Good afternoon. And thank you for joining the iRhythm Technologies Q4 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode and will be until the question-and-answer session at the end. I would now like to turn the call over to Stephanie Zhadkevich, Director of Investor Relations at iRhythm. You may proceed.

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, 2023. 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 report 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 a reconciliation of these measures to their most directly comparable GAAP financial measures. Unless otherwise noted, all references to financial measures in this call, other than revenue, refer to non-GAAP results. This conference call contains time-sensitive information and is accurate only as of a live broadcast today, February 22, 2024. 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. Brice Bobzien, our Chief Financial Officer; and Dan Wilson, our EVP of Corporate Development and Investor Relations, join me on today’s call. My prepared remarks today cover business updates during the fourth quarter of 2023, as well as a 2024 outlook and initiatives. I’ll then turn the call over to Brice to provide a detailed review of our fourth quarter financial results and 2024 guidance. You heard from us in January that 2023 was a transformational year for iRhythm, on multiple fronts. We drove a banner year, reaccelerating our unit volume growth with a record number of new accounts, advanced our penetration into the primary care channel, introduced groundbreaking clinical evidence of superiority, continued market access traction and opened our Global Business Services Center in the Philippines, all while introducing greater operational discipline across the organization and launching the most successful product in the history of our company, the Zio monitor. This fueled our performance in the fourth quarter that led to full-year revenue of $493 million or growth of 20% versus the prior year, in line with our long-range plan, exceeding the high end of our guidance range and reflecting momentum across multiple channels. In the fourth quarter, we continued building upon the solid execution of the first nine months of 2023. We were pleased to see strong volume contributions from both new and existing accounts exiting the year. While nearly 70% of registration growth came from existing accounts, the fourth quarter was the second strongest quarter of new account openings in our history, setting up nicely as we move into 2024. The ease of use, accuracy and simple workflow of Zio monitor and Zio Suite digital products is resonating within the primary care channel, which represented approximately 21% of total U.S. Zio XT registrations during 2023, a figure that has grown consistently over the past few years and was driven by innovative PCP network account activations, as well as continued emphasis on our land-and-expand strategy within integrated health networks. Zio monitor, which launched last September, has also progressed faster than planned, now representing nearly 70% of registrations for our long-term continuous monitoring services. We believe the combination of the Zio monitor form factor with its smaller profile and high rate of patient compliance, as well as our refreshed MyZio app, has continued to contribute to an improved device return rate of approximately 0.5% thus far in our product launch cycle. While in the early stages, Zio monitor has also improved the patient journey, resulting in fewer calls into our customer care teams from patients. In addition, we have seen that patients who are digitally engaged via the MyZio app have a much higher compliance rate, especially for home enrollment patients. As we continue to transition all in-clinic accounts to Zio monitor throughout the first half of 2024, we are excited to see how the largest launch in the history of our company could catalyze additional momentum in the business. To further improve clinician workflow efficiencies, streamline access to Zio services and enable healthcare provider access to patients’ electronic health information, we also remain committed to investments in the service aspects of our systems, such as electronic health record integration offerings. During 2023, we implemented new bi-directional EHR integrations across nearly 950 customer locations and have now received more than 1.5 million all-time registrations for Zio services through EHR integrated accounts. EHR integrations are intended to allow for an administratively simpler process and integrate Zio into existing workflows of our customers and their staff. By embedding the Zio experience into the native EHR platform of a health system or practice, these integrations allow streamlined access for ordering, document review and billing, thereby enabling our customers and their staff to spend more time with patients throughout the care pathway. Moreover, we know from experience that EHR integration accelerates same-store growth, such as making Zio directly available to primary care and non-cardiology specialists. The operational efficiencies we can drive for our customers is a clear differentiator, as we expect to have more exciting announcements on this front as we move through 2024 and beyond. In our Zio AT business, we continue to work diligently and collaboratively with the FDA to remediate concerns noted in their warning letter to us last year. We have now submitted two 510(k) applications. One is a catch-up for changes previously made as a letter to file to the Zio AT system before our receipt of the warning letter, and a second 510(k) to capture changes to design features and labeling updates following our interaction with the FDA. While we believe that our next-generation Zio MCT device will further strengthen our competitive positioning in this space, we still believe that there are meaningful market share gains to be made with our Zio AT product compared to the approximate 7% penetration that we currently hold in the mobile cardiac telemetry category. In the MCT category, we estimate that every 10 points of share gain represents roughly $80 million to $100 million of incremental revenue to iRhythm, a significant opportunity for growth as we aim to deliver on our $1 billion revenue target in our long-range plan. As we continue to progress our product innovation roadmap, we have also continued to build upon our substantial body of clinical evidence with strong fourth quarter publication output in top-tier medical journals and at conferences. The mSToPs cost-effectiveness data was published in November 2023 and demonstrated that proactive monitoring for atrial fibrillation in an at-risk population with the iRhythm Zio XT patch provided high value from a health economic perspective. The CAMELOT study, which has been part of our commercial narrative for much of 2023, was published in the American Heart Journal in December. The manuscript, with independent statistical analysis, extends the initial findings in several ways. One, it shows Zio’s long-term cardiac monitor superiority for highest odds of arrhythmia encountered diagnosis and lowest odds of retesting not only across different categories of monitoring, such as Holter and event recorders, but directly against specific competitor products and services. And two, it showcases Zio’s long-term cardiac monitor performance and clinical superiority for specific critical arrhythmias, such as heart block and ventricular tachycardia, which can have major clinical consequences if missed. This peer-reviewed publication continues the long history of evidence that the Zio long-term continuous monitoring service provides high value and performance with the highest diagnostic yield and lowest likelihood of retesting across a wide range of ambulatory cardiac monitoring services. We also continue to make strides in AI. The December publication in Nature Digital Medicine by the Scripps Research Translational Institute in collaboration with our team demonstrated the performance of developed AI to identify patients at risk of near-term AFib based on patients who had no AFib on their initial Zio patch. This early work could help identify which patients should have repeat testing. Additionally, research from our collaboration with the Duke Clinical Research Institute presented at November’s American Heart Association meeting demonstrated the ability to more robustly predict heart failure hospitalization when adding Zio ECG features to existing clinical risk models. Both studies advance our thesis that 14 days of continuous uninterrupted Zio monitoring has valuable biometric information that can classify and predict conditions or risks well beyond the arrhythmias we diagnose with ECG monitoring today. These insights demonstrate feasibility of adjacent market opportunities and validate our ability to provide novel insights through our platform for future value creation. These are also being proven from a business model perspective by our teams. We were excited to see our first Know Your Rhythm pilot launch this quarter aimed at identifying arrhythmias in asymptomatic populations, and while early, we are seeing very encouraging data supportive of the value proposition. Similarly, we are seeing several national primary care networks employing proactive screening approaches with targeted populations aimed at finding arrhythmias sooner and avoiding the devastating downstream cost of care that come from patients unaware of existing arrhythmias. iRhythm is uniquely well-positioned to address the macro shift in healthcare towards value-based care for an aging population as cardiac monitoring with Zio adds value to all five objectives of the quintuple aim of healthcare. We look forward to sharing more details on these initiatives as they progress. We also expect to be launching our very first pilot into the sleep space in the coming months. With deep relationships with cardiologists, electrophysiologists and primary care physicians, as well as our experience with remote diagnostic services, iRhythm is well-positioned to validate our belief that there is a need for a streamlined diagnostic pathway into what we have heard can feel like a fragmented and disjointed sleep diagnostic journey for both patients and clinicians. Today, the process of referring a patient to a sleep specialist, prescribing a sleep lab or a home sleep test, all the way through to a formal diagnosis can be a cumbersome experience. Our initial pilot will be aimed at exploring the value of a process from the ordering of a sleep test to the delivery of the interpreted results and diagnostic report to the prescribing physician via a streamlined integration with a single portal, such as our Zio Suite platform. We see sleep as an important adjacent market and have multiple initiatives in place to explore how we can bring our innovative capabilities into this space for the benefit of clinicians and patients. Turning towards our international efforts, we were thrilled to have received CE Mark under European Union Medical Device Regulation or EU MDR for Zio monitor and the ZEUS system at the end of 2023. This marks the jumping-off point to introduce our innovative technology into more European markets and enable further global expansion. Importantly, the EU MDR is arguably one of the most stringent regulatory frameworks for product approvals globally and receipt of this certification demonstrates our commitment to providing the highest quality products and services. With CE Mark in hand, we are continuing market access evaluation and market expansion efforts in prioritized countries across Europe, including four countries targeted for entry in 2024, where there are approximately 800,000 ambulatory cardiac monitoring tests performed annually. In preparation for these launches, our market access teams have been hard at work with various countries on our roadmap, and encouragingly, Switzerland has just released an updated National Reimbursement Decision for long-term ECG examinations in excess of CHF1,000. We have also continued to pursue national reimbursement in the U.K. As we continue to progress with the public health systems while we await a decision on national reimbursement by the National Health System, we continue to advance our efforts within the U.K. private payer sector that demonstrated significant growth in 2023. Through The Artificial Intelligence in Health and Care Award from the NHS England in September 2020, real-world evaluation of Zio XT at scale across the NHS Trust has shown that Zio service has an overwhelmingly positive impact on patient waiting times, hospital resource utilization, clinical diagnostic yield and pathway cost savings. We will continue to work through contracting at private U.K. sites where this message is clearly resonating. In Japan, we continue to be excited about the upcoming entry into the second largest cardiac monitoring market in the world with approximately 1.5 million ACM tests being prescribed per year. Recall that we received a high medical needs designation from the Japanese MHLW last year and it is important to note that this designation is not specific to long-term patching but is instead specific to Zio. This designation, at the recommendation of the Japanese Heart Rhythm Society, has created significant interest with potential commercial partners and we are pleased that after thorough search, we have identified our distribution partner for Zio in Japan. We are actively collaborating with them to prepare for the launch in early 2025, while we continue to engage with the Japanese PMDA on a regulatory dossier in parallel. Lastly, but very importantly, we are committed to continue driving operational efficiency and financial sustainability through an intense focus on organizational discipline as we work towards achieving our adjusted EBITDA targets stated in our long-range plan. While there is still work to do to achieve the 15% adjusted EBITDA margin goal we set for ourselves for 2027, I have been pleased by our ability to drive 1,000 basis points of improvement over the past two years. The performance of the newly minted Global Business Services Center in Manila has exceeded our expectations thus far and the process excellence this group has driven will be a key enabler for the global growth towards which we are striving in the years to come. Additionally, within the first half of 2024, we anticipate implementing automation in our production lines for Zio monitor that will drive scale, reduce our cost to manufacture and serve as the basis for our next-generation Zio MCT platform. We are excited about these initiatives and others that continue to create leverage throughout our P&L and we are energized to drive programs that will allow us to serve more patients more efficiently around the globe.

Thanks, Quentin. As a reminder, unless otherwise noted, the financial metrics that I discussed 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. Fourth quarter 2023 results demonstrated continued strength in our core markets as revenue grew to $132.5 million, representing 6% sequential and 18% year-over-year growth. As Quentin mentioned, this was driven by strong volumes from new accounts opened in the prior 12 months, continued penetration of existing accounts and reduced account churn. New store-same store mix, with new store defined as accounts that have been open for less than 12 months, accounted for approximately 34% of our year-over-year volume growth. Home enrollment for Zio services was approximately 21% of volume in the fourth quarter. Average selling prices during the fourth quarter were down approximately 400 basis points year-over-year and down slightly quarter-over-quarter. Moving down the rest of the P&L, gross margin for the fourth quarter was 66% and for the full year 2023 was 67.3%. As previously discussed, we expected temporary gross margin pressure in the back half of 2023, primarily driven by costs associated with the transition from Zio XT to the new Zio monitor. We continue to see positive marketplace reaction to Zio monitor. This has resulted in a faster than anticipated transition from Zio XT and has created near-term pressure on the gross margin due to the accelerated recognition of costs of our legacy XT components. This accelerated transition does not yet have the benefit of automation and scale, which resulted in an increased cost per unit. We believe that this will be mitigated once automation lines for Zio monitor are implemented. Finally, we completed the current phase of building our center of excellence in our San Francisco IDTF in the fourth quarter. We’ve incurred costs related to scaling and training newly onboarded clinical cardiac technicians that resulted in inefficiencies in the short-term. These investments were important to ensure the quality of our services provided to our patients and we expect the associated costs to abate as the team comes up to speed over the next couple of quarters. Fourth quarter adjusted operating expenses were $113.8 million, up 6.2% sequentially and 17.2% year-over-year. Full year adjusted operating expenses were $430 million, up 18.2% compared to 2022. Sequentially, the increased spend was driven by legal, regulatory and professional fees. Compared to the fourth quarter of 2022, this increase in adjusted operating expenses was primarily due to increased personnel to scale operations, as well as the previously mentioned professional fees. During 2023, we incurred approximately $9 million of legal and consulting fees, as well as other company expenses related to the FDA warning letter and DOJ subpoena. Despite these temporary expenses and rolling out the most significant product launch in the company’s history, we were able to drive 120-basis-point improvement in adjusted operating expenses as a percentage of revenue. Adjusted net loss in the fourth quarter was approximately $25.8 million or a loss of $0.84 per share, compared to an adjusted net loss of $17.9 million or an adjusted net loss of $0.59 per share in the fourth quarter of 2022. Adjusted net loss for the full year 2023 was approximately $96.5 million or $3.16 per share, compared to an adjusted net loss of $84.5 million or a loss of $2.82 per share during 2022. Fourth quarter 2023 business transformation costs were $1.8 million, bringing full year 2023 business transformation costs to $15.9 million, in line with guidance as we finalize the transition to our Global Business Services Center. Additionally, we recorded an impairment charge of $11.1 million, related to the capitalized value of our San Francisco office, as a result of the continued declining commercial real estate market conditions within San Francisco. Adjusted EBITDA in the fourth quarter 2023 was $2.4 million, reflecting an increase of $2 million sequentially and an increase of $1.3 million year-over-year. Adjusted EBITDA for the full year 2023 was minus $4.9 million, representing a 180-basis-point improvement to adjusted EBITDA margin compared to 2022. Absent the expenses related to legal and advisory fees, as well as other company expenses associated with the FDA warning letter and DOJ subpoena, adjusted EBITDA margin would have been approximately 0.8%. Turning to guidance, we are reiterating our 2024 outlook as presented earlier this year and anticipate full year revenue of approximately $575 million to $585 million, driven predominantly by volume growth in our core markets. As we think about the first quarter, we did see weather-related impacts in January. However, we’ve seen registrations rebound nicely thus far in February. We believe that the first quarter revenue trend will be closer to 22% of full year revenues, considering weather-related impacts in January of approximately $1 million to $2 million. Excluding this, we would have expected to see first quarter 2024 in line with historical averages at approximately 22.5%. Turning to gross margin, we are providing full year 2024 gross margin guidance in the range of 68% to 69%, an improvement of approximately 120 basis points at midpoint. During the first half of 2024, we anticipate continued direct and indirect costs from the transition to Zio monitor, natural inefficiencies from the implementation of automation to produce Zio monitor at scale, and the optimization of our center of excellence in San Francisco. We expect the first half to be relatively consistent with the 2023 gross margin exit rate. In the back half of the year, however, we anticipate an improvement in gross margin due to the majority of our business being transitioned to the new Zio monitor platform, initial ramp of automation lines to produce Zio monitor, and our clinical operations team in San Francisco operating at full capacity. For 2024, we anticipate adjusted EBITDA margin to range between 3% and 4% of revenues, which would represent a 400-basis-point to 500-basis-point improvement compared to 2023, in line with our slated path to adjusted EBITDA targets in 2027 and driven by our focus on sustainable operating leverage improvements throughout the P&L. As a reminder, adjusted EBITDA will continue to exclude impairment and restructuring costs, business transformation costs and stock-based compensation expenses. We have contemplated in our adjusted EBITDA guidance approximately $8 million to $10 million of legal, consulting and other company expenses in 2024 as we continue to remediate findings associated with the FDA warning letter and navigate responses to the DOJ subpoena. As we make progress on these two issues, the vast majority of these costs will come out of the P&L in the future. Finally, we ended 2023 in a strong financial position with approximately $133.8 million of cash and short-term investments. As you’re aware, we improved our capital position at the beginning of 2024 with the introduction of financing with Braidwell to mature our capital structure ahead of our next phase of growth. As a reminder, the year-end cash and short-term investments balance does not include the repayment of $35 million to Silicon Valley Bank or the $75 million term loan drawn down from Braidwell at the beginning of 2024. As we continue to grow and mature, we will evaluate our capital structure to ensure financial flexibility in alignment with shareholder interests.

Thanks, Brice. Looking into 2024, we couldn’t be more excited about the position that we are in. We have multiple levers for revenue growth as we continue to go deeper and broader within our existing accounts, with our land-and-expand strategy, capitalize on the significant pipeline of new accounts waiting to come on board and rapidly expand in the primary care channel. Furthermore, we’re in the early innings with our international business, which we expect will contribute nearly a point of growth in 2024. We’re in the very early stages of value being realized in proactive screening of at-risk patients and the significant workflow efficiencies that can be enabled by our products and services, which has the potential to multiply the current market we serve. As a reminder, nearly 15 million patients show up in their primary care physician offices each year with heart palpitations noted in their medical records. Zio has the potential to provide the right answer the first time for those patients and better inform the care pathways for those individuals, potentially reducing downstream clinical events while lowering the future cost of care and addressing the growing capacity challenges within the health networks we serve. And importantly, we see a clear line of sight to deliver an increase of 400 basis points to 500 basis points in our adjusted EBITDA margin, a meaningful improvement in our profitability profile. Long-term, we are building the cardiac monitoring product and services portfolio of the future, and we are uniquely positioned to address the quintuple aim of health care within ACM. With significant accomplishments in 2023 and so many opportunities in the months and years ahead, I could not be more excited for our future at iRhythm. With that, Brice, Dan, and I would like to now open the call for questions.

Thank you. The first question will come from the line of Allen Gong with JPMorgan. Your line is now open.

Thanks for the question. Just to start off, I had one on the guidance for the year. You’re reiterating the full year, but you’re talking to some weather-related headwinds in the first quarter. So when I think about the fact that you’re taking a couple, $1 million to $2 million out of the first quarter by reiterating the guidance, could we think about that as a recapture dynamic with those sales being pushed out to maybe the second quarter or are you just seeing stronger momentum in February so far that you’re expecting to continue through the balance of the year?

Hey, Allen, good question. Yeah. We did see a bit of pressure in the month of January. However, recovery has been incredibly nice in February. And so we’re thinking more of it as a recapture as we get into the later periods of the year, and for us, there’s no reason to adjust for those weather-related impacts, especially with the beat we had in Q4. So we felt like reiterating was the appropriate result in this situation.

And keep in mind, Allen, as those registration volumes have improved really nicely over the course of February and have come together well, with our revenue recognition model, those devices go out. They’ve got to come back to us before we can recognize that revenue as we process the report. So there ends up being a bit of timing in the strength that we saw back in February.

Got it. And then just as a quick follow-up, gross margins this quarter, I think, relative to your expectations came in a little bit disappointing as you’re transitioning to Zio monitor and continuing to invest back into the business. When we think about not just 2024 but also 2025 with international coming on to the stage, how should we think about international’s impact on gross margin? What should we think about that as maybe adding a little bit of further pressure, potentially offset by MCT coming on to the same platform? Just how to think about your gross margin progression beyond 2024? Thank you.

Yeah. Allen, and this is Quentin here. But when we think about the pressure in the fourth quarter and Brice can speak a bit more to it, obviously, you had a bit of pressure coming from the transition from XT onto monitor, which is moving faster than what we had anticipated and ultimately a good thing for us because we know monitor has a better gross margin profile, particularly after we get automation put in place. But we also had tremendous progress made in the fourth quarter with our hiring efforts to build out our center of excellence in San Francisco, hiring well over 100 people in the fourth quarter, which is far in excess of the pace we had been able to achieve through the first nine months of the year. And so when we saw that opportunity in the fourth quarter with the hiring momentum, we didn’t want to relent on that because that opens up the ability into the future to continue to build out the center of excellence in San Francisco, which has a nice benefit to it. So the right investment decisions certainly being made within the fourth quarter. Longer term though, to your point on international, I actually think with the countries that we have on the roadmap, they should be accretive to the gross margin profile. Obviously, it depends on where reimbursement comes in, but you think about Switzerland, which just approved reimbursement at north of a CHF1,000, which is more than a US$1,000 per ACM test. That’s going to contribute a nice gross margin profile for us. Japan, pricing’s yet to be set, but we know they generally use a reference pricing model with the U.K. and the U.S. and in other countries. And so that ought to be a pretty attractive price point as well that we’re looking forward to. So I think that it can be accretive over the planning horizon. We’ll continue to evaluate that, and as we go broader into other markets, we’ll have to look at each one on a one-off basis. But I do think that international can contribute nicely to the gross margin profile over time. And then to your point, Zio MCT, when we get it onto the monitor platform is going to bring with us some nice benefits that we aren’t realizing today. So again, feel good about where the gross margin is progressing towards and the line of sight we have to get into that low-to-mid 70s profile that we put out there with the long-range plan. There was a bit of noise in the fourth quarter, but those were primarily investments made to set us up for the long-term.

Thank you. The next question is from the line of David Saxon with Needham. Your line is now open.

Great. Thanks. Good afternoon. Thanks for taking my questions. Maybe I’ll start with Brice. So the OpEx in 2023 was, I guess, 18% growth year-on-year. But by my math, the guidance is implying mid-single-digit OpEx growth in 2024. So, I guess, is that the duplicative cost kind of rolling out of the model or what’s really driving that leverage?

Yeah. It’s not quite as low as you’re suggesting. Keep in mind that in 2023, we incurred costs related to business transformation, as well as a one-time impairment for the right of use asset in San Francisco. Those two items will not occur again. When we look at adjusted operating expenses, it's closer to about 15%. There's roughly 250 basis points of operating expense leverage included in our guidance, largely driven by the Global Business Services Center we established in Manila, where we're beginning to see the benefits. I want to emphasize that this is just the first phase of the benefits we expect, in addition to the investments we're making in the company. This will be a significant advantage for us going forward. We're anticipating around 250 basis points of operating margin leverage from 2023 to 2024 after excluding those one-time items.

Okay. Great. Thanks for that. And then maybe for Quentin, so you talked about the EHR connection, benefiting the utilization. So I wanted to ask what portion of the new accounts are also doing that EHR connection, and how should we think about the utilization ramp of those new accounts relative to what you’ve seen with prior cohorts and new accounts? Thanks so much.

Yeah. Thanks, David. Look, our focus with integrated accounts is not any different with new accounts as it is with existing accounts, and I think, as we really increase the focus on EHR and then we’ve got a program inside the company to get it north of 50% and we’re making good progress towards it, that means we’re working to drive integrations in our existing accounts just like we are with the new accounts. So I would say it’s a balanced effort between the two, but we know that it’s a very, very important aspect of how we partner with our customers. When we can get EHR integrations put in place, the ease of ordering the product, the ease of reviewing the reports and for the physician to ultimately make the diagnosis from it and improve the overall experience has been tremendous and we see the growth really take off once we get these integrations complete. But what’s also exciting about it, particularly with our push into primary care, is that once you get integrated with these large networks, not only is it the cardiologist and the electrophysiologist who is now able to easily get access to Zio within their integrated platform, primary care can easily get into it. Nephrology can easily get into it. These other specialties can easily access the Zio product and we start to see quite a bit of increase in subscriptions or prescriptions of the product come from these other adjacent specialties and other channels within their network. So that is quite encouraging and I think it’s a big part of how we think about continuing to expand within our existing accounts but also with new accounts. And I think that the more that we spend time there increasing or enhancing that opportunity to streamline the integration effort, the more value we’re going to see pay off. And you should expect to hear us talk a lot more about this into the future because it’s such a big enabler of unlocking the potential within the accounts we’re in.

Great. Thanks so much.

Thank you. The next question will be from the line of Margaret Kaczor with William Blair. Your line is now open.

Hi, everyone. This is Macaulay on for Margaret tonight. Thanks for taking our question. In terms of just PCP momentum and kind of the success you saw last year, obviously, that was ahead of your initial expectations and you mentioned the 21% of registrations last year within the channel. So I guess what’s assumed in terms of PCP registration growth specifically within the guide and the mid-teens volume growth within XT and monitor?

Yeah. Hey, Macaulay. Thanks for the question. You can imagine PCPs will continue to be a larger portion of the growth profile of the company moving forward. Won’t give the exact amount that’s contemplated here. What I would say is the 21% and this has been growing nicely over the last several years and that penetration level continues to increase. What gets me really excited is the 21% of our total registrations that comes through the PCP channel right now is really the integration with these large integrated health systems, right? And so in a lot of cases, it’s pushing this up the care continuum and ultimately the prescription comes from the PCP versus cardiologist. So there’s a bit of cannibalization in there. However, as we get further integrated within these large PCP networks, the ones we’ve talked about, the Oak Streets of the World, et cetera, that’s where you really start to see a TAM expander and we’ve talked about 6 million ACM tests per year that are done right now, a small percentage of those in the PCP channel, but 15 million patients that go to the PCPs that have heart palpitations, right? That’s where you can start to see this TAM expansion happening and we have these contacts now that we hadn’t had in the past. And in our long range plan, we baked in, call it, a 3% to 4% increase in our overall TAM from that 6 million ACM tests. We think this could go a whole lot faster once we get further integrated within these PCP networks. So from a guide perspective, we have a growing north of that of cardiology, as you can imagine. We haven’t put that percentage out there, but we believe this is a real tailwind for us moving forward.

That’s helpful. Thanks for that. And then just want to quickly ask on the San Fran IDTF, obviously, doing a lot of hiring there and may take a few quarters, but in terms of the tailwind assumptions for ASP this year, what in terms of percentage of volumes could we expect? I know you mentioned north of 50%, hopefully exiting the year in 2023. So how much growth in terms of volume should we be expecting there for the coming quarters?

Yeah. I think this could be a real nice tailwind for us heading into 2024. We mentioned the fact that we hadn’t gotten to that 50% of total volumes going through San Francisco for the full year of 2023. Really, the contributing factor there was not being able to hire as fast as we were looking for. However, I will say we exited well north of that 50% in Q4, and we anticipate, especially as these folks get up and are scaling and able to read the reports consistently with what we’re doing across the rest of the country, that volume is going to continue to grow. We’re not going to give the percentage per se, but what I would say, an important data point to understand this and we’ve talked about ASP for years here at this company. What we expect in 2024 is effectively flat ASP year-over-year and there’s some moving pieces when you get into it. You certainly know the CMS national rate was updated January 1st, and that had, call it, 3% to 4% net of inflationary impacts of pressure. AT had some similar movements in that direction. The normal single-digit pricing on the commercial side, all of that is expected to be offset by the optimization and the utilization of our IDTF space. So that’s kind of where we’re at, is we expect flat ASP year-over-year.

Awesome. Thanks again.

Thank you. The next question will be from the line of Marie Thibault with BTIG. Your line is now open.

Good evening. Thanks for taking the questions. I wanted to ask here about the progress on the warning letter. Heard that you submitted the second 510(k). Congrats on that. Can you tell us a little bit more about what you’ve heard from the FDA, say, on the first 510(k), what we can expect timeline-wise going forward here and when we might get a little more clarity on those clearances?

Hey, Marie. So we now have both 510(k)s on file with the FDA. Keep in mind that we filed the first one right at the turn of the year. The second one got filed just a matter of weeks later. The first one really focused on the letter-to-file matters that we had made a decision on in history that we agreed to bring into a 510(k) process, and then the second 510(k) really on the design enhancements, design features that we’ve been working on with the FDA, which is really around patient notification, improving the ability for the patient to see on the patch itself if they’re approaching, say, a max trigger limit or for the physician to see it right in the Zio Suite tool. Those have been submitted. We have not engaged with the FDA in any back-and-forth on those 510(k)s just yet. I would expect we’ll get some questions back here shortly, but based upon all the dialogue that we’ve had to date, I feel very good about those submissions. The FDA knows exactly what was going to be in those submissions, had worked with us on whether we should put them into one submission or split them into two submissions, and so I feel good about the fact that they’re very much aware of what’s in there and there’s been a great line of communication between the two of us. I would expect somewhere around the mid-part of the year, just after going back-and-forth, answering their questions, call it, roughly a six-month process, that we should see the formal approval of those two 510(k)s, which doesn’t really change anything with respect to how we’re positioning or selling the product in the market, but certainly puts that aspect behind us in terms of closing out the 510(k) itself. The other thing that I would say that I just think is clarifying and important, throughout this process of working with the FDA on the Zio AT product, we knew there were some questions earlier on around MCT. Through working with them, ultimately they’ve created a new category code themselves, which is more or less deemed to be MCT for ambulatory cardiac monitoring and we are the first product that’s been put into that new category code. So, again, through the collaboration of the teams, working with the FDA, answering the questions they had around it, I think that’s a big first step as we step into this new category code, just being the first product into it that demonstrates just the good progress that’s taken place between the two entities, being the FDA and ourselves. So we’re excited with what we’re seeing there.

Okay. That’s really helpful. And just as a quick follow-up there, does that mean some of your competitors on that side will also need to go through the same process?

Marie, I don’t know exactly what they’ll have to go through. I would imagine some of it might just be an administrative process where they’re working with the FDA to get pulled into it, but I don’t know enough to speak to that with certainty. Again, I believe some of it’s probably just administrative, but we’ll watch and see how they play that out.

Thank you for clarifying. I wanted to inquire about the sleep pilot. Could you explain what efforts iRhythm will be putting forth? When might we expect this to start generating revenue? I understand this is just the initial pilot, and I appreciate you addressing my questions.

Yeah. This is something that we’re really excited about. I would expect to be out in the pilot within the next 30 days to 60 days. It’s coming together pretty well and we know exactly how we’re going to approach the pilot itself. I think it’s important to understand, like, this whole space of getting to a sleep diagnosis is entirely fragmented and it’s an incredibly cumbersome process for the physicians and the patients today, and now you have a significant competitor who just recently has stepped out of the whole home sleep test space themselves. And I look at our position, we have this incredible opportunity to leverage the call point that we have, being the cardiologist, the EP and now the primary care physician, which is where the initial prescription or referral onto a sleep specialist or a home sleep test or a sleep lab ultimately originates from. We already have this established point of contact. We possess significant expertise in understanding how the IDTF aspect functions, and I believe we can fill a significant gap by making it easy for prescribing physicians to order home sleep tests or referrals to sleep labs. We can facilitate the entire process, ensuring that the sleep test is conducted, the report is interpreted, and the diagnostic report is returned to the physician, creating a seamless experience for both the doctor and the patient. The physician will receive the report and can then make the final diagnosis. Imagine it as simply having a single button in a single portal like the Zio Suite, allowing them to prescribe the device for home use, with the report sent directly back to the physician. I believe we have the potential to completely transform this area. The current home sleep test market is estimated to be over $1 billion. With 50% to 80% of AFib patients having sleep apnea, we're conducting nearly 2 million tests annually, indicating a significant portion of this population likely undergoes some form of sleep testing. We believe we can disrupt and streamline this process for both physicians and patients. So we’re super excited, we’ll see what we learn in this initial pilot, but I think we’re in a pretty interesting space here to leverage our product capabilities and our service capabilities to really deliver something that is transformational in this space. And the last thing I would add is we spend a lot of time with our advisory boards. These are physician advisory boards out across the nation and we listen for ideas of what we can do to streamline their practices or help make them more efficient. The number one item that comes back to us is around sleep, finding a way to make that entire process more efficient for them, and I think this is a great way to do it.

Thank you, Quentin.

Thank you. The next question comes from the line of Richard Newitter with Truist. Your line is now open.

Hi. It’s Lee on for Rich. Thank you for taking the question. So could you help us understand the cadence of growth margin throughout the year and also how quickly can growth margin ramp once the monitor transition is completed? Thank you.

Yeah. Good question. Yeah. As we mentioned in the prepared remarks, we think the exit rate at that 66% or so rate is reasonable to think for the first couple quarters and the reason that timing is important is there’s a couple of different things. First of all, it takes about six months to nine months for a clinical cardiac technician to get fully up to speed and optimized, and we talked about hiring 100-plus or so in Q4. So it’s going to take a little bit of time for them to get up and be efficient. The second one is, we talked about automation, and automation comes into play in the back half of the year specific to Zio monitor, and remember, we had no automation in place for Zio XT, so that’s all incremental efficiency that will ultimately be created with the new product line. We believe that the exit rate for the first and second quarters is a reasonable estimate, around 66% margin. To reach 68% to 69%, you can calculate how we plan to achieve strong gross margin figures in the third and fourth quarters. With automation implemented, improved efficiency at the San Francisco Center of Excellence, and the increased scale with the Zio monitor, we expect around 80% of our total volume to be using the Zio monitor by that time. All these factors will positively influence our gross margin in the latter half of the year, and we anticipate our exit rate will be at or above 70%, representing some of the highest gross margins in our company’s history. Although there are some short-term investments involved, they will yield significant returns relatively quickly.

Thank you. The next question will be from the line of Nathan Treybeck with Wells Fargo. Your line is now open.

Thanks for taking the question. Can you talk about your guidance assumptions for competition and where your 70% market share goes in 2024 and also if you could just talk about the competitive dynamics in the PCP channel? Thanks.

Yeah. So, when you think about 2023 and I mentioned the fact that it was a transformational year for us, all of our data would tell us that over the course of the years we saw our volume momentum really pick up and increase, and we increased unit volume growth in 2023 relative to 2022 in a pretty substantial way, that despite the fact that we have 70% of that long-term cardiac monitoring space, I actually think we picked up another couple points of share in that marketplace. That’s a market that, we had given a bit of share in the past as new competitors came into it, but on the heels of the CAMELOT data being out there on the move into the primary care channel, I’m convinced that we took share in the long-term cardiac monitoring space in 2023 and we hope to continue to find ways to do that into the future, but I think that’s pretty remarkable in a market where you already have 70%, so I do think we’re taking share there. With respect to primary care, I think, we have a very unique and differentiated opportunity with primary care. Most of our competitors, they lead with the cardiologists and the electrophysiologists with an MCT-style product and then they simply step down into a long-term cardiac monitor or an event Holter, event recorder, extended Holter. So we take a very different approach. We come right in with long-term cardiac monitoring. We have a very different cost profile. At that price point, we’re able to deliver in the mid-60s what’s going to be to Brice’s comment he just made, 70% as we exit 2024, north of that on monitor alone. I just think we’re in a very unique position to go in and compete for that primary care space. I’ve had a couple folks that I’ve been able to sit with competitors, and we talk about our success in the primary care channel, and they look at it a bit skeptical, I think, primarily from an economic perspective, but with our gross margin profile, we know that we can drive a very nice business there and expect to be able to build it pretty significantly.

Okay. That’s helpful. And my follow-up, so you talked about international contributing a point of growth in 2024 and this is before the Japan launch, which you expect in early 2025. I guess, how should we think about that ramp in Japan? Can it be higher than a point of growth contribution from international in 2025 and maybe just timing for reimbursement in Japan? Thanks.

Yeah. Maybe I’ll take the first one with reimbursement first. We need to get through the regulatory approval of the product that’s on file with them. We’re actively engaged going back and forth and that’s moving quite well. I would expect that to get approved in the back half of the year and then move directly into discussions around reimbursement, which probably take a couple of months. That should get us to the point where we’re ready to introduce the product from a commercial perspective right around the turn of the year, early part of 2025. So, that has us excited. When I think about 2024 and the point of growth coming from international, we really didn’t get any contribution to our growth profile in 2023 as we stepped through some of the NHS-related accounts in the U.K. and started to really focus in the private sector. But the majority of that growth in 2024, frankly, will come from that U.K. business now that we’ve anniversaried some of those challenges. But I love the setup as I think about 2024 and even more so into 2025. You’ve got international where we’re expanding with Japan. You’ve got Switzerland coming on board, Netherlands, Spain, Austria, right there on the roadmap. And then you launch Japan in early 2025 and should be launching a new and exciting MCT product as well in 2025. I think the setup is terrific as we think about all the tailwinds that are in the business. So we’re excited with what’s in front of us and feel like we’ve got a lot of good tailwinds that we can execute against, and I do think international will be another growth contributor, not only in 2024, but, yes, again in 2025.

Thank you. The next question will be from the line of Bill Plovanic with Canaccord. Your line is now open.

Hey, Quincy and Brice. It’s John on for Bill tonight. Thanks for taking our questions. I just wanted to focus on the pilot program for Know Your Rhythm that you mentioned on the call. Maybe just some more color on that, details on the revenue model and what sharing around that, and how much of that is being considered in 2024 guidance? Thanks.

Yeah. So we haven’t considered a whole lot of incremental revenue from Know Your Rhythm in the 2024 guidance at this point. Our view has been to let these models or these pilots play out. And once they’re validated and we know they’re going to be a commercial success, then we can start to bring those into the revenue expectation. So we’re going to let the pilot play out and then we’ll think about sort of how we think about revenue for the year. I will tell you the early indications in the pilot with PCC have been terrific. It’s very, very early. Look, out of the first 300 patients that came through or that have gone through the pilot with the Zio patch, and keep in mind, this is an asymptomatic population that we believe dangerous arrhythmias might be present, nearly 200 of them have come back or 70% of the asymptomatic patients have been identified with having a dangerous arrhythmia. That’s pretty phenomenal and well above where sort of that diagnostic rate needs to be for the pilot to be considered a success.

Great. Thanks, Quentin. And then just as a follow-up too, IDN has been a particular strength for you guys too. How much greenfield opportunity is left there when it comes to these integrated networks for you guys to penetrate and go into? Thanks again for taking our questions.

Yeah. Well, I think that, with the IDNs, you got to look at it from two different angles. In several cases, we might be in a small part of a larger IDN that we have the opportunity to go much more expansive with. And there are other cases where we’re just not in the IDN at all and we can come in from sort of a top-down approach and be pushed down into their network. I would say we’re going at it from both ways. I was just reviewing the pipeline with the commercial team just yesterday and it’s as strong as we’ve ever seen it, including these large IDNs. And what I love about it is some of the highest growers, as a matter of fact, some of our strongest growers through the first two months of this year are coming from these new networks that we’re opening up. That’s pretty incredible and I think it just speaks to the sort of opportunity that sits out there.

Great. Thanks again.

Thank you. The next question comes from the line of David Rescott with Baird. Your line is now open.

Hey. Thanks for taking the questions. I have two questions. I’m just going to ask them up front. First, I’m excited to hear some of the updates around the sleep program. I know at the Analyst Day a couple years ago, you talked about the expected spend baked into the longer range plan, but some of the upside from revenue was not. So I’m wondering if that’s still the case. And then just on Japan, when you think about framing up the timing of that market, how should we think about the rollout into that international market, specifically Japan? Thank you.

From the sleep perspective, the spending is included in our guidance, as Brice outlined, and provides some details on that. There isn’t any additional spending planned right now for ramping up the sleep pilot. Depending on its success, we will assess how much growth we can achieve and how quickly. I believe there is a significant opportunity to disrupt that sector by using the existing infrastructure we have established, and we aim to make the most of that. With respect to Japan, again, I think the timing, the right way to think about that is early part of 2025. We’ve got our partner identified. We’re working very closely with them as we prepare from a commercial readiness perspective to be able to enter that market right after the turn of the year. And then, I think, just in that Japanese market, it’s probably prudent for us to think about relatively modest ramp as we go. I do think having a high medical needs designation specific to Zio puts us in a really unique position there. We know that patients need access to this product, but at the same time, we’re not going to get ahead of ourselves with expectations. We’re incredibly bullish on the market being the second largest market in the world, but at the same time, we want to let the results sort of play out, get a little bit of experience under our feet and then we’ll think about the right way to really think about the cadence of growth.

Thank you. The next question will come from the line of Michael Polark with Wolfe Research. Your line is now open.

Hey. Good afternoon. Quick one, the weather impacts for the first quarter, I haven’t heard that yet through reporting season. Was that cold weather, snow in January or was there some large storm I missed? I guess what specifically are you calling out there?

Yeah. It’s a good question, David. What we did see is large storm impacts in the northeast and really across the country in certain respects. It’s not a huge number. It’s $1 million to $2 million, but we thought it was important to call out and we certainly have heard others in the industry talk about that. It’s not unique to us and I would expect you’ll continue to hear that as feedback. However, didn’t change the overall guidance at $575 million to $585 million, just a little bit of timing issue there.

Helpful. And then my question on Switzerland at U$1,000 per case stands out, obviously, as a high number. Is that for an MCT configuration or is that more for an XT product? And if it’s XT, how did they get there?

Yeah. That’s the long-term cardiac monitoring, so that’s not the MCT product. And Mike, we have been in sort of market evaluation or I guess, a focused evaluation with the University of Basel over there for a little while now, and I think that, you look at the CAMELOT data, you look at their own internal data in terms of the cost avoidance downstream that they’re realizing from an earlier diagnosis, they see that the value of the product is far beyond just the initial diagnosis. It’s the avoidance of downstream unnecessary costs. And so, they worked those models together and they came up with their rates, and certainly, we were pleased to see that value being recognized. Obviously, it’s a very attractive rate and it makes that Switzerland market, while the volumes aren’t near as large as some of the other markets throughout Europe, that one’s a pretty interesting one at those rates.

Thank you. The next question is from the line of Suraj Kalia with Oppenheimer. Your line is now open.

Hey. This is Shaymus on for Suraj. Thanks for taking our questions. I’ll just ask both up front. For the Philippines IDTF, can you guys quantify what percentage of scripts are being sent there so far and what percentage of your commercial payer mix has agreed to be moved to the Philippines IDTF at this point? And then kind of following up, in the guide, can you give a little bit more color to the adjusted EBITDA build for 2024? What are you assuming in terms of stock-based comp, transition costs, et cetera? Thank you.

Yeah. So I’ll hit the first one with the Philippines. Brice can jump in on the second one. The Philippines, we set up that Global Business Services Center really focused on the back office more so than the clinical ops function, if you will, right? So think about that as finance, HR, IT, customer care, leveraging a bit of outsourced capabilities there. But that’s really the intent of the Global Business Services Center. To your point, a lot of what we continue to process from a CCT or an IDTF perspective continues to be back here in the States. Unless we do get a consent from a payer, then we can leverage an offshore capability or a third-party capability. So Philippines is primarily those other back office functions and we’ve had great success getting that stood up, great success in terms of their focus on quality of work and the process excellence that they bring. And as Brice pointed out earlier, it’s driving a nice improvement in the margin profile for us already here in 2024 and we’ll continue in 2025.

Perfect. And maybe I’ll take the second one there on the adjusted EBITDA build. This is the way we think about it. If we think about just walking down the P&L, gross margin, I gave in the prepared remarks, the 68% to 69%. When you get to the midpoint, it’s about 120 basis points or so of benefit that you’re seeing from gross margin. On the OpEx side, it’s about 250 basis points and then if you start to do the math, where does the rest come from? The rest really comes from depreciation and amortization, and most notably, depreciation and amortization, which is up in our standard operating expenses. However, it’s non-cash. That’s growing at a rate much north of what the rest of our operating expense is. So that’s effectively 100 basis points, though that comes out of adjusted EBITDA from a pure adjusted EBITDA margin calculation. As you consider stock-based compensation in 2024, we expect it to grow in line with the rest of operating expenses, perhaps a point or two above that. Although it is excluded from adjusted EBITDA, that's how I view stock-based compensation. Regarding business transformation, we have effectively completed our Philippines IDTF and there are no specific business transformation expenses that we anticipate removing from results in 2024. Therefore, there is no specific guidance on that front. We don’t see much need at this time, but we will keep you updated if anything changes.

Thank you. At this time, we have no further questions remaining in the queue. So I will turn the call back over to the team for final closing remarks.

Great. Well, thank you for joining us today. 2023 was a transformational year for us and I want to thank our team members for their hard work in transforming our company as we build the foundation to capitalize on the opportunities that sit in front of us. We couldn’t feel better about how we are positioned as we head into the year of 2024. We’ve got numerous tailwinds that exist in the business, including primary care, the sleep pilot, our Know Your Rhythm pilots, asymptomatic screening, a full year of monitor, ramping international growth and CAMELOT continuing to become more and more popular in the marketplace. Our future has never been brighter. We look forward to connecting with many of you over the next couple of months and we’ll talk soon. Take care.

That concludes today’s conference call. Thank you all for your participation and you may now disconnect your lines.