Q3 2024 iRhythm Technologies Inc Earnings Call

Hello everyone and welcome to I-Rظam's third quarter 2020 Fall earnings call. My name's Lydia and I will be your operator today. After the prepare to remark, you will have the opportunity to participate in the Q&A with the management team. To keep the questions, please press star for the by one on your television feedback.

Speaker Change: On our hands you over to Stephanie Zhadkevich, director of investor relations that I risen to begin. Be go ahead, Stephanie.

Stephanie Zhadkevich: Thank you all for participating in today's call. Earlier today, I rhythm released my initial result to the third quarter ended September 30, 2024.

Stephanie Zhadkevich: 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 security's laws. The similar to the state's harbor provisions of the private security's litigation reform act of the state's legal rights.

Stephanie Zhadkevich: and a statement's container is called at an at-statement of historical facts, to be deemed to be forward looking statements. These are based upon our current estimates and various assumptions, and reflect management intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance.

Stephanie Zhadkevich: The statements involved risks and certainties that could cause actual results were events to materially differ from those anticipated arms by these four-looking statements.

Stephanie Zhadkevich: Accordingly, he should not place undue reliance on these demons.

Stephanie Zhadkevich: For a list and description of the risks on uncertainty associated with our business.

Stephanie Zhadkevich: Please refer to the risk factor section of our most recent annual and quarterly report on Form 10K and Form 10Q, 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 US gaps. With respect to our non-gap and cash-based results, including a just a D-Belps, adjusted operating expenses and adjusted that loss.

Stephanie Zhadkevich: and with other words noted, all references to financial metrics are presented in a non-gap basis.

Stephanie Zhadkevich: The presentation of additional information should not be considered in isolation of as a substitute for or superior to results prepared in accordance with gap.

Stephanie Zhadkevich: Please refer to the tables in our earnings release in 10-2 for reconciliation of these measures to the most directly-comfortable gap-signing-child measures. Unless otherwise indicated, all references to my natural measures in this call are the them revenue referred to non-gap results.

Stephanie Zhadkevich: This conference call contained time-sensitive information and is asked for it only as of the live broadcast today. October 30, 2024.

Stephanie Zhadkevich: I read a disclaimer and even tension or obligation, accepts his required by law, to update or revise any financial projections or forward-thinking statements, whether because of the new information, future events or otherwise. And with that, I'll turn the call over to Quentin Blackford. I read him to President and CEO.

Thank you, Stephanie. Good afternoon and thank you all for joining us. Dan Wilson, our chief financial officer, is joining me on today's call. My prepare remarks today cover business updates during the third quarter of 2024, as well as our annual outlook. I'll then turn the call over to Dan to provide a detailed review of our third quarter financial results and updated 2024 guidance.

Stephanie Zhadkevich: Before diving into the specifics of the third quarter, I'd like to address what I know is top of investors' minds regarding headwinds on our share price, especially regarding the status of Irodom's remediation efforts in response to a 2023 warning letter from the FDA in the more recent 43 observations.

Stephanie Zhadkevich: As many of you know, I rhythm is in the midst of a company transformation. Matering our US focus business beyond a single product, single market company, into a profitable, scalable, global growth company with a multi-sensing platform, addressing multiple large- and markets.

Stephanie Zhadkevich: Our accomplishments of the past 24 months are reflective of these ongoing transformation of changes within our organization, to foster a commitment to excellence. And we have made significant strides towards our stated long-range goals to create value for multiple stakeholders and continue to foster innovation for the benefit of patient outcomes. I'll provide some specific examples of recent accomplishments a bit later on in my remarks.

While we have made significant progress, we acknowledge that addressing ongoing and legacy quality and regulatory issues remain a significant challenge for our organization.

First and foremost, I rhythm is committed to a culture of quality and sustainability from the top down. In remediation of these quality and regulatory matters have been and will continue to be, I rhythm's top corporate priority from the board and executive level into every layer of our organization.

Our current remediation efforts extend beyond addressing the focus of the warning letter from last year, and the 43 observations from the July of this year.

Stephanie Zhadkevich: We are rebuilding our entire quality management system, touching every aspect of it, including areas that have not been part of the FDA's recent inspections, with the intent of making our quality system truly best in class.

Speaker Change: I read them as committed to going above and beyond with our efforts and intended to exceed the expectations of the FDA as we seek to rapidly accelerate the maturation of the quality organization in a broader culture of quality within our company. As one example, we have made significant resource investments in our regulatory quality organizations from roughly 20 people two years ago to more than 100 individuals today.

Further, within the past month, we have hired a new leader of our quality function, which is now reporting directly into myself, who brings significant experience of having like companies through warning letter and forwardy through remediation efforts.

Additionally, beyond the expert consultants already in place, we have engaged a highly reputable industry recognized consulting firm that is known as a leader in navigating regulatory compliance matters to conduct periodic internal audits for progress against remediation efforts.

They will also be performing a full lot at the conclusion of our planned efforts around our entire quality management system, the scope of which will go beyond what the FDA commented on in last year's warning letter and the most recent 43 observations.

Speaker Change: As we hope is abundantly clear, we are taking these regulatory and quality matters very seriously. We will allocate the necessary resources to ensure that we are best in class from a quality perspective and that the FDA's observations are remedied to their complete satisfaction.

Speaker Change: As a clear indication of progress in addressing the concerns expressed in the FDA warning letter, we have recently received FDA clearance for the first up to 5th in case related to our Z8D system. The first clearance is a catch-up for changes previously made to the Z8D system as a letter to file.

Regarding the second 510K, the agency specifically requested that the first 510K clearance be obtained before they perform final review of our second 510K submission, which contains design modifications to our ZOAT system.

We are unaware of any further technical questions from the agency at this time. At this time we have submitted the recently received 510K clearance letter to the FDA and are waiting a response from the agency regarding the clearance of our second 510K submission. We look forward to updating the investment community as soon as this milestone has reached.

Speaker Change: Considering the substantial efforts to accelerate the transformation of the quality organization, while undertaking the remediation efforts and redefining the standards with which we engage the FDA, we will be voluntarily delaying our regulatory submissions for the ZUNCT system, which were intended to support the company's next generation of our mobile cardiac telemetry product.

Following the company's receipt of the recent 43 observations in our acceptance of the FDA's position regarding the inclusion of certain activities performed by the company's technicians as part of our system. We will take the time to ensure that our next generation in CT5 Tink A filing encompasses all the necessary impacts of including the technicians as part of the system and expect to be on file with the agency in the third quarter of 2025.

We're taking this proactive voluntary approach to continue to demonstrate our commitment to addressing the most recent questions and concerns of the FDA following their July inspection.

This approach will result in our voluntary efforts to perform additional testing, and documentation ahead of time and anticipation of questions that the agency may ask and demonstrate to the FDA the rigor with which we plan to approach product submissions in the future.

Speaker Change: While we understand that this may be disappointing, we believe that this is what is required to ensure thoroughness and completeness of our FDA-5TNK application to the agency. And the best approach to ensure we set I-Rhythm up in a way that continually the field in innovation for years to come.

Speaker Change: Shifting the iris and score business performance, we've replaced with the third quarter results as we achieved $147.5 million in revenue.

representing 18.4% growth year over year. This solid quarter of execution was driven by record demand from existing accounts.

combined with another record quarter of new account openings. Our teams continued to drive traction within primary care channels, penetrating deeper into large integrated delivery networks, and also expanding within our large national value-based care accounts during a third quarter that should drive substantial cost-efficient top-line growth in future quarters.

Speaker Change: Both pilot programs mentioned in prior quarters are now beginning to expand beyond pilot phase into early commercial launch.

Importantly, overall volume growth came not only from our ZOXT business but also from our ZOAT business, where momentum has accelerated in recent months.

The third quarter of 2024 represented the largest quarter of the ZOAT registrations ever fueled by a record number of New ZOAT account openings, something that we are on pace to top once again in the fourth quarter.

Overall, it is extremely exciting that one out of every 200 people in the US will wear a zeo this year and there is a zeo going on a patient every 15 seconds.

The exemplary of these efforts, we celebrated a number of milestones during the third quarter and also had a number of exciting developments that are support our customers and better serve our patients.

Speaker Change: First, we celebrated our 1 millionth patient registered for zeo monitor, our newest generation long-term continuous monitor, and unveiled data at HRX 2024 which we believe demonstrates zeo monitor's superior world-world performance.

Speaker Change: As you'll monitor has demonstrated viewer early wear terminations, longer wear duration, longer analyzable time, and fewer patient complaints compared to our Legacy ZOXT device.

Additionally, this longer wear duration which generally leads to greater inelizable time, may further improve diagnostic yield, building upon ZOXT's superior yield among ACM devices as demonstrated by Camelot findings.

Speaker Change: Additionally, we also celebrated that our teams have crossed the milestone of 2 million registrations through EHR and a greater to counts and have launched our first health system on aura. Epics Network to exchange orders and results across their community.

I rhythm is the first medical device company to join the Epic community on their all-applatform. And through our collaboration with Epic, we estimate that organizations can save up to 75% of the time it typically takes to integrate zero services into their local instance of Epic.

By streamlining access to zeal services via e-chart integration, clinicians and healthcare systems can improve operational efficiency, which we believe can reduce cost-to-serve and allow healthcare providers to devote more time to what matters most. Patient care.

Furthermore, we believe that this collaboration can expand access to zeoservices across the continuum of patient care with an integrated delivery networks from cardiology to primary care to emergency departments and beyond. We are very excited to begin offering this solution more broadly to existing in New Zia customers starting in early 2025.

Lastly, during the third quarter, our digital product development team celebrated the milestone of more than 1 million patients having used the MyZo patient app, and also released the latest iteration of Ziosuite for our customers.

This latest software platform features an enhanced user experience relative to the legacy system. This has been a highly requested feature for the past few years from our commercial field team. For our customers, the latest yields suite update includes navigation updates, and user management enhancements to improve workflow and experience.

Speaker Change: These milestones and developments are some of the latest examples of how I rhythm continues to lead to innovation and ingenuity. And I am incredibly proud of the collaboration of our internal teams as we achieve these important milestones.

Turning the progress against our levers for long-term sustainable growth, we also made meaningful strides as past quarter in our international expansion efforts, as well as our product innovation initiatives.

and the United Kingdom are teams garnered more than 10,000 registrations in a single quarter for the first time ever. And we also enabled the introduction of the MyZO app to our UK patients.

Allowing them to log symptoms and access educational content digitally. The clinical significance around myZo usage and overall impact on symptom rhythm correlation is very clear. Patients using a MyZo app for four times more likely to record at least one symptom during an arrhythmia, compared to patients using a paper log booklet.

We have been thrilled with this expansion our UK market and are excited to bring Zio to more patients there.

Also in Europe, we reached a critical company milestone during the third quarter with commercial launch in Austria, the Netherlands, Switzerland and Spain. Highlighting our continued commitment to bring our innovative digital healthcare solutions to millions of people worldwide.

Speaker Change: We're in the very early stages and have started to receive physician odors and will continue to ramp our commercial efforts. Contracting with local hospitals, engaging key-up-pinging leaders at leading academic centers, and generating clinical evidence to help physicians in these markets appreciate the value that zeal services can drive for their practices.

In Japan, we were also extremely excited to have received the Japanese PMVA Regulatory Proof of Brazil Monitor in September.

The view as the first product in Japan's deliver of redmedium monitoring services, utilizing artificial intelligence and the only 14-day cardiac monitoring service in its category to receive Japanese regulatory approval as an improved device without a clinical trial.

Our Japanese reimbursement dossier was submitted following regulatory approval and we have already filled a few questions from the MHLW regarding our application.

Speaker Change: As we navigate these negotiations, we continue to work with our planned distributor in Japan to get them ready for launch. We continue to anticipate commercial launch in 2025 representing our 4-ray and to the second largest ambulatory cardiac monitoring market in the world.

Speaker Change: On the innovation front, we could not be more excited to have entered a technology licensing agreement with Byron Tellisens to incorporate medical grade, connected multi-sensor capabilities into our ACM products, positioning us to significantly expand the capabilities of our product platform over the next several years.

While this is a long-term strategic play, we believe that incorporation of biometellicense is proprietary technology in the future iterations of the ZO platform. Connatal enable I-Rhythm maintained premium positioning within a core ACM market, but also broaden our product platform capabilities potentially serve additional channels and indications over time.

Patch-based pulse-eximutory, accelerometry-based heart rate, and respiratory rate, and non-invasive blood pressure and capabilities represent natural compliments to IWIZEN's best-in-class ambulatory cardiac monitoring services, and ECG data as these additional vitals provide a more holistic view into patient health, uncover risk factors and patients, and optimize workflow efficiencies for over-loaded hospital systems and physicians.

But we also believe that these platform capabilities will be necessary to ensure long-term positioning as we believe the ACM market. They further develop to have progressively more multi-parameter sensing capabilities into liberal broader clinical insights.

Speaker Change: These naturally expanded capabilities may then enable us to enter other adjacent indications, such as obstructive sleep abenium over the next several years in disease states where multiparametric vitals are important for clinical diagnosis.

By utilizing our balance sheet to fund this type of technology development, and partnering with an exceptional team of bi-antelicins, I'm very excited to collaborate and accelerate the next chapter of Connected Patient Care.

Speaker Change: Finally, I'm so thrilled that our recent accomplishments are being recognized externally by a variety of third parties for innovative technologies and population health improvements that our teams are committed to every day.

Speaker Change: In May, I rhythm was recognized on Newsweek's list of the world's best digital health companies for 2024. It's an inaugural list that ranks at top 400 companies from over 35 different countries and evaluates company's impact.

Financial Performance and Online Engagement.

More recently, Newsweek also named I-Rhythm as one of America's Greenest Companies. I'll list that recognized as the top 500 companies in the US based on environmental sustainability and which scores companies on more than 25 parameters based on greenhouse gas emissions, water usage, waste generation, and data sustainability disclosure commitments.

Speaker Change: Additionally, we were very happy to announce that we have been named one of the top four finalists for the 2024 fierce life sciences and relational words in the categories of digital health solutions and population health management and patient engagement solutions.

Speaker Change: This is a major achievement in a highly competitive field with winners to be announced in December. As these recent accolades demonstrate, I hear them as committed to driving significant growth and responsible, sustainable and profitable way for the benefit of all of our stakeholders.

With that, I'll turn the call over to Dan that discuss our recent financial performance.

Thanks, Quentin, as a reminder, unless otherwise noted the financial metrics that I discussed today will be presented on a non-gap basis.

Reconciliation to Gap can be found in today's earnings release and on our IAR website.

Our third quarter of 2024 results demonstrated continued momentum in our core markets as we achieved revenue of 147.5 million, representing 18.4% year over year growth.

As Quentin mentioned, these results were driven by record demand from existing accounts, combined with another record quarter of new account openings. New store growth, with new store defined as accounts that have been open for less than 12 months, accounted for approximately 36% of our year-over-year volume growth.

Home enrollment for Zio services in the US was approximately 23% of volume in the third quarter.

Gross margin for the third quarter was 68.8% in line with our state of expectations.

Compared to the second quarter of 2024, the slight decrease was driven by the absence of some favorable one-time items noted during the prior quarter, the benefit of gross margin, while sustainable clinical operations and manufacturing efficiencies continue to benefit us in the third quarter.

Compared to the prior year, Gross Margin improvement was driven by the advancement and automation and operational efficiency, as well as reduced costs related to excess ZOXT inventory associated with the ZO Monitor Commercial Launch in our third quarter 2023.

Third quarter adjusted operating expenses were 143.8 million up 14.9% sequentially and up 34.3% year over year.

Speaker Change: Comparative the sort of quarter of 2023, this increase in adjusted operating expenses was primarily driven by a 32.1 million dollar charge for technology licensed that was recognized as acquired in process research and development expense during the third quarter.

In alignment with SEC guidance around non-gaps and anti-measures related to acquired IPR and the expense, I rhythm to non-exclude acquired IPR and the expense from its non-gap results.

Normalizing for this expense during the quarter, adjusted operating expenses would have been approximately 11.7 million, or up approximately 4.3% year over a year. Demonstrating our continued progress toward realizing operating leverage within our P&L.

Speaker Change: As noted in prior quarters, we continue to incur incremental legal and consulting fees, as well as other company expenses related to FDA remediation efforts and DOJ subpoena activities.

The company increased its remediation activities in a third quarter, bringing on additional consulting support as Quentin uttered previously.

Speaker Change: We now expect incremental expenses related to these activities to be approximately 11 to 13 million in 2024 and a 15 million dollar run rate per year going forward with these expenses continuing into 2020.

Once we are through our remediation efforts, we expect the majority of these expenses to subside.

Importantly, recent corporate actions intended to better align head count resources to our corporate priorities and efficiently scale. We'll help offset incremental FDA remediation expenses in the near term while positioning I rhythm to deliver sustainable profitability into the future.

Speaker Change: Adjusted NetLoss in the third quarter of 2024 was approximately negative 39.2 million, or a loss of $1.26 per share, compared to an adjusted NetLoss of $24.1 million, or an adjusted NetLoss of $79 per share in the third quarter of 2023.

Adjusted EBITDA on the third quarter of 2024 was negative 19.9 million or negative 13.5% of revenue compared to 0.3% in the third quarter of 2023 and 3.4% of revenue in the second quarter of 2024.

Excluding the 32.1 million of acquired IPR&D, which was not contemplated in our previously issued guidance, adjusted even Dodd during the third quarter of 2024 would have been 8.3%.

Turning to guidance, we are narrowing our 2024 revenue outlook as presented earlier this year, and now anticipate full-year revenue to range between 582.5 million to 587.5 million.

We continue to believe that the year will be driven by sustained volume growth in our core US market, as we continue to drive penetration in both existing and new customer accounts. The fourth quarter of the year is historically our strongest of the year, and we have seen solid trends in the business to start the quarter.

We are reiterating our full year 2024 gross margin guidance to a range of 68 and a half percent to 69 percent and improvement of approximately 150 basis points at midpoint compared to full year 2023.

We have made significant progress here today with clinical operations and manufacturing efficiencies and believe that these sustainable improvements will continue to lower our costs to serve over time.

With respect to adjusted Eva Domargent, we now expect adjusted Eva Domargent for the full year 2024 to range from approximately negative 2% to negative 1.5% of full year revenues.

Speaker Change: As noted earlier, the charge for acquired IPR&D will not be excluded from our non-gap results. We expect the charge for acquired IPR&D to be in the range of 32.5 to 33.5 million for the full year.

As noted earlier, we now anticipate legal and consulting fees related to FDA remediation efforts and DOJ matters will be approximately 11 to 13 million for the full year.

These expenses will be offset by the corporate activities that were executed to better align head count resources to corporate priorities and to ensure sufficient scaling into the future. Taken together, absent our transaction with bio-intelligence, are adjusted to the even-domargen guidance would have been unchanged to prior guidance.

Finally, we ended the third quarter in the strong financial position with approximately 522 million in unrestricted cash and short-term investments.

During the third quarter, we began to see improvements in working capital resulting from the recovery of delayed buildings associated with the change healthcare cybersecurity incident in the first quarter. And we anticipate further improvements to cash collections and normalize levels of DSO as we exit 2024.

Speaker Change: To close our financial accomplishments in the third quarter of Demonstrate continued commercial momentum in the business and solid operational execution by the I rhythm teams.

We are in a strong financial position and are ensuring capital and resources are allocated to FDA-remediation priorities, while appropriately investing for the long-term growth of the business. And our teams are focused on implementing sustainable efficiencies to drive continued profitability expansion into the future.

With that, we would like to now open the call for questions. Operator.

Thank you, Dan. Again, please press star for the number one, please give a question and ensure your devices I need to locally when it's your time to speak. If you change your mind your question has already been answered, you can withdraw your question by pressing star for the number two.

We kind of do that so you're going to let yourself to one question and then re-use it any follow-up.

Our first question today comes from Alan Kong with JP Morgan. Please go ahead, your line is open.

Hi, thanks. So, I just want to start off with zero AT or an MCT, right? So, you know, disappointing me here that the approving pushback.

Just kind of curious when we think about, you know, your decision to do this, how much of that was, you know, informed by conversations with the FDA and how much of that was kind of your own decision to, you know, bolster the submission to ensure that you get approval on a timely fashion.

Speaker Change: that

Quentin Blackford: Hey, Alan. Thanks for the question. This is Quentin here. Hey, before I jump in and answer that question, I wanted to share with you.

are audience. This is a bit unusual, but we did learn that subsequent starting our call this afternoon. We get noticed from the FDA that they have cleared.

Our second five-think case submission with that V08T product for the design enhancements that

We had put forward as part of our warning letter remediation efforts. So I think another good sign that we can take it to make good progress with the FDA down the path of remediation and certainly please to see that second five-ton K approval come through. So I want to share that with the group as I think that's important information to get out there.

Quentin Blackford: Allen, with respect to your question on MCT, I think it's very important to understand. This is completely our decision.

is a proactive voluntary decision on our part.

Coming out of the 483 observations here in July as we certainly accept the FDA's position that the qualified technicians are a part of the product. As we brought new leadership on board with us and also engaged in criminal outside experts.

to help us think through and navigate this position. I think it's become very clear.

that there are certain remediation efforts that we need to demonstrate some very quick progress against, just again in the spirit of...

Understanding the FDA's position and making sure that they see that we are lying to it. But also, knowing that with the qualified technician being part of the product, there is some incremental work that we can do to bolster that submission when we make it for MCT. To head off any questions that we would expect are going to come from the FDA's part of that, now that the qualified technicians are in fact part of the product. So this is a proactive choice on our part. We understand it's disappointing that we're pushing this submission date out, but we think it'll be a much more robust submission. I think it sends all the right signals to the FDA that we acknowledge their point of view. We accept it and agree with it.

Quentin Blackford: and we're going to make sure our filing falls in line with that as well.

Thanks, and then we're just a really quick follow-up on the guide. Sorry for sneaking this in, but you know when I look at kind of the midpoint of the guide you're implying you know pretty strong 10 million step up into the fourth quarter What really gives you kind of the confidence to you know reiterate the guide despite third quarter maybe being a little bit softer than your usual being race cadence.

Thank you very much.

Yep, thanks Alan for the questions, Dan. So I think you heard from our prepared remarks, you know, seeing relief.

Quentin Blackford: Good moment to my business. A lot of strength there. We talked about the new accounts onboarding in two, three.

Quentin Blackford: Feel really good about what that means for Peter Groath and that really is nice and balanced across both XT and A-T. So, feel like there's a good setup for the fourth quarter in our guidance for Flexet.

And next question, stay come strong, McCallie Kilbain, William Black. Please go ahead.

and everyone. This is McCalli. I'm on from Margaret tonight. Thanks for taking the question. Again, maybe just to follow up on that, and obviously a record number of new accounts in the quarter, which is great to see. Could you just maybe talk about the profile of the average account that's coming on board, whether you know these are competitive switches. I just see them coming on with.

with both Monde and AT, but just to level set us there. And then, as you mentioned, it feels like the accumulation of record ads here, the LATC quarter should allow you to accelerate that volume growth.

to north of 20% as we look towards 2025. Just wondering, you know, expectations has we looked beyond Q4 and to next year?

and I could start in Quentin can add to it.

Speaker Change: You're right to point out the record number of new account ads in terms of a good indicator for future growth. The profile of those accounts, I think is pretty consistent with...

with where we're winning in the past with maybe one exception being, you know, there are a number of large accounts that are...

recently won or in the pipeline. The timing of those accounts in terms of converting them into a full launch and how they really ramped. It's a bit longer to be honest, which you would naturally expect as the accounts are bigger, they're often...

Launching with full EHR integration and that takes time. It takes IT resources on their side to execute on that EHR integration. So we are seeing the selling cycle a little bit extended is it relates to those.

Those accounts, otherwise the profile is pretty similar. You do know we're expanding more and more in the primary care, so naturally turning on more and more primary care accounts. But feel really good about what that means for teacher growth.

Speaker Change: has a release to kind of going forward in 2025. Again, I think this sets us up.

Speaker Change: Well for 2025, you did hear our comments on VO and C2BN.

Speaker Change: pushed out the submission there and ultimately the commercial launch into 2026. You know, we thought of that as kind of a...

Speaker Change: 10 million dollar plus incremental revenue opportunity in 2025 so that.

Speaker Change: that does need to be accounted for.

Speaker Change: And then you think about international, we're just getting started with the four-year-old team countries that we launched in the third quarter of those, those will take a bit of time to ramp, we'll see that start to contribute in 2025 and then of course, Japan launching, called mid-year next year which will have a little bit of contribution to 2025.

The End

Speaker Change: i

I would just point out McColley, you know our unit volume growth has accelerated every quarter this year.

Each quarter is stepped up from the prior quarter and our guidance, our fourth quarter, volume growth will step up once again. So we continue to feel good about the momentum and the business, I think.

starting to see the VOAT, AT accounts come back online and adding...

at Rates even faster than what they were prior to the warning letter being issued or the field advisory notice being put out there almost a year and a half ago is really encouraging to see and I comments it on the fact that we're seeing that in the fourth quarter.

Speaker Change: as well. So we're very bullish from that perspective. We're excited to see Epicora.

and get implemented and begin to be launched here in the fourth quarter with a handful of accounts, but then turned on as we moved into 2025.

to our entire commercial team. So that excites us, but the dance point, you know, MCT is going to be delayed and we want to make sure that we're thoughtful about that, but the AT Business has been strong.

And next question comes from Columptitch Marsh with Morgan Stanley, your line is open.

Great, thanks for taking the question. I wanted to touch on the BioIntellessense Licent in the agreement and that push-in for vital signs beyond the O's capabilities today.

Maybe you could provide us more colour around commercial aspirations for this still. You know, when could we see a product with these features out there in the market?

and I know a competitor of yours in the remote monitoring space has talked about the inpatient opportunity from their multi-prameter patch, so check in to see if that's somewhere you'd like to push into at some point too. Thanks.

Yeah, Colum, look, we're really excited about the bi-untelacin Spartanership that we've been able to bring together. I think this is very much a longer term strategic investment that we've made.

with the idea of bringing these multi-sensing capabilities on a single platform off of the chest.

their PPG capability is a bit unique differentiated brings paucic symmetry, opportunities to us off the chest, accelerometry, advanced accelerometry that gets us some heartbeat, respiratory rate, heart rate analysis, all things that are going to improve the overall offering that I think will help us continue to protect the ACM space, but ultimately go beyond that.

and the Multivital Sign Monitoring.

The Inpatient Setting, it's interesting to us. I think the real opportunity quite frankly is to disrupt the hospital into the home setting. And I think that we know how to do that in ambulatory setting better than anybody else.

I think we bring a very large IDTF capability to it which allows us to monitor remotely very well. And so I think we have a real opportunity to disrupt that space in time, but that's going to be a few years out. That'll become a product that makes its way into our bag behind the MCT product that we're going to focus on first. But it's one that gets us very excited about. I think it also gives us a direct line into how we get to a home sleep test off of the chest.

Speaker Change: that ultimately will benefit our sleep activities that we've talked about historically as well. So a lot of strategic implications in there are terrific partners. I look forward to what we're going to be able to do together.

Speaker Change: The next question comes from Marie Seabull with BTRG. Please go ahead.

Marie Seabull: Hi, good evening, apologies for the background noise. I wanted to ask a little bit more detail on the remediation.

and Green and Courty Act technicians into the fold. We talk a little bit about the processes that need to happen to take the IDTF folks into the video.

Speaker Change: and the quality assurance here. And as a second part follow-up with the delay on MCP, are there any opportunities on R&D sites maybe for their wear time on that product or make other improvements that you plan now that you have a few extra-porters to do it? Thanks.

Speaker Change: Yeah, good question. I think from an ITF perspective, I'm bringing them into the fold of our quality management system.

I will say there's not going to be any impact to the patients in terms of how they experienced the product or the positions and how they experienced the product.

but it is internal workflow and how we think about documenting our quality management system, how we think about complaints, reporting, risk analysis, statistical analysis that we apply to it. All of those things are impacted as a result of bringing the technician into the product.

is going to be delayed a bit here as we work to bring into the submission.

any and all implications that involving the technician now has with the product. So I don't expect it to impact how it shows up in the marketplace and how the patient experiences it or how the physician experiences it, but it does have some internal process and documentation requirements that just take time to work through and get completed.

Speaker Change: I also do believe, Marie, that we're starting to see the broader industry...

Speaker Change: and Lester.

Speaker Change: Irhythm-specific.

With respect to MCT, our wear time on the next generation of our ZOAT or what will now become ZOMCT will have a longer wear duration to it. That has been something that's been part of the design from the very get-go when we talk with our customers.

and we received the feedback from the market, the most critical aspect of making ZOAT more competitive is the wear time, and so we will extend that wear time in this next submission and continue to address those market needs with that product.

Our next question comes from David Roman with Goldman Sachs.

Speaker Change: Please go ahead.

Thank you and good afternoon everyone. I wanted to maybe to talk a little bit about the UK, the expansion in the UK and internationally. You also got approval in Japan.

during the quarter you talked about ramping up with your partner, but can you maybe help us think about the extent to which international represents an incremental contributor and perhaps helps offset some of the MCT delay and the 10 million that Dan referenced and how we should think about that ramp OUS.

Speaker Change: We're certainly very excited about the international business. We've been in the UK market for a period of time now. We continue to work from a reimbursement perspective with the public health systems.

But we're making very good progress on the private side, sort of in parallel. So we're going after that market in two different ways. And then by opening up these new incremental European markets, being Switzerland, Spain, Austria.

in the Netherlands. That certainly is exciting for us as we think about the product getting started there. We're already starting to see the first orders come through from those opportunities, but that's going to be our primary focus in the EU out of the gate.

Japan is probably, you know, the most exciting international market out there for us.

We couldn't be more excited about the fact that we do have the High Medical Needs designation. We're working with them, you know, from a reimbursement perspective now. We would expect that in the first part of...

2025 and to be launching into that market, you know, commercially.

in the first half of 25.

Speaker Change: How quickly that ramps is something that we're going to monitor. I don't expect, you know, David, to get out ahead of ourselves there. We're going to want to see this play in the market and build some momentum and success before we start to really

Get ahead of ourselves there, but that's just something that we're going to have to learn with experience. But when you see the excitement that's growing in and around the Xeo product in those international markets, just the brand awareness of the product.

When you go to those international trade shows and meetings with the KOLs within the country, it's very clear of

Speaker Change: of the awareness of Zio. And I think it sets us up for some nice success early on. But we'll guide you to the particular impact in 25 as we get closer to it. It will be an incremental contributor. International, you know, this year is

Speaker Change: Call it one, you know, pushing on 2% of overall revenue. I think you're going to see that grow, you know, over the next 3, 4, 5 years to 8, 9% of revenue.

Thank you. Our next question comes from David Rescott with Baird. Please go ahead.

Thanks for taking the questions. I have a couple of just kind of clarification questions that I'll ask as my question. You heard the prepared remarks around the Q3 2025 submission from CT and then heard in the comments the recent 510K clearance, that second 510K clearance that we had.

I've been expecting. It sounds like the delay of MCT is more based on some of the incorporations you're making from the updates we heard on the 43 earlier in the year on the CCTs. So, just the first question again is, is that correct? Is there no update or no change now to the Q3 2025?

Speaker Change: submission based on, again, this update around the second 510K clearance. And then for the 10 million called out,

of the maybe incremental impact from the delay. I'm just trying to get a sense for what the...

you know, baseline of that would have been off of, I know the longer term guide is the 20% of the top line, you're doing 18 to 19 this year. So it's a good way for next year to think about the impact of maybe 18 to 19% growth off of where you shake out this year, take out maybe half or 70% of the 10 million and that's the baseline, maybe the outlook for next year. Thank you.

Yeah, we're not going to guide specifically, David, the 2025 just yet. I think the way you just described that is the right way to begin to think about it when you think about the impact of MCT.

Speaker Change: next year. Obviously, this is a product that we think can really accelerate the AT profile. We're very happy with how AT is performing right now, but I also have a very, very

strong point of view that it's just not quite the right product for the market and that when we do have that right product, it's going to be able to accelerate that growth profile. But I think that you're thinking about the way you just described there, 2025, the right way when you think about, you know, adjusting for the MCT delay.

Speaker Change: There are no changes in this MCT product submission from a design perspective or features perspective as a result of the 510K approvals that we've received with ZOAT. That has not been anything that

Speaker Change: The FDA has asked for, to be quite clear, that the MCT product

have designed enhancements that were already in it that were designed to address some of the concerns that the FDA had in ZOAT to begin with. Think about that as a max trigger limit and how we reduced that even further. But those are already designed into the product.

What's very clear in working with the FDA is that by bringing the technician into the workflow in the defined product itself and service, there are a lot of questions of how the technicians interact with the software and ultimately get to the final report. So there's human factor testing that we will perform to provide in that submission to show the FDA exactly how that interaction works.

But these are questions that they've been asking, you know, on the ZOAT submissions, and it's clear that they're most likely to ask these with ZOMCT as well now, and we need to go ahead and prepare that ahead of time and go ahead and submit it.

which is going to take a bit of time to complete, but it's the right thing to do and again demonstrates our commitment to addressing the FDA's expectations and making sure that we do that in a satisfactory way.

Our next question comes from Richard Newita with Truett. Please go ahead.

Speaker Change: Thank you.

Quentin, I guess a couple for me.

Richard Newita: You've identified the incremental spend that you need or that you think you need to remediate. You know, this has been a bit of a challenge for you guys. Just, just.

The timelines and what is required and how much spend is required, I guess.

Speaker Change: What can you tell us to get confident that

you know these are the right timelines and this is the right spending level and you have all the information you need to kind of

Speaker Change: So start being able to make progress with the FDA versus having kind of ongoing delays

Yeah, Rich, I think it's a fair question. I think with respect to the

Speaker Change: to spend the $15 million of remediation, I think it's important to note our remediation efforts at this point

are going beyond what the FDA has identified in the warning letter as well as the recent 43 observations. We have taken a step back and we're looking at the entire quality management system, every aspect of it, trying to anticipate, you know, where the FDA would look or may look if they were to come back in subsequent inspections. And we want to make sure that the entire quality management system is up to their expectation.

Speaker Change: It's a big part of why we've engaged another outside expert who has...

experience in building and remedying these quality management systems, navigating through warning letters, and even worse for companies.

And we're having them perform, you know, periodic audits as we go through the process to ensure that progress is being made. And ultimately, they will audit the entire QMS, Quality Management System, at the end of this process here in 2025.

Speaker Change: looking at it from beginning to end, every aspect of it, to ensure that it's up to a level that we can all be happy with and that we can feel very confident if the FDA were to come in and want to look in that particular area, we would more than meet their need.

Speaker Change: So, that has been our approach is to, rather than just focus on addressing the FDA's concerns if identified, let's go after the entire quality management system and look at the entire thing from a holistic perspective.

That's why the spend will continue here throughout 2025.

at about that $15 million rate that Dan noted. I do want to point out, you know, we've taken other corporate actions that will offset the $15 million next year. So, from a profitability perspective, you're going to continue to see really nice improvements in the profit profile of the company. Again, in 2025, while we work through remediating this, and then ultimately, when that spend goes away, it'll drop through the bottom line.

Speaker Change: with respect to the timeline of Q3 25.

Speaker Change: I think it's important to note, if we wanted to, we could submit the MCT submission in the very near term. The reality is we know that there are going to be questions that are going to be asked and that there's work that needs to be done to address the aspect of involving and including the technicians as part of the product.

We're going to take the time to go ahead and do the work necessary up front.

Speaker Change: and try to address those questions before they're asked. So, when we look at the timeframes, you know, internally, we'll be driving ourselves to something more aggressive than that Q3 timeframe, but I think the Q3 timeframe is the right way to set expectations considering the moving pieces that we've seen in the past, and that's our best estimate to do it.

Our next question comes from William Plovinich with Canicle Genuity. Your line is open.

Great, thanks for taking my questions.

You know, Quentin, I was just hoping you could just help us with kind of cadence milestones.

Speaker Change: is, you know, to really measure against as you move forward, you're giving us a point in time for the third quarter filing.

and Keith Byling. Thanks.

Speaker Change: Yeah.

I can't speculate on where the FDA may or would go with this. Obviously, we're doing all that we can to demonstrate very clearly to them that we're committed to remedying their concerns, but even beyond that, looking at the entire quality management system and rebuilding the entire thing from the ground up. And we've shared that directly with the FDA. And look, they're also very much familiar with the third parties that we've brought

they're audits as we go against the progress that we're making. So we're trying to demonstrate very clearly that there really is no cost that's going to prohibit us from remedying this situation with the FDA and it is the top priority in our entire company, and I think that's very important.

Speaker Change: to know.

with respect to, you know, progress along the way. I don't know that there's anything.

That's going to be very visible publicly with respect to the 483 observations. We report out to the FDA every single month against the commitments that we've made to them.

and the progress that we're making, and of course it is a very important...

aspect that we stay on time with respect to those improvements.

Speaker Change: I think there's updates we can provide to you along the way with respect to are we on track or are we not on track with respect to the remediation efforts, and that's information that we would be willing to share as we get going. But that's probably the extent of how you're going to see it showing up in the public market is us giving you updates on the remediation efforts and the progress against the commitments to which we've made, and that's something we're willing to do.

Speaker Change: Thank you and our next question comes from Suraj Kalia with Oppenheimer. Please go ahead.

Quentin, can you hear me all right?

Quentin Blackford: Yep, we got you.

Perfect. Hey, Quentin, two questions. I'll

So, on ZOMCT, I just want to make sure I understand this correctly, will there still be some level of event trigger

Speaker Change: Thresholds.

built into the system that the FDA would essentially say, yep, this is the right amount. Go with this, given the form factor. That's one question.

The second question, Quentin, is multi-parameter testing, right? While I can appreciate, you know, the complementarities that you're talking about inpatient, otherwise, I get it.

More so, Quentin, the multi-parameter testing that, you know, that is being talked about, right, it's sort of commoditized and there are, you know, other companies with pretty broad IP portfolio. What I'm trying to understand is

Think about going into more specialized areas. ECG is your domain and there are a lot of AI, whether it's valvular dysfunction, ventricular dysfunction, sudden cardiac death-based AI from ECG analysis. Help us understand the choice of multi-parameter testing that you talked about.

versus, you know, more novel specialized areas. Thank you for taking my questions.

Thanks, Suraj. With respect to MCT, first of all, the ZOAT product that we just received final approval on, both the catch-up and the design enhancements, continues to have a trigger limit in it.

Speaker Change: And the FDA has gotten very comfortable with that feature being in the product.

Speaker Change: with VOMC-T, there will continue to be the potential of a trigger limit.

of the AI capabilities that we have, the algorithm, but also power management. So there is still a trigger limit potential in it, but the expectation of when it will be met.

is far, far less. But again, this is something that the FDA has demonstrated to us that they can get very comfortable with, and we've seen it in the approvals.

With respect to the multi-parameter sensing, I think there's a lot of different things that it opens up for us.

But one thing that we've seen very clearly in our own market research, and particularly dealing with our own customers being cardiologist EPs

Even moving into the primary care spaces, enriching the data that they have at their fingertips, even with their existing patients today, becomes very valuable to them. I'll give you a good example of.

a cardiac rhythm patient that we're monitoring for an arrhythmia.

If that physician sees, or more importantly, does not see an arrhythmia but was able to identify that their oxygen levels were depleting during the wear of the sensor, they're going to want to still treat that patient. They're going to find a different way to treat the patient, but they never would have known that they needed to with the arrhythmia monitoring only. So I think enriching the data that we can provide to that physician becomes very important.

Sleep analysis is another one that becomes very interesting to us. We know that the majority of

sleep patients ultimately originate from a cardiologist or an EP. I think in the future becomes even more common to see them originating out of a primary care physician's office. But if we can provide that information right off of the chest

the company that can identify and diagnose.

Speaker Change: sleep disease, but if we can diagnose it on the front end, just like we do cardiac arrhythmias, that becomes very interesting to us. And I think there's a lot that we can do with a multi-parameter sensing capability that is very, very interesting to us. I would say, you know, we hear a lot of talk around RPM. I am not too interested just in the remote patient monitoring space. That doesn't get me excited. But what does get me excited is some of these other features that we can enrich and make more valuable for our existing customer base.

or find ways to, you know, monitor vital signs, remotely move care out of the hospital into the home. And more important than RPM codes and reimbursement there is the ability to reduce the cost of care

for these hospitals or these large networks that we're already partnering with as they care for their patients. And I think that cost avoidance is where the real value is at.

We have no further questions in the queue, so I'll turn the call back over to the management for any closing remarks.

Thank you, Operator. I would say, look, we're very pleased with the operational progress that we've made through the first nine months of 2020 forward, and we're looking forward to a strong finish to the year.

Speaker Change: There are a lot of meaningful operational improvements that we're seeing beginning to play through and the momentum

Speaker Change: that we see in the growing business, it's exciting, particularly on the profitability side. However, our immediate and primary focus is completing the FDA remediation work and working collaboratively with them to address their concerns, and we look forward to providing further updates into the future.

With that, again, thank you for joining us and we'll talk later. Goodbye.

This concludes our call today. Thank you for joining. Your line will now be disconnected.