iRhythm Holdings, Inc.

Thank you for attending today's iRhythm, Inc. Q4 2022 Earnings Conference Call. My name is Bethany, and I will 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. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Stephanie Zekovich, Director of Investor Relations, please go ahead.

Thank you all for participating in today's call. Earlier today, IBISM released financial results for the fourth quarter and full year ended December 31st, 2022. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. These are based upon our current estimates and various assumptions and reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on those statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our most recent annual and quarterly reports on Form 10-K and Form 10-Q, respectively, filed with the Securities and Exchange Commission. Also during the call, we will discuss certain financial measures that have not been prepared in accordance with U.S. GAAP with respect to our non-GAAP and cash-based results, including adjusted EBITDA, adjusted operating expenses, and adjusted net loss. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation of, as a substitute for, or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release in 10-K for reconciliation of these measures to their most directly comparable GAAP financial measures. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 23, 2023. iRhythm 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 Quinton Blackford, iRhythm's President and CEO.

Thank you, Stephanie. Good afternoon, and thank you all for joining us. Bryce Bobzien, our Chief Financial Officer, Doug Devine, our Chief Operating Officer, and Dan Wilson, our EVP of Corporate Strategy and Development, join me on today's call. My prepared remarks today cover progress we've made during the fourth quarter of 2022 with and discuss the near-term growth initiatives for our business. I'll then turn the call over to Bryce to provide a detailed review of our financial results. We were very pleased with our significant growth exiting 2022, recognizing $112.6 million in revenues for the fourth quarter and achieving 38% growth year over year. This was in line with expectations as registrations grew more than 20% compared to the fourth quarter 2021, and we saw improvement in return device rates. For the second time in the last three quarters, we realized another record quarter of new account openings for ZOXT, reflecting strong demand for our ZO services and setting us up for success as we enter 2023. Our ZOAT service continued to grow nicely, albeit growth did slow as expected when compared to the first nine months of 2022. We continue to drive awareness and adoption with the cardiology and EP position segments where we believe there is still significant greenfield opportunity. We are also continuing our push into primary care to deliver a complete ambulatory cardiac monitoring service to the right patients earlier in their treatment paradigm. As discussed in the past, we believe this opens up the potential for a vastly larger market opportunity with over 14 million patients showing up in their primary care provider with cardiac-related heart palpitations annually. Patients can benefit from ambulatory cardiac monitoring early in their diagnostic journey, and we believe our Xeo services offer the right test the first time. As an example of this strategic expansion, we recently announced a nationwide agreement with One Medical, with whom we share a dedication to delivering technology-powered and patient-focused solutions. We are very pleased with the progress we are making in the primary care segment and see significant opportunities to deliver Xeo services to patients further in their care journey, ultimately benefiting patient lives and the healthcare system. On the pricing front, in November 2022, CMS published the calendar year 2023 physician fee schedule final rule, containing payment rates for the two main CPT code sets related to long-term continuous ECG monitoring and recording that we use to seek reimbursement for the ZOXT service and the ZO Monitor service. We were very pleased with the outstanding work by our teams and other industry groups working with CMS to enable this milestone, and importantly, this positions us to bring our innovative products to more patients. Through our continued focus on improving market access in 2022, approximately 75% of all Medicare and commercial patients eligible for coverage now have a $50 copay or less, and approximately 25% of all Medicare and commercial patients eligible for coverage will not pay anything at all out of pocket for the ZOXT or ZO Monitor service. CMS National Pricing also opens the opportunity to contract with state Medicaid programs and further expand market access for these patients, who represent approximately 10% of the U.S. market. While the CMS national pricing for long-term continuous ECG monitoring provides stability in our core U.S. business, we continue to believe that CMS undervalues the clinical benefit that our service brings to Medicare beneficiaries. We look forward to continuing to partner with CMS in the coming years as our industry moves towards gaining increased recognition of the clinical value of innovative AI technologies. On the innovation front, the clinical and economic evidence for our ZOXD service continued to build during the fourth quarter with the MSTOPS economic analysis presented at AHA in November 2022. One-year follow-up findings from this trial were published in HeartRhythm02 in 2020 and demonstrated that active monitoring with our ZOXD service led to AFib being newly diagnosed in 6.6% of patients who were actively monitored versus 2.4% in the observational control group receiving routine care. Three-year follow-up findings of M-STOPs published in PLOS One in 2021 furthermore demonstrated the active monitoring with ZOXT service led to a statistically significant reduction in the combined primary endpoint of death, stroke, systemic emboli, for myocardial infarction versus standard clinical care. The M-STOPs trial was the first study to observe the benefits of AFib screening at three years. The economic outcomes analysis presented this past November demonstrated that targeted AFib screening with our ZOXD service provides excellent value to the healthcare system by enabling early diagnosis. Over three years, individuals prescribed the ZOXD service were more likely than unmonitored individuals to have outpatient visits, including the cardiologist, but less likely to require emergency department visits or hospitalization. More specifically, the analysis showed an incremental cost-effectiveness ratio of approximately $17,000 per quality adjusted life year gained, which is the academic standard for measuring how well medical interventions lengthen and or improve patient lives. For reference, the USPSTF recommended in 2021 to begin proactively screening for lung cancer with an incremental cost effectiveness ratio of $72,000. According to ACC and AHA, incremental cost effectiveness ratios for diagnostics under $100,000 are viewed as attractive while anything under $50,000 is viewed as highly valuable. We believe that this continues to support our value proposition to payers as we build out our Know Your Rhythm program to proactively monitor properly targeted, at-risk populations. Regarding product innovation, we are pleased to announce that we recently received FDA clearance for another set of software modifications to our Zoo system. This 510 clearance includes the addition of AFib burden estimates to be added to daily reports for our ZOAT service. Since higher APIP burden has been associated with the higher risk of stroke as well as higher prevalence of heart failure, we believe this is a clinically important enhancement to our service offering. And importantly, this further demonstrates our ability to continue developing innovative solutions and enhancements to our existing services for patients and customers and set the stage for continued innovation around our ZOAT service. Turning to 2023, I'm excited for the year ahead and expect to build on the solid momentum we've seen in the past few months. On a macro level, while healthcare systems did experience staffing challenges in 2022, we're seeing early signs of improvement in early 2023. The operational efficiency associated with our Xeo service has been resonating with accounts and driving adoption by allowing clinicians to streamline the workflow and focus their time on patient care. With 99% physician agreement with the Xeo report and 98% patient compliance, the value of our Xeo services continues to be appreciated by clinicians and continues to underlie our competitive advantage. We continue to see a steady pace of new account openings thus far in 2023, and we are particularly pleased with the early progress in primary care volumes from recent account openings that continue to validate our belief that the primary care market will in fact open up and be a nice contributor to growth for years to come. We also anticipate significant catalysts over the next 18 months to drive our business forward and position us for success in both the near term and long term. Most importantly, we expect there will be significant data upcoming at ACC 2023 in New Orleans, including important information further demonstrating our value proposition with our Xeo services compared to other ambulatory cardiac monitoring offerings in the ACM market. We look forward to speaking with you about them after the ACC presentation in the coming weeks. On the product front, we continue to anticipate full commercial launch of our next-generation biosensor, the Xeo Monitor, to replace our current Xeo XD patch form factor in the back half of 2023. As a reminder, this new patch is 72% smaller, 55% lighter, and 20% thinner than our existing Xeo XT form factor, all of which we believe has a positive impact on patient experience and may have an associated improvement in wear times and device return rates. The Xeo monitor is currently in limited U.S. commercial launch, and we are very excited to get this into the marketplace in the hands of physicians and their patients. We also anticipate submissions to the FDA next for an updated MCT service in the latter part of 2023 for potential commercial launch in 2024. There is significant runway ahead of us in the MCT market where we hold less than 10% market share today. The submission on the hardware side will include an upgrade to our new biosensor platform, which was built for automation and will therefore improve our scalability once volumes are ramped across all modalities. We also expect to submit software improvements to add enhanced detection features, monitoring flexibility within a single device, and longer wear time optionality. We are excited about this next generation of our ZOAT product, which we believe will better position us to compete in this space and drive market share gains into the future. As we've discussed in the past, our ZO watch is also expected to enter limited market evaluation in 2023. Using a continuous PPG AI-based algorithm, the ZO watch not only detects AFib, but also characterizes the amount of AFib over time to calculate an AFib burden estimate with accuracy compared to that of the Xeo XT patch as a reference. This contextualization of patient AFib presence or absence collected through the monitoring period is important and clinically meaningful to aid in a potential diagnosis. The Xeo watch is intended to be complementary to Xeo patches by adding modality with longer wear times for patients who require long-term monitoring. The anticipated market evaluation in 2023 will enable us to gain real-world experience with the product and service to gather patient and physician feedback and to consider the appropriate reimbursement approach for this uniquely positioned prescription-based monitoring service. Finally, we've outlined previously how driving operational efficiency is an important strategic pillar for iRhythm to serve millions more patients across the globe in the future. After nearly 10 years, we served our 5 millionth patient in late 2022. With our current growth assumptions, we expect to serve our next 5 million patients in just a few short years. This requires us to think bigger than we have before. In anticipation of this, we are sharing two transformative steps that we are taking to advance our strategic plan and enhance our internal infrastructure to meet the significant demand ahead of us. These steps include the establishment of a global business services center located in Manila, Philippines, as well as efforts to enhance the experience that our physicians and patients have with iRhythm. These efforts will enable us to scale and develop our clinical, operational, and administrative functions more quickly, thereby enhancing enabling us to continue providing excellent support to our patients and customers globally. In addition, we'll leverage third-party service providers where necessary that will allow us to grow and scale more aggressively over time. While we expand our operations internationally and leverage our new service providers to meet our operational goals, these actions will enable our ability to grow globally and add team members where they are needed, both in the U.S. and abroad. These transformative steps mark a defining moment in iRhythm's journey. We know that patients, especially those seeking access to the care they need, as well as physicians rely on Zeo services to help unlock opportunities for better care and improved outcomes. Removing friction and barriers to access is a critical part of our mission, and we need to ensure our operations allow us to do this. The changes I just outlined will equip us to improve access for patients worldwide. With solid momentum in our core business and significant opportunities on the horizon, I'm truly excited about our future at iRhythm in 2023 and beyond. I'll now turn the call over to Bryce to discuss our financial results and 2023 guidance.