IRTC - NASDAQ

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. [Operator Instructions] I'd now like to turn it over to Stephanie

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the fourth quarter and full year ended December 31, 2024. 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 these 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 and 10-K for reconciliation of these measures to their most directly comparable GAAP financial measures. Unless otherwise indicated, all references to financial measures on this call other than revenue refer to non-GAAP results. This conference call contains time sensitive information and is accurate only as of the live broadcast today, February 20, 2025. 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 Quentin Blackford, iRhythm's President and CEO.

Thank you, Stephanie. Good afternoon and thank you all for joining us. Dan Wilson, our Chief Financial Officer, is joining me on today's call. My 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. 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. The fourth quarter 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. Our commercial teams drove another year of record new account openings within both long-term continuous monitoring and in mobile cardiac telemetry. This was enabled by strong demand from national value-based care entities, continued momentum in our core commercial base business and an uplift in

Thank you, Quentin. As a reminder, unless otherwise noted, the financial metrics that I discuss today will be presented on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release and on our IR website. Our fourth quarter 2024 results were reflective of our focus on profitable growth. 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. These results were driven by record volume demand from existing accounts combined with another record quarter of new account openings for both

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 a commitment to excellence. 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. 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. We are generating more than $0.5 billion in revenue today and providing over 2 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. iRhythm's innovative technology platform underpins our service that enables us scale. We'll support future clinical insight generation and ultimately we should be able to influence population health management where the future of healthcare is heading. 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 towards sustainable free cash flow generation. 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 healthcare. And with that, we'd like to take any questions you may have. Operator?

Great. [Operator Instructions] Our first question is from Macauley Kilbane with William Blair. Your line is now open.

Hi, everyone. This is Macauley 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 any numbers you can put to guidance here. But as we look the multiple analysis here [indiscernible].

Hey, Macauley. Macauley, 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.

All right. I have you pretty clear right there if you want to try again.

Sorry about that. Not sure what you hear, but wanted to start with the guidance. And appreciate the approach we've seen in the past with not getting ahead of things. But as we look at the multiple catalysts throughout the year, with the record account openings, the PCP momentum 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 moving forward, especially with the 24% (ph) growth exiting the year?

Sure, Dan. Why don't you jump in?

Yeah. Hey, Macauley, thanks for the question. So 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 in the prepared remarks kind of that balanced growth and seeing contribution from multiple places in the business. So all very encouragingly. As we look to 2025, we of course don't want to get ahead of ourselves. There are a couple of additional headwinds in 2025. We did call out low single-digit pricing pressure in 2025 that was unique -- or that's unique to 2025 versus 2024. And then in Q4, we did see some benefit from

Our next question is from Allen Gong with J.P. Morgan. Your line is now open.

Hi. This is actually, Lily on for Allen. Thanks so much for taking the question. You obviously, ended the year on a high note, really good momentum exiting 2024. So I 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.

Yeah. Thanks, Lily. 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 and excitingly coming from some of these new channels that we've been talking about around the primary care opportunity that we believe is how we open the market from 6.5 million test a year to what we think is 25 million to 27 million patients seeing a primary care physician. So very, very encouraged. Dan did mention within the fourth quarter, there's a little bit of 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 half. But I do think they'll pick that up 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

Great. Thank you.

Our next question is from Kallum Titchmarsh with Morgan Stanley. Your line is now open.

Great. Thanks for taking the question, guys. Just on the 483 observations, and I think previously you've messaged to us 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? And then just any sense on how collaborative that process has been with the FDA on the 483s? Is it -- are they providing ongoing feedback or is it been a pretty one-way communication channel at the moment? Thanks a lot.

Yeah. Thanks, Kallum. 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 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. 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. 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. In terms of the correspondence with the FDA, we continue on a monthly basis to provide them an update 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 that we've committed ourselves to. So we feel good about that. There is some back and forth with the FDA, but most of its more administrative, right, acknowledging receipt of what we're submitting to them. Not a lot of questions back to us on the remediation side. So I'm encouraged by what we're seeing, but 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 effort by the end of the year. The one thing that I would also comment on is keep in mind we agreed to bring a third party in 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 this just demonstrates the progress that we're making and beginning to turn on that independent review of what we're doing. But feel good with where we're at and super happy and proud of the teams.

Our next question is from Dino Weinstock with Wells Fargo. Your line is now open.

Hey. This is actually, Nathan Treybeck. Just a question for you in terms of

Hey, Nathan. No, we're still on track with the

We have a question from David Roman with Goldman Sachs. Your line is now open.

Thank you. Good afternoon, everybody. I was hoping you can go into a little bit more detail on how the Epic integration is going. And how we could 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?

Yeah. I -- 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. Some of the feedback is pretty amazing, really. It's funny to hear 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 be this easy. It seems like we're missing something. So it is having an absolute impact on workflow, which is 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 that are slated to come on board here in the first quarter of 2025, some already done. Excitingly, we got one of our first big competitive conversions that moved our direction as a result of the Aura system and they'll be going live momentarily. So we're excited with what we see. I think we want to see that play out for a little while before we comment on what sort of volume trends we see in the business. I will tell you there's some anecdotal signs from some of these early accounts that you can see some volume uplift. But we need to see that play out across the broader group before we start to bake that into forward looking expectations. But that is part of the value thesis with this whole integration is that if we can improve workflow, make it easier 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.

We have a question from Marie Thibault with BTIG. Your line is now open.

Hey, good afternoon. This is Sam on for Marie, thanks for taking the questions here. Maybe I can move to OUS and appreciate the commentary on the point of growth in 2025. Just love to hear any early trends you're seeing in some of the new markets that you've opened up. And again, thoughts on Japan 2 million contribution, I assume that's more back half loaded. Just any thoughts you have there. Thanks.

Yeah. Hey, Sam. This is Dan. I can take that question. So, we launched into the four Western European countries in the back part of 2024. So still very 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 and intend to commercially launch in that country, call it, mid part of 2025. So, like how -- we have a few countries starting to contribute to the growth here mentioned or called out that 1% of -- 1 point of growth, excuse me, in 2025. So encouragingly moving in the right direction. Still believe it's early days for us from an international expansion standpoint.

Our next question is from Jon Young with Canaccord Genuity. Your line is now open.

Hey, guys. It's Jon on for Bill tonight. Thanks for taking the question. Just wanted to go to the guide and see if there was 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.

Yeah. So we don't have any revenue contribution, Jon, 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. We continue to do a lot of market research, a lot of work with our own customers. I think it's evident that as we continue to move further up the care pathway up into primary care, as easy as we've made it to identify cardiac arrhythmias, 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, we think we have a right to win in that space. And so we're going to continue to pursue it very diligently, but again, sort of the same approach we've taken some 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.

Our next question is from Joanne Wuensch with Citigroup. Your line is now open.

Good afternoon. This is Anthony (ph) on for Joanne. 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. I absolutely believe primary care is going to continue to be a bigger and bigger mix of our business. And 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. I think it's interesting with primary care. There's two pathways that we're going after that market, and both of them are doing very, very well. You think about our large IDNs that we ventured in the past through cardiology and EPs, and they're some of our best customers and our biggest proponents of

Our next question is from David Rescott with Baird. Your line is now open.

Great. Thanks for taking the questions and congrats on the strong finish to the year here. I wanted to ask about the two stronger points in the fourth quarter. I think one of them was the innovative channel partner that came out in Q4 and then the better-than-expected strength in the MCT business. And my guess maybe that could have been two or three points to growth in the top line. So just curious on your thoughts on the math there. But you did deliver the -- I think the first positive net income number ever with that higher mix in MCT, and then as well maybe the contribution from 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 to be bigger in '25 and '26, 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 '25 as well as when you think about in 2026. Thank you.

Yeah, David. Thanks for the question. This is Dan. I'll answer that. So you're right to point to both

We have a question from David Saxon with Needham & Co. Your line is now open.

Yeah. Thank you for taking our questions. This is Joseph (ph) on for David. And just looking at gross margin, I guess excluding any potential impact, from tariffs, are you guys expecting -- you said improvement over 2025, but I guess are you guys expecting it 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 OUS launches more broadly. And that'll be it. Thanks.

Yeah. Sure. I could take that question. So as it relates to international contribution that is contemplated in the gross margin guidance, and we talked about the point of growth 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. 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 50 basis points to 75 basis points. There is a price headwind as well that we mentioned, notably an 8% Medicare price decline for

We have a question from Suraj Kalia with Oppenheimer. Your line is now open.

Quinton and Dan, congrats on a nice finish to the year. Can you hear me all right?

Yeah. Thanks, Suraj. Appreciate that.

Perfect. Hey, Quentin, one question from my side and maybe Dan can chime in also. Exiting Q4, our understanding is your

I'm not sure I followed the last question on direct sales versus service-based, Suraj. And maybe I'll have you clarify that after I answer this. But I think from a market share perspective, we're somewhere probably around 11%, 12% of the MCT market. I think if you look back over the course of the last 12 to 24 months, we probably gained 1 point to 2 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 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 going to let that play out and just show up in the results of the business before we really get out in front and guide to it. I want to see that stick a little while longer, but I think the encouraging thing is you look at most of these accounts where we're picking up the

Perhaps you're asking about channel or customer mix. So

Then if I may -- then -- forgive me, if I may.

Please.

We get a lot of questions from clients saying, hey, competitor XY

Understood. Yeah. Thank you, Suraj for clarifying. So

Our next question is from Richard Newitter with Truist. Your line is now open.

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 bps to 75 bps, maybe just give some more color, it would be helpful. 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.

Yeah. Sure. Appreciate it. I'll start with your question on tariffs. So the 50 basis points to 75 basis points that is assuming that the proposed tariffs do move forward early in March. We do, as I mentioned in the prepared remarks, have suppliers of certain components really in Mexico and China. And I would point to Mexico as kind of a good -- we're a good portion of that 50 basis points to 75 basis point headwind orient. So I would point you to Mexico there. In terms of expense management in 2025, obviously, you got the 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 year of benefit from that in 2025. At the same time, we want to continue to reinvest in the business to drive both near-term and future growth. And that can be investing in opening up undiagnosed monitoring, certainly driving to get

We have a question from Paige Chamberlain with Wolfe Research. Your line is now open.

Guys, this is Paige on 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.

Yeah. I am incredibly pleased with the team in the Philippines. They've become a real asset for our company. And just the quality of work, the commitment, the buy into our culture, the values that they uphold, it's been neat to see. And we've got several hundred folks over there now across many functions. It's not just one or two functions. It's 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. It is a nice efficiency lever for us from a financial perspective, for sure, but it's also an enabler for around-the-clock operations of our business, which enhances our interaction with the patients, our customers service levels, you can go down the whole list. And as we continue to be a global company trying to serve the European markets, trying to serve the Asian markets, having the capability to operate around the clock becomes very, very critical to us. So it's a -- it's an asset that we've built. It's one that we're going to continue to lean into as we build our global company. 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 to be more efficient. I think if you look at our whole G&A spend, we're probably sitting down in the low 40s now and what used to be over 50% of revenue and there continues to be nice line of sight to drive that even further. So very happy with the progress being made there.

We have no additional questions in the queue, so I will pass the call back to the management team for any closing remarks.

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 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. 2025 is set up to be an exciting year for us. 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.