iRhythm Holdings, Inc.

Good day and thank you for standing by. Welcome to the iRhythm Technologies, Inc. fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the 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 today, Lee Salvo. Please go ahead.

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the fourth quarter ended December 31, 2021. 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 the 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 are based upon our current estimates and various assumptions. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in IREM's annual report on Form 10-K, most recently quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this presentation or to conform to these forward-looking statements to actual results. In addition, we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash-based results. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release for a reconciliation of these measures to the most directly comparable GAAP financial measure. 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 report and quarterly report on Form 10-K and Form 10-Q, respectively, with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 23, 2022. I will not 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. And with that, I'll turn the call over to Quentin Blackford, iRhythm's President and CEO.

Quentin Blackford Thank you, Lee. Good afternoon, and thank you all for joining us. Doug Devine, our COO and CFO, and Dan Wilson, our EVP of Corporate Strategy and Investor Relations, join me on today's call. My prepared remarks today cover progress we've made since our last call and commentary on the near and long-term growth initiatives we are focused on for our business. I'll then turn the call to Doug to provide a detailed review of our Q4 and full year 2021 results, as well as guidance for 2022. It's been an exciting four months since I joined iRhythm, and I could not be prouder or more energized by our team's collective progress. In this short time, we have identified and begun to implement measures that we are confident will enable us to accelerate growth in our core market and expand our opportunity into adjacent ones. We have also begun to implement operational changes that we believe will generate long-term, sustainable growth and enable iRhythm to scale even more efficiently. I recently shared reflections from my first 100 days with the iRhythm family, and I'd like to share some of that with you today. My vision is to turn iRhythm into a truly global organization, expanding the value we've realized domestically and extending across the world. Our artificial intelligence capability and deep learning algorithms are a significant differentiator from competitors, lifting our value well beyond medical devices and into the future of what AI can deliver. We see opportunities to leverage our core technology for new use cases not considered five years ago that can deliver significant value for both the healthcare system and our investors, while keeping iRhythm at the forefront of revolutionizing the way healthcare operates. Good progress has been made, but our work is far from done. The potential is tremendous, and our focus remains on delivering value to our clinicians, payers, and patients. We have a global responsibility to get these technologies out there more broadly and to get more people access to care. With that in mind, we are focused on three primary growth pillars. First, continued expansion in our core market with ZOXT and ZOAT. As the leader in this space, we recently reached an exciting milestone of surpassing four million patients served. Today, physicians are treating well above a million new patients each year with our best-in-class technology, that leverages more than a billion hours of curated ECG data and truly delivers the gold standard in ambulatory cardiac monitoring. We still have plenty of runway ahead of us with less than 25% adoption in our core U.S. market, as well as an opportunity to further expand this market in time. Second, expansion into international markets. We have made great progress in operationalizing our service in the United Kingdom and plan to submit for Shonin approval in Japan later this year. Beyond these two countries, we see immense potential to introduce our technology platform in international markets and to make Xeo the standard of care in cardiac monitoring, similar to the successes we've seen in the U.S. And third, leveraging our technology platform to expand into adjacent markets. Our efforts here are led by our expansion strategy into Silent AF, which is extending our Xeo XT service into asymptomatic and high-risk patient populations that can potentially benefit from proactive monitoring. We also see the potential to leverage our technology platform into adjacent disorder and disease categories. With that as a backdrop, I'll summarize our 2021 and fourth quarter performance, trends we're seeing in the early part of 2022, and recent progress on the objectives I've just outlined. For the full year 2021, our revenue grew 22% over 2020, exceeding the guidance we offered on our last call. Fourth quarter revenue reflected year-over-year growth of 3.8 percent and nearly 20 percent unit volume growth against an unseasonably strong fourth quarter in 2020. Adjusting for approximately one week of clinical backlog in Q2 that rolled into our third quarter, Q4 sequential growth was approximately 8 percent. And importantly, our turnaround times in clinical Q remained within expected bounds throughout the quarter. We saw a nice rebound in new account openings in the fourth quarter as we restarted targeted efforts after successfully addressing our mid-year turnaround time issues. We were also encouraged to see average volume per new account near an all-time high since we began tracking this metric at the end of 2017, which signaled the ability to launch larger accounts and ramp new accounts more quickly. New accounts typically ramp up over a four-quarter period following launch, which suggests more meaningful contributions from these new account launches in the back half of 2022. Throughout much of the fourth quarter, our business recovered well from the combination of the clinical backlog and COVID disruption. In late December, the Omicron variant spike had a meaningful impact on our business that continued through January. We have seen stronger trends in February and recently surpassed all-time record daily registrations. While we are encouraged by the recent trends and the strength of our commercial pipeline, we do anticipate continuing staffing and labor shortage headwinds combined with the impact of fewer new account launches in both the second quarter and third quarter of 2021 will have an impact in the first half of this year. Diving deeper into our core market in the U.S. and starting with ZOXT, unit growth continued to outpace revenue growth as a result of the reimbursement headwind that we navigated throughout 2021. Encouragingly, our sales reps have started to gain traction, expanding beyond cardiologists and EP call points to reach primary care physicians, where an estimated 8 million people a year visit for heart palpitations. As I have highlighted previously, we expect this to be an important driver of near-term growth in our core market while also expanding our addressable market in time. On the innovation front, we recently launched ZO Suite 3.0, which includes single sign-on as well as multi-factor authentication. These features will be rolled out to all of our U.S. customers over the next 90 days and represent the outstanding cross-functional efforts we hope to build upon in our core technology offerings. We plan to continue bringing new technologies to market, including a limited introduction of our third-generation biosensor expected in the coming months. Lastly, on the reimbursement front, we were pleased with the progress in Medicare pricing in early January with the decision by Novitas to update their 2022 reimbursement rates that affect ZOXT, moving rates from the 7- to 14-day code from $115 in 2021 to $233 in 2022. We appreciate the continued engagement and efforts of the MACs to better understand long-term continuous ECG monitoring, the clinical benefits that it provides to patients, and the costs and resources that go into delivering the service. The updated rates demonstrate progress in further understanding costs associated with delivering the Xeo service. We, along with a broad industry-wide working group, will continue to work with the MACs, the Centers for Medicare and Medicaid Services, or CMS, and other stakeholders to provide information in support of our continued pursuit of fair and appropriate pricing. We are committed to providing as much information as we can to CMS to allow them to set a national rate for calendar year 2023. We believe that they have sufficient information to establish national pricing, and we look forward to the proposed rule in July or August of this year. On ZOAT, we saw strong growth throughout 2021 that outpaced overall company growth. Revenues from ZOAT doubled in 2021 versus 2020 and now represent approximately 10% of our revenues. We are pleased with the ramp of ZOAT and see an opportunity to continue to grow the product. Clinical use cases, including CAVR, syncope, and early discharge have been key drivers for ZOAT, and we are evaluating several other opportunities to expand the use cases and the value that we can deliver to patients and physicians through clinical evidence and continued innovations. Now turning to international, we continue to make good traction in both the private and public sectors in the UK, where roughly 500,000 ambulatory cardiac monitoring tests take place each year. The backing and support of the NHS grant and the AI award, as well as the NICE recommendation, gives us confidence that the UK can be a significant market force in the future. Our focus remains on executing against the AI award to demonstrate the clinical and economic value of our ZOXT service, and generate the data required to achieve long-term sustainable reimbursement in the UK. The success we are seeing in the UK combined with CE mark approval already in hand gives us the added confidence to pursue other markets throughout the EU where we can deploy resources and begin growing our presence. We have also accelerated our efforts into Japan where we are moving forward with an application for regulatory approval Japan is the second largest ambulatory cardiac monitoring market in the world, where reimbursement has historically been very good, and physicians have been expressing strong interest in our technology. To oversee the execution of our international expansion goals, we are delighted to welcome Sandrine Miores as our new international general manager. Prior to joining us, Sandrine spent more than 20 years with Medtronic, most recently leading EMEA commercial efforts, including sales and marketing for Spine, Biologics, and several other key divisions. Turning to our third pillar of growth and the one that I believe has the most significant long-term potential are the adjacent markets. Our initial efforts are focused on silent AFib where we estimate there are more than 10 million people in the U.S. alone that are at high risk of undiagnosed cardiac arrhythmias who can benefit from early screening. Additionally, there are other adjacencies like predictive stroke, heart failure, hypertension, or sleep apnea that can contribute to an enormous addressable market opportunity in the future. These are areas that we believe our technology platform can be leveraged to address clear unmet needs, and we look forward to sharing more details as we initiate efforts in these areas. In addition to our focus on growth, we are committed to improving operational discipline that will lead to long-term profitability and meaningful financial leverage over time. We are rethinking how we conduct our business in evaluating longer-term operating models that can enable future efficiencies and scale with the business as we globalize our company. Internally, we have begun to prioritize efforts with respect to our algorithms that will automate workflows for our clinical operations teams. We're evaluating the utilization of software to enhance interactions with our customer service functions. We've launched formal efforts to review our operational processes across our back office, transactional functions to clearly map out opportunities for efficiencies and new ways of doing business into the future. And we're doing this while also committed to improving upon our overall control environment as we introduce world-class operational capabilities. In line with these efforts, we will incur some restructuring charges within the first quarter of 2022 that are primarily associated with the reduction in size of our San Francisco facility to better align the company to the remote working environment that we have proven can be successful. With pricing near existing levels and with these operational changes underway, I am confident that we have adequate capital and a clear path to positive EBITDA and positive cash flows without the need for diluted financing to get us to profitability. In summary, I'm confident that we have entered 2022 with good momentum and a platform to grow and serve millions more patients. We are intently focused on this vision, and we look forward to sharing our progress throughout the year. I will now turn the call over to Doug.