iRhythm Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the iRhythm Technologies Q2 2020 earnings conference calls. At this time, offices have been assigned to a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during a session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Lee Salvo, Investor Relations. Please go ahead.

Thank you all for participating in today's call. Joining me are Kevin King, CEO, Doug Devine, CFO, and Dan Wilson, EVP Strategy, Corporate Development, and Investor Relations. Earlier today, iRhythm released financial results for the second quarter ended June 30, 2020. A copy of the press release is available on the company's website. 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, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, those statements related to the impact of COVID-19 on our business, expectations for economic recovery, market expansion and penetration, Productivity improvements, reimbursement, release of clinical data, operating trends, and our future financial expectations, including revenue, gross margins, profitability, and operating expenses, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of 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, with the SEC. This conference call contains time-sensitive information and is accurate only as it's live broadcast today, August 6, 2020. IRISM disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Kevin.

Thanks, Lee. Good afternoon, and thank you for joining us. On behalf of the iRhythm team, we hope you're remaining safe and healthy. I'd like to start our call by recognizing the iRhythm team. Over the past few months, I've observed our team rallying to meet the challenges, demonstrating incredible resilience, and operating at the highest level, all while adopting to a new work environment. Despite the challenges, we have continued to deliver our service without interruption to the physicians and patients that rely on it. We recognize the need for high-quality care has never been greater, and the iRhythm team is intently focused on delivering the care needed in today's environment. I'd also like to welcome Doug Devine to our team. Doug joined us during an exceptionally challenging and unusual time of our business. Despite that, he was able to immediately step in to provide a very smooth transition, and he has already demonstrated the impact of his leadership on our finance organization and input on our long-term growth objectives. In my prepared remarks today, I'll discuss the key highlights of our second quarter, provide our current views of the market environment, discuss our outlook, and our strategic priorities for this environment. Doug will go into more detail on our financials for the second quarter before we open a call up for questions. As we enter the second quarter, we face many uncertainties related to the impact of COVID-19 and what that would have on our business. To manage this uncertainty, we implemented three operating initiatives. First, to protect and support the health and well-being of our employees, our communities, and our customers. Second, to ensure uninterrupted ZEO service delivery. And third, to ensure continued financial strength by adjusting our operating plan. Our team delivered on all three objectives in our financial and operating results for the second quarter demonstrate this. We were encouraged by our second quarter results despite the impact and challenges of COVID-19, which we felt especially early in the quarter. Total revenue for the second quarter of 2020 was $50.9 million, a decrease of 3% compared to the same period in 2019, and a decrease of 20% compared to the first quarter of 2020. We saw steady recovery throughout the quarter, and the pace of recovery exceeded our expectations and revised operating plans. Average daily registration rates grew steadily through the quarter and compared to the average weekly registration rates prior to COVID, April represented the trough at 65% of pre-COVID levels and June was approximately 90% of pre-COVID levels. While COVID-19 suppressed the overall market in the second quarter, we believe iRhythm increased its share of the market as measured by our success in three areas. First, compared to legacy Holter monitoring services, Our clinically superior digital platform was proven to be well-suited to deliver services in a virtual environment. Our single-use ZEO devices are patient-friendly and eliminate the need for cleaning of equipment between uses. Second, our home enrollment service, enabled by our digital platform, was instrumental in maintaining the registration levels we experienced in the quarter. We expect it will remain an important component of many of our accounts workflows going forward. As we shared in early May, home enrollment represented over 50% of registrations for the month of April. As hospitals and physicians began resuming in-office patient visits, this percentage leveled out to just below 30% as we exited the quarter. We expect to remain at these levels for the foreseeable future. and believe this will be a key factor in ensuring continuity of patient care in the event of a continued ramp in COVID cases that leads to reduced in-office patient care. As such, we've been actively working on improving the efficiency of our home enrollment service and are prepared to support 100% of our volume if needed. For example, we recently launched version 1.8 of Xeo Suite, which now tracks includes a tracking feature that provides us and our physician customers with patient and device visibility from registration to report delivery. ZO Suite is an important component of our service as we continue to scale our operations and home enrollment service. Lastly, ZOAT demonstrated continued strong traction and meaningful growth over the first quarter of 2021, over 2020. Our single platform solution continues to resonate with our customers as they put high value in streamlining workflows across their cardiac monitoring needs. The experience that our customers have with ZOXT and the high confidence and familiarity they have with our service and platform has benefited ZOAT adoption. Further, ZOAT has unique advantages over traditional MCT technologies that are being recognized by our physician customers. ZOAT utilizes the same form factor as ZOXT, resulting in high patient compliance and wear time, and is backed by the same detection algorithms and AI tools we have developed for ZOXT over the last several years. Less than a year into the full market launch of ZOAT, we're very pleased with the adoption to date. We are increasingly confident that we can continue to expand into the MCT market and Take Meaningful Share. While we're pleased to see signs of market recovery, the situation remains fluid, with the level of recovery varying widely within accounts and within regions. So while we've continued to see slight improvement in July, we believe there are several market factors that may lead to suppressed demand through the rest of 2020. Feedback from our commercial team indicates that a number of accounts have effectively worked through their backlog and are now seeing a steady flow of new patients. While encouraging, we're not yet experiencing this trend consistently as patient willingness to enter the healthcare system remains varied, particularly in regions that have experienced a strong resurgence of COVID-19 and continued uncertainty as numbers escalate. In addition, were aware that hospitals, especially those in hotspot regions, have limited or even ceased performing procedures deemed deferrable or elective. And nearly all healthcare facilities have adopted new, highly stringent protocols and workflows which are likely to impact patient volume and throughput while they remain in place. Utilizing telemedicine solutions, including our home and service, will help offset these pressures But the adoption of virtual care models has also been varied. That said, new account adoption of our Xeo service continues to be at lower than pre-COVID-19 levels. The impact to our third quarter and to the second half of the year remains unpredictable, particularly with the continuing rise in daily new cases of COVID-19, up 3x over May levels. We remain cautious on steady rates of volume recovery as we progress into the second half of the year. However, we do expect to return to year-over-year revenue growth in the third quarter. If current trends continue, we expect Q3 to be in line with pre-COVID levels with volumes growing slightly from June levels. Offsetting this is the expected impact of summer seasonality and its effect on physician prescribing patterns. Longer term, we have high confidence in our ability to change the standard of care and continue to gain market share. As I noted earlier, we're focused on the long term and managing our business accordingly with the primary goal of continuity of service for physicians and their patients. Next, I want to spend a minute providing an update on our operations and cost containment measures. Our priority remains on health and safety of our employees and maintaining stringent safety protocols for all in-office functions and employees. We've continued to maintain full organizational capacity through a combination of work from home capabilities wherever possible, daily onsite operations for those groups that must work from the office, and the use of virtual online tools to facilitate group projects, and to provide support to our physician customers and their patients. Our field sales activity has remained primarily virtual in most regions through the country. Regarding our cost containment measures, with a noted increase in patient registration levels during the quarter, we have now returned all previously furloughed employees, reinstated salary to pre-COVID levels and resumed hiring for key roles. We are maintaining certain other cost containment measures to preserve cash and liquidity but are making the required investments to continue to scale the business to meet the increased demand and pursue long-term growth initiatives. Turning to reimbursement, as you likely know, CMS published the much-anticipated proposed Medicare Physician Fee Schedule proposed rule for 2021 earlier this week. The issuance of the proposed rule is now followed by a public comment period that closes on October 5, 2020 and will culminate in CMS's final rule, expected on or around December 1, for implementation on January 1, 2021. We covered the details of this proposal and its impact on our business during a conference call this past Tuesday, which is archived and available on our website, So I won't repeat all of that information today. On August 5th, CMS published a correction to the relative value units and related information used to determine Medicare payments for the eight new codes associated with external extended ECG monitoring. The correction increases the relative value units for technical codes 93XX2, and 93XX6 and decreases the RVUs for the global codes 93XX0 and 93XX4. The remaining four codes associated with the patient hookup activities and final interpretation were revised downward by a small percentage. This correction is incrementally more positive if applied to our 2019 revenues as described earlier in the week. After several years of collaboratively working with the American Medical Association, the Heart Rhythm Society, the American College of Cardiology, and the CMS staff, we are pleased with the very positive impact the proposed outcome will have on our business and especially to have such a significant milestone successfully behind us. Our long-term strategy remains intact, and this includes increasing market penetration with the Xeo platform, increased operating leverage through continued productivity and automation improvements, and expanding the addressable market into new indications and geographies. We expect to continue planned investments to drive long-term growth and profitability for shareholders and are as confident as ever in the durability of our business. While we're cautious on the outlook for the remainder of 2020 and would be hesitant to predict a fast recovery, we believe the future of iRhythm has never been brighter. There is a considerable potential for structural changes to how healthcare is delivered, and that will play to the strengths of our digital platform. We're focused on positioning iRhythm to continue to drive the standard of care and how cardiac arrhythmias are diagnosed and managed and delivering our zeal service to the millions. With that, I'd like to turn the call over to Doug.