Q4 2024 iRhythm Technologies Inc Earnings Call
Cole: Good afternoon. Thank you for attending today's iRhythm Technologies Q4 2024 Earnings Conference Call. My name is Cole and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Cole: If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad.
Speaker Change: I'd now like to turn it over to Stephanie Zhadkevich. Please go ahead.
Speaker Change: Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the fourth quarter and full year and to December 31st, 2024.
Speaker Change: 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 State Harbor Provision of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factor 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.
Speaker Change: 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.
Speaker Change: The presentation of this additional information should not be considered in isolation of, as a substitute for, or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and 10-K for reconciliation of these measures to their most directly comparable GAAP financial measures.
Speaker Change: Unless otherwise indicated, all references to financial measures on this call, other than revenue, refer to non-GAAP results.
Speaker Change: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 20, 2025. I remain to display 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.
Quentin Blackford: And with that, I'll turn the call over to Quentin Blackford, iRhythm's President and CEO.
Quentin Blackford: 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 prepared remarks today cover business performance during the fourth quarter and full year of 2024, as well as our annual outlook for 2025. I'll then turn the call over to Dan to provide a detailed review of our 2024 financial results and 2025 guidance.
Quentin Blackford: 2024 was another transformational year for iRhythm during which we achieved a significant number of accomplishments on our journey to become best-in-class across all areas of our business.
Quentin Blackford: The fourth quarter of 2024 capped a year of progressively accelerating year-over-year volume growth every quarter, with full-year 2024 revenue of over 20% driven by sustained volume demand across all customer channels.
Quentin Blackford: Within long-term continuous monitoring specifically, we celebrated 1 million patients in 2024 registered for XeoMonitor, our newest long-term continuous monitor that is smaller, lighter, thinner, and more breathable compared to our legacy Xeo XT product.
Quentin Blackford: And we unveiled data demonstrating its superior real-world performance at HRX 2024 that helped contribute to this growth. VOAT also performed very well throughout 2024, but we saw particular strength during the fourth quarter as there was disruption for a competitor in the marketplace.
Quentin Blackford: iRhythm has historically described our U.S. market as the number of ambulatory cardiac monitoring tests that are prescribed each year, of which there are approximately 6.5 million tests being performed today in the U.S.
Quentin Blackford: However, we are in the early stages of a marked shift towards broader clinician and payer adoption of monitoring strategies to triage an increasing cardiovascular disease burden globally and to manage the health of an aging population.
Quentin Blackford: including the associated cost and capacity burdens that these are placing upon the health care system. We estimate that there are approximately 27 million patients in the U.S. who are either showing up to their primary care provider with cardiac palpitations or completely unaware that they likely have an arrhythmia present due to patient-specific risk factors.
Quentin Blackford: To access these patients and to drive early detection and intervention, moving monitoring further upstream in the patient care journey to the primary care physician has been, and will remain, paramount to reduce time to diagnosis, reduce hospitalizations, improve clinical outcomes, and stem healthcare costs throughout the system.
Quentin Blackford: We believe that the Xeo service is ideally positioned to win within this paradigm shift, and we are already seeing early signs in our business today that this TAM expansion is occurring.
Quentin Blackford: We have described our approach to opening this market opportunity as two-pronged. One being through the large integrated delivery networks that we work within today, and two being from the top down through large national accounts.
Quentin Blackford: During 2024, we continued to drive traction within primary care channels at large integrated delivery networks where cardiologists, EPs, and primary care physicians are approaching the utility of Xeo as a workflow efficiency tool.
Quentin Blackford: We have seen in several of our accounts that moving zero prescriptions upstream to primary care physicians has the potential to reduce time to clinical decision to three to four weeks versus what can be four to six months to be used as the rule in or rule out tool for further referral within the network and ultimately to amplify volumes in these systems by opening additional capacity for specialists to see qualified patients where additional monitoring may take place.
Quentin Blackford: In 2024, we saw that north of 50% of the large independent delivery networks that we do business with now have at least one primary care physician prescribing ZOs.
Quentin Blackford: This is further enabled by embedding Xeo within electronic medical record systems at our accounts, and we were very pleased to have crossed the milestone of 2 million registrations through EHR-integrated accounts in 2024.
Quentin Blackford: Doubling down on this strategy, we have begun expanding the number of commercial accounts with EMR Integration Bureau of Partnership with Epic Auras Diagnostic Suite especially, and the reception thus far has been very positive.
Quentin Blackford: While still early in our broad commercial launch as part of our EPIC collaboration, we've heard from staff at these clinics who have been very enthusiastic about the immediate efficiency gains in their workflow and their associated ability to spend more time with patients.
Quentin Blackford: This partnership has taken what used to be a major IT integration project and turned it into a low-effort IT initiative that allows us to focus more on clinical and operational workflow improvement, training and readiness, and quicker time-to-value initiatives.
Quentin Blackford: We have been thrilled to be able to work with Epic as an exceptional partner, and we look forward to further improving the customer experience with additional or integrations throughout 2025.
Quentin Blackford: 2024 was also the year where we first really started to open several large national value-based care accounts, including a notable contribution from a new innovative partner in this channel added during the fourth quarter to drive cost-efficient top-line growth and open the significant TAM that we believe exists within ambulatory cardiac monitoring.
Quentin Blackford: Through early customer programs of this account type, iRhythm has validated a strong product market fit for risk factor guided monitoring approaches for undiagnosed arrhythmias where incentives are aligned with value-based payers and providers.
Quentin Blackford: Within a representative sample of five customer programs that we have recently opened, over 80% of patients monitored with Zio had at least one arrhythmia identified.
Quentin Blackford: This is great support for the overarching hypothesis that patients with underlying undiagnosed arrhythmias, when they fall into certain inclusion criteria that our customers are already using, and we know from several scientific studies, including mSTOPS, that identification of arrhythmias can enable lower downstream costs and contribute to better patient outcomes.
Quentin Blackford: Our customers have started recognizing this as well, with one new partner now expanding inclusion criteria into their COPD patient population to be monitored proactively with Xeo.
Quentin Blackford: As external validation of the move towards proactive monitoring for cardiac arrhythmias, we are starting to see guideline recommendations updated and broadened.
Quentin Blackford: In the U.S., the 2024 ACC Expert Consensus Decision Statement on Arrhythmia Monitoring After Stroke now recommends ambulatory cardiac monitoring of 14 or more days as the primary modality for use in detection of atrial fibrillation in cases of stroke of unknown origin.
Quentin Blackford: Xeo long-term continuous monitoring was explicitly included as a monitoring option, and Xeo was shown to be superior to Holter monitoring for detection of atrial fibrillation in post-stroke patients as part of the Early Prolonged Ambulatory Cardiac Monitoring in Stroke, or EPACS, trial.
Quentin Blackford: Also, implantable loop recorders were recommended for a more limited pool of high-risk patients rather than as a routine strategy, representing a significant change from previously recommended use of ILRs for all post-stroke patients.
Quentin Blackford: In Europe, the European Society for Cardiology updated their 2024 practice guidelines for management of AFib to include recommended screening in all patients 75 years or older, and for those 65 and older with additional risk factors.
Quentin Blackford: These updated guidelines and society recommendations are reflective of an evolving appreciation for the role of proactive cardiac monitoring in population health management and specifically highlight the importance of long-term patch-based monitoring to accomplish these goals.
Quentin Blackford: To advance this further, we are now working on a precision AI approach to better apply risk factor-based monitoring for atrial fibrillation and other arrhythmias in targeted patient populations.
Quentin Blackford: Many of that would not be identified with conventional criteria. This evidence is just starting to be generated by our team in anticipation of a market shift towards acceptance of these types of technology advancements.
Quentin Blackford: You've heard us talk in the past quite a bit about obstructive sleep apnea and heart failure, where there is an abundance of clinical literature pointing to the overlapping comorbidities of these diseases with arrhythmias.
Quentin Blackford: But another great example of this was shared at the American Heart Association's 2024 Scientific Sessions this past November, demonstrating that the significant health economic benefits of early arrhythmia detection and often overlooked conditions like type 2 diabetes, COPD, chronic kidney disease, and coronary artery disease.
Speaker Change: Analysis of real-world claims data conducted by Eversana suggested that early detection with arrhythmia monitoring devices has the combined potential to help prevent serious outcomes like stroke and heart failure and significantly reduce acute care utilization and related costs in these populations.
Speaker Change: These data showed that arrhythmia patients were hospitalized more than twice as often as non-arrhythmia patients. And of those hospitalized, the patient length of stay increased by two to five days for arrhythmia patients with a combined cohort compared to patients without arrhythmias.
Speaker Change: And the rate of emergency room visits was more than twice for the arrhythmia cohort relative to the non-arrhythmia cohort.
Speaker Change: We believe that with precision-based AI approach to proactive monitoring, we can find these patients who are at high risk of cardiac arrhythmias ahead of catastrophic events taking place, leading to the potential to meaningfully reduce the cost of ER visits, hospitalizations, and increased cost of caring for these patients after a catastrophic event has occurred.
Speaker Change: Outside our core U.S. business, we made progress during 2024 to begin opening additional OUS markets and bring the ZEO service to potentially millions more patients globally. In 2024, our UK team drove record billable registrations through private contracts as we continue to navigate reimbursement dynamics with the NHS.
Speaker Change: Also, in Europe, we continue to expand our global reach with our third quarter commercial launch of Xeo services in Austria, the Netherlands, Switzerland, and Spain. We believe the introduction of the Xeo services in these countries will positively disrupt the monitoring paradigm to allow clinical practice with evidence and improved outcomes.
Speaker Change: In Japan, we received Japanese PMDA regulatory approval for Xeo Monitor this past September, with Xeo being the first product in Japan to deliver a Rhythmia monitoring service utilizing artificial intelligence.
Speaker Change: With regulatory approval in hand and with support from our partners at the Japanese Heart Rhythm Society, we've been working with the Japanese Ministry of Health, Labor, and Welfare, or the MHLW, over the past few months towards a market access and reimbursement decision for Zio.
Speaker Change: We expect to hear back regarding the decision soon and are excited to commercially launch in the second largest medical device market in the world.
Speaker Change: iRhythm's innovative technology platform underpins our service today but it's foundational to how we think about enabling scale, adding additional vital signs, generating future clinical insights, and ultimately influencing population health management across multiple disease states where health care is heading.
Speaker Change: As we announced in 2024, we are strategically approaching this by in-licensing technology that we believe may enable future hardware iterations containing multi-parameter sensing modalities with the long-term goal of monitoring multiple vital signs off the chest.
Speaker Change: We continue to believe the ZioPatch form factor is our winning solution for our future multi-sensing service and that adding new modalities may enable us to provide additional diagnostics within other adjacent indications, such as sleep apnea, where additional vitals are required for diagnosis and reimbursement.
Speaker Change: To take advantage of these exciting opportunities ahead of us, we have driven significant transformation over the past couple of years to bring technological capabilities, diverse leadership experiences, functional maturation, and increasing rigor into the way we operate as a company.
Speaker Change: With the establishment of Xeo Monitor as our next generation hardware platform in 2023, we've launched the initial phase of our manufacturing automation plans in 2024, marking a significant corporate milestone intended to set the stage for future growth and innovation while also yielding substantial cost savings.
Speaker Change: Also, during 2024, we enacted corporate activities that were executed to reduce management layers in the organization with the aim of increasing efficiency and effectiveness while delivering more than $25 million in savings in 2025.
Speaker Change: And in support of our global aspirations to serve millions more patients worldwide, we continue to globalize our workforce with our Global Business Services Center, leveraging the global operational infrastructure we have established over the last 24 months and enabling around-the-clock operations.
Speaker Change: These cumulative efforts have resulted in a corresponding financial transformation as we have improved our gross margin profile from 66% at the beginning of the year to 70% by the fourth quarter 2024 and have generated north of 500 basis points of improvement in adjusted EBITDA margin excluding acquired IPR&D charges for the year.
Speaker Change: We remain committed to driving additional financial leverage within the business and to maturing our company further for the benefit of all stakeholders.
Speaker Change: Lastly, while we are very excited for the opportunities ahead of us that we are driving in our commercial business, I want to remind everyone that regulatory and quality matters will remain our number one company priority throughout 2025.
Speaker Change: To this end, we continue to make significant progress towards our remediation and compliance activities and are tracking well against our timelines that we have committed to the FDA with respect to the FDA's warning letter and 483 observations.
Speaker Change: Also recall that we committed to going above and beyond what the FDA has signaled they expect, and we currently are on track to complete these additional compliance efforts by year-end 2025.
Speaker Change: As we have communicated in the past, we will allocate the necessary resources to ensure that we are best in class from a quality perspective, and we are committed to ensuring that the FDA's observations are remedied to their complete satisfaction.
Dan Wilson: With that, I'll turn the call over to Dan to discuss our recent financial performance.
Dan Wilson: Thank you, Quentin. As a reminder, unless otherwise noted, the financial metrics that I discussed today will be presented on a non-GAAP basis.
Dan Wilson: Reconciliations to GAAP can be found in today's earnings release and on our IR website.
Dan Wilson: Our fourth quarter 2024 results were reflective of our focus on profitable growth.
Dan Wilson: We are pleased to have delivered strong top-line growth while continuing to drive operating leverage through the P&L. On the top line, we saw significant momentum in our core markets as we achieved revenue of $164.3 million, representing 24% year-over-year growth.
Dan Wilson: These results were driven by record volume demand from existing accounts, combined with another record quarter of new account openings for both Xeomonitor and XeoAT.
Dan Wilson: Encouragingly, growth continues to be well balanced across both XeoMonitor and XeoAT, across our core symptomatic business, as well as increasing adoption of undiagnosed monitoring and a mix of both new store and same store growth.
Dan Wilson: New store growth, with new store defined as accounts that have been open for less than 12 months, accounted for approximately 56% of our year-over-year volume growth.
Dan Wilson: Home enrollment for Xeo Services in the U.S. was approximately 22% of volume in the fourth quarter.
Dan Wilson: Moving down the P&L, gross margin for the fourth quarter was 70%, slightly ahead of our stated expectations.
Dan Wilson: Compared to the third quarter 2024 and compared to the fourth quarter 2023, the improvement to gross margin was driven by volume leverage as well as the ongoing benefits realized from sustainable clinical operations and manufacturing efficiencies.
Dan Wilson: Fourth quarter adjusted operating expenses were $116.7 million, up 2.6% year-over-year, primarily driven by our ongoing remediation activities, as well as funding of innovation and commercial initiatives.
Dan Wilson: These purposeful investments were enabled by savings generated from operational excellence initiatives, which demonstrate our ability to deliver top-line growth while generating meaningful operating leverage.
Dan Wilson: Adjusted net income in the fourth quarter of 2024 was $0.2 million or income of $0.01 per share compared to an adjusted net loss of $25.8 million or an adjusted net loss of $0.84 per share in the fourth quarter of 2023.
Dan Wilson: Adjusted EBITDA in the fourth quarter 2024 was $19.3 million, or 11.7% of revenue, compared to an adjusted EBITDA margin of 1.8% in the fourth quarter of 2023. Adjusted EBITDA for the full year 2024 was negative $7.7 million, or negative 1.3% of revenue.
Dan Wilson: Our adjusted EBITDA for the full year 2024 included $32.4 million of acquired IP R&D charges, or 5.5% of revenue, which would have resulted in an adjusted EBITDA margin of 4.2% of revenue without the acquired IP R&D charges.
Dan Wilson: This represents an improvement of approximately 520 basis points compared to 2023, driven by sustainable improvements to our operating expense profile, specifically through disciplined spending and SG&A, while still reinvesting in initiatives to fuel our future growth.
Dan Wilson: 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.
Dan Wilson: Incremental expenses related to these activities were approximately $11.0 million for the full year 2024. The company increased its remediation activities in the fourth quarter, bringing on additional consulting support to rectify outstanding regulatory and quality-related items.
Dan Wilson: We expect these incremental remediation expenses to be approximately $15 million in 2025.
Dan Wilson: Once we are through our remediation efforts, we expect most of these expenses to subside.
Dan Wilson: And as noted previously, Operational Excellence Initiatives executed in the back half of 2024 will help offset incremental FDA remediation expenses in the near term while positioning iRhythm to deliver sustainable profitability into the future.
Dan Wilson: Turning to guidance, we are reiterating full year 2025 revenue guidance of $675 million to $685 million as presented just a few weeks ago.
Dan Wilson: We continue to believe that full-year revenue will be driven by sustained volume growth in our core U.S. markets as we continue to drive utilization of long-term continuous monitoring upstream within primary care channels, drive continued adoption of undiagnosed monitoring, and expand our market share within the mobile cardiac telemetry market.
Dan Wilson: This outlook contemplates significant U.S. volume growth along with a low single-digit percentage pricing headwind.
Dan Wilson: While we are in the early stages of our international commercial launches, we have contemplated international contributing approximately a point of growth in 2025, which includes approximately $2 million from the Japanese market.
Dan Wilson: For the first quarter of 2025, we expect revenue to be consistent with historical averages with approximately 22.5% of full-year revenue generated during the first quarter.
Dan Wilson: For gross margin, we expect the clinical operations and manufacturing efficiencies we've driven over the past 18 months will continue to improve our gross margin profile.
Dan Wilson: We believe that these sustainable improvements will continue to lower our cost to serve as we leverage our fixed cost infrastructure over a higher volume of patients over time.
Dan Wilson: We anticipate modest improvements to gross margin in 2025. However, we expect that these improvements will be largely offset by proposed tariffs of Mexico, Canada, and China imports, which we estimate to be a 50 to 75 basis points negative impact should those move forward as planned.
Dan Wilson: As a reminder, our cost to serve includes both device and manufacturing costs, as well as clinical service costs.
Dan Wilson: Our Xeo devices are manufactured and assembled at our facility in California, and we have a widely distributed supplier base, including suppliers in both Mexico and China. We are monitoring the possible enactment of proposed tariffs, and will be pursuing opportunities to offset any headwinds associated with potential tariffs.
Dan Wilson: For adjusted EBITDA margin, we expect full year 2025 to range between 7% and 8% of full year revenues, which includes the negative impact of potential tariffs as noted earlier.
Dan Wilson: Our guidance does not contemplate potential acquired IP R&D expenses, which expensed amounts will depend on timing of milestone achievements.
Dan Wilson: We continue to anticipate normal seasonality in our adjusted operating expense profile, with higher expenses coming through in the earlier half of the year due to spend associated with corporate activities and payroll expenses.
Dan Wilson: We anticipate that adjusted EBITDA margin for the first quarter of 2025 will be negative low to mid-single digits.
Dan Wilson: Finally, we ended the fourth quarter in a strong financial position with approximately $535.6 million in unrestricted cash and short-term investments.
Dan Wilson: During the fourth quarter, we continue to see further improvements in working capital, and we anticipate a more normalized DSO as we move into 2025.
Dan Wilson: Also very encouragingly, we generated over $30 million in free cash flow during the last three quarters of 2024, demonstrative of our increasing focus on operational discipline and our drive to being free cash flow positive.
Dan Wilson: For full year 2025, we anticipate being slightly free cash flow negative and anticipate becoming free cash flow positive for full year 2026.
Dan Wilson: In closing, we are excited about the financial results demonstrated in the fourth quarter and the momentum in the business at the start of 2025. Our focus on profitable growth is positioning the company to continue to capitalize on our growth opportunities in the near and long term while delivering sustainable profitability.
Quentin Blackford: I will now turn the call back to Quentin for closing remarks.
Speaker Change: Thanks, Dan, and thank you all here today for your support of iRhythm. Our accomplishments of the past 24 months are reflective of ongoing transformational changes within our organization to foster our commitment to excellence.
Speaker Change: We have made significant strides towards our stated long-range goals to create value for multiple stakeholders while continuing to foster innovation for the benefit of patient outcomes.
Speaker Change: We are uniquely positioned to win in the marketplace with clinically accurate, trusted services and the ability to scale into expanded channels in international markets and the capability to add additional vital signs to our innovative platform over time.
Speaker Change: We are generating more than half a billion dollars in revenue today and providing over two million reports for patients annually with expansive target market opportunities to bring value to multiple stakeholders in the healthcare ecosystem for many years to come.
Speaker Change: iRhythm's innovative technology platform underpins our service that enables a scale. We'll support future clinical insight generation and ultimately we should be able to influence population health management where the future of health care is heading.
Speaker Change: And this is being achieved through a scalable, efficient, operating company with an attractive gross margin profile, an improving adjusted EBITDA margin profile, and a transition toward sustainable free cash flow generation.
Speaker Change: We are proving our ability to execute with excellence across all facets of our business, and I'd like to thank our colleagues and partners globally who make this possible every single day. We appreciate your ongoing support of iRhythm as we continue our journey to disrupt health care. And with that, we'd like to take any questions you may have. Operator?
Speaker Change: Great. If you'd like to queue for a question, you can do so by pressing star 1 on your telephone keypad.
Speaker Change: If for any reason you'd like to remove your question, it's star 2, but again to join the question queue, please press star 1. It has been asked that you hold yourself to one question and then jump back into the queue.
Speaker Change: Our first question is from Macaulay Kilbane with William Blair. Your line is now open.
Thank you very much.
Speaker Change: Hi everyone, this is Macaulay on for Margaret tonight. Thanks for taking our question and congrats on a really strong finish to the end of the year here. I wanted to start with the guidance and I appreciate it.
Thank you.
Speaker Change: But as we look the multiatmosphere of the East and West, rocky, the Mountain. Hey, my colleagues.
Thank you.
Macaulay Kilbane: Macaulay, I'm having a really hard time picking you up with your connection. It might be worth jumping back in the queue.
Okay, will do, thank you.
Speaker Change: All right, I have you pretty clear right there if you want to try again.
Oh, sorry about that.
Speaker Change: Not sure what you hear, but I wanted to start with the guidance. I appreciate the approach we've seen in the past with not getting ahead of things.
Speaker Change: As we look at the multiple catalysts throughout the year with the record account openings, the PCP momentum.
Speaker Change: continuing, if not accelerating, exiting the year, you have EPIC integration, etc. I guess looking at the guide, what's already implied in that high end and what's kind of left out that could drive you closer to that 20% growth?
Speaker Change: moving forward, especially with the 20% growth that exited a year.
Hey Macaulay, thanks for that question.
Speaker Change: As it relates to the 2025 guide, you are right, there's a number of potential levers that can drive the growth in the business we talked about.
Speaker Change: in the prepared remarks, kind of that balanced growth and seeing contribution from multiple, you know, places in the business. So all very encouragingly. As we look to 2025, we, you know, of course, don't want to get ahead of ourselves. There are a couple additional headwinds in 2025.
We did call out, you know, low single-digit pricing.
Pressure in 2025, that's unique to 2025 versus 2024.
Speaker Change: And then in Q4, we did see some benefit from ZOAT as it related to some competitive disruption.
Speaker Change: in the quarter, as well as an innovative channel partner that turned on in a big way in Q4.
Speaker Change: As we look at 2025, we want to make sure that those things continue into the year and make sure that those are
Speaker Change: contributing in the business in the same way before really baking that into the guide. So at the start of the year, trying to be balanced, but certainly love, you know, what we're seeing in the business and the momentum and encouraged about the setup for the year.
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Speaker Change: Our next question is from Alan Gong with JP Morgan. Your line is now open.
Lily: Hi, this is actually Lily for Allen. Thanks so much for taking the question.
Speaker Change: You obviously ended the year on a high note, really good momentum exiting 2024, so was hoping you could just share a bit of color on how that momentum has continued into 2025 so far and some of the trends that you've been seeing so far in the first quarter. Thank you.
Thank you.
Speaker Change: Thanks for the question. Dan mentioned and you heard in the prepared remarks, certainly very excited with the momentum that we saw over the course of 24. I would note every single quarter we saw growth increase, so I think it just speaks to the momentum that's building.
Speaker Change: excitingly coming from some of these new channels that we've been talking about you know around the primary care opportunity that we believe is how we open the market from six and a half million tests a year to what we think is 25 to 27 million patients seeing a primary care physician so
Very, very encouraged.
Speaker Change: Dan did mention, you know, within the fourth quarter, there was a little bit of a
Speaker Change: benefit from a new innovative channel partner that's opening up. We want to see that continue out into 2025, and I do believe that over time it will, but it's not something that they've continued with here in the first month and a half, but I do think they'll pick that up in the
Speaker Change: in the next several quarters. So we don't want to get ahead of ourselves with that one. We'll wait and see that contribute and then we'll start to roll that in. On the ZOAT side, I can tell you things continue to be very promising. Again, we're just a few months off of some of the disruption that we saw in the marketplace.
Speaker Change: With the fourth quarter, we were clearly above that, and if that sticks for all of 2025, then we should be in a very nice spot, but we want to see that play out for a little while longer.
Great, thank you.
Thank you for watching!
Speaker Change: Our next question is from Callum Titchmarch with Morgan Stanley. Your line is now open.
Callum Titchmarch: Great, thanks for taking the question, guys. Just on the 43 observations, and I think previously you've messaged to us...
Callum Titchmarch: that internally you feel like you can remediate everything there that you've committed to by kind of mid-2025. So can you just refresh us and specify the changes you've made thus far as it relates to the 483s and then what's left outstanding today?
Callum Titchmarch: and then just any sense on how collaborative that process has been with the FDA on the 43s. Is it, you know, are they providing ongoing feedback or has it been a pretty one-way communication channel at the moment? Thanks a lot.
Dan Wilson: Yeah, thanks, Callum. Look, we're incredibly pleased with the progress that we're making. I'm super proud of the teams. As we've noted, this is the top priority for the company right now.
Dan Wilson: and that's exactly what you would see if you were inside the four walls of iRhythm. So the teams have done a tremendous job.
Dan Wilson: We're through the majority of those remediation activities. We continue to target sort of the mid-year of 25.
being through the remediation-specific activities.
Dan Wilson: Keep in mind, though, we're holding ourselves to a higher standard, right? We're going beyond just those items that the FDA identified, and we're looking more broadly and going wider, and we'll continue to make those improvements over the course of the entire year of 2025.
Dan Wilson: In terms of the correspondence with the FDA, you know, we continue on a monthly basis to provide them an update.
Dan Wilson: on exactly what we said we were going to do and how we're tracking to that. And I can tell you today, we've met every one of those deliverables.
Dan Wilson: that we've committed ourselves to. So we feel good about that. There is some back and forth with the FDA, but most of it's more administrative, right? Acknowledging receipt of.
Dan Wilson: of what we're submitting to them. Not a lot of questions, you know, back to us on the remediation side. So, I'm encouraged by what we're seeing, but, you know, we've got a little bit of work yet to be done and feel good about being able to get through the remediation-specific items by the mid part of the year and the holistic.
Dan Wilson: effort by the end of the year. The one thing that I would also comment on is, keep in mind, you know, we agreed to bring a third party in.
Dan Wilson: from the outside to sort of audit or review all of the improvements we were making ourselves to hold us to that higher standard. Some of that review work will begin to happen here in Q2. So just demonstrates the progress that we're making and beginning to turn on that.
Dan Wilson: independent review of what we're doing but feel good with where we're at and super super happy and proud of the teams
Thank you for watching. See you next time.
Speaker Change: Our next question is from Dino Weinstock with Wells Fargo. Your line is now open.
Thank you.
Hey, this is actually Nathan Trebek.
Speaker Change: Just a question for you in terms of ZOMCT timeline. I think the last time you mentioned you expect to submit for approval around Q3 of this year. Is that still the time frame? And I guess would you wait for the 483s to be remediated before submitting for approval? Thanks.
Speaker Change: Nathan, no, we're still on track with the ZOMCT timeline, still expect to get on file with the FDA in the third quarter.
We do not need.
Speaker Change: clearance, if you will, of the 43 remediations or acknowledgement from the FDA to to submit that.
Speaker Change: I think if you go back to the last earnings call that we had, I shared with you that we were prioritizing some of those remediation activities ahead of submitting MCT. And that was really to make sure that we began to make the progress against those things most critical and demonstrate to the FDA our...
Speaker Change: seriousness around remedying those things. I feel very good about where that's at, but they don't need to be, you know, fully remediated before we can submit that MCT submission. So still tracking well, still thinking, you know, Q3 is the right way to think about that. No change with respect to MCT, and that'll continue to be our focus as a team.
Speaker Change: We have a question from David Roman with Goldman Sachs. Your line is now open.
Thank you. Good afternoon, everybody.
David Roman: I was hoping that you could go into a little bit more detail on how the EPIC integration is going and how we can think about demand generation from accounts that are now on EPIC, like what you're seeing and how we should think about that contributing to incremental volume on a go-forward basis.
David Roman: Yeah, I, you know, we talk a lot about the partnership with Epic and it's been nothing but a terrific partnership from day one. We've made great progress in integrating those accounts that we first had slated in the fourth quarter. They're up, they're running, they're producing nicely.
David Roman: Some of the feedback is pretty amazing, really. It's funny to hear...
David Roman: Some of the folks who are working within the system make comments like, are you sure that we've got this correct? It can't it can't be this easy. It seems like we're missing something. So it is having an absolute impact on workflow, which is, you know, the focus of this. And we want to continue to make sure we address that for our customer accounts. And we've got a whole slew of accounts
David Roman: that are slated to come on board here in the first quarter of 2025, some already done.
David Roman: across the broader group before we start to bake that into forward-looking expectations, but
David Roman: That is part of the value thesis with this whole integration is that if we can improve workflow, make it easier...
David Roman: to prescribe our product, to put our reports right back into the electronic health records. It's going to allow our customers to focus more on the patients and therefore treat more patients. So we'll see if that plays out, but early signs are very positive.
Speaker Change: We have a question from Marie Thibault with BTIG. Your line is now open.
Speaker Change: Hey, good afternoon. This is Sam Wong from Marie. Thanks for taking the questions here.
Speaker Change: Maybe I can move to OUS and appreciate the commentary on the point of growth in 2025, Wood.
Speaker Change: Just love to hear any early trends you're seeing in some of the new markets that you've opened up.
Speaker Change: Again, thoughts on Japan's $2 million contribution. I assume that's more back half loaded. Just any thoughts you have there. Thanks.
Speaker Change: Yeah, hey Sam, this is Dan. I can take that question.
Speaker Change: You know, we launched into the four Western European countries in the back part of 2024, so still very...
Speaker Change: early days there and making good progress. One market there is through a distributor, three markets are direct for us. Japan, we do have the reimbursement decision on deck here.
intend to commercially launch in that country.
Speaker Change: you know, call it mid part of 2025. So like how, you know, we have a few countries starting to contribute to.
Speaker Change: The growth here mentioned or called out that one point of growth in 2025. So encouragingly moving in the right direction, still believe it's early days for us from an international expansion standpoint.
Speaker Change: Our next question is from John Young with Canaccord Genuity. Your line is now open.
Jon Young: Hey guys, it's Jon on for Bill tonight. Thanks for taking the question. Just wanted to go to the guidance and see if there is any sleep apnea contribution contemplated for 2025 in the revenue guidance today. And just how you're thinking about sleep apnea and some of the other adjacent areas that you highlighted on the prepared remarks contributing this year. Thanks.
Speaker Change: Yeah, so we don't have any revenue contribution, John, in the 25 Revenue Guide at this point for Sleep Apnea. We do expect to make some good progress around the Sleep Apnea business model and getting that out into the market as we continue to expand what we believe is a real opportunity to win in that segment.
Speaker Change: We continue to do a lot of market research, a lot of work with our own customers. I think it's evident that...
Speaker Change: As we continue to move further, you know, up the care pathway, up into primary care, as easy as we've made it to identify cardiac arrhythmia, as if we can make it that simple to identify sleep disease, which we think we can do through our digital platform and the portal that we already have.
Speaker Change: We think we have a right to win in that space, and so we're going to continue to pursue it very diligently.
Speaker Change: But, again, sort of the same approach we've taken with some of these other activities. We want to see the revenue really show up, begin to contribute, and then we'll start to work it into our expectations. But nothing in the formal guidance at this time, but do expect to make progress.
Speaker Change: Our next question is from Joan Winch with Citigroup. Your line is now open.
Speaker Change: Good afternoon, this is Anthony Aperjoy. Thanks for taking our question. So last time you updated us on PCP volume, I believe you said it was north of 20% in 2024. Given that you're expanding these PCP and value-based care partnerships, where do you think that could go in 2025?
That's a good question.
Speaker Change: I absolutely believe primary care is going to continue to be a bigger and bigger
Speaker Change: mix of our business. And, you know, we certainly saw that continue to play out over the course of 24. I don't know that I'm prepared to give a specific mixed figure at this point. It's probably something that we will update on in the future.
Speaker Change: and both of them are doing very, very well. You think about our large IDNs that we've entered in the past through cardiology and EPs, and they're some of our best customers and our biggest.
Speaker Change: proponents of Zio, they're now asking to bring their primary care physicians within network to the the table to learn more about Zio and have them begin to prescribe earlier in the care pathway. I hit on this on prepared remarks.
Speaker Change: When we see that happen, we can get a diagnosis to a patient within a matter of, you know, call it three to four weeks, which...
Speaker Change: may have been four to six months historically if they were waiting to see a specialist.
It's just...
continuing to sort of change the whole paradigm around
Speaker Change: care for these patients and getting them the answers that they need more quickly. And now, you know, you look at our data sets, north of 50 percent of the IDNs that we have business with have a prescribing primary care physician within them. That's exciting to see and that's growing very nicely because
Speaker Change: Once they move prescribing up to primary care and they get a better targeted patient into the cardiologist or EP,
Speaker Change: where they can focus on the right procedures, they end up getting monitored there again as well. And so overall volume really performs nicely in those accounts. And then you look at it from the other angle, these large innovative.
Speaker Change: primary care networks, many of them taking risk and managing populations in a capitated risk model, if you will. They understand the value of proactively monitoring patients.
Speaker Change: diagnosing earlier in the care pathway and enabling the reduction of cost of care downstream because they avoid these catastrophic events.
It's really incredible if you look at the data.
many of these unaware, undiagnosed
Patience.
Speaker Change: You look at their medical history, you look at their medical records, unfortunately, when they first get diagnosed...
Speaker Change: Ends up being in the ER, right? And it's always tied back to some cardiovascular event or a syncopal event where there's a fall and a fracture. We believe we can impact that by finding these folks earlier.
Speaker Change: And in some of these, you know, early pilots we've run, we find these patients to the tune of roughly 80%, meaning we identify what we think the population
Speaker Change: at-risk looks like by looking through medical history records. You put a patch on them proactively and lo and behold, nearly 80% end up having arrhythmias that can begin to be treated proactively.
Speaker Change: Very excited about where this is moving. It certainly is moving in primary care, to your point or to your question, it will become a bigger and bigger mixed component of the business, but we haven't put that figure out there this year and we'll find a place in the future to update on it.
Speaker Change: Our next question is from David Rescott with Baird. Your line is now open.
better than expected strength in the MCT business.
Speaker Change: My guess may be that could have been two or three points to grow from the top line, so just curious on your thoughts on the math there. But you did deliver, I think, the first positive net income number ever with that higher mix in MCT, and then as well, maybe the contribution from
Speaker Change: the Innovative Channel Partner. So curious on what level of that upside in the top line was a benefit or fell through to the bottom line? And then when you think about the potential for MCT as a percentage of sales,
Speaker Change: to be bigger in 2025 and 2026 and maybe the innovative channel partners coming on bigger as well. Should that be maybe an upside driver to the EBITDA kind of guidance that you have in 2025 as well as when you think about in 2026? Thank you.
Dan Wilson: Yeah, David, thanks for the question. This is Dan. I'll answer that.
Dan Wilson: You're right to point to both, you know, ZOAT as well as the Innovative Channel Partner in terms of the beat in in Q4 that did also, you know, yield the beat on the bottom line. So, so beating, you know, top and bottom line. So really encouraged about what we're seeing there. I wouldn't, I wouldn't put all of that profit beat on those, those two components. It certainly contributed.
Dan Wilson: And we have talked about, you know, the leverage that we can see in these innovative channel spaces and kind of that one-to-many selling model.
Dan Wilson: We do like that from a profitability standpoint. As that grows in our business, that can be a source of leverage.
Dan Wilson: on the bottom line, and I think that is true for ZOMCT as well, that we have talked about.
Dan Wilson: Xeo AT being slightly lower gross margin relative to Xeo Monitor.
Dan Wilson: I wouldn't necessarily say that flows all the way to the bottom line.
Dan Wilson: But we do like what is showing up on the bottom line, certainly Innovative Channel and ZOAT is contributing to that. And I believe, again, that's well set up for 2025 as those grow as a mix of our business, to your point.
Speaker Change: We have a question from David Saxon with Needham & Co. Your line is now open.
Speaker Change: Yeah, thank you for taking our questions. This is Joseph Antwerp, David. You're just looking at gross margin, I guess, excluding any potential impact, you know, from tariffs.
Speaker Change: Are you guys expecting, you said an improvement over 2025, but I guess are you guys expecting it?
Speaker Change: you know, more sequential step up. I was just kind of curious on the seasonality there. And then maybe more broadly, just the growth impact, gross margin impact on the, you know, OSU launch, OUS launches more broadly. And that'll be it. Thanks.
Speaker Change: Yeah, sure. I can take that question. So, as it relates to international contribution that is contemplated in the gross margin guidance, we talked about the point of growth.
Speaker Change: for international, so that will be, and two of those markets being through distributors, as I mentioned earlier. So that will be at a lower gross margin, and that is contemplated in guidance.
Speaker Change: If you were to take all of our comments on gross margin for 2025 and kind of where that leads you, it is flat year-to-year from 24 to 25, really with the improvements that we're driving offset by those potential tariffs that we called out of, you know, 50 to 75 basis points.
Speaker Change: There is a price headwind as well that we mentioned, notably an 8% Medicare price decline for ZOAT that's working against us as well, but really driving nice efficiencies within our clinical operations teams.
Our manufacturing teams and
Speaker Change: As we look beyond 2025, still believe in opportunities for gross margin expansion in future years, certainly. As we think about subsequent phases of manufacturing automation, we'll see another phase go live later in 2025 and in 2026.
Speaker Change: Getting to that single hardware platform that we mentioned with VOMC-T, that will be a nice source of leverage as well. And then, again, just continued efficiencies from leveraging our global infrastructure.
Speaker Change: Flat for the year, really offset, those improvements offset by tariffs. As we look out longer term, we certainly see line of sight to continued gross margin expansion.
Speaker Change: We have a question from Siraj Kalia with Oppenheimer. Your line is now open.
Thank you.
Speaker Change: Quentin, Dan, congrats on a nice finish to the year. Can you hear me all right?
Yeah, thanks, Raj, appreciate that.
Speaker Change: Perfect. Quentin, one question from my side, and maybe Dan can chime in also. Exiting Q4, our understanding is your ZEAL AT share was about 10%.
Speaker Change: you know, the entity market, maybe you can give us an idea about how you're thinking about FY25, just in terms of shares or what the thought process is.
Speaker Change: Also, in terms of direct sales versus service-based model for ZOAT, how do these respective buckets, how should we think about it for FY25? Thank you for taking my question.
Speaker Change: I'm not sure I followed the last question on direct sales versus service-based.
Suraj
Speaker Change: Maybe I'll have you clarify that after I answer this. But I think from a market share perspective, you know, we're somewhere probably around 11-12% of the MCT market.
Speaker Change: I think if you look back over the course of the last 12 to 24 months, we've probably gained a point to two points of market share a year. And our guidance would continue to contemplate that that's kind of the rate that we move at over the course of 2025. Now, if you look at the fourth quarter, I think we gained more share than that. And if, you know, if this can stick and the performance of the fourth quarter sticks throughout all of 2025, then we probably pick up more than one to two points. But we're gonna, we're gonna let that play out. And
Speaker Change: and just show up in the results of the business before we really get out in front and guide to it. I just, I wanna see that stick a little while longer, but I think the encouraging thing is you look at, you know, most of these accounts where we're picking up the...
Speaker Change: ZOAT business based upon some of the disruption. It just validates. We're already in these accounts anyhow with long-term cardiac monitoring so it's the same prescribing physicians now they're just moving over to ZOAT.
Speaker Change: I think there's a real opportunity, it sticks. But again, we want to let time play out a little bit longer before we start to bake that in. Back to your point on direct sales or service, Dan, maybe you... Perhaps you're asking about channel or customer mix. So ZOAT does have
a higher mix within the Medicare population.
Sorry, Siraj, you want to clarify? Identify me.
Speaker Change: Dan, forgive me if I may, we get a lot of questions from clients saying, hey, competitor XYZ is selling patches for so-and-so for their MCT business.
and they are letting the physicians collect the technical fee.
Speaker Change: which is not the case with the ZOAT, and as I understand it, you'll do sell the patches to a certain extent, but then they're
Speaker Change: the other part of the business is you'll collect the technical components, you know, just like you'll do ZOXD. So I was curious if you could just kind of give us an idea about how these two buckets look. How should we think about FY25? Hopefully that makes sense. Thank you.
Speaker Change: Understood. Yeah, thank you, Suraj, for clarifying. So, ZOMCT as with ZOMonitor and ZOXT
We do deliver that end-to-end service.
Speaker Change: There is sometimes a slightly different pricing model, direct bill versus client bill. And again, that's broken out from a revenue standpoint in our filings. But in terms of what we deliver to the customer is no different across each of those customer buckets, if you will. It's always the end-to-end service.
Speaker Change: We don't sell the device separate from the service. That is unlike some of our competitors, as you noted.
Speaker Change: Our next question is from Richard Newitor with Truist. Your line is now open.
Speaker Change: Hi, this is Felipe Lamar on for Rich. Just on tariffs, you guys are one of the first to really size that gross margin impact, so if you could just flesh out how you're coming up with the 50 to 75 bits move, just give some more color, it would be helpful.
Speaker Change: And then SG&A management in the quarter was significant. I guess could you just help us think about how or just help us understand how we should think about like expense management cadence through 2025. Thanks so much for taking the questions.
Assuming that the...
proposed tariffs do move forward.
Speaker Change: early in March. We do, as I mentioned in the prepared remarks, have suppliers of certain components really in Mexico and China and would point to Mexico as
kind of a good
Quentin Blackford: EBITDA guide for 2025. We feel really good about the efficiencies that we're driving in the business. Quentin referenced the actions we took in Q3 of last year. We'll see a full
Quentin Blackford: full year of benefit from that in 2025 at the same time we want to continue to reinvest in the business.
Quentin Blackford: to drive both near-term and future growth. And that can be investing in opening up undiagnosed monitoring.
Quentin Blackford: certainly driving to get Xeo MCT on file and cleared, international expansion as well. So feel like that's the right balance in terms of driving additional profitability while reinvesting in the key priorities of the business.
Speaker Change: We have a question from Paige Chamberlain with Wolf Research. Your line is now open.
Speaker Change: Guys, this is Pia John for Mike Tonight. Thank you for taking our question. We're curious for an update on the use of the Philippines team. So do you guys have any key accomplishments in 2024 to highlight and maybe what's the roadmap on that team for 2025? And then finally, can you just maybe remind us on how you think about the financial efficiency gains from projects like this? Thank you.
Speaker Change: Yeah, I am incredibly pleased with the team in the Philippines. They've become a real...
Speaker Change: asset for our company, just the quality of work, the commitment, the buy-in to our culture, the values that they uphold. It's been neat to see. And we've got several hundred folks over there now across
Speaker Change: many functions. It's not just one or two functions. It's, you know, beyond counting on two hands, the number of functions that are over there. So really pleased with it. I think the team's done a wonderful job.
Speaker Change: It is a nice efficiency lever for us from a financial perspective for sure.
Speaker Change: But it's also an enabler for around-the-clock operations of our business, which enhances our interaction with the patients, our customer service levels.
Speaker Change: You can go down the whole list and as we continue to be a global company
Speaker Change: trying to serve the European markets, trying to serve the Asia markets.
Speaker Change: having the capability to operate around the clock becomes very, very critical to us.
Speaker Change: And I couldn't be more pleased with the team that's over there. I think they're phenomenal. So, very happy with it. It's a big part of how we're driving the cost profile.
Speaker Change: to be more efficient. I think if you look at our whole G&A spend, you know, we're probably sitting down in the low 40s now in what used to be over 50% of revenue, and there continues to be a nice line of sight to drive that even further. So, very happy with the progress being made there.
Speaker Change: We have no additional questions in the queue, so I will pass the call back to the management team for any closing remarks.
Speaker Change: Well, thank you, Operator. And looking back on 2024, we were incredibly pleased with the progress made across the business, and I want to take the opportunity to thank each and every one of our tremendous teammates on their hard work and dedication.
Speaker Change: to improving the lives of as many patients as possible as we continue to build a high growth but a profitable business that's transforming healthcare.
Speaker Change: 2025 is set up to be an exciting year for us.
Speaker Change: We're looking forward to it and continue to execute against our strategic pillars. The future is bright. So thanks for your time and we'll talk again soon.