Q3 2023 iRhythm Technologies Inc Earnings Call

Hello, and welcome to the <unk> Technologies, Inc. Q3, 2023 earnings Conference call. My name is Alex and I'll be coordinating the call today.

If you'd like to ask a question at the end of the presentation. You can press star followed by one on your telephone keypad.

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I'll now hand, the MTO hoist, Stephanie is that alright to old Investor Relations. Please go ahead. Thank.

Thank you all for participating in today's call earlier today I rhythm released financial results for the third quarter ended September 32023, before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Any statements contained in this call that are not statements of historical fact should be deemed to be forward looking statements.

These are based upon our current estimates and various assumptions and reflect management's intentions beliefs and expectations about future events strategies competition products operating plans and performance. These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.

Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent annual and quarterly reports on Form 10-K, and Form 10-Q, respectively filed with the Securities and Exchange Commission also during the call. We will discuss certain financial measures that have not been prepared in accordance with U S. GAAP.

With respect to our non-GAAP and cash based results, including adjusted EBITDA adjusted operating expenses and adjusted net loss.

Unless otherwise noted all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for or superior to results prepared in accordance with GAAP.

Please refer to the tables in our earnings release and 10-Q for a reconciliation of these measures to their most directly comparable GAAP financial measures.

This conference call contains time sensitive information and is accurate only as of the live broadcast today November 2nd 2023, I rhythm disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise and with that I'll turn the call over to Quintin.

Oxford algorithms President and CEO.

Thank you Stephanie good afternoon, and thank you all for joining us.

Bob <unk>, our Chief Financial Officer, and Dan Wilson, our EVP of corporate development and Investor Relations. Joining me on today's call. My prepared remarks today cover business updates during the third quarter of 2023 and progress made against our growth and operational initiatives. I will then turn the call over to Bryce to provide a detailed review of our financial results and updated guidance.

Third quarter 2023 results reflected continued execution across multiple channels building on the solid momentum our teams drove in the first half of 2023 revenue of $124 $6 million in the third quarter of 2023 was in line with our expectations representing growth of 20% year over year and came from continued traction within the <unk>.

Mary care space market expansion within existing accounts and sustained volume growth across all service lines. The strength of our core business continued as we realized another quarter of record registrations and volume from new accounts at near record levels within the quarter. We were excited to have launched our new zero monitor platform. The largest launch in the history of our company. This included.

Eagerly anticipated zero monitor patch that builds upon the already best in class product that <unk> together with the new <unk> App and an enhanced on boarding experience for our patients providers I'm incredibly proud of our teams and the efforts that went into making this a reality, but we know that our work is just beginning adding to the excitement of this recent launch is.

Great momentum in the business together with exiting the third quarter with our new account pipeline the fullest it has ever been.

Importantly, volume growth was well balanced across our specialty groups, but we were particularly encouraged by the strong contributions from the primary care channel. As a reminder, we have approached the opening of this channel in two manners, one of which is increasing the prescriber base and large enterprise health systems that already had robust cardiology electrophysiology utilization and the others.

Partnering directly with large national primary care networks. The early effect of these efforts has resulted in registration growth from this channel moving faster than our other specialty channels continues to confirm our belief that a tremendous opportunity exists to more broadly open the primary care space.

Encouragingly, we have started to see examples within large national primary care networks, where customers are beginning to proactively monitor their patient populations and patching appropriate patients who meet certain risk criteria such as the M stops criteria and who may benefit from early identification of arrhythmias in some cases, we have seen these large national primary care accounts begin to.

Expand their initial inclusion criteria based upon the early success of <unk> adoption and a high diagnostic yields within their targeted populations in support of this we are proud to announce that the results of the <unk> cost effectiveness study have recently been published this was an independent external investigator led health economic analysis of Afib screening from the <unk>.

<unk> trial. The study was previously shown that two weeks of continuous monitoring was the UX T led to the detection of more afib and was associated with improved clinical outcomes at three years. This new analysis models, the health economic value over the lifetime of the patient and found that proactive monitoring for Afib and individuals' prescribed Z O patch monitors over the <unk>.

Three year period was associated with high economic value based on willingness to pay thresholds clinically we believe that earlier detection of afib or other undiagnosed arrhythmias could lead to earlier institution of Afib interventions, including ablation and rhythm control not just stroke prevention and avoidance of downstream adverse events, such as progressive heart failure.

We estimate that approximately 25% of the Medicare advantage population may be at risk for asymptomatic afib or other clinically actionable arrhythmias and we believe that is only a matter of time until monitoring initiatives such as our know your rhythm program are more widely considered and adopted overtime. Additionally, we continue to make meaningful progress with payers who continued.

To recognize the value of monitoring with zero for their patient populations. During the third quarter. We saw influential payer updates that were driven by Camelot data that has continued to highlight the clinical utility of long term continuous monitoring as a modality and <unk> more specifically and one example, a large national payer remove the need for event monitoring is a prerequisite.

For MCT coverage and instead identified long term continuous monitoring as a step through for M. C. T. In the case of Afib. They also now allow for 14 day long continuous monitoring as a step through to implantable loop recorders to date payer updates that we believe have been influenced by Camelot could impact over 16 million covered lives in the U S going forward.

<unk> into an important recognition of the value that long term continuous monitoring brings for patients and health care systems alike moving.

Moving to product innovation as previously mentioned, we achieved a significant commercial milestone in September with the launch of our next generation Xeon monitor patch. Our next generation long term continuous monitoring platform and enhanced Seo service zero monitor is gradually replacing <unk> through our ongoing phased rollout and the platform continues to build upon.

The high quality performance of <unk> that our customers and their patients have come to expect from my rhythm zero monitor is 23% thinner, 62% lighter and 72% smaller compared to <unk> T. The updated form factor was designed with patient comfort in mind and has supported 99% patient compliance with prescribed wear times.

This improved patient experience has translated to higher device return rates and lower patient complete rates compared to <unk> T. We have heard anecdotally that patients loved the sleekness of the new monitor freezer, where while accounts have enjoyed a streamlined registration process and the workflow in combination with our advanced AI efficient workflow for clinicians updated patient and <unk>.

Scriber apps and actionable clinical reports, we believe the new zero monitor launch has meant that the best just got better as part of the launch of the upgraded video monitor. We also released the next version of the <unk> Z O patient App My Z O two dato, which is focused on enhancing the patient experience. The updated app includes a refreshed user interface.

<unk> as well as new features like easier symptom logging educational videos and content and a redesigned help center to better address patient questions. We know that patients who use the <unk> app on average was two times more symptoms in patients who do not use my <unk> and we believe that more symptoms logged means improved symptom rhythm correlation and bedroom.

<unk> diagnosis patient digital engagement has also been associated with higher monitor return rates and the operational efficiencies for IRA them, although the <unk> Z O. Two dato launches in the early days, we have already seen a substantial increase in the percentage of zeal monitor patients downloading the app and we believe this will continue to increase over the coming months and I rhythm the patient is at the <unk>.

Center of everything that we do and with that in mind. We also launched additional enhancements to our patient support processes to assist navigating insurance coverage questions and prior authorization requirements to ensure that they are able to get access to the care that they need we continue to rollout zeal monitor and accounts throughout the United States with approximately half of all accounts, having been transitioned to XOMA.

Thus far as previously noted to the investment community many new accounts to further onboarding during the third quarter, while they waited for Zillow monitor to be launch so that they did not have to be trained on <unk> only to require training on Z O monitor a couple of months later as a result, we ended September above our normal pipeline levels and are excited to bring these new accounts onboard over the fourth.

<unk> also on the innovation front. This past week, we continued to improve our product and its value proposition to customers through the commercial introduction of Afib burden estimates into the daily reports for our current Z O a T service afib burden or the proportion of time, a patient spends in afib over the analyzable wear period has been associated with a higher risk of stroke.

As well as a higher prevalence of heart failure, while knowing that a patient has afib is an important first step for their treatment journey a physician knowing how long the patient is in Afib and how Afib is behaving can guide how to treat that patient more rapidly and more accurately. Thus. The addition of Afib burden estimates to the daily reports is an important clinical feature that physicians can.

Consider when altering patient treatment pathways during the wear period and when managing patient responses to medications and procedures. This dynamic clinical tool was long requested by our physician customers and demonstrates our continued commitment physician led innovation that drives value for our customers and the patients they serve.

Turning to additional pillars for eye rhythms long term sustainable growth, we continue to be excited about the upcoming entry into the second largest cardiac monitoring market in the world having received a high medical needs designation from the Japanese MH L. W has created significant interest with potential commercial partners that we are currently evaluating as we settle on our plans to enter the market in early.

2025 at this time, we continue to engage with the Japanese PMT a honor shown in submission are working collaboratively with the review team to address their questions and plan to continue our engagement in person our application clearly has their attention and their focus and we look forward to providing you with additional updates as our discussions progress to eventually serve this growing.

Population, we're also thrilled to announce the formal opening of our global business Services Center in Manila that took place during the third quarter in September we hosted a ribbon cutting ceremony to open a new permanent office space, there and our Manila team now includes almost 150 team members, who are part of IRA them as global clinical operations customer care Finance home.

Resources information technology, and revenue cycle management functions recruitment and on boarding have continued at a rapid pace and we've been pleased thus far with the high quality of service that our newest team members have started to provide to patients customers and internal stakeholders. This has been a critical step in not only transforming our way of doing business of today, but also.

Ensuring that we can scale efficiently into the business of the future that we aspire to be we will continue to make progress in driving operational excellence throughout the organization positioning the company to maintain patient satisfaction scale globally and perform more efficiently lastly, we would like to provide an update on the status of our interactions with the FDA. Following a receipt of a warning letter on May.

<unk>, 25th which focused on our Z O. A T system, an alleged nonconformity is related to medical device reporting requirements and quality system requirements since receipt of the warning letter we have submitted a thorough response to the fda's concerns have had ongoing and collaborative engagement with the FDA and have previously agreed to make their requested labeling changes that allow us to continue to market zero.

T as a device for ambulatory MCT services. Additionally, we proposed enhanced design features to the product that further address areas of focus and have continued to work with the C. D. R. H product review team regarding changes that occurred under letters to file following our recent meeting with the FDA, we have aligned on a path forward, which will include submitting a five 10-K.

As a catch up for changes previously made to the Z O a T system as a letter to file as well as a five 10-K submission for the design features and labeling updates previously noted we are currently working on the content with a five 10-K submissions and expect to submit the first five 10-K by the end of the year.

I'll always subject to change until their review is completed we are pleased with the progress with the FDA and will continue to work collaboratively with them to address their concerns.

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

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 third quarter results demonstrated continued momentum in our core markets as we reported revenue of $124 6 million or 20% year over year.

Growth as Quintin mentioned this was driven by strong volume from new accounts opened in the prior 12 months continued penetration of existing accounts and reduced account churn new store same store mix with new store defined as accounts that have been open for less than 12 months accounted for approximately 33% of our year over year volume growth home enrollment for zero services.

Was approximately 21% of volume in the third quarter average selling prices during the third quarter were down slightly year over year and up slightly quarter over quarter moving down the rest of the P&L gross margin for the second quarter was 66, 2%, representing a 330 basis point decline compared to the second quarter of 2023, and a 210 basis point decline.

Versus the third quarter of 2022 as previously discussed we expected temporary pressure in the third quarter. This pressure was primarily driven by costs associated with the transition from <unk> to the new zero monitor, including a $3 $1 million excess inventory reserve related to the legacy <unk> product.

Additionally, the marketplace reaction to zero monitor has been very positive, resulting in a faster than anticipated transition from <unk> that is expected to create near term temporary pressure on our gross margin as a result of accelerated recognition of the cost of our legacy X T components. Our operations teams have been laser focused on our ability to ramp capacity for Zia.

Monitor which over time has a better gross margin profile. While these items were contemplated in our prior guidance the accelerated transition from <unk> to zeal monitor has resulted in higher than anticipated transition cost absent. These costs. During the third quarter gross margin would have been very comparable to gross margin we experienced in the second quarter of 2023.

Third quarter adjusted operating expenses were $107 1 million up seven 4% sequentially and up 19, 4% year over year sequentially increased spend was driven by head count related costs to support growth in our business advancement of current and future product offerings and increases in software and hardware costs to support growth in our infrastructure.

Sure as we've previously discussed we have also incurred elevated legal and advisory fees for activities associated with the ongoing FDA warning letter remediation and Doj subpoena compared to the third quarter of 2022. This increase in adjusted operating expenses was primarily due to increased personnel to scale with operations.

The net loss in the third quarter was $24 1 million or a loss of 79 cents per share compared to adjusted net loss of $13 $1 million or an adjusted net loss of 43 per share in the second quarter of 2023 third quarter 2023 business transformation costs were $3 million in line with expectations as we are finalizing our transition towards <unk>.

Business Services Center adjusted EBITDA in the third quarter 2023 was <unk> 4 million, reflecting a decrease of 4 million sequentially, but an increase of $3 million year over year. We continue to stay focused on sustainable improvements to our operating leverage profile.

Turning to guidance, we are increasing our 2023 outlook to reflect anticipated full year revenue growth of approximately 19% compared to 2022, representing a range of approximately $487.5 million to $490 million. We continue to anticipate that the fourth quarter will be our strongest volume quarter of the year and have been pleased with strong demand for.

Zero services, thus far this quarter. However, we do anticipate mid single digit pricing pressure compared to the fourth quarter of 2022 due to a difficult year over year comparison and average selling prices considering the gross margin pressure in the third quarter as well as the ongoing cost anticipated with the accelerated recognition of zero legacy XD circuit boards, we are updating our gross.

Margin guidance to a range of 68% to 69% for the full year. We also now believe that adjusted operating expenses in 2023 will range between approximately 425 and $429 million. These increased costs consider ongoing legal and advisory fees tied to the FDA warning letter remediation and Doj investigation.

As well as elevated compensation expense offset by continued thoughtfulness on operating expense management within the organization. We continue to believe that adjusted EBITDA margin for 2023 will range between approximately zero and 0.5% of revenue our adjusted EBITDA guidance continues to reflect focused on a sustainable improvements to our operating.

Leverage profile as a reminder, adjusted EBITDA will continue to exclude restructuring cost business transformation costs and stock based compensation expenses. In 2023, we continue to anticipate incurring approximately $15 million to $20 million of 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. Finally, we ended the third quarter in a strong financial position with 150.

$8 5 million of cash and short term investments to drive continued growth in our core business invest in innovation and lay the foundation for future expansion with that Quintanar, Dan and I would like to now open the call for questions operator.

Thank you.

If you'd like to ask a question a compressed style followed by one on your telephone keypad.

If you'd like to remove your question you May press Star followed by two please.

Please ensure your unmeet likely went upscale question. Please limit yourself to one question and one follow up question Emily Thank you.

Our first question for today comes from other than Gulf of J P. Morgan Alan.

Alan Your line is now open. Please go ahead.

Yes.

Hi, Thanks for the question I wanted to start off with just one question on guidance you raised to the upper half of the prior range off the back of the quarter, but when we think about the fact that you are rolling out a video monitor.

And you have kind of deferred these account openings as they wait for the launch why shouldn't that be conservative target right, where you essentially you know maybe pushed out on the account openings. As you said your pipelines really healthy into maybe fourth quarter or should we expect that to be more like an early 2024 benefit.

Hey, Thanks, Alan This is Quentin here look I think certainly the way you frame it up.

Youre right Theres the potential for that to be the case, but we want to be thoughtful around it one of the things that we're experiencing frankly is that the monitor has been so well received in the marketplace. Upon its launch that we're having a hard time with our existing customers sort of transitioning them from from XD on to monitor at the pace. We originally anticipated it frankly happening a whole lot.

Faster than what we had originally thought that it could be and the reality is that once these existing accounts get some experience with the monitor or if theyre part of a larger enterprise network National Network Regional network, and an account or to get experience with monitored the entire network want to convert over and so we're spending a lot of time converting.

As existing customers onto monitor which is not allowing us to focus as much around the whole expansion effort to go deeper within those existing accounts right now and I view that very much is sort of a temporary.

Matter as we navigate through getting monitor rolled out into the full market.

It does impact the ability to grow at the same rate as you were just focused on converting folks over in training them up versus going deeper into existing accounts I think we get through that in the relative short term and then the growth potential is really exciting with monitor to your point that the new accounts. The pipeline that is there is as strong as we've ever seen.

A lot of that to monitor but also to things like Camelot, that's getting out to the marketplace in articulating the difference in the value proposition that we have with <unk> versus these other competitive offerings that are out there, but I hope that color helps.

It's nothing but great news on the monitor side, and frankly, just bringing our existing accounts on it a little bit faster pace than we had originally expected.

Thanks, and then just a quick follow up on a T as well it sounds like you have the situation of the warning letter fairly in hand, and it's really encouraging to hear that you have a path forward, but you had previously talked about how if you do go through the cash of 500 10-K route and it sounds like youre going to need to.

<unk> case, correct me if I'm wrong.

So that could maybe delay out of the U S E T. Even further maybe.

That incorporates a newer features do you have any updates on your plans for the nexgen.

Thank you.

Yes based upon all the conversations with the FDA at this point I continue to feel really good around the MCT timelines that we've put out there I don't think theres any change to those from our perspective.

To be honest, we're having discussions as we speak with the FDA around the catch up five 10-K pathway and whether that can be submitted.

In parallel with the design enhanced features that we're putting onto the product so that the patient notification to light as well as some of the notification features in vivo suite itself. So we're working with them. This is a bit of a.

Unique scenario, if you will that we're operating underneath a warning letter usually the <unk> would be filed.

In sequence to each other but things could look a little bit different here as we continue to work with them and theres always the possibility it could be in parallel, but I continue to feel good about the overall timelines with MCT right now.

Thank you our next.

Next question comes from Margaret Kaczor from William Blair.

Margaret Your line is now open. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my question.

I wanted to maybe look at 2024 in part because it just sounded like there was a series of meaningful commercial product catalysts, obviously monitor maybe improve workflow and patient provider and then can you talk about improved reimbursement access and even coverage of workflow improvements towards the asymptomatic coverage. So I think that's.

Of these four or five different drivers.

How do you look at the richness of the series of catalysts and why Shouldnt stay drives accelerated growth for revenues in 2024.

Ultimately it tastes late in getting you to that 20% plus growth range.

Hey, Margaret it's gluten again.

Certainly we're excited about what's in front of us for 2024, we're not going to get too far out there and start to guide around.

The year itself, just yet, but when you think about the exciting things that are coming about to your point <unk> got monitor that's going to be in the market for a full year and working into a full conversion of it and frankly, I think that youre going to see some benefits on the return device right that come with monitor relative to XD, which could be a nice tailwind for us.

I think we finally worked through the overhang of <unk> with the FDA as well and get that behind us.

The traction we're seeing in the primary care space and that's been incredibly encouraging to us.

I still believe that theres, the opportunity, where youre going to see the market expand as primary care becomes much more comfortable with utilizing the.

The <unk> product and I think that's just a matter of education and folks realizing how easy it is to.

To use it.

At the same time, you know as we think about 'twenty for the original expectations that we had for 24 frankly had is contemplating a much.

More competitive MCT product originally as we came into the year and now we know that thats going to be pushed out a bit and we've talked about that so we just we need to be thoughtful around those sort of things and obviously, we are dealing with an incredibly uncertain macro environment and geopolitical matters that we just need to be thoughtful around and we'll see how those come together, but I would tell you we.

Bill incredibly bullish around the momentum in the business. When you look through the first three quarters of this year momentum is clearly picked up it's the strongest we've seen in the business in a long long period of time, and I think 24 sets up really nicely for us as well.

Okay.

So maybe we can dive into the <unk> launch itself I think a lot of folks are suggesting you referenced yourself as kind of benefit return rates of devices.

Maybe a little bit more efficient.

Do you expect this very seamless drive new account adoption or utilization above what you thought so far and I guess any stats.

Towards that.

Yes, I think it's still a little bit early market certainly in the market evaluations, we see very good results with respect to return device rates, we need to see that now play out across the.

Much larger populations that we're beginning to introduce the product onto but I think we all feel very good about the fact that with the improved form factor the improved where experience the likelihood of the patient compliance and getting that product back to us as is much better than what it was with equity. So we feel very good about where we think thats going to go we're going to want to see the results.

Go up before we start to guide that way, but I think the opportunity is significant and the other thing I would point to and I think the team did a wonderful job with this with our <unk> App is that we're seeing a much higher degree of patient engagement with our app on monitor than we did with XT and we know that when we get patient engagement on the app that the return.

Rates generally look much better, particularly in the home enrollment aspect of the product. So in time as we rolled monitor out and get it into the clinic and then on into home enrollment I think that the App experience is something that can benefit us as well.

Okay.

Thank you next question comes from David Saxon of Needham Your.

Your line is now open. Please go ahead.

Great. Good afternoon, guys. Thanks for taking my question.

Just wanted to start with the PCP primary carrier strategy I mean, it sounds like that's really driving.

Growth in registration so can you size that channel for us.

How big is it today and how where does it go over I guess your RFP.

And then second to that it seems like that can be a fairly scalable channel for you guys. So so when you think about the primary care channel as it relates to your progress towards profitability, but how does that.

Hope you guys.

Get there and I'll have a follow up.

Perfect. So I'll hit the first part of that and then I'll have Bryan speak to the profitability aspect of primary care.

I think we've been pretty clear with respect to how we're getting after primary care I touched on it in my prepared remarks.

One has to go right at the existing accounts and these large enterprise networks that we already have a significant presence with the cardiologist and the EP they understand the easing and value of the product and how easy it is to prescribe and apply and then ultimately get the report back in and we're having a lot of great success with moving upstream in those enterprises through the prime.

Great care physician and seeing the prescription take place there.

Ultimately I think it has the potential to meaningfully expand the amount of prescriptions within those networks as they see how easy it is to use and then really start to understand better what the patient is presenting and exactly what care pathway. It ought to go down. The other is the large primary care national accounts. If you will the national networks that are out there.

The one medical and that sort.

We've been really encouraged with the uptake and the adoption that we're seeing there even down the path a bit of how we once thought about know your rhythm. If you will of proactively screening populations of <unk>.

People one of the encouraging things we saw in the quarter was the fact that in one of these large networks. They had identified sort of a preset set of criteria that they were going to put a patch on each one of their patients.

Such terrific results with it that they ultimately expanded that out to match that of M stops and we're excited to see what that is going to ultimately.

Generally for us into the future, but I think what's happening is the realization of.

Proactively identifying these targeted populations and then seeing what they can find with this patches is terrific that has the potential to really expand the market. When you think about the number of patients who are going through the primary care channel today. I mean, there is 14 to 15 million folks already who have.

Heart related palpitations identified in their medical records I think theres, an easy argument that we are putting a patch on the majority of those patients.

Considering what they are presenting with and today, we're talking about a market.

Five to 6 million ACM tests being prescribed each and every year. So you can start to do the math when you think about expanding that from five to six.

The $14 million or even more of that show up in the primary care space that that gets really exciting and frankly in the long range plan that we put together we did not contemplate that primary care would open up to the $14 million.

We firmly believe there is potential there, but we wanted to see that play out before we started to bake it into the number so that does not have a big impact in the MRP as currently designed but I think it's a nice tailwind in all of it I'll, let Brian speak to the profitability side David.

David I think it's a good question in our mind as it is.

Currently sort of working through the system with moving up.

The care continuum for it being primary care than cardiologists, there is not a large difference in the profitability profile. If you think about it we're calling on these accounts anyway, it's just being serviced by a different clinician within the network. So not a lot of change there it even these large national PCP.

Sort of organizations.

Anything that profitability might be slightly better because we're doing really a top to top selling method rather than individual accounts. So the need for the sales force itself is relatively small and it's within the organizations, where we're still continue to see and I will.

If this comes in the form of.

More of a revenue share or something else there may be a different profitability profile, but as we're seeing it manifest in its current form there is not much deviation if anything it could be a little bit more efficient for us depending on the sales model.

Okay, Great. That's super helpful price, maybe sticking with you I think in your prepared remarks.

Just running through the growth drivers you noted reduced account churn.

So I guess on the competitive front historically why have accounts.

Rolled off the old platform and then what what have you guys changed recently.

To reduce that.

Sure. Thanks, so much.

Sure of course this has been one of our areas of focus over the last few years and it's deeper penetration of existing accounts, but also reduced account churn in and what we've done is we've put what we call a camera or a key with key account manager role in these large accounts that are effectively on site and servicing these accounts.

Our regular cadence, it's not just the folks out there sort of a 100 gathering model. It's not just the hunter out there, but it is instead, the gander or making sure that they're servicing those accounts, providing feedback helping trading new folks within the clinician offices et cetera, and we're seeing with those activities actually really nice results with less folks coming.

Off and frankly operationally I think we've done a lot better in the last couple of years as well when you think about the throughput from our clinical ops organization as well as the timeliness of getting the product into the field. So theres been several different factors, but it's been a focus of our organization and it's a testament to what our commercial team is doing without they're actively.

<unk> selling in existing accounts going deeper, but also making sure their services the way they should be.

Great. Thanks, so much and congrats on the quarter.

Thanks.

Thank you. Our next question comes from Nathan <unk> of Wells Fargo.

Please go ahead.

Hi, Thanks.

Congrats on the quarter.

I wanted to just to clarify can you continue to market. The <unk> volume file both 500 10-K's and then.

Will it continue to be marketed as an MCT device and in the interim while you kind of work on these five 10-K filings do you expect any impact to.

Volume thanks.

Yes.

Yes, we absolutely can continue to market <unk> is an MCT device and we've reached alignment with.

With the FDA on that aspect.

With the one aspect and we've talked about this there's some enhanced labeling.

That we're going to make available and that's actually part of the five 10-K submission that will make here before the end of the year, but it's something that we've already aligned with the FDA on so yes to your question of can or is it continued to be marketed as an MCT device that answer is yes, and yes based upon everything that we've had.

Discussions around with the FDA. There is every intent that we will continue to be in the market as.

As we submit these catch up five 10-K in the five 10-K with the new enhanced design feature.

Of alerting the patient through the light on the device and sweet.

Updates with respect to trigger limit. So we don't expect any disruption in the business at all there is the potential that we could even get on file with zero MCT, while the FDA is reviewing this.

This is something that is more of an internal prioritization and our focus on continuing to build out the MCT capability. While we continue to address the concerns that the FDA around <unk> and make sure we do that in a satisfactory way.

So nothing is going to hold us from back from continuing to progress on MCT, while <unk> stays in the market and it's why we continue to be excited about the potential of that but our focus is first and we want to get that resolved with the FDA and then we'll move on.

Okay. Thanks for that and so you spent a good amount of time talking about that and stops health economic data I guess at this point how are you thinking about the silent afib opportunity getting into USPS TF guidelines and when could this potentially become a more meaningful driver for your business.

Yes.

Yes, I think we continue to be very excited about what the potential is out there to proactively be monitoring and screening if you will the asymptomatic population.

We see the data have been stops were seeing the data come back in in a real world setting with many of these large.

National primary care networks, who are applying some of those criteria. So we understand the value of it getting getting the USPS TF. The move is a significant.

Hurdle and something that I think would really open up some of the doors.

To enable better screening and on a wider basis, but it's not something that we're going to sit back and wait for we're going to continue to approach the commercial payers in particular around the value proposition of <unk> stops and we know that these at risk entities and when.

When you look at the value in terms of the incremental cost effectiveness ratio is that most folks will pay attention to.

Anytime you see.

The ability to impact and many times you will see 50000 to $200000 of incremental cost incremental cost effectiveness ratios be something that these payers deemed to be up high value. When you come in under that so even less costly which we're at now in the in stops published data around 36000.

It conveys that there is meaningful value to proactively look for these opportunities to identify arrhythmia is dangerous arrhythmias and care for them. So I think it's just a matter of time I can't tell you exactly how much time that is or how quickly. It goes we're going to continue to work with the commercial payers, we're going to continue to work to influence USPS TF, but.

I can't tell you exactly how quickly it goes I do think it's a terrific opportunity probably 12 to 13 million patient opportunity in our estimates.

We just do the math on that Medicare advantage population and the likelihood of who has.

With me is that they're unaware of.

Thank you.

Thank you.

Question comes from Rich <unk> of Trust.

I'll open up please go ahead.

Hi, guys.

I'm on for rich thanks for.

Taking our questions I'll just ask the first one on the margin and just as we think.

Directionally into into 2024.

A lot of moving parts in <unk>, how should we think about that just directionally versus maybe the first half or is the <unk> number really where should we should be thinking about the jumping off point for margins into next year.

Yeah. So just to clarify we're talking gross margin or are you talking adjusted EBITDA margin.

Sorry gross margin.

Okay. Yeah. So there are some moving pieces in here.

We've been sort of alluding to the fact that we were going to have a bit of temporary pressure in Q3 for the last several quarters and we saw that experienced.

This quarter it was a bit bigger, but I think in.

Our mind, the navigation to zero monitor, which ultimately comes at a better gross margin profile over time. This is actually a good thing now it's again, it's a bit more costly in the short run, but I think ultimately over time it allows us to scale much quicker than what we would've probably been able to.

We will incur these accelerated utilization costs. If you will through the remainder of 2024 and that's when ultimately <unk> will be sunset it and ultimately those costs will go away.

So there will be some continued.

Extra costs associated with the utilization, we're thinking it's probably 50 to 100 basis points or so it will certainly give much more color on 24 moving forward.

But that by no means is.

Is the only thing that's happening within gross margin right. So the $3. One we talked about with excess reserves will not reoccur. It's just this accelerated.

Realization of the legacy cost that will stick around for a period of time.

But that's a much smaller component and frankly that will be burned through by the end of 2024. So that's what we're thinking now, but we will give much more color on 24 moving forward.

Okay. That's that's really helpful. And then maybe if you can talk a little bit about the accounts that are currently using.

Yeah.

I mean with the new products there.

How should we think about growth in accounts that are legacy cans I know a lot of the new accounts have come on with <unk>.

With monitor but <unk>.

In accounts that are existing accounts that have started to use Monica can you.

Give us any color on what the growth rate for those accounts is how thats transitioned from before and after they adopt it.

Yes, I will tell you it's still very early in the days of seeing those results. We've been encouraged to date one of the things Brian Rice commented on in his prepared remarks, nearly 70% of our growth is coming from existing accounts I think that the monitor in those accounts has the potential to drive that even further as we can.

Because when you look into the accounts that we're in today, we probably have in the mid 30% market share of those existing accounts, meaning you have a lot of cardiologist EPS, even pct's, who are using our product, but there's a whole lot more within those accounts that are still not using the product and they might be using older technology is still on the holter.

When you start to see this product and how easy it is to use in the patient reviews that are coming back from it I mean, our NPS scores in the early days on <unk> monitor our north of 90% that's almost unheard of I do believe that's going to start to have an impact in these existing accounts that are going to drive further adoption even beyond what we've seen to date so.

I think we got to see it play out a bit.

As I mentioned the early focus right now is converting these existing accounts off of equity on the monitor and then the focus will go back to going much deeper and broader and expanding within those accounts, but I think monitor only helps us do that over time.

Thank you.

Next question comes from Bill <unk> of Canaccord.

So open please go ahead.

Hey, Brian It's John on for Bill Thanks for taking my question.

When I go back to your comments on the large national primary care networks that are proactively monitoring their patient population is this the at risk pricing model today or essentially.

The at risk pricing model and maybe could you just explain is the pricing different than if you're asked to stay a symptomatic patient where insurance that normally cover it.

No I will tell you at this point in time, we're not utilizing the at risk pricing model that we do have our first pilot will finally get launched here shortly around the <unk> asymptomatic population with an at risk entity, where we start to think more around the traditional know your rhythm model that we have.

As discussed in the past, but right now with these large national primary care networks.

We're not sharing in that risk. This is these folks understanding the value of better identifying earlier in the care pathway exactly what they're dealing with and then being able to better care for that patient and avoid downstream unnecessary cost and I think when you start to understand these large national primary care.

It works in many situations, they're working with payers to where they can better. They believe they can better care for the patient itself and capitate, our cost of care for that patient and so anything that they can do to better care for them and eliminate cost of caring for the patient that becomes margin to them.

They see the value in that themselves to where they're willing to go sort of at risk and apply more devices on a broader population that is well targeted knowing youre going to find arrhythmias and prevent the downstream costs associated with it. So we have not had to deploy the at risk model just yet I still do think there's a place for that in time.

But that is not part of what we're seeing right now.

I appreciate that and then just on the pricing pressures that you noted, especially Q4 and Q, but could you just talk about your progress in checking the CMS volumes at San Francisco <unk> are you still targeting 50% volume by the end of this year and then if we think of next year will that number grow north of 50.

Thanks, guys for taking a question.

Sure sure Yeah. So.

Jonathan Nothing has changed with the plan and the move to San Francisco I will tell you.

At the end of Q3 and into Q4, it's a little bit slower than what we had anticipated I think a couple of different reasons first of all we sort of evaluated what should San Francisco.

And for US I think it's really important for us to be a center of excellence right. So we need to make sure. We're hiring those folks that live up to that algorithm of standard and truly serve as the as the.

The center of excellence that will ultimately allow us to continue to navigate more volumes through San Francisco, and well and we will plan to do that it will fall a little bit short of 50% that we outlined originally.

But you can see from our guide we've been more than able to offset that with the volume contribution from the business and so on.

But nothing has changed in our long term plan and do we have the opportunity of going above the 50% absolutely we do and that will still be the plan as long as it makes good economic sense for us to do so.

Thank you.

Yeah.

Yeah.

Thank you our.

Our next question comes from David Rescue itself Bad day.

David Your line is now open. Please go ahead.

Hey, guys. Thanks for taking my questions. Congrats on the quarter here just a quick clarification clarification question on some of the Q4 pricing pressure I think you called out pricing as that.

A kind of year over year headwind on pricing or is that more or less related to <unk>.

Just the higher pricing you had last year, given the mix towards higher reimbursed.

Reimburse Max.

Yes, that's exactly what it is David if you remember a large portion of our volume was going through the Chicago Mac last year.

That was at a roughly $340 oil price point as you know the national rate being in place. This year, though it provides tremendous benefit because it removes the volatility that we've experienced and allows us to utilize all three etfs. It is much lower than that $3 40 that we were able to experience in Q4 of last year. So that's really.

A dynamic of where the volumes were going through from a CMS perspective last year and the way I like to sort of bridge. The gap on this if you look at the midpoint of our range call it $14, 5% revenue growth.

You layer on five to six points of pricing pressure year over year, which is what we.

Are experiencing that gives you right back into that 20% level and that helps you understand sort of the moving pieces with the guide for Q4.

David.

Got it.

But I was just going to say.

To your point is it more of a prior year issue or anything we're seeing in the business. This year absolutely nothing we're seeing here in the business say from Q3 into Q4 everything is right in line.

<unk> point, it's much more about.

Last year in the higher Mac rate that we were dealing with but I would just point out as well most of these discussions with large national commercial payers. These discussions have been at or in the midst of and nothing that gives us any meaningful concern around pricing heading into 2020 for either so I think we feel good around the pricing environment.

Finally after years of having navigated this from a reimbursement perspective, we see some pretty steady and stable pricing and feel good about that on a go forward basis.

Okay.

Nat I guess outside of any changes to maybe what national reimbursement in Tri County for nothing new on the pricing front is that right.

Yes, nothing new on the pricing front, and frankly, I think CMS just dropped their final rule in the midst of our call right here and it looks like everything is right in line with the proposed rule from everything that we can tell so I don't expect any any meaningful noise around price as we head into 'twenty four.

That's great news.

Okay, Great and then just a follow up on margins next year I appreciate the comments kind of on the gross margin side.

When you think about the $15 million to $20 million or so in this adjusted Opex. That's getting worked through this year are there still opera.

Opportunities into 2020 for either that you are still working through or new opportunities to get into where you can work on improving kind of some of the underlying margin aspects of the business and really any color on how we should think about maybe margins improving into 2024 more on the opex or does the EBITDA side.

Yeah.

So there are absolutely other opportunities I will tell you us having.

US having the GBS setup now now it allows us an area for us to look at other opportunities where there are functions that could have some presence over there and so really this year was the foundational year of setting up the GBS, but also putting in place some some.

Outsourcing opportunities and some other levers that that $15 million to $20 million allowed us to stand up and so that will allow us leverage well into the future and we're excited about that.

For me I think it's important to understand over the last two years.

We've created about 100 basis points of adjusted EBITDA benefit from 2022, and then into 2023 with where we are from the guidance perspective, we're seeing major movement in major leverage and we're well on our way and we absolutely believe that 15% range in the long run.

Is achievable and again, we will do our best to drive that I'll just quickly as we possibly can.

Okay, great. Thanks.

Thank you next.

Next question comes from Marie Thibault from <unk>.

It's now open. Please go ahead.

Hey, Good afternoon. This is Sam on for Murray, Thanks for taking the questions.

Maybe I can just start here on Camelot and Quentin maybe some of your comments on changes in payer policies.

Just trying to understand how widespread that is maybe those changes and prior authorizations and maybe if that's enabling quicker pull through of patients onto the <unk>.

Well I think you go back to my prepared remarks, it's early days, but the early success that we've had already has the potential to impact more than 16 million covered lives just by reducing or removing sort of the prior off required of the holter before you step onto a long term monitor.

That's encouraging and I think Camelot data is very very clear.

Not specific only to long term cardiac monitoring relative to these other modalities, but specific to zero in particular and when the payers see that when the at risk entities see that it gets their attention and we're having more conversations than we'd ever had around why exactly is different and better than the competitive offerings that are out there historically it has.

And then long term cardiac monitoring as one and the same and they're all the same.

Having more conversations today than ever around why is unique and why it's different and.

When we have the opportunity to get our CMO to sit down with the CMO in these plans.

Our chances I think we've seen some incredible success, when we're able to really articulate the differentiation around it and couldnt be more bullish on what Campbell us doing into the future as a matter of fact.

We're not stopping with Camelot as it is today I think there's the opportunity to expand that into other.

Datasets that we can start to articulate our value as well and make this an even stronger argument so you're going to continue to see us invest in those ways.

Got it well understand it will be certainly looking after those new datasets maybe.

Maybe I can just use my follow up here on international I Might've missed this in the prepared remarks, but.

Have you got any initial feedback yet on the Japanese regulatory submission I know it was pretty recent so it might still be too early but any feedback you've heard from there and as of late 'twenty for early 'twenty five still the right time to think about maybe some initial revenue contribution once you start to build reimbursement there. Thanks.

Yes, it's a great question.

And the reality is yes, we absolutely are engaged with the Japanese regulatory authorities as we speak they came back very quickly with our submission, which I think articulated in sort of identified just how excited they are to get this new product into their market and again, having the high medical need designation is significant.

That market and I want to reiterate it's not high medical needs specific to long term patch monitoring. This is high medical need specific to zero in particular, and so I think it has their attention we're engaging with them. It's a matter of fact will be in person with them. Later this year and as we continue to work through this but they're very much engaged in that.

Questions are going back and forth as we speak right now.

Really helpful. Thanks for taking the questions.

Thank you next.

Next question comes from Suraj Kalia from Oppenheimer.

Your line is now open. Please go ahead.

Good afternoon Clinton price can you hear me all right.

We got you.

Perfect Congrats on the quarter.

So two questions Quentin.

Put them in right away.

First in terms of.

The ITT F in Philippines Quintin how.

Should we think about the commercial scripts going out there throughput over time and part of the reason I ask is if you look at SG&A currently.

Hey.

It's pretty elevated just trying to understand how youre thinking about the synergies and the timing of the synergies that.

That would be one question and price if I may follow up on an earlier question I think someone asked maybe I didn't get this but what percent of your current U S scripts through the PCP channel gentlemen, Thank you for taking my questions.

Sure. Thanks, Raj so with respect to the ICF in the Philippines, Our offshoring that is maybe the better way to think about it.

One we work with all of our payers to get consensus before we'll do anything offshore with with respect to clinical operations. So we're very specific payer by payer in terms of what we take offshore what we keep here and frankly anything government related we don't we don't take it offshore it's all done here in the U S and so we're very mindful of that.

But it does provide a very nice cost synergy for us importantly, though.

The decline off so the DCF itself does not show up in G&A that primarily shows up in cost of sales. So your point there is still a relevant one on G&A.

A high component of the overall spend profile that gets into other back office functions like RCM.

Finance it HR all themes that we've begun to leverage the GBS four and will drive some nice benefits for us in the cost footprint over time.

But those are more of what's making up the higher G&A spend as we speak in terms of the timing of the synergies I think that will let this play out over time and will begin to roll those into our guidance as we speak we're beginning to see a really nice benefit.

In 2023, but at the same time, we had some duplicative costs. This year as we stood those up so you didn't see the full benefit play through but those are going to be really nice.

Margin drivers for us over the planning horizon that we've laid out.

With respect to.

What was the last part the PCP channel contribution.

We haven't commented on that specifically I will tell you, it's increasing nicely for us I do think there'll be a point in time in the future here, we'll call it out and give you some more color around exactly what it is I don't know if its something were going to comment on each and every quarter, but maybe we can give you a data point once a year. So you can track our progress, but we have not commented on that to date.

I appreciate it thank you.

Thank you. We currently have no further questions for today, so I'll hand back to the management team for any further remarks.

Terrific well. Thank you all for joining us today I can tell you. We're extremely pleased with our results for the third quarter and the momentum that's being built in our business through the first nine months of the year as discussed our teams have been hard at work and they've delivered many significant milestones during the quarter I could not be more proud of their hard work.

The underlying momentum in our business, it's never been stronger than what we see it today and the future of our company has never been brighter than what it is right now.

Look forward to connecting with many of you over the next couple of months as we wrap out an outstanding 2023 and begin to look ahead into 2024, thanks, a lot and take care.

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

Yeah.

[music].

Okay.

Okay.

Yes.