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Presentation

Operator: Good afternoon. Thank you for attending today’s iRhythm Technologies Q4 2024 Earnings Conference Call. My name is Cole and I’ll be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I’d now like to turn it over to Stephanie Zhadkevich. Please go ahead.

Stephanie Zhadkevich: Thank you all for participating in today’s call. Earlier today, iRhythm released financial results for the fourth quarter and full year ended December 31, 2024. Before we begin, I’d like to remind you that management will make statements during this call that include forward looking statements within the meaning of federal securities laws pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. These are based upon our current estimates and various assumptions and reflect management’s intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance.

These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent annual and quarterly reports on Form 10-K and Form 10-Q respectively filed with the Securities and Exchange Commission. Also during the call, we will discuss certain financial measures that have not been prepared in accordance with U.S. GAAP with respect to our non-GAAP and cash-based results, including adjusted EBITDA, adjusted operating expenses and adjusted net loss.

Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation of as a substitute for or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and 10-K for reconciliation of these measures to their most directly comparable GAAP financial measures. Unless otherwise indicated, all references to financial measures on this call other than revenue refer to non-GAAP results. This conference call contains time sensitive information and is accurate only as of the live broadcast today, February 20, 2025. iRhythm disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

And with that, I’ll turn the call over to Quentin Blackford, iRhythm’s President and CEO.

Quentin Blackford: Thank you, Stephanie. Good afternoon and thank you all for joining us. Dan Wilson, our Chief Financial Officer, is joining me on today’s call. My prepared remarks today cover business performance during the fourth quarter and full year of 2024 as well as our annual outlook for 2025. I’ll then turn the call over to Dan to provide a detailed review of our 2024 financial results and 2025 guidance. 2024 was another transformational year for iRhythm during which we achieved a significant number of accomplishments on our journey to become best in class across all areas of our business. The fourth quarter 2024 capped a year of progressively accelerating year-over-year volume growth every quarter with full year 2024 revenue of over 20% driven by sustained volume demand across all customer channels.

Our commercial teams drove another year of record new account openings within both long-term continuous monitoring and in mobile cardiac telemetry. This was enabled by strong demand from national value-based care entities, continued momentum in our core commercial base business and an uplift in Zio AT in the fourth quarter. Within long-term continuous monitoring specifically, we celebrated 1 million patients in 2024 registered for Zio monitor, our newest long term continuous monitor that is smaller, lighter, thinner and more breathable compared to our legacy Zio XT product. And we unveiled data demonstrating its superior real-world performance at HRX 2024 that helped contribute to this growth. Zio AT also performed very well throughout 2024, but we saw particular strength during the fourth quarter as there was disruption for our competitor in the marketplace.

iRhythm has historically described our U.S. market as the number of ambulatory cardiac monitoring tests that are prescribed each year, of which there are approximately 6.5 million tests being performed today in the U.S. However, we are in the early stages of a marked shift towards broader clinician and payer adoption of monitoring strategies to triage an increasing cardiovascular disease burden globally and to manage the health of an aging population, including the associated cost and capacity burdens that these are placing upon the healthcare system. We estimate that there are approximately 27 million patients in the U.S., who are either showing up to their primary care provider with cardiac palpitations or completely unaware that they likely have an arrhythmia present due to patient-specific risk factors.

To access these patients and to drive early detection and intervention, moving monitoring further upstream in the patient care journey to the primary care physician has been and will remain paramount to reduce time to diagnosis, reduce hospitalizations, improve clinical outcomes and stem health care costs throughout the system. We believe that the Zio Service is ideally positioned to win within this paradigm shift and we are already seeing early signs in our business today that this TAM expansion is occurring. We have described our approach to opening this market opportunity as two-pronged, one being through the large integrated delivery networks that we work within today and two being from the top down through large national accounts. During 2024 we continued to drive traction within primary care channels at large integrated delivery networks where cardiologists, EPs, and primary care physicians are approaching the utility of Zio as a workflow efficiency tool.

We have seen in several of our accounts that moving Zio prescriptions upstream to primary care physicians has the potential to reduce time to clinical decision to three to four weeks versus what can be four to six months to be used as the rule-in or rule-out tool for further referral within the network and ultimately to amplify volumes in these systems by opening additional capacity for specialists to see qualified patients where additional monitoring may take place. In 2024, we saw that north of 50% of the large independent delivery networks that we do business with now have at least one primary care physician prescribing Zios. This is further enabled by embedding Zio within electronic medical record systems at our accounts and we were very pleased to have crossed the milestone of 2 million registrations through EHR-integrated accounts in 2024.

Doubling down on this strategy, we have begun expanding the number of commercial accounts with EMR integration via our partnership with Epic Aura’s diagnostic suite especially, and the reception thus far has been very positive. While still early in our broad commercial launch as part of our Epic collaboration, we’ve heard from staff at these clinics who have been very enthusiastic about the immediate efficiency gains in their workflow and their associate ability to spend more time with patients. This partnership has taken what used to be a major IT integration project to and turned IT into a low-effort IT initiative that allows us to focus more on clinical and operational workflow improvement, training and readiness, and quicker time to value initiatives.

We have been thrilled to be able to work with Epic as an exceptional partner, and we look forward to further improving the customer experience with additional or integrations throughout 2025. 2024 was also the year where we first really started to open several large national value-based care accounts including a notable contribution from a new innovative partner in this channel added during the fourth quarter to drive cost-efficient top line growth and open the significant TAM that we believe exists within ambulatory cardiac monitoring. Through early customer programs of this account type, iRhythm has validated a strong product market fit for risk factor-guided monitoring approaches for undiagnosed arrhythmias where incentives are aligned with value-based payers and providers.

Within a representative sample of five customer programs that we have recently opened, over 80% of patients monitored with Zio had at least one arrhythmia identified. This is great support for the overarching hypothesis that patients with underlying undiagnosed arrhythmias when they fall into certain inclusion criteria that our customers are already using and we know from several scientific studies including mSToPS that identification of arrhythmias can enable lower downstream cost and contribute to better patient outcomes. Our customers have started recognizing this as well with one new partner now expanding inclusion criteria into their COPD patient population to be monitored proactively with Zio. As external validation of the move towards proactive monitoring for cardiac arrhythmias, we are starting to see guideline recommendations updated and broadened.

In the U.S., the 2024 ACC expert consensus decision statement on arrhythmia monitoring after Stroke now recommends ambulatory cardiac monitoring of 14 or more days as the primary modality for use in detection of atrial fibrillation in cases of stroke of unknown origin. Zio long-term continuous monitoring was explicitly included as a monitoring option, and Zio was shown to be superior to Holter monitoring for detection of atrial fibrillation in post-stroke patients as part of the Early Prolonged Ambulatory Cardiac Monitoring and Stroke, or EPACS trial. Also, implantable loop recorders were recommended for a more limited pool of high-risk patients rather than as a routine strategy, representing a significant change from previously recommended use of ILRs for all post-stroke patients.

In Europe, the European Society for Cardiology updated their 2024 practice guidelines for management of AFib to include recommended screening in all patients 75 years or older and for those 65 and older with additional risk factors. These updated guidelines and society recommendations are reflective of an evolving appreciation for the role of proactive cardiac monitoring in population health management and specifically highlight the importance of long-term patch-based monitoring to accomplish these goals. To advance this further, we are now working on a precision AI approach to better apply risk factor based monitoring for atrial fibrillation and other arrhythmias in targeted patient populations, many that would not be identified with conventional criteria.

This evidence is just starting to be generated by our team in anticipation of a market shift towards acceptance of these types of technology advancements. You’ve heard us talk in the past quite a bit about obstructive sleep apnea and heart failure, where there is an abundance of clinical literature pointing to the overlapping comorbidities of these diseases with arrhythmias. But another great example of this was shared at the American Heart Association’s 2024 Scientific Sessions this past November, demonstrating that the significant health economic benefits of early arrhythmia detection and often overlooked conditions like type 2 diabetes, COPD, chronic kidney disease and coronary artery disease. Analysis of real-world claims data conducted by Eversana suggested that early detection with arrhythmia monitoring devices has the combined potential to help prevent serious outcomes like stroke and heart failure and significantly reduce acute care utilization and related costs in these populations.

These data showed that arrhythmia patients were hospitalized more than twice as often as non-arrhythmia patients. And of those hospitalized, the patient length of stay increased by two to five days for arrhythmia patients with a combined cohort compared to patients without arrhythmias and the rate of emergency room visits was more than twice for the arrhythmia cohort relative to the non-arrhythmia cohort. We believe that with precision-based AI approach to proactive monitoring, we can find these patients who are at high risk of cardiac arrhythmias ahead of catastrophic events taking place, leading to the potential to meaningfully reduce the costly ER visits, hospitalizations and increased cost of caring for these patients after a catastrophic event has occurred.

Outside our core U.S. business, we made progress during 2024 to begin opening additional OUS markets and bring the Zio service to potentially millions more patients globally. In 2024, our UK team drove record billable registrations through private contracts as we continue to navigate reimbursement dynamics with the NHS. Also in Europe, we continue to expand our global reach with our third quarter commercial launch of Zio services in Austria, the Netherlands, Switzerland and Spain. We believe the introduction of the Zio services in these countries will positively disrupt the monitoring paradigm to allow clinical practice with evidence and improved outcomes. In Japan, we received Japanese PMDA regulatory approval for Zio monitor this past September, with Zio being the first product in Japan to deliver arrhythmia monitoring service utilizing artificial intelligence.

With regulatory approval in hand and with support from our partners at the Japanese Heart Rhythm Society, we’ve been working with the Japanese Ministry of Health, Labor and Welfare or the MHLW over the past few months towards a market access and reimbursement decision for Zio. We expect to hear back regarding the decision soon and are excited to commercially launch in the second largest medical device market in the world. iRhythm’s innovative technology platform underpins our service today, but is foundational to how we think about enabling scale, adding additional vital signs, generating future clinical insights and ultimately influencing population health management across multiple disease states where healthcare is heading. As we announced in 2024, we are strategically approaching this by end licensing technology that we believe may enable future hardware iterations containing multi parameter sensing modalities with the long-term goal of monitoring multiple vital signs off the chest.

We continue to believe the Zio patch form factor is our winning solution for our future multi sensing service and that adding new modalities may enable us to provide additional diagnostics within other adjacent indications such as sleep apnea, where additional vitals are required for diagnosis and reimbursement. To take advantage of these exciting opportunities ahead of us, we have driven significant transformation over the past couple of years to bring technological capabilities, diverse leadership experiences, functional maturation, and increasing rigor into the way we operate as a company. With the establishment of Zio Monitor as our next-generation hardware platform in 2023, we’ve launched the initial phase of our manufacturing automation plans in 2024, marking a significant corporate milestone intended to set the stage for future growth and innovation while also yielding substantial cost savings.

Also during 2024, we enacted corporate activities that were executed to reduce management layers in the organization with the aim of increasing efficiency and effectiveness while delivering more than $25 million in savings in 2025. And in support of our global aspirations to serve millions more patients worldwide, we continue to globalize our workforce with our Global Business Services Center, leveraging the global operational infrastructure we have established over the last 24 months and enabling around-the-clock operations. These cumulative efforts have resulted in a corresponding financial transformation as we have improved our gross margin profile from 66% at the beginning of the year to 70% by the fourth quarter 2024, and have generated north of 500 basis points of improvement in adjusted EBITDA margin excluding acquired IPR&D charges for the year.

We remain committed to driving additional financial leverage within the business and to maturing our company further for the benefit of all stakeholders. Lastly, while we are very excited for the opportunities ahead of us that we are driving in our commercial business, I want to remind everyone that regulatory and quality matters will remain our number one company priority throughout 2025. To this end, we continue to make significant progress towards our remediation and compliance activities and are tracking well against our timelines that we have committed to the FDA with respect to the FDA’s warning letter and 483 observations. Also, recall that we committed to going above and beyond what the FDA has signaled they expect and we currently are on track to complete these additional compliance efforts by year end 2025.

As we have communicated in the past, we will allocate the necessary resources to ensure that we are best in class from a quality perspective and we are committed to ensuring that the FDA’s observations are remedied to their complete satisfaction. With that, I’ll now turn the call over to Dan to discuss our recent financial performance.

Daniel Wilson: Thank you, Quentin. As a reminder, unless otherwise noted, the financial metrics that I discuss today will be presented on a non-GAAP basis. Reconciliations to GAAP can be found in today’s earnings release and on our IR website. Our fourth quarter 2024 results were reflective of our focus on profitable growth. We are pleased to have delivered strong top line growth while continuing to drive operating leverage through the P&L. On the top line, we saw significant momentum in our core markets as we achieved revenue of $164.3 million, representing 24% year-over-year growth. These results were driven by record volume demand from existing accounts combined with another record quarter of new account openings for both Zio Monitor and Zio AT.

Encouragingly, growth continues to be well-balanced across both Zio Monitor and Zio AT, across our core symptomatic business, as well as increasing adoption of undiagnosed monitoring and a mix of both new store and same store growth. New store growth with new store defined as accounts that have been open for less than 12 months, accounted for approximately 56% of our year-over-year volume growth. Home enrollment for Zio services in the U.S. was approximately 22% of volume in the fourth quarter. Moving down the P&L. Gross margin for the fourth quarter was 70%, slightly ahead of our stated expectations. Compared to the third quarter of 2024 and compared to the fourth quarter of 2023, the improvement to gross margin was driven by volume leverage as well as the ongoing benefits realized from sustainable clinical operations and manufacturing efficiencies.

Fourth quarter adjusted operating expenses were $116.7 million, up 2.6% year-over-year, primarily driven by our ongoing remediation activities as well as funding of innovation and commercial initiatives. These purposeful investments were enabled by savings generated from operational excellence initiatives which demonstrate our ability to deliver top line growth while generating meaningful operating leverage. Adjusted net income in the fourth quarter of 2024 was $0.2 million or income of $0.01 per share, compared to an adjusted net loss of $25.8 million or an adjusted net loss of $0.84 per share in the fourth quarter of 2023. Adjusted EBITDA in the fourth quarter 2024 was $19.3 million or 11.7% of revenue compared to an adjusted EBITDA margin of 1.8% in the fourth quarter of 2023.

Adjusted EBITDA for the full year 2024 was negative $7.7 million or negative 1.3% of revenue. Our adjusted EBITDA for the full year 2024 included $32.4 million of acquired IPR&D charges or 5.5% of revenue, which would have resulted in an adjusted EBITDA margin of 4.2% of revenue without the acquired IPR&D charges. This represents an improvement of approximately 520 basis points compared to 2023 driven by sustainable improvements to our operating expense profile, specifically through disciplined spending in SG&A while still reinvesting in initiatives to fuel our future growth. As noted in prior quarters, we continue to incur incremental legal and consulting fees as well as other company expenses related to FDA remediation efforts and DOJ subpoena activities.

Incremental expenses related to these activities were approximately $11.0 million for the full year 2024. The company increased its remediation activities in the fourth quarter, bringing on additional consulting support to rectify outstanding regulatory and quality related items. We expect these incremental remediation expenses to be approximately $15 million in 2025. Once we are through our remediation efforts, we expect most of these expenses to subside. And as noted previously, operational excellence initiatives executed in the back half of 2024 will help offset incremental FDA remediation expenses in the near term while positioning iRhythm to deliver sustainable profitability into the future. Turning to guidance. We are reiterating full year 2025 revenue guidance of $675 million to $685 million as presented just a few weeks ago.

We continue to believe that full year revenue will be driven by sustained volume growth in our core U.S. markets as we continue to drive utilization of long-term continuous monitoring upstream within primary care channels, drive continued adoption of undiagnosed monitoring, and expand our market share within the mobile cardiac telemetry market. This outlook contemplates significant U.S. volume growth along with a low-single digit percentage pricing headwind. While we are in the early stages of our international commercial launches, we have contemplated international contributing approximately a point of growth in 2025, which includes approximately $2 million from the Japanese market. For the first quarter of 2025, we expect revenue to be consistent with historical averages with approximately 22.5% of full-year revenue generated during the first quarter.

For gross margin, we expect the clinical operations and manufacturing efficiencies we’ve driven over the past 18 months will continue to improve our gross margin profile. We believe that these sustainable improvements will continue to lower our cost to serve as we leverage our fixed-cost infrastructure over a higher volume of patients over time. We anticipate modest improvements to gross margin in 2025. However, we expect that these improvements will be largely offset by proposed tariffs of Mexico, Canada and China imports which we estimate to be 50 basis points to 75 basis points negative impact should those move forward as planned. As a reminder, our cost to serve includes both device and manufacturing costs as well as clinical service costs.

Our Zio devices are manufactured and assembled at our facility in California, and we have a widely distributed supplier base including suppliers in both Mexico and China. We are monitoring the possible enactment of proposed tariffs and will be pursuing opportunities to offset any headwinds associated with potential tariffs. For adjusted EBITDA margin, we expect full year 2025 to range between 7% and 8% of full year revenues which includes the negative impact of potential tariffs as noted earlier. Our guidance does not contemplate potential acquired IPR&D expenses, which expensed amounts will depend on timing of milestone achievements. We continue to anticipate normal seasonality in our adjusted operating expense profile with higher expenses coming through in the earlier half of the year due to spend associated with corporate activities and payroll expenses.

We anticipate that adjusted EBITDA margin for the first quarter 2025 will be negative low to mid-single digits. Finally, we ended the fourth quarter in a strong financial position with approximately $535.6 million in unrestricted cash and short-term investments. During the fourth quarter, we continued to see further improvements in working capital and we anticipate a more normalized DSO as we move into 2025. Also, very encouragingly, we generated over $30 million in free cash flow during the last three quarters of 2024 demonstrative of our increasing focus on operational discipline and our drive to being free cash flow positive. For full year 2025, we anticipate being slightly free cash flow negative and anticipate becoming free cash flow positive for full year 2026.

In closing, we are excited about the financial results demonstrated in the fourth quarter and the momentum in the business at the start of 2025. Our focus on profitable growth is positioning the company to continue to capitalize on our growth opportunities in the near and long-term while delivering sustainable profitability. I will now turn the call back to Quentin for closing remarks.

Quentin Blackford: Thanks, Dan, and thank you all here today for your support of iRhythm. Our accomplishments of the past 24 months are reflective of ongoing transformational changes within our organization to foster a commitment to excellence. We have made significant strides towards our stated long range goals to create value for multiple stakeholders while continuing to foster innovation for the benefit of patient outcomes. We are uniquely positioned to win in the marketplace with clinically accurate trusted services and the ability to scale into expanded channels in international markets and the capability to add additional vital signs to our innovative platform over time. We are generating more than $0.5 billion in revenue today and providing over 2 million reports for patients annually with expansive target market opportunities to bring value to multiple stakeholders in the healthcare ecosystem for many years to come.

iRhythm’s innovative technology platform underpins our service that enables us scale. We’ll support future clinical insight generation and ultimately we should be able to influence population health management where the future of healthcare is heading. And this is being achieved through a scalable, efficient operating company with an attractive gross margin profile, an improving adjusted EBITDA margin profile and a transition towards sustainable free cash flow generation. We are proving our ability to execute with excellence across all facets of our business and I’d like to thank our colleagues and partners globally who make this possible every single day. We appreciate your ongoing support of iRhythm as we continue our journey to disrupt healthcare.

And with that, we’d like to take any questions you may have. Operator?

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

Macauley Kilbane: Hi, everyone. This is Macauley on for Margaret tonight. Thanks for taking our question and congrats on a really strong finish to the end of the year here. I wanted to start with the guidance and I appreciate any numbers you can put to guidance here. But as we look the multiple analysis here [indiscernible].

Quentin Blackford: Hey, Macauley. Macauley, I’m having a really hard time picking you up with your connection. It might be worth jumping back in the queue.

Macauley Kilbane: Okay, will do. Thank you.

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

Macauley Kilbane: Sorry about that. Not sure what you hear, but wanted to start with the guidance. And appreciate the approach we’ve seen in the past with not getting ahead of things. But as we look at the multiple catalysts throughout the year, with the record account openings, the PCP momentum continuing, if not accelerating exiting the year, you have epic integration, etc. I guess looking at the guide, what’s already implied in that high end, and what’s kind of left out that could drive you closer to that 20% growth moving forward, especially with the 24% (ph) growth exiting the year?

Quentin Blackford: Sure, Dan. Why don’t you jump in?

Daniel Wilson: Yeah. Hey, Macauley, thanks for the question. So as it relates to the 2025 guide, you are right, there’s a number of potential levers that can drive the growth in the business. We talked about in the prepared remarks kind of that balanced growth and seeing contribution from multiple places in the business. So all very encouragingly. As we look to 2025, we of course don’t want to get ahead of ourselves. There are a couple of additional headwinds in 2025. We did call out low single-digit pricing pressure in 2025 that was unique — or that’s unique to 2025 versus 2024. And then in Q4, we did see some benefit from Zio AT as it related to some competitive disruption in the quarter as well as an innovative channel partner that turned on in a big way in Q4.

As we look at 2025, we want to make sure that those things continue into the year and make sure that those are contributing in the business in the same way before really baking that into the guide. So, at the start of the year, trying to be balanced, but certainly love what we’re seeing in the business and the momentum and encouraged about the setup for the year.

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

Lilia-Celine Lozada: Hi. This is actually, Lily on for Allen. Thanks so much for taking the question. You obviously, ended the year on a high note, really good momentum exiting 2024. So I was hoping you could just share a bit of color on how that momentum has continued into 2025 so far and some of the trends that you’ve been seeing so far in the first quarter. Thank you.

Quentin Blackford: Yeah. Thanks, Lily. Thanks for the question. Dan mentioned and you heard in the prepared remarks, certainly very excited with the momentum that we saw over the course of ’24. I would note, every single quarter we saw growth increase. So I think it just speaks to the momentum that’s building and excitingly coming from some of these new channels that we’ve been talking about around the primary care opportunity that we believe is how we open the market from 6.5 million test a year to what we think is 25 million to 27 million patients seeing a primary care physician. So very, very encouraged. Dan did mention within the fourth quarter, there’s a little bit of benefit from a new innovative channel partner that’s opening up.

We want to see that continue out into 2025 and I do believe that over time it will. But it’s not something that they’ve continued with here in the first month and half. But I do think they’ll pick that up in the next several quarters. So we don’t want to get ahead of ourselves with that one. We’ll wait and see that contribute and then we’ll start to roll that in. On the Zio AT side, I can tell you things continue to be very promising. Again, we’re just a few months off of some of the disruption that we saw in the marketplace. I want to be sure that’s going to stick in the business before we start to guide to figures that would contemplate that. So our guidance around Zio AT is sort of mid-20s from a growth rate perspective, which is pretty similar to how we were performing before the fourth quarter disruption.

With the fourth quarter, we were clearly above that. And if that sticks for all of 2025, then we should be in a very nice spot, but we want to see that play out for a little while longer.

Lilia-Celine Lozada: Great. Thank you.

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

Kallum Titchmarsh: Great. Thanks for taking the question, guys. Just on the 483 observations, and I think previously you’ve messaged to us that internally you feel like you can remediate everything there that you’ve committed to by kind of mid-2025. So can you just refresh us and specify the changes you’ve made thus far as it relates to the 483s? And then what’s left outstanding today? And then just any sense on how collaborative that process has been with the FDA on the 483s? Is it — are they providing ongoing feedback or is it been a pretty one-way communication channel at the moment? Thanks a lot.

Quentin Blackford: Yeah. Thanks, Kallum. Look, we’re incredibly pleased with the progress that we’re making. I’m super proud of the teams. As we’ve noted, this is the top priority for the company right now and that’s exactly what you would see if you were inside the four walls of iRhythm. So the teams have done a tremendous job. We’re through the majority of those remediation activities. We continue to target sort of the mid-year of ’25 being through the remediation specific activities. Keep in mind though, we’re holding ourselves to a higher standard, right? We’re going beyond just those items that the FDA identified and we’re looking more broadly and going wider and we’ll continue to make those improvements over the course of the entire year of 2025.

In terms of the correspondence with the FDA, we continue on a monthly basis to provide them an update on exactly what we said we were going to do and how we’re tracking to that. And I can tell you today we’ve met every one of those deliverables that we’ve committed ourselves to. So we feel good about that. There is some back and forth with the FDA, but most of its more administrative, right, acknowledging receipt of what we’re submitting to them. Not a lot of questions back to us on the remediation side. So I’m encouraged by what we’re seeing, but we’ve got a little bit of work yet to be done, and feel good about being able to get through the remediation-specific items by the mid-part of the year and the holistic effort by the end of the year.

The one thing that I would also comment on is keep in mind we agreed to bring a third party in from the outside to sort of audit or review all of the improvements we were making ourselves to hold us to that higher standard. Some of that review work will begin to happen here in Q2. So this just demonstrates the progress that we’re making and beginning to turn on that independent review of what we’re doing. But feel good with where we’re at and super happy and proud of the teams.

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

Nathan Treybeck: Hey. This is actually, Nathan Treybeck. Just a question for you in terms of Zio MCT timeline. I think the last time you mentioned you expect to submit for approval around Q3 of this year. Is that still the time frame? And I guess would you wait for the 483s to be remediated before submitting for approval? Thanks.

Quentin Blackford: Hey, Nathan. No, we’re still on track with the Zio MCT timeline, still expect to get on file with the FDA in the third quarter. We do not need clearance, if you will, of the 43 remediations or acknowledgment from the FDA to submit that. I think if you go back to the last earnings call that we had, I shared with you that we were prioritizing some of those remediation activities ahead of submitting MCT. And that was really to make sure that we began to make the progress against those things most critical and demonstrate to the FDA our seriousness around remedying those things. I feel very good about where that’s at. But they don’t need to be, fully remediated before we can submit that MCT submission. So still tracking well, still thinking, Q3 is the right way to think about that, no change with respect to MCT, and that will continue to be our focus as a team.

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

David Roman: Thank you. Good afternoon, everybody. I was hoping you can go into a little bit more detail on how the Epic integration is going. And how we could think about demand generation from accounts that are now on Epic, like what you’re seeing, and how we should think about that contributing to incremental volume on a go forward basis?

Quentin Blackford: Yeah. I — we talk a lot about the partnership with Epic and it’s been nothing but a terrific partnership from day one. We’ve made great progress in integrating those accounts that we first had slated in the fourth quarter. They’re up, they’re running, they’re producing nicely. Some of the feedback is pretty amazing, really. It’s funny to hear some of the folks who are working within the system make comments like, are you sure that we’ve got this correct? It can’t be this easy. It seems like we’re missing something. So it is having an absolute impact on workflow, which is the focus of this and we want to continue to make sure we address that for our customer accounts. And we’ve got a whole slew of accounts that are slated to come on board here in the first quarter of 2025, some already done.

Excitingly, we got one of our first big competitive conversions that moved our direction as a result of the Aura system and they’ll be going live momentarily. So we’re excited with what we see. I think we want to see that play out for a little while before we comment on what sort of volume trends we see in the business. I will tell you there’s some anecdotal signs from some of these early accounts that you can see some volume uplift. But we need to see that play out across the broader group before we start to bake that into forward looking expectations. But that is part of the value thesis with this whole integration is that if we can improve workflow, make it easier to prescribe our product, to put our reports right back into the electronic health records, it’s going to allow our customers to focus more on the patients and therefore treat more patients.

So we’ll see if that plays out, but early signs are very positive.

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

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

Daniel Wilson: Yeah. Hey, Sam. This is Dan. I can take that question. So, we launched into the four Western European countries in the back part of 2024. So still very early days there and making good progress. One market there is through a distributor. Three markets are direct for us. Japan, we do have the reimbursement decision on deck here and intend to commercially launch in that country, call it, mid part of 2025. So, like how — we have a few countries starting to contribute to the growth here mentioned or called out that 1% of — 1 point of growth, excuse me, in 2025. So encouragingly moving in the right direction. Still believe it’s early days for us from an international expansion standpoint.

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

Jon Young: Hey, guys. It’s Jon on for Bill tonight. Thanks for taking the question. Just wanted to go to the guide and see if there was any sleep apnea contribution contemplated for 2025 in the revenue guidance today, and just how you’re thinking about sleep apnea and some of the other adjacent areas that you highlighted on the prepared remarks contributing this year. Thanks.

Quentin Blackford: Yeah. So we don’t have any revenue contribution, Jon, in the ’25 revenue guide at this point for sleep apnea. We do expect to make some good progress around the sleep apnea business model and getting that out into the market as we continue to expand what we believe is a real opportunity to win in that segment. We continue to do a lot of market research, a lot of work with our own customers. I think it’s evident that as we continue to move further up the care pathway up into primary care, as easy as we’ve made it to identify cardiac arrhythmias, if we can make it that simple to identify sleep disease, which we think we can do through our digital platform and the portal that we already have, we think we have a right to win in that space.

And so we’re going to continue to pursue it very diligently, but again, sort of the same approach we’ve taken some with some of these other activities. We want to see the revenue really show up, begin to contribute and then we’ll start to work it into our expectations. But nothing in the formal guidance at this time, but do expect to make progress.

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

Unidentified Participant: Good afternoon. This is Anthony (ph) on for Joanne. Thanks for taking our question. So last time you updated us on PCP volume. I believe you said it was north of 20% in 2024. Given that you’re expanding these PCP and value-based care partnerships, where do you think that could go in 2025?

Quentin Blackford: That’s a good question. I absolutely believe primary care is going to continue to be a bigger and bigger mix of our business. And we certainly saw that continue to play out over the course of 24. I don’t know that I’m prepared to give a specific mixed figure at this point. It’s probably something that we will update on in the future. I think it’s interesting with primary care. There’s two pathways that we’re going after that market, and both of them are doing very, very well. You think about our large IDNs that we ventured in the past through cardiology and EPs, and they’re some of our best customers and our biggest proponents of Zio. They’re now asking to bring their primary care physicians within network to the table to learn more about Zio and have them begin to prescribe earlier in the care pathway.

I hit on this prepared remarks. When we see that happen, we can get a diagnosis to a patient within a matter of, call it, three to four weeks, which may have been four to six months historically, if they were waiting to see a specialist. It’s just continuing to sort of change the whole paradigm around care for these patients and getting them the answers that they need more quickly. And now you look at our data sets north of 50% of the IDNs that we have business with, have a prescribing primary care physician within them. That’s exciting to see and that’s grown very nicely because once they move prescribing up to primary care and they get a better targeted patient into the cardiologist or EP where they can focus on the right procedures, they end up getting monitored there again as well.

And so overall volume really performs nicely in those accounts. And then you look at it from the other angle. These large, innovative primary care networks, many of them taking risk and managing populations in a capitated risk model, if you will, they understand the value of proactively monitoring patients, diagnosing earlier in the care pathway and enabling the reduction of cost of care downstream because they avoid these catastrophic events. It’s really incredible. If you look at the data, many of these unaware, undiagnosed patients, you look at their medical history, you look at their medical records. Unfortunately, when they first get diagnosed, ends up being in the ER, right? And it’s always tied back to some cardiovascular event or a syncopal event where there’s a fall and a fracture.

We believe we can impact that by finding these folks earlier. And in some of these early pilots we’ve run, we find these patients to the tune of roughly 80%, meaning we identify what we think the population at risk looks like by looking through medical history records. You put a patch on them proactively, and lo and behold, nearly 80% end up having arrhythmias that can begin to be treated proactively. So very excited about where this is moving. It certainly is moving in primary care to your point or to your question. It will become a bigger and bigger mix component of the business, but we haven’t put that figure out there this year and we’ll find a place in the future to update on it.

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

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

And then when you think about the potential for MCT as a percentage of sales to be bigger in ’25 and ’26, and maybe the innovative channel partners coming on bigger as well, should that be maybe an upside driver to the EBITDA kind of guidance that you have in ’25 as well as when you think about in 2026. Thank you.

Daniel Wilson: Yeah, David. Thanks for the question. This is Dan. I’ll answer that. So you’re right to point to both Zio AT as well as the innovative channel partner in terms of the beat in Q4 that did also yield the beat on the bottom line. So beating top and bottom line. So really enc what we’re seeing there. I wouldn’t put all of that profit beat on those two components. It certainly contributed and we have talked about the leverage that we can see in these innovative channel spaces and kind of that one-to-many selling model. So we do like that from a profitability standpoint. As that grows in our business, that can be a source of leverage on the bottom line. And I think that is true for Zio MCT as well that we have talked about — excuse me, Zio AT being slightly lower gross margin relative to Zio Monitor.

So wouldn’t necessarily say that flows all the way to the bottom line. But we do like what is showing up on the bottom line. Certainly, innovative channel and Zio AT is contributing to that and believe again that’s well set up for 2025 as those grow as a mix of our business, to your point.

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

Unidentified Participant: Yeah. Thank you for taking our questions. This is Joseph (ph) on for David. And just looking at gross margin, I guess excluding any potential impact, from tariffs, are you guys expecting — you said improvement over 2025, but I guess are you guys expecting it more sequential step up? I was just kind of curious on the seasonality there. And then maybe more broadly just the growth impact, gross margin impact on the OUS launches more broadly. And that’ll be it. Thanks.

Quentin Blackford: Yeah. Sure. I could take that question. So as it relates to international contribution that is contemplated in the gross margin guidance, and we talked about the point of growth for international. So that will be — and two of those markets being through distributors as I mentioned earlier. So that will be at a lower gross margin and that is contemplated in guidance. If you were to take all of our comments on gross margin for 2025 and kind of where that leads you, it is flat year-to-year from ’24 to ’25 really with the improvements that we’re driving offset by those potential tariffs that we called out of 50 basis points to 75 basis points. There is a price headwind as well that we mentioned, notably an 8% Medicare price decline for Zio AT, that’s working against us as well.

But really driving nice efficiencies within our clinical operations teams, our manufacturing teams and as we look beyond 2025, still believe in opportunities for gross margin expansion in future years, certainly. As we think about subsequent phases of manufacturing automation, we’ll see another phase go live later in 2025 and in 2026. Getting to that single hardware platform that we mentioned with Zio MCT, that will be a nice source of leverage as well, and then again just continued efficiencies from leveraging our global infrastructure. So flat for the year, really offset — those improvements offset by tariffs. As we look out longer term, we certainly see line of sight to continue gross margin expansion.

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

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

Quentin Blackford: Yeah. Thanks, Suraj. Appreciate that.

Suraj Kalia: Perfect. Hey, Quentin, one question from my side and maybe Dan can chime in also. Exiting Q4, our understanding is your Zio AT share was about 10%, of the MCT market. Maybe you can give us an idea about how you are thinking about FY25 just in terms of shares or what the thought process is. Also, in terms of direct sale versus service based model for Zio AT, how do these respective buckets — how should we think about it for FY25? Thank you for taking my question.

Quentin Blackford: I’m not sure I followed the last question on direct sales versus service-based, Suraj. And maybe I’ll have you clarify that after I answer this. But I think from a market share perspective, we’re somewhere probably around 11%, 12% of the MCT market. I think if you look back over the course of the last 12 to 24 months, we probably gained 1 point to 2 points of market share a year and our guidance would continue to contemplate that that’s kind of the rate that we move at over the course of 2025. Now, if you look at the fourth quarter, I think we gained more share than that. And if this can stick and the performance of the fourth quarter sticks throughout all of 2025, then we probably pick up more than one to two points.

But we’re going to let that play out and just show up in the results of the business before we really get out in front and guide to it. I want to see that stick a little while longer, but I think the encouraging thing is you look at most of these accounts where we’re picking up the Zio AT business based upon some of the disruption. It just validates. We’re already in these accounts anyhow with long term cardiac monitoring. So it’s the same prescribing physicians. Now they’re just moving over to Zio AT. I think there’s a real opportunity. It sticks. But again, we want to let time play out a little bit longer before we start to bake that in. Back to your point on direct sales or service, Dan, maybe you have a…

Daniel Wilson: Perhaps you’re asking about channel or customer mix. So Zio AT does have a higher mix within the Medicare population. That is something we report in terms of the revenue split. Sorry, Suraj, you want to clarify?

Suraj Kalia: Then if I may — then — forgive me, if I may.

Daniel Wilson: Please.

Suraj Kalia: We get a lot of questions from clients saying, hey, competitor XYZ is selling patches for so and so for their MCT business, and they are letting the physicians collect the technical fee, which is not the case with the Zio AT. And as I understand it, you do sell the patches to a certain extent, but then the other part of the business is you’ll collect the technical components, just like you all do Zio XT. So, I was curious if you could just kind of give us an idea about how these two buckets look? How should we think about FY25? Hopefully that makes sense. Thank you.

Daniel Wilson: Understood. Yeah. Thank you, Suraj for clarifying. So Zio MCT as with Zio monitor and Zio XT, we do deliver that end-to-end service. There is sometimes a slightly different pricing model, direct bill versus client bill. And again, that’s broken out from a revenue standpoint in our filings. But in terms of what we deliver to the customer is no different across each of those customer buckets, if you will. It’s always the end to end service. We don’t sell the device separate from the service. That is unlike some of our competitors, as you noted.

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

Felipe Lamar: Hi. This is Felipe Lamar on for Rich. Just on tariffs, you guys are one of the first to really size that gross margin impact. So if you could just flesh out how you’re coming up with the 50 bps to 75 bps, maybe just give some more color, it would be helpful. And then SG&A management in the quarter was significant. I guess, could you just help us think about how — or just help us understand how we should think about like expense management cadence through 2025? Thanks so much for taking the questions.

Daniel Wilson: Yeah. Sure. Appreciate it. I’ll start with your question on tariffs. So the 50 basis points to 75 basis points that is assuming that the proposed tariffs do move forward early in March. We do, as I mentioned in the prepared remarks, have suppliers of certain components really in Mexico and China. And I would point to Mexico as kind of a good — we’re a good portion of that 50 basis points to 75 basis point headwind orient. So I would point you to Mexico there. In terms of expense management in 2025, obviously, you got the EBITDA guide for 2025. We feel really good about the efficiencies that we’re driving in the business. Quentin referenced the actions we took in Q3 of last year. We’ll see a full year of benefit from that in 2025.

At the same time, we want to continue to reinvest in the business to drive both near-term and future growth. And that can be investing in opening up undiagnosed monitoring, certainly driving to get Zio MCT on file and cleared, and international expansion as well. So feel like that’s the right balance in terms of driving additional profitability while reinvesting into key priorities of the business.

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

Paige Chamberlain: Guys, this is Paige on for Mike tonight. Thank you for taking our question. We’re curious for an update on the use of the Philippines team. So do you guys have any key accomplishments in 2024 to highlight? And maybe what’s the roadmap on that team for 2025? And then finally, can you just maybe remind us on how you think about the financial efficiency gains from projects like this? Thank you.

Quentin Blackford: Yeah. I am incredibly pleased with the team in the Philippines. They’ve become a real asset for our company. And just the quality of work, the commitment, the buy into our culture, the values that they uphold, it’s been neat to see. And we’ve got several hundred folks over there now across many functions. It’s not just one or two functions. It’s beyond counting on two hands, the number of functions that are over there. So really pleased with it. I think the team’s done a wonderful job. It is a nice efficiency lever for us from a financial perspective, for sure, but it’s also an enabler for around-the-clock operations of our business, which enhances our interaction with the patients, our customers service levels, you can go down the whole list.

And as we continue to be a global company trying to serve the European markets, trying to serve the Asian markets, having the capability to operate around the clock becomes very, very critical to us. So it’s a — it’s an asset that we’ve built. It’s one that we’re going to continue to lean into as we build our global company. And I couldn’t be more pleased with the team that’s over there. I think they’re phenomenal. So very happy with it. It’s a big part of how we’re driving the cost profile to be more efficient. I think if you look at our whole G&A spend, we’re probably sitting down in the low 40s now and what used to be over 50% of revenue and there continues to be nice line of sight to drive that even further. So very happy with the progress being made there.

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

Quentin Blackford: Well, thank you, operator. And looking back on 2024, we were incredibly pleased with the progress made across the business. And I want to take the opportunity to thank each and every one of our tremendous teammates on their hard work and dedication to improving the lives of as many patients as possible as we continue to build a high growth, but a profitable business that’s transforming healthcare. 2025 is set up to be an exciting year for us. We’re looking forward to it and continue to execute against our strategic pillars. The future is bright. So, thanks for your time and we’ll talk again soon.

Operator: That concludes today’s call. Thank you all for your participation. You may now disconnect your line.