor and <unk>. Once it does enter the full launch.

Yeah, It's a good question.

Thanks for asking.

I'd say from a guidance perspective, we're not necessarily anticipating an acceleration in volume or anything specifically related to video monitor what I would say is we absolutely believe this is a great product and there is absolute opportunity for upside with it.

But from a guidance perspective.

Nothing necessarily anything baked in specific to monitor.

Great. Thanks, again for taking my questions.

Thank you.

Thank you.

Our next question comes from Murray.

BTR Jean Marie Please go ahead.

Hi, Congrats on a great quarter and thanks for taking the questions I wanted to ask my first here on the northern pass.

Final LCD that without we certainly get some questions on it and just wanted to hear your latest thoughts on the risk around that.

LCD the possibility of spread too.

Already in our different geography, and any details you can offer on.

The number of prescriptions.

That would meet the <unk> requirement any details around that.

Hey, Barry Thanks for the question look I don't I don't view the final LCD Avenova taught us anything that gives me any concern really at all I don't think its significantly restrictive I think it mirrors quite frankly, many of the commercial policies that are already out there that that we navigate ended around every single day I mean at the end of the day you look.

Where they landed with the final position of their LCD and the reality is.

Theres a handful you can probably count 10 to 12 different sort of criteria that so long as the patient is meeting or the physician believes it is taking place enables or allows them to prescribe a patch technology and I think the initial concern but is there going to be a requirement for a 12 lead ECG to be perfect.

Before they could step into something else that's not the case at all Thats one of the 12 criteria, but they're all sort of orders if you will.

Meaning if you need any one of those significant list of criteria. So.

We view this as anything thats going to impact sort of the momentum in the marketplace again, it's very much in line with what we see with the majority of our commercial payers and if you get into the details even on the <unk>. For example, you just starting to do some market checks youre going to find that north of 80% upwards of 90% of <unk>.

<unk> are already capturing this sort of information and we're providing it like I said in the commercial payer universe.

So I don't have any concerns around it certainly we're mindful of it but it's a normal part of how we operate the business today and how the physician I believe interact with their patients today, So no real no real concern from our perspective there.

Okay. Good to hear good to hear you confirm that.

I'll ask my follow up here on the San Francisco facility. It sounds like about 25% of the volumes being processed through that facility. What are you expecting on the.

The numbers, you've given us for Q2 on guidance.

The shift toward that how is hiring and sort of all the hurdles you need to jump.

This shift more volume going on that site and thanks for taking the questions.

Sure <unk>.

So yes, we still anticipate about 50% of the full year volume running through the San Francisco Ietf no differential from what we anticipated from the beginning of the year and as you can imagine that would imply a ramp throughout the year as it stands now hiring is going well, it's still something we monitor on a regular basis, but no deviation from the contemplate.

And the original guidance.

Very good thank you.

Yes.

Thank you our.

Our next question comes from Nathan <unk> excellent wireless fall Guy Nathan. Please go ahead.

Hi, Thanks for taking the questions.

Can you talk about the ASP declines you saw as we began processing of the new national rate and how should we think about this as you shift your volumes to the San Francisco wide Etfs. Thanks.

Sure Hey, Nathan this is Brian .

So in the first quarter, if you remember looking back into 2022.

From a CMS perspective, we're still NAV.

Navigating most of the volumes through the Houston Ietf at that point it was at a lower ASP viewpoint, and we ultimately ended up pushing through Chicago. So in the specific to <unk> I would say there is actually a bit of pricing tailwind from a CMS perspective on the XP side now.

We'll say on the AP side, it's almost exactly the other way and they effectively net each other off there is a bit of overall pricing pressure, but on the and on the AP side. The national rate was established and call it 11% less than what we saw in 2022 all volumes on the AC side go through San Francisco.

In 2022, as well as 2023, so that 11% impact.

Basically the way you can think about <unk> on the commercial side that low single digits plays through a portion of that was those commercial contracts that are tied to the CMS rate. The other portion of that would just be normal course of business and contracting so effectively it came in right in line with expectations as we think about Q1 and again, that's the reason why.

<unk> reiterated the ASP guide for 2023.

Great. Thanks.

In terms of the Sierra monitor.

Over what timeframe should we think about you kind of moving all your volumes your equity volumes to the monitor and as that happens how should we think about margins.

Yes, I think from a.

Commercial perspective, youre going to see that migration, taking place over the course of 2024, obviously as quickly as we can move towards the monitor we're going to want to do that but at the same time, we're ramping production volumes were introducing some automation on the deal monitor so that we can produce that at a lower cost in time and at scale and so all of.

Those are going to play into sort of how quickly we can work through that conversion, but the hope is to get the monitor as quickly as we possibly can I think in terms of the gross margin progression bright certainly feel free to speak to that but we know that we're going to have a bit of pressure in the third quarter.

Third quarter sort of as we think about transitioning into delivery lease of monitor.

And it's not at full scale, so is going to put a bit of pressure on the gross margin. We also got to think about how we step out of the <unk> product and do we have any inventory charges that we have to look at from a reserves excess obsolescence and so we'll pay attention to those sorts of things all of which is contemplated in our forward looking guidance, but then once we get into monitoring start to really build that in <unk>.

Rapid and worked into the efficiencies of that automation I think youre going to see some benefits in that gross margin line. So.

We will give more color and clarity around that when we are ready to set expectations for 'twenty four but we certainly see Seo monitor as something that can drive some nice gross margin improvement for us into the future.

Great. Thanks.

Thank you.

Our next question comes from sustaining a high long from Morgan from <unk>. Please go ahead.

Hey, good afternoon, and thank you for taking my questions I wanted to ask about <unk> just following from the recent disruption.

It did look like strength in the quarter, but I do think going forward are you back to what feels like a normalized growth rate for <unk>. How are you factoring that into your guidance and relative growth versus <unk> and then.

Wanted to ask can you just tied in with that for you and <unk> coming out in.

In the future how youre thinking about timeframe for that if its 30 days shorter just well that's your outlook at this point.

Sure. So I think from a from an <unk>.

Perspective, celiac price sort of mentioned this in some of his comments earlier in response to one of the questions. We saw.

I'd say low.

Teams in terms of pricing pressure coming out of the AP business, yet the CMS rate that was down about 11% with respect to <unk> and on the commercial side a couple of points of incremental pressure. There. So think about it is that below.

Teams in terms of pricing pressure and we communicated that the AC business grew around 21%. So from a volume perspective <unk> was up in the mid <unk> that's.

That's down from where it was at last year, which was closer to the upper 40. So we're not back to those historic growth rates, but yet it is growing in line with sort of how we expected it would in the guidance that we set so to the degree that we can get that back up into those historic growth rates than there is upside to the financial forecast that we put out there, but thats not something.

That we necessarily want to get ahead of ourselves we want to see that show up in the results and then we can reflect it more aggressively in the in the financial guidance that we put out there, but I will say we've been pleased with the progress with respect to zero MCT.

We hope to get on file with the FDA here in the mid part of the year everything is tracking very well to that really pleased with the progress. The teams have made to get on file from an FDA perspective, and then we would look to have approval sometime out in 'twenty four and then potentially have that product into the market in the back part of 'twenty four.

Deal would be certainly to have an extended wear periods beyond the 14 days that our deal has to date not.

Sure we get all the way to the 30 days, but we're going to be a whole lot closer to it and I think start to really eliminate this.

Argument from.

A competitive perspective that 14 days may not be enough for what they're looking for.

While we don't get all the way to 30 days, it's close enough and that it starts to eliminate that.

That issue for us altogether, so I'm excited about what we're going to see with <unk> I think it's a terrific product.

I would say, we're not we're not waiting for MCT to continue to work on closing the gaps in our portfolio, we will introduce the AF burden onto our <unk> AC product here in the next 30 to 45 days or so into the U S marketplace, which continues to enhance the value proposition of that particular product for us. So there are reasons, we can get back to those historic growth rates. This.

Year, but we want to see that play out before we start to really reflected in our guidance more aggressively.

Okay I appreciate the color and then just turning again to TTP and the strength that you've seen that I don't know if there any metrics you can put around it but just how youre looking at 'twenty three contributions going through that channel versus what we saw in 2002 and from a top line standpoint, really how you're thinking about that reflected in your overall guidance range and thank you.

A quick question.

Yes, I will tell you I think a lot of the volume strength that we saw in the first quarter again, a record for us in nearly two years now is being fueled by the strength of the primary care adoption of the technology now it's interesting in terms of how it's showing up and I think you'll see a little bit of this in the.

Pistic that rice pointed out in terms of 35% of our growth is coming from new accounts and call it 65% coming from existing accounts, but what youre seeing is in those existing accounts a lot of further penetration into the account itself. It's starting to work with the primary care physician within the account versus just the cardiologists. So it's drew.

<unk> a lot of the growth in our existing accounts as well as we move into other channels of the of the account we're already in I think it's a bit too early to give specific measures around the progress with respect to PCP I think that's something we'll continue to think about into the future, but but right now I would tell you. The majority of the outperformance is really coming from these incremental channels that we're starting to really position the <unk>.

Product for but also utilizing the voice of the cardiologists just in terms of how each of the product is to tumor, but further upstream in and get into these other channels and it's quite encouraging and what we're seeing as I shared the strength of the quarter was on the back of the true underlying volume in the period itself we want.

To see that continue to play out before we update any financial guidance, but very encouraged by what we're seeing there.

Okay. Thank you.

Thank you.

Next question comes from Richard <unk> with Jefferies.

Richard Please go ahead.

Hi, Thanks for taking the questions.

I was hoping or wondering could you comment a little bit on the.

The month to month trends through the quarter, particularly as you exited in in March and kind of what.

What you saw in April .

It's a good question rich.

I will tell you in the first quarter January and February were incredibly strong months for US we did see March pulled back a bit.

And we saw that remain sort of at that lower level through the early part of April but it came back very strong in the back part of April and has been very strong here in the very early part of May as well in <unk>.

I attribute that and this is something we pay very close attention to and I think have a good finger on the pulse I do see sort of the holiday period. The spring break period through that late March early April timeframe did feel like it was a bit heavier than what we've seen historically and I think there is some other channel check that's been validated.

But what we've seen in late April and into the early part of May has been really really encouraging and something that we're very excited to be seeing and I think it comes back to why we just don't want to get ahead of ourselves at this point in time, but.

Most recent trends in the business or something we're very pleased with.

Okay. That's really helpful color and then.

Maybe just a follow up here.

Thinking about the guidance moved 16% to 18% to 17% to 19% now year over year, you just did 21% I guess.

Any color you can give on the quarterly cadence between Q2, and <unk> anything you'd you'd want to call out here or do you feel comfortable more or less where consensus is for <unk> and then b.

Why it wouldn't.

Wouldn't you hit the 20% marker.

<unk>.

Or stay in the 20%.

Are in it for a longer I guess, what's the.

What's the what's the reason why growth would decelerate. Thanks.

Yes, rich I think its a fair question and I think.

There's certainly the potential there to be at 20%, but I kind of look at it is we're at quarter ended the year.

We certainly aren't going to get out ahead of ourselves we're incredibly bullish on what we're seeing in the business, but I think there's a lot of economic uncertainty that continues to remain out there and we wanted to be mindful of that when we put something out there and tell you that where we're going to deliver on it we want to deliver on it and so I think we just need a little bit more time to get comfortable to raise it up into that 20 <unk>.

<unk> range, but certainly.

You look at the first quarter return device rates, we're not all the way back to where they were in the prior year as not all the way back to where it was yet volume was incredibly strong we grew north of 20% nearly 21%. So we know that we can grow more than 20%, but we want to see this continue to play out for a little bit of time before we get ahead of ourselves in terms of the quarterly cadence.

I look at Q2, I'll give you a bit of color around it.

Historically, we're going to drop 24, 5%, 25% of revenue into the second quarter I think thats the right way to continue to think about it sequentially, it's probably going to step up right around that 8% range or so is kind of how we've modeled it and I think that's the way you ought to think about it for the time being and if you're if you're around those ranges that I think we're all probably thinking about second quarter.

In the similar way.

And then look we'll see how volumes play out and.

And we will deal with the back half of the year as we have more calm.

Confidence in what the volumes might look like but right now we feel very good with that that backend guidance that we put out there.

Thank you and congrats on the quarter.

Thanks Rich.

Okay.

Thank you.

Our next question comes from Bill How do you go next from Canaccord. Please go ahead.

Great. Thanks, Good evening and thanks for taking my questions.

A little different I'm just curious.

Medicaid is a state by state and that's something I think before the Cat One code you didn't get paid on a lot in there.

A lot of seats you didn't even go after I'm just curious if you could help us understand kind of what have you seen since the implementation of the Cat One code and then how should we think about the potential opportunity that you could pick up from this over the next in the timeframe in which you could capture this.

Hey, Bill it's Greg. Good question Medicated is one that we're actually really coming onto our radar and frankly weeks internally set up a committee that is focused on just that and so we're really taking a state by state approach in certain situations, where we see the highest portion of our patient population.

Ultimately coming through those channels and so that honestly what you have to do you have to have a code in place not only with the cat code for broader coverage from basically the category being in place on the Medicare side, but also have that code in place with the individual states.

From a Medicaid perspective, and honestly, we're going down the line and saying which ones do we work on first some are a little bit easier to get after than others.

But we have a process, where we're working into each now I will tell you for the most part we're still covering those patient populations and what's happening is effectively <unk>.

Without payment so what youll see as we make progress is that non contracted bucket that we reported in our 10-Q, we will continue to shrink and ultimately it will shift up and Youll start to see the ASP benefits associated with it so I.

I think for US I would say, it's absolutely something we're thinking about and we're making it a priority and we're pushing it forward.

And then.

You had to quantify that like how much of an opportunity is that is dollar wise if today if all of that.

Kate that youre not getting paid for you did get paid for it some reasonable reimbursement rate.

Yes, so maybe.

Best quantified on a unit basis, where I would say effectively now maybe we're getting 25% to $30 per unit.

Can see a path that's usually a percentage of the Medicare established rate call. It 70% depending on the state so think about that as going from.

That's $30 price point up to $170, we haven't necessarily put volume out there as to what the percentages of that non contracted but it's pretty substantial on a per unit basis and again not all states will happen at one but it becomes a reasonable opportunity for us.

Okay, and then if I could just ask on international just any update on Japan designation reimbursement.

Yes, Thanks Bill.

Yeah.

Certainly excited by by Japan, I think we're going to hear very shortly sort of the high medical need designation, whether we're going to receive that or not.

I expected sometime within the next 30 days once we have that our file is ready to be submitted from a regulatory perspective and will be on file immediately. So I think we'll be filing any time here in the next call. It 30 60 days there.

They are in Japan, and hope to have an approval sometime in the course of 'twenty four and then moving on to getting it into the product sorry, getting the product in the market, but we're very close I think.

Probably quite honestly been a month or two beyond where we were hoping to be but the high medical need is something thats worth pursuing and we're going to get an answer to assume.

Thank you thanks for taking my questions.

Thank you.

Our final question comes from such a CLIA.

Please go ahead.

Can you hear me alright.

We got you.

Yes.

Sorry, I'm not sure.

Trained so pardon the background noise.

I'll ask two questions both of them together.

The zero monitor.

And its introduction for let's say the <unk> date.

Should we think about a staged approach first 21 days and then 30 days.

And what's the status of the Gateway for 'twenty, One day battery and my second question Clinton.

Where are you on the discussions with the payers for off shoring.

The report the readout was an analysis you will set up a facility in Manila curious how payers are responding to that thank you for taking my questions.

Sure. Thanks, Suraj I appreciate the question.

Zero monitor just to be clear.

The initial launch of Seo monitor will replace XT, which is a 14 day product in the initial deal monitor would be put into the market as a 14 day product, but that platform. The very same form factor is what will be used for our MCT product when we launched that and.

That's going to be anywhere from 21% to 30 days in terms of its wear period. So we continue to work through that with with respect to <unk>, but that will be the longer duration, where period now I think what you're referring to is we had put out a study. There was some trial data that was published back at ACC that has demonstrated the deal monetary.

Which again is the same form factor as was the OTT will be has very successful where.

Properties with it all the way up to 30 days. So we'll keep zeal monitor in terms of what's going to replace the OSD at the 14 day period for the time being but I think it creates some flexibility. If we wanted to think about that over a longer duration with respect to the gateway the.

The gateway is something that we're working with also to extend.

Sort of the duration of it.

Usability, if you will today, it's 14, well at 14 days with <unk>, but with <unk> I think we can get that out to 'twenty, one plus days.

If we start to look at that in a little bit of a different way to maybe where we may hear rechargeable then of course it can go as long as it needs to go on depending on how many days we have this yield MCT patch working which could be up to 30 days potentially so it gives us a lot of flexibility from that perspective.

On the payer side with respect to some of the the offshoring or setting up the Manila facility I would tell you, we're making very good progress I would say some of the largest payers. We've already worked through and have the consent to be able to process. Their claims offshore of course anything with the U S. Government, we're keeping all onshore and we're very careful about.

That from a compliance perspective and have the proper controls in place to make sure that we're monitoring that really on a case by case basis, but I've been pleased with the progress with the payers and we started with the largest payers and now we will continue to work down the list there are some smaller players.

I think it would be completely transparent with you there are some payers who prefer not to leverage your offshore capabilities. We respect that and we can certainly accommodate that in our workflow and then make sure that's the case, but.

The big payers are a pretty well understanding of it and frankly in many cases many of these big payers have offshoring capabilities of their very own.

Set up in.

In the same city centers that we're looking at setting up operations with so we feel good about that and that we've made a lot of good progress around that effort.

Thank you.

Nathan asked the question.

The management team for closing remarks.

Terrific well. Thank you I will say, we're extremely encouraged by the start to the year and the momentum that we see building within our business as we focus on driving towards our strategic objectives.

I want to take the opportunity to thank all of our teams for their hard work their dedication to really advancing our causes we aim to serve all patients who can benefit from our products and services and that list continues to grow each and every day. Thank you for joining our call and we look forward to catching up the next time.

This concludes today's call. Thank you for joining you may now disconnect your lines.

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