iRhythm Holdings, Inc. Q3 FY2021 Earnings Call

Good day and thank you for being here. Welcome to the iRhythm Technologies Inc. Q3 2021 Earnings Conference Call. All participants are currently in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to turn the call over to your speaker today, Leigh Salvo. Please proceed.

Thank you all for participating in today’s call. Earlier today, iRhythm released financial results for the third quarter ended September 30, 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 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 recovery and processing clinical backlog, market opportunity, product performance, 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. In addition, we will refer to adjusted EBITDA, which is defined as EBITDA excluding stock-based compensation expense. Adjusted EBITDA is a non-GAAP measure that is used to help investors understand iRhythm’s ongoing business performance. 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-Q, respectively with the SEC. This conference call contains time sensitive information and is accurate only as of the live broadcast, today, November 4, 2021. 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.

Thanks, Leigh. Good afternoon and thank you all for joining us. I’m excited to join you on my first earnings call as iRhythm’s President and CEO. Doug Devine, our Chief Financial Officer; and Dan Wilson, our EVP of Corporate Strategy are on the call with me as well. In our prepared remarks today, I will discuss what attracted me to iRhythm, my early observations and focus areas, summarize our views of the current market environment, provide an update on reimbursement, and then Doug will cover a detailed review of our Q3 financial results and expectations for the remainder of the year. As a reminder, I officially joined the company in early October, and I would first like to thank the iRhythm team for the warm welcome and assistance as I transition into the company. I’ve been incredibly impressed with the passion of the organization, the knowledge of the team, and most importantly, the commitment and dedication to serving our patients and physician customers. I am delighted to be supported by a team that shares these common values. My first few weeks with the team have validated my reasons for joining. As I speak to you today, I’m even more excited about the opportunities ahead of us than I was four weeks ago, and I would like to spend a few minutes discussing the things that attracted me to iRhythm. First and foremost, I’m personally motivated by the opportunity to change people’s lives and have a positive impact on individuals’ health and wellbeing. I spent my entire career in healthcare and with companies that have patients at the center of everything they do. It was clear to me and my diligence that iRhythm’s corporate values start with the patient, and it is deeply ingrained in the DNA of the company. Second, I see a highly valuable and highly differentiated technology platform and service that delivers real clinical and economic value to patients, providers, and the healthcare system. The technology platform is built upon best-in-class sensing technology, truly unique artificial intelligence, deep learning capabilities, and a unique dataset that together creates a platform from which we can operate and expand. Related to that, I see the potential to deliver sustainable differentiated growth for years to come. We are only approximately 20% penetrated in our core market today and have the opportunity to continue to capture more share, grow the overall market, and expand our addressable market. Our expansion into the silent AF market is a meaningful opportunity for the company, aligned with where I see the future of healthcare delivery. I’m also excited about the international expansion and believe that we can improve the standard of care in international markets in the same way we have done and continue to do so in the U.S. In the longer term, I believe there are many other possibilities to leverage our platform and expand into other markets and adjacencies. Lastly, I was attracted by where iRhythm is in its life cycle. I admire what the company has done in its history, the innovation it has brought to the market, and the benchmark growth the company has delivered over the last several years. The opportunity for sustained growth is there, and delivering on that will require us to transform our infrastructure and ensure operational discipline throughout the organization. I am confident that my experience at NuVasive and Dexcom will be particularly relevant here as I see a lot of similarities to iRhythm in terms of the stages of growth, the technology platform, and the operational transformations that those companies undertook. I already see several areas of opportunity that we will begin to address to position iRhythm to scale efficiently into the future. Similar to prior companies, I expect that as an organization, we will build a world-class commercial and innovation capability, while being operationally excellent in how we run the company. As I’ve come into the organization, met with the teams and continue to learn the business, I’m even more confident in our future. I have done a deep dive in nearly every function, reviewed our key strategies, evaluated our operational focus areas, and spent time on the ground with our operations teams and out in the field with some key accounts. I’ve taken from that several observations that I would like to share with you. First, physicians and patients love the product and service that we deliver. There has been a continual theme that our clinical differentiation is recognized, and our Zio service is seen as best in class. Second, there is a real opportunity to expand the service upstream in care pathways and in new specialties and use cases. We are seeing a real benefit in having the service utilized earlier in the patient’s journey, which can lead to improved efficiencies for our cardiology and electrophysiology physicians, as well as for the patient and the healthcare system overall. There are also several other specialties that have use cases for cardiac monitoring where we are seeing early success. This type of expansion will allow us to broaden what we can do with our platform with a single call point. Next, I believe our competitive differentiation remains very strong. With a continued focus on clinical evidence generation and educating our customers on our value proposition, I believe we can continue to take share in the market for many years. Our data platform and deep learning capability position us to be on the leading edge of world-class research and innovation with respect to predictive analytics and outcomes, allowing us to potentially transform the healthcare landscape into the future while reducing the cost of care. Finally, the team has done a nice job of building up the ability to integrate with existing EHR systems of customer accounts, which is proving to be a differentiator for the company. The ability to streamline workflow and create efficiencies within physician offices is one more differentiator that becomes a gateway to bring other offerings into these healthcare systems over time. I’m incredibly excited about the strength of the platform, our service capabilities, and the many opportunities to leverage. I’m looking forward to sharing more of my observations and focus areas in the coming months. Next, I want to provide a summary of our third quarter business results and highlights. Revenue during the third quarter was $85.4 million, reflecting year-over-year growth of 19%. Revenue growth was driven by continued penetration of Zio XT in the U.S., while Zio AT and the UK continue to outpace overall company growth. Volume growth for Zio XT remains very strong and, importantly, we have shown the ability to grow revenue in spite of the Medicare pricing headwinds we have faced this year. Doug will share more details on the financial results momentarily. I’d also like to highlight a few important product and operational related milestones that occurred since our Q2 call. We recently surpassed two significant service delivery milestones, including serving 4 million patients in our history and amassing over 1 billion hours of curated ECG data. This is a significant achievement, and we are delighted to have the ability to positively impact these lives. In October, we announced the publication of mSToPS clinical outcomes data in the journal PLOS One. The data, which was previously presented at the American Heart Association meeting in November 2020, with three-year follow-up data intended to assess whether screening asymptomatic individuals for atrial fibrillation and other arrhythmias can improve clinical outcomes. The data demonstrated that active monitoring with Zio in at-risk populations can lead to positive patient health outcomes. As a company, we intend to lead the market in commercializing solutions that deliver proactive prevention, earlier diagnosis, and improved outcomes. Within the UK, we continue to execute on the AI award that we received a year ago and continue to make progress in building out our operational infrastructure there. One year into the pilot program, we believe Zio is demonstrating the value that it can bring to the NHS and the positive impact it can have on reducing wait times and hospital backlog. And finally, turning to our product development efforts, we recently submitted our 510(k) application under our collaboration with Verily and now await feedback from the FDA. Following clearance, we will enter a limited market evaluation phase, which we expect to commence in late 2022 and continue into 2023. As noted on our last call, this market evaluation phase will focus on generating clinical evidence, testing the service and technology in real-world settings, and exploring the optimal business model. We remain excited about the potential for bringing this new solution to market, and we will take a thoughtful and measured approach to clinical evidence generation in order to inform optimal clinical practice. As we close out 2021 and look at 2022, I want to spend a minute sharing our views of the current market conditions and the demand for Zio. During the third quarter, we saw an uptick in COVID driven by the delta variant. On its own, this was not a major factor in our results in the quarter. However, we have seen a significant increase in staffing issues with our customers, which is having a negative impact on patient volumes and presenting patient scheduling challenges. This is leading to capacity constraints at accounts and, in some cases, limiting our ability to open new accounts or expand within existing accounts. How and when these issues get resolved is difficult to predict, but we believe the impact on our business will persist throughout the end of the year before potentially normalizing. As an update on our extended turnaround times in the third quarter, we made tremendous progress working through our clinical backlog and working our turnaround times back to normal levels. We remain at normalized turnaround times and believe we have the systems, the people, and the processes in place to meet demand. It is clear that in some situations, the extended turnaround times created additional challenges for our customers on top of the staffing challenges they were facing. Beginning in June and continuing through the third quarter, we were intentional about slowing the addition of new accounts as we prioritized serving our existing customers while we managed through our extended turnaround times. While we have now resumed full selling activities, we expect to see more measured growth in registration volumes in Q4 given the lower number of new accounts opened in Q3 and the staffing issues that our customers are facing. Doug will provide more details with our guidance for the remainder of the year. Now turning to reimbursement. Earlier this week, CMS released the calendar year 2022 Medicare Physician Fee Schedule final rule and accompanying agenda. As it relates to the category one CPT codes for extended external ECG monitoring and the relevant codes for Zio XT, CMS did not issue national pricing and elected to continue with carrier pricing for the calendar year 2022. While we are disappointed that national pricing was not included in the 2022 physician fee schedule, we appreciate that CMS continues to engage with industry and other stakeholders to further their understanding of the cost components of AI-based solutions such as iRhythm’s Zio service. National pricing remains the best option for all stakeholders given the categories now operating under permanent CPT Category I codes. We believe the final rule was a positive development towards national pricing but also recognize there remains work to be done. We will continue to engage with CMS in the rule-making process next year for calendar year 2023 pricing. As you are all aware, iRhythm has been pursuing a parallel path to support fair and stable Medicare pricing for these Category 1 CPT codes. iRhythm remains engaged with the MACs regarding an alternative costing model and has continued to work with industry participants to submit additional cost data for consideration. We, along with our industry coalition, have made meaningful progress against this milestone. We are also evaluating the new information included in the final rule and its potential implications on our discussions with the MACs. Out of respect for the process and to allow the MAC contractor medical directors to complete their own review processes, we will provide further updates when appropriate. While we cannot provide certainty at this time on the potential outcome of the discussions with the MACs or on the timing of any action to be taken, we continue to focus on supporting the MACs to make fair and appropriate rate updates for calendar year 2022. In closing, although we are disappointed that CMS did not issue national rates for long-term ECG monitoring, we have been actively planning for a scenario in which CMS decision-making continues into 2022. Thus, we remain actively engaged with CMS and committed to ongoing discussions, not only with CMS but also with the MACs and other coalition partners in pursuit of fair and appropriate pricing. I look forward to sharing more information regarding our efforts as updates become available. I will now turn the call over to Doug to cover our detailed financial results before I provide my closing remarks.

Thanks, Quentin. Total revenue in the third quarter was $85.4 million, reflecting year-over-year growth of 19% and a sequential increase of 5.1% over the second quarter. Gross margins were 65.7%, down 8.9% year-on-year and 2.3% quarter-on-quarter. Adjusted EBITDA, defined as EBITDA less stock-based compensation expense, was negative $8.7 million, a decrease of $23.5 million year-on-year and $4.1 million quarter-on-quarter. Cash and short-term investments were $256.8 million at quarter end, up $1.1 million from Q2 2021. Taking a more detailed look at third quarter financial results, revenues grew sequentially with quarter-on-quarter growth of 5.1% and continued year-on-year growth of 18.7%. Reduction of the clinical processing backlog drove the majority of revenue growth in the third quarter as we were able to fully return to normal processing times by the end of the third quarter as compared to a backlog to normal processing time of approximately one week as of the end of the second quarter. On a product level, Zio XT in the U.S. drove the majority of our volume related growth in the third quarter while Zio AT in the U.S. and Zio XT in the UK outpaced overall company growth on a percentage basis. New account on-boarding decreased compared to the second quarter of 2021 as we deliberately delayed new account launches in the third quarter due to the extended turnaround times we were experiencing. Looking at new store, same store mix, new store defined as accounts that have been open for less than 12 months accounted for 55% of year-over-year growth, up from 25% in the second quarter of 2021. XT home enrollment was approximately 21% in the third quarter of 2021, flat from the second quarter of 2021. Turning our attention to the rest of the P&L, gross margin for the third quarter was 65.7%, a 2.3% decrease compared to gross margin of 68% in Q2 of 2021. The decrease was due to higher clinical costs associated with managing and reducing the clinical processing backlog and one-time revenue benefits in the second quarter that did not reoccur in the third quarter. Operating expenses for the third quarter of 2021 were $79.4 million, up 9.9% from Q2 of 2021 and up 35.9% year-over-year. The sequential increase in operating expenses was due to compensation and bad debt. Second quarter bad debt expense and stock-based compensation included one-time reversals that were not representative of ongoing costs. Comparing year-on-year, operating expenses in Q3 2021 were up 35.9% due primarily to hiring and legal spending, offset by a decrease in stock-based compensation. Quarterly adjusted EBITDA of negative $8.7 million in Q3 2021 was down $4.1 million versus Q2 2021 adjusted EBITDA of negative $4.6 million. Cash and short-term investments increased $1.1 million from the second quarter of 2021 to $256.8 million with improvements in working capital, partially offset by capital spending and repayment of long-term debt. Accounts receivable decreased by $10.6 million from $63.4 million in Q2 2021 to $52.8 million in Q3 2021 as health claims returned to normal levels as of the end of Q3 2021. Accounts receivable is expected to continue to decline in Q4 as previously held claims are processed through the reimbursement cycle. Finally, the net loss for the third quarter of 2021 was negative $23.7 million, or a loss of $0.81 per share, compared with a loss of negative $4.7 million, or $0.17 per share in the same period of the prior year. Now turning to guidance. For the full year 2021, we expect revenue to range from $317 million to $319 million, representing year-over-year growth of approximately 20%. We expect revenue in the fourth quarter of 2021 to be sequentially down in the range of $76 million to $78 million due to customer staffing shortages, as well as delays in new account onboarding and existing account expansions due to the clinical operations backlog in the second and third quarters. In addition, as previously noted, we incurred a revenue benefit in the third quarter from the reduction of the clinical backlog that was present at the end of the second quarter, which will not reoccur in the fourth quarter. Registration growth remains solid and is expected to increase by a mid-single digit percent in the fourth quarter as compared to the third quarter. Gross margin in the fourth quarter of 2021 is expected to decline approximately 3% compared to Q3 2021 due to higher costs related to the clinical operations backlog and some excess clinical and manufacturing capacity. Operating expenses are expected to increase by approximately $6 million in Q4 2021 as compared to Q3 2021 due to the achievement of a $3 million Verily milestone in October and growth in bad debt, hiring, and investment.

Thanks, Doug. In closing, I want to thank the iRhythm family for the warm welcome to the company. Our teams have realized some amazing accomplishments over the years in bringing the company to this stage. The superior technology platform speaks for itself to the numerous peer-reviewed publications, as well as the rewards and recognition that it has received. It’s a testament to the sort of talent that is present within the walls of iRhythm and I couldn’t be more excited about the opportunity to be joining the company at this time. I see a very dynamic and exciting future in front of iRhythm, one that will be full of significant growth but also one that requires transformation to realize our full potential. We have a unique and differentiated platform technology from a hardware, software, and AI perspective, as well as the service we provide. I believe strongly that we must continue to innovate and iterate off of this platform and remain the innovation leader in the market. We must also transform the way we operate and run the business to scale the company as efficiently as possible. As we position ourselves to serve millions more patients, I am committed to ensuring operations are structured effectively and efficiently to meet the ever-growing demand in front of us. I have already identified several opportunities to improve the way we do business that will allow us to operate more efficiently. I’m looking forward to sharing more details on these opportunities in the coming months. Lastly, I am honored to be leading iRhythm and working every day with our team of over 1,600 individuals to deliver a service that positively impacts patients, providers, and systems alike. Collectively, we are changing the standard of care in cardiac care, and I am excited about the possibilities to make an even bigger impact in the future. We will now open the call up for questions.

Thank you. Our first question comes from Margaret Kaczor from William Blair. Your line is now open.

Hi, everyone. This is Brandon filling in for Margaret. Thank you for the opportunity to ask a question. I would like to first address the near-term guidance. I understand that there are some COVID-related challenges and staffing shortages, which we've heard from several other medical device companies. It was somewhat surprising to see how significantly this has impacted us. To quantify it, if we look at a typical historical high single-digit sequential growth in Q4, I estimate there could be a difference of about $13 million to $14 million compared to our guidance. Is that a reasonable way to quantify the challenges we might face in the next quarter?

Well, first, let me discuss the numbers briefly. As we look at the third quarter, which we incorporated into our guidance, we previously mentioned having about a week of additional clinical backlog at the end of the second quarter. We have worked that backlog down. Therefore, the first step is to adjust Q3’s revenue by subtracting about a week to reach a more stable state. Additionally, as I mentioned in my prepared remarks, we are observing mid-single digit growth in registrations from Q3 to Q4. You are correct that in previous years, we often experienced a higher mid-single digit growth rate. We attribute the difference to a combination of COVID-related staffing reductions and the slowdown in new account openings and expansions in the third quarter due to the clinical backlog. However, I want to stress that we are still seeing a healthy mid-single digit growth rate in registrations from Q3 to Q4 and in the underlying business.

Okay, that’s helpful. And then in terms of reimbursement, one of the interesting comments that we saw from CMS. And I can appreciate you probably want to comment on how this could be used in your specific case, but it did finalize in their words a supply cost of $200 for extended ECG codes. Our understanding is you can’t bill for supply costs, I think that’s part of the global code. So, is that correct and then is there, if that was the correct supply cost used in the CPT code, would you add the labor and supplies on top of that? Just trying to understand how meaningful, or what the $200 code that CMS published could mean for you all. Thanks.

Sure. I’ll grab that as well. So the first comment is that what CMS has done is the carrier priced for next year. So we will – we are continuing to work with the MACs, and we are hoping that they will set appropriate rates over the coming couple of months for 2022. They are not – the $200 supply for the S339 in itself, I mean that is not setting a price that the MAC still has the latitude in how they decide to set that price. Now you do have to – the calculations are complex, and we don’t want to speculate as to, and the calculations are not all finalized either on the CMS side. So we don’t want to speculate and try to give an exact number, but I’m talking to our consultants. We believe that after you go through the various calculations in CMS, starting from that $200 supply for cash, that if they were establishing a national price, it would be quite fairly close to that $200 price with all the ins and outs of the calculations.

Thank you. Our next question comes from the line of Cecilia Furlong from Morgan Stanley. Your line is now open.

Thanks for taking the question. This is Calvin on for Cecilia. Just two quick ones from me. The first one, I just wanted to revisit the reimbursement dynamics. So with the final rule document calling out a kind of dollar price tag for this key supply item and understanding the limited visibility into whether this makes it into the proposed or final rules for the 23 cycle, could you just talk about how this sets you up for negotiations potentially with your commercial payer cohorts as you head into 2022? Does this perhaps add a good data point for that process? And also, relative to the low single-digit pricing headwind, I think you’ve spoken to in the past from just contracts coming due, would that sort of magnitude continue, and can this data point help potentially moderate that going into 2022? And I have a quick follow-up.

Yes, this is Quentin here. Look, certainly we won’t speculate on exactly where CMS might go in a final ruling. I think this is certainly encouraging from our perspective in the sense that they continue to capture the sort of information that they’re looking for, and you saw that in the final rule with respect to invoice data being submitted to them and in the range of cost that came in on those invoice data and then also the price point that they put out there at that $200 range. But to try to speculate exactly where that lands from a final rule position when there isn’t one, today in terms of national coverage is something that we just won’t do at this point in time. Certainly, it provides an incremental data point for us. Right? As we sit and have discussions from a commercial perspective. I’ve been incredibly encouraged by what I’ve seen from a commercial payer perspective. I think at this point, they recognize the value of our technology, they recognize that over the cost of care for patients, there is the opportunity to significantly reduce that cost of care with better diagnosis, which is what our technology provides. And so I’m encouraged by what we see from a commercial payer perspective at this point in time. But to try to speculate where CMS goes with the final ruling from a cost perspective, we won’t do that, but certainly it’s a data point that I think can help us in our discussions at this point in time.

Understood, thanks. And also just can you comment on XT and AT volume kind of the mix as you stand today and more specifically, how has the AT adoption looked like over the course of the third quarter relative to I think recent strength you’ve seen earlier this year? Thanks.

Yes, we’ve certainly seen the AT business continue to step-up in terms of its mix contribution to the overall revenue mix of the company. I would tell you this is one of the things that probably excites me most around the opportunity in our core market. At my prepared remarks, I mentioned the fact that we only see around 20% adoption of our technology in the core market that we serve. If you look at the AT business, it’s mid-single digits, and I think there is tremendous runway there with the AT product. So we’ll continue to leverage that opportunity. I do think you’ll continue to see the overall mix move in the direction of the AT business and we did see that continue to step up in the third quarter, coming off of Q2, so trending in the right direction, but still a lot of runway in front of us there.

Thank you. Our next question comes from the line of David Rescott from Truist Securities. Your line is now open.

Hey, thanks for taking our questions. Apologies if this is repetitive. I’ve been hopping around calls here, but just I guess on the commercial reimbursement front, can you comment, I guess, whether there was any impact from any commercial rate changes in the quarter and then I guess, as we think about moving into 2022, are you feeling more comfortable with the potential for commercial payers to have a lower impact or not necessarily have an impact to their rates in 2022? And then from a timing perspective, I mean, when do you get a sense for around where commercial payers may change their rates? I mean, is this something that they’re going to have their rates already set by December or by January, or could we see some types of rate changes throughout the year, just given that there are multi-year contracts and different contract groups within the commercial payer segment?

Sure. So I’ll take that and then, Doug, feel free to jump in if you’d like to. No significant impacts from a commercial rate perspective within the quarter itself. We haven’t seen anything along those lines. And I think encouragingly, the majority of our commercial contracts at our position now where we would have been notified had they intended to renegotiate rates for 2022. So, I feel good about the fact that we haven’t engaged in those sorts of discussions and they haven’t made us aware that they want to renegotiate for 2022. I think again, back from a commercial perspective, from my experience in these discussions, they tend to understand the value of the technology and the ability to reduce cost over the continuation of care for a patient, and we know that our technology and product positions us very well to better diagnose upfront the different kinds of conditions that would allow them to treat those proactively and reduce costs over time. So I’m encouraged by what we’re seeing, but nothing from a commercial perspective that gives me any concerns at this point in time. I will say that we do have contracts that come up for renegotiation over the course of the year, they’re not all tied to the beginning of a calendar year, but the vast majority of those contracts we would have been notified by this point in time. So I’m encouraged by that.

Okay, that’s helpful. And then I guess just on the segment within some of the wording in the final word that came out. I guess they talked about others, I think 10 invoices or so that were part of this computation to get to this $200 rate. I mean in your understanding, are these 10 submissions somewhat significant number, or are payers or CMS going to want the hundreds, thousands, or 5,000 types of submissions of invoices to be able to have some kind of rate change?

Yes. I can’t speculate on what the right number is that CMS is looking for. I think it’s encouraging in the sense that they’re getting invoiced data that they had looked for and that they’re having that submitted to them. I am encouraged by the fact when you look out there across the industry, as you see other industry partners who have AI as a component of their product offering and CMS becomes more familiar with the value that they can deliver, these companies are able to work into a rate that is fair and reasonable for the technology that they deliver, and we see that with other partners across the industry. So, I remain confident that as we continue to partner with CMS and they’ve been terrific in the sense that they want to be educated. They want to learn around the value of the technology and what it provides. As we continue to have that opportunity and they have the chance to see data come together they’re requesting, I think we land in a place that will be fair and reasonable for all of us that play in this space, and that’s what we’re looking for. So I’m encouraged by where it’s going. But to tell you that we know exactly what that number is, they’re looking for, I can’t do that today, but we’re going to continue to work with them and make sure they get to a place where they can make a reasonable decision.

Thank you. Our next question comes from the line of Joanne Wuensch from Citibank. Your line is now open.

Good afternoon and thank you for taking the questions. First of all, what is the percentage of your revenue that’s coming from private versus public payers look like now?

So looking at – we have disclosed previously that the Medicare fee-for-service is about 10% of our revenue, and it’s been pretty stable since the price change, which was retroactive to January 1. So I’m not including like VA or other public payers in that. I’m just giving you the CMS fee-for-service Medicare fee-for-service.

Okay. And can you give us an update on how you’re ramping in the UK and at what stage do you start breaking out international revenue for us?

Yes. Joanne, this is Quentin. Look, we’re still in the early stages of really opening up that market and we want to be very thoughtful around how we do that to ensure that one, we really demonstrate the value of the technology with which the team has done incredibly well, but that we also establish long-term reimbursement scenarios that will set us up for sustainable growth and opportunity to really address the majority of that market over time. So we’re in the early stages there, the progress has been terrific in terms of the adoption of the technology, but to get into how quickly we’re going to break that out and report on it, that’s not something we’re prepared to do today. And I think quite honestly, it’s going to take a while as we step into it. I do think you hit on a very interesting point, though, which is that international business. There is real opportunity there to go far beyond even the UK, and I think that’s something you’re going to see us continue to get more focused on here is really defining that reimbursement strategy market by market and begin to work from a market access perspective to open that up in a way that it can contribute meaningfully to the overall scope of the business into the future. I think having the support of NICE behind the technology and understanding what it can deliver is something that, if done right, can be leveraged in a meaningful way as we open up the rest of international. So I think the UK is exciting, but there’s certainly a lot more opportunity behind that.

Thank you. Our next question comes from the line of Allen Gong from JP Morgan. Your line is now open.

Hey, guys. So I feel like a lot of the questions have been answered already. So I’ll just do one and a quick follow-up. This is kind of, I would say, the first time you guys have really highlighted that international business of XT and AT really outpacing the market. And I know you haven’t been at the firm for that long, Quentin, but just in terms of your strategy ultimately for leveraging the award that you received and your plans to expand more broadly there. How should we think about the trajectory of your international business and whether or not that will be relatively a bigger piece of the story going forward?

Well, I certainly think you’re going to hear us talk about it, it’s going to be something that we are intentional about building out and having it contribute in a meaningful way to the overall contribution of the company. But I think importantly, it needs to be done the right way. If it were simply after quick revenue wins, that’s a very different approach than trying to establish it for long-term sustainable growth to where it’s really contributing to 30%, 40% of the overall revenue contribution over time, which I think it’s quite common in these global companies. So that’s what we’re after is setting this up in a way that can contribute to that degree. What that means is being very deliberate around what that reimbursement pathway is and the strategy on a country-by-country basis. So as I look at the opportunities in front of us today, certainly, the UK market is one that we’re focused on and we’re going to continue to focus on and invest into and prioritize, but you think about markets like Germany, which is a significant market within the EU, you look at France, which is an interesting market. They’ve recently really focused on the value of digital healthcare, and I think we’ve got a product that works incredibly well in that sort of setting. The Netherlands is another really interesting market for us that I think we need to prioritize to get into. The Asian region, Japan is an interesting market that the company has been doing a bit of work around that I think there is real opportunity to open that in time. But Australia is another one, right? And so each of these has a little bit of a unique reimbursement play to it that we need to make sure we’re approaching correctly so that we set it up for long-term sustainable growth versus just the near term. But you can imagine as we open these up and they start to contribute with the size of these markets, they can be meaningful contributors to our growth over time. In terms of the cadence and how quickly it shows up, that’s a good question. I’m not prepared to speak to that just yet. I guess the way I kind of look at it is we’ve got a lot of runway in our core market today with both the XT product and the AT product that’s going to set us up for a lot of significant growth over the next couple of years and, at the same time, we’re working to open up that international business and get the silent AF market opened up. I think there’s runway here for significant growth for years to come as all of these have the opportunity to contribute. So I’m excited about the way it’s set up. But you will hear us talk more about international and it will contribute in time.

Got it. And then just as a quick follow-up. It’s good to hear that you filed the 510(k) for the Verily product, but I think there were some murmurings about a kind of product that you might be working on internally, kind of approaching the asymptomatic opportunity from two different angles. Do you have any updates on progress being made on that, whether or not that is still something that you’re looking into? Thanks so much.

I think from our perspective, we’re looking at every opportunity to open up that asymptomatic market as much as possible. Certainly, the Verily collaboration is one of those we’re excited about in opening that up. But I think there are other ways to play in that space as well, and the organization is focused on those things. I have no question that silent AF is going to open up and be a real contributor to us. I compare it back to some of the prior opportunities that I’ve been a part of in prior roles. The whole Type 2 non-intensive diabetes segment, for example, working with the payers to understand that the ability to diagnose and find these opportunities in the patients before the onset of the disease or the condition has tremendous ability to reduce downstream costs, and I think the payers are intently focused on opening up those sorts of opportunities. The Zio platform is perfectly positioned to be able to do that. So I’m excited about what the form factor looks like, between a wearable, between the patch. I think there are different ways to play in that, but I definitely think that’s going to be something that will open up and contribute to us in time. Exactly what that timeframe looks like just yet, I think it’s too early to speculate on what that would be. But that market is significant, it’s real, and in time, it will contribute so we’re excited about that.

Thank you. Our next question comes from the line of Marie Thibault from BTIG. Your line is now open.

Hi, thank you for taking the questions this evening. My first one, I wanted to dig a little bit more into the guidance reduction and hear more about the hospital staff shortages limiting capacity. If we recall sort of the height of the pandemic, iRhythm was just such a steady grower given the fast flexibility of the home enrollment program. So I’m wondering what it is about the staff shortage that is very different from sort of the capacity constraints and the concerns we saw around COVID? What particularly about the workflow can’t be addressed by kind of home enrollment and what’s limiting the expansion within existing accounts? And as part of that, wanted to check now that you have kind of proactively cut down on new account openings, because of the longer turnaround times, but now have kind of returned to normal turnaround times. Would you say some of that headwind should lift beyond Q4 as we look into 2022? And sorry for the long question. Thank you.

Thanks for the question. Okay. I certainly think home enrollment has a place to help address this, and we are seeing that as part of the opportunity, although home enrollment is not at the same rate that we saw back in the midst of the significant COVID impacts. This is really driven around shortages of staffing that are driving the overall impact on the volumes. I think the issue is just getting patients through the clinics, through the physician offices, and coming onto the therapy is certainly one of the issues with respect to growing the existing accounts that are already using the technology. And certainly from a new account perspective, just the fact that we pulled back on that in Q3 with respect to some of the turnaround challenges, we didn’t want to introduce new accounts to a service level that we weren’t proud of from an iRhythm perspective. And so we were a bit tempered on that. You’re seeing that start to come back in the fourth quarter. I mean if you look at the weekly sequential trends in the business coming through the back part of September into October, we’re very encouraged by what we’re seeing. It’s just muted a bit relative to historic seasonality. So, and again, I attribute that to the staffing challenges in terms of just seeing more patients coming through the clinician offices. So the trends are moving in the right direction. I do think optically, and Doug talked to this, you have to be able to adjust that Q3 for the impact of working through the queue. If you do that, you do see Q3 stepping up into Q4, and certainly registrations coming onto the product are up as well. We talked about being in the mid-single digits compared to what historically might have been a little bit stronger, but I think you can attribute that to the staffing challenges.

Thank you for the helpful detail. My follow-up is regarding the CMS final rule. There is a statement indicating a significant decline in finalizing the proposal due to the possible impact on payment for other services under the final rule. Do you have any insight on this, or perhaps your consultants do? We found some of the language a bit confusing and would like clarity on the reason for not finalizing the proposal. Thank you.

Yes, I can’t provide any particular read on it. We’d be speculating if that were the case, but that’s not something that we’re going to do so, no, I don’t have any read on that.

Thank you. Our next question comes from the line of William Plovanic from Canaccord. Your line is now open.

Hey, great, thanks. Good evening, and thanks for taking my question. Just really, just hoping to help us level set our next steps in timing. So just so we understand and what to look out for. What’s the timing or what are the major events we should expect for MAC pricing and when? And then, same question with CMS, like what’s the next thing we should expect to see and when? Thanks.

Sure, Bill. Look, from a MAC perspective, they’ve been engaged with us and with industry really for the last several months and we have a clear process in place that we’re working together with the industry on in terms of being able to get information into the hands of the MACs to help them make a decision around pricing. We continue to work down that process, and I’m encouraged by the fact that there are meetings on the calendar that are scheduled to take place here in the month of November to continue to provide them with the sort of information that they’re looking for and again really from an industry-wide perspective, that’s not just iRhythm that’s doing that, that’s industry-wide. So I’m encouraged by that. What comes out of those meetings is again I can’t say exactly what that looks like just because that’s really in the hands of the MACs to make that decision. So, we’re not certain there, but we do believe they want to move relatively quickly, and they’ve made some comments around the fact that where rates were established back earlier this year and there was some retrospective billing and effective pricing back to the beginning of the year. They don’t want to have to incur those same sort of efforts again. So that leads me to believe they want to do something sooner rather than later, which is good. In terms of CMS, in the national rate or a national coverage decision, I think that’s something that gets pushed out into the back half of this next year. We’re going to continue to work with them over the course of the year to ensure that they’re educated in a way that they need to be, that they’re getting the information they need to have to make a decision, but we’ve been encouraged by the involvement that we’ve seen with them to date and believe that those stores will remain open, the information will continue to flow and we’ll do our best to provide them what we can and certainly partner with the rest of the industry to position them to be able to make a final decision.

Great, thanks for that. And then if I could just any comments on either competitive dynamics and/or just internal sales force turnover over the last, and I’ll call it, since the beginning of the year. Thanks, that’s all I have. Thanks for taking my questions.

Sure. As I’ve looked at the turnover and attrition in the commercial force, we haven’t seen anything outside of kind of the normal rates that we generally would see in the business. So I don’t think there’s anything there to be concerned around. From a competitive perspective, over the course of the third quarter, and I’ve had the opportunity to be out in the field, I don’t see anything meaningful from a competitive perspective, account churn, or attrition that falls outside what we’ve always experienced here historically. So I would say there’s nothing unusual in those trends built to comment on and continue to be bullish on how this will continue to step up and rebound in the fourth quarter. This sets us up for 2022.

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Quentin Blackford for closing remarks.

Well, thanks. I’d like to thank each of you for joining us today. We’re at an exciting time in our company’s life cycle with a game-changing technology that I believe has tremendous potential in front of it, both in the core markets that we serve and I’ve talked about today, but also in the many adjacent markets and opportunities that sit in front of us. I look forward to the opportunity of partnering with our iRhythm employees as we position the company to realize its full potential, and I look forward to being back with you to discuss our full-year 2021 results and further plans for the future after the turn of the year. Thanks, everyone, and have a great day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.