Q1 2024 iRhythm Technologies Inc Earnings Call

Participants

Stephanie Zhadkevich; IR; iRhythm Technologies

Quentin Blackford; Independent Director; iRhythm Technologies Inc

Brice Bobzien; Chief Financial Officer; iRhythm Technologies Inc

Alan Gould; Analyst; JPMorgan

Margaret Kaczor; Analyst; William Blair & Company

Richard Newitter; Analyst; Truist Securities

Marie Thibault; Analyst; BTIG

Calum Pittsburgh

Suraj Kalia; Analyst; Oppenheimer & Co., Inc.

Presentation

Operator

Hello, and welcome to The iRhythm Technologies Inc. Q1 2024 earnings conference call. My name is Terry and I will be the conference operator today. (Operator Instructions)
I would now like to hand over to Stephanie Zhadkevich, Director of Investor Relations. To begin, please go ahead.

Stephanie Zhadkevich

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the first quarter ended March 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, and 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 the 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 US 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 additional information should not be considered in isolation of or as substitute as a substitute for or superior to results prepared in accordance with GAAP.
Please refer to the tables in our earnings release and 10 Q for a reconciliation of these measures to the 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 the live broadcast today, May second, 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, I was President and CEO.

Thank you, Stephanie.

Quentin Blackford

Good afternoon, and thank you all for joining us, Brian, Bob Zane, 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 first quarter of 2024, as well as our annual outlook. I'll then turn the call over to Bryce to provide a detailed review of our first quarter financial results and updated 2024 guidance. During the first quarter of 2024, we achieved revenue of 131.9 million, representing 18.4% growth compared to the first quarter of 2023. Over 0.5 million registrations in Q1 contributed to another quarter of record revenue volume, while our average selling prices remained steady with the prior year. Drivers of growth continued to come from the focus of our land and expand strategy by going deeper and broader within existing accounts as well as a meaningful contribution from new account openings. The first quarter was again a strong quarter of new account onboarding as we matched our highest ever quarter for new account openings. Brazil, long-term continuous monitoring, reflective of our team's ability to capitalize on our pipeline opportunities and providing confidence in our 2024 outlook. Our teams drove solid momentum during the first quarter as we have seen strong market demand for our Zio products and services thus far in Q2 as well. These factors have resulted in our updating of annual revenue guidance, reflecting our ongoing confidence in the underlying fundamentals of the core business and optimism for continued market capture in 2024. Our excitement for the primary care channel continues to grow as our two-pronged approach to opening that opportunity gains traction. As a reminder, we are approaching this opportunity by working from the ground up within large health networks that our current cardiologists and electrophysiologists are part of today, while also targeting the large national innovative primary care providers.
During the quarter, we were pleased to have entered into additional partnerships with several innovative national primary care networks further demonstrating these groups growing appreciation for Zayo's ease of use, high patient compliance and ability to deliver clinical accuracy while reducing the cost of care.
Importantly, we have seen the continued uptick in utilization from these early national primary care doctors over the course of the quarter. We are excited about their potential throughout the year and into 2025. Important to our growth. We have seen continued traction from within large integrated multidisciplinary care networks where Zayo's value proposition as a workflow efficiency tool is clearly resonating as these networks push prescribing further up the care pathway into the primary care channel out of all accounts ordering. The Zio services in 2023, almost half had at least one primary care prescriber in their care network. But perhaps more importantly, volume growth in 2023 from cardiologists was higher in those accounts that were part of multidisciplinary care networks and that had at least one primary care prescriber compared to accounts did not have a primary care prescriber in their network. This diversification into different specialties is not only a driving factor in further penetration within these networks, but it is also validation that primary care is an important partner to alleviate backlogs associated with capacity constrained workflows. This has already played out at several representative IDNs where we have seen primary care participation, and we believe that we are only getting started to expand patient access to Zio and many more of these opportunities to continue driving this workflow efficiency for our customers and enable even more streamlined access to zero for our patients in the future.
We were very excited to have recently announced a collaboration with Epic Aura becoming the first medical device manufacturer to join the Epic community to use oral. This collaboration will expand access to our Zio services across the continuum of patient care within health care systems from cardiology to primary care to hospital to home and beyond and should help system simplify operations while optimizing clinician workflows through this partnership with them and Epic will enable health systems to implement the Zio services more efficiently. And we estimate that institutions can save up to 75% of the time. It typically takes to integrate Zio services into local instances of Epic. The initial inbound interest from accounts wanting to leverage that high rhythm Epic partnership has been terrific. And we have already started to partner with early adopters to integrate Zio services into the Orange network across their health systems. As we advanced this effort, we expect to begin offering this solution to both existing and new Zio customers starting in early 2025. Further contributing to our record success has been traction in large innovative care networks where Zio has become the ambulatory cardiac monitoring of choice for monitoring programs within a symptomatic patient populations within stops, economic analysis published showing the benefits of identifying patients who are at risk for undiagnosed arrhythmias before their symptoms become severe. Proactive screening programs using Zio services are gaining traction within innovative primary care groups, home health groups and accountable care organizations. These accounts are highly focused on preventative care and value added patient wellness programs for their members, and they have been very receptive to our strong clinical evidence, demonstrating that monitoring for up to 14 days with Zio long-term continuous monitoring service maximizes diagnostic yield compared to monitoring with Holter for 24 to 48 hours. This means that Zio monitor services have 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 in the future, cost of care associated with those clinical events and possibly addressing the growing capacity challenges within the health networks we serve as a fantastic example of this recall that we began to pilot our new rhythm program with our partner, physicians care centers or PCC for clinicians to proactively screen patients to identify those that meet the and stops inclusion criteria and are believed to be at the risk of undiagnosed arrhythmias to determine if they would benefit from Zio monitor services. This program was primarily designed to identify patients that may be at risk for experiencing a symptomatic A-fib by implementing proactive screening guidelines. According to the M stops inclusion criteria of the initial asymptomatic patients that were ordered the Zio monitor services. In this pilot, 80% of these patients had at least one arrhythmia identified since there is a three times greater risk of developing heart failure and a five times greater risk of stroke in A-fib as a co-morbidity, we believe that really identification of a-fib is crucial to develop clinical intervention strategies and reduce downstream adverse events. We are excited that this initial pilot is now transitioning into commercial launch, and we look forward to providing additional updates around this movement into the asymptomatic population as we move throughout the year.
In our international business, we continue to move forward with our expansion efforts into multiple European countries as well as Japan. During the first quarter, our teams drove strong registration growth in the UK with volumes above forecast through expansion within the private sector hospitals. These sites have recognized the value of Zio services as having a positive impact on patient waiting times, hospital resource utilization, clinical diagnostic yield and pathway cost savings. In parallel, we continue to advance efforts to argue for an enhanced long-term reimbursement rate in the UK.
Additionally, now that we have received CE Marking under EU MDR for Zio monitor and our Zeus system. We kicked off a market evaluation in two Spanish hospitals in March and continue to anticipate the commercial launch of the Zio monitor services in the Netherlands, Spain, Switzerland and Austria in the back half of 2024 in Europe as well as Japan. We believe there remains significant unmet clinical need for improved arrhythmia detection as the prevalence of arrhythmias and stroke continues to rise with the predominant monitoring technology still being Holter monitors in our Zio AT business. Recall that we submitted to five 10 K filed in January one is a catch-up for changes previously made to the ZOIT. system as a letter to file and a second five 10 K for design features and labeling updates to further address areas of focus noted in the FDA warning letter since these submissions early in the quarter in support of Zio AT. We have been in dialogue with the FDA and continue to believe that we could receive a clearance decision from the FDA on our submissions in the second half of 2024. In parallel, our teams continue to work diligently to prepare for the subsequent filing for our next-generation MCT. product, ZOMCT. and we believe that five 10 K submission for that product will be submitted late in the second half of 2024 as these near and mid-term opportunities are being further fostered within traditional cardiac monitoring. We have also begun to explore possibilities beyond pure arrhythmia monitoring and into natural adjacent markets. As mentioned this past February, we have launched a sleep pilot program with approximately five to 10 existing high rhythm customers intended to validate the value of streamlining the current journey of getting to a sleep diagnosis for both physicians and patients. We intend to utilize our call point and establish customer relationships with a combination of cardiologists and primary care physicians to validate the potential commercial opportunity and physician desire to streamline the prescription of home sleep test and diagnose sleep disorders with a focus on obstructive sleep apnea. The goal of this pilot to determine if cardiologists and PCPs will prescribe a home sleep test, collect metrics such as to which patients these physicians may prescribe a home sleep test and determine how either of them can best be positioned to contribute to improved care for patients with obstructive sleep apnea, including through the delivery of this service through an integrated digital platform that will provide us differentiated ability to address what we believe have been long-term challenges in this space. We have been encouraged by the interest thus far in this initiative, especially with the rapid onboarding of customer accounts for this pilot, just beginning to launch the early forays into adjacent markets are being further supported by scientific evidence. Our teams and academic partners are generating in support of EKG. as a critical vital sign for predictive clinical insights as a recent example from ACC last month study findings from our collaboration with Duke health concluded that incorporating EKG. data from long-term continuous monitoring with components of the chat VAS score has greater discrimination than the existing clinical scoring system alone for the risk of heart failure hospitalization and new onset heart failure. Furthermore, authors concluded that the risk scores developed via this new model were able to more accurately predict Medicare cost in both treated and untreated patients. These conclusions are the starting point to develop risk models that include long-term EKG data such as that provided by ZEAL products and services to inform diagnosis and management of high-risk patients while also being used by health systems and payers to develop interventions to reduce healthcare utilization and cost has multiple vital signs and digital data assets are increasingly combined to generate these type of clinical insights. We are uniquely positioned for success far into the future with that, I'll now turn the call over to Bryce to discuss our recent financial performance.

Brice Bobzien

Thanks, Quinn. 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.
First Quarter 2024 results demonstrated positive momentum in our core markets as we achieved revenue of $131.9 million, representing 18.4% year-over-year growth. As Clint mentioned, this was driven by strong revenue volume growth as well as a slight improvement to our average selling price of approximately 100 basis points year over year. New store growth with new store defined as accounts that have been open for less than 12 months accounted for approximately 46% of our year-over-year volume growth. Consistent with recent trends, home enrollment for Zillow services was approximately 21% of volume in the first quarter. Gross margin for the first quarter was 66.3%, in line with expectations and with the guidance provided in February, as previously discussed, we have continued to see positive marketplace reaction to Zio monitor, and we are focused on managing the incremental costs associated with ramping capacity. We remain on track to realize the benefits of automation and scale for Zio monitor production in the second half of 2024.
Additionally, since completing the last phase of our San Francisco IDTF investment in the fourth quarter we are ramping utilization from our newly hired clinical cardiac technicians as planned, and we expect to see continued improvements in efficiency as they come up to speed. First quarter adjusted operating expenses were $125.7 million, up 10% sequentially and up 15% year over year, in line with our expectations compared to the first quarter of 2023. This increase in adjusted operating expenses was primarily due to incremental resources to support volume growth in our operations. Sequentially, expenses were elevated due to seasonal items such as our global sales and leadership meetings as well as annual compensation related items. We continue to incur incremental legal and consulting fees as well as other company expenses related to the FDA warning letter and DOJ subpoena, and these are in line with the guidance previously provided revenue growth outpaced increases in operating expenses, showing our ability to drive sustainable operating leverage throughout the P&L. Adjusted net loss in the first quarter was approximately $38.1 million or a loss of $1.23 per share compared to an adjusted net loss of 33.4 million or an adjusted net loss of $1.10 per share in the first quarter of 2023. Adjusted EBITDA in the first quarter 2024 was minus EUR12.1 million, reflecting minus 9.2% of revenue compared to minus 10.8% in the fourth quarter of 2023. We continue to make progress in our adjusted EBITDA margin profile, driving 160 basis point improvement in adjusted EBITDA as a percentage of revenue year over year in the face of the temporal pressure on gross margin associated with the Zio monitor launch and the San Francisco IDTF investments.
Turning to guidance, we are updating our 2024 outlook as presented earlier this year and now anticipate full year revenue of approximately 578 to 588 million. We believe that the year will be driven by sustained volume growth in our core U.S. market as we continue to drive penetration in both existing and new customer accounts with strong momentum exiting the first quarter we believe that our second quarter 2024 revenue will be in line with historical seasonality of approximately 25% of full year revenues.
Turning to gross margin, we are reiterating our full year 2024 gross margin guidance in a range of 68% to 69%, an improvement of approximately 120 basis points at midpoint compared to the full year of 2023. Our outlook on phasing throughout the year remains unchanged, with material improvement manifesting in the back half of the year. We expect efficiencies to be driven by the majority of our business being transitioned to the new Zio monitor platform, the ramp of automation lines to produce Zio monitor and our clinical operations team in San Francisco operating at full capacity for 2024. We are also reiterating our adjusted EBITDA margin guidance to range between 3% to 4% of revenues, which would represent a 400 to 500 basis point improvement compared to 2023, in line with our stated path to adjusted EBITDA margin targets in 2027 and driven by our focus on sustainable operating leverage improvements throughout the P&L. Adjusted EBITDA excludes impairment and restructuring cost, business transformation cost, stock-based compensation expenses and the loss incurred in the first quarter associated with the early extinguishment of our debt with Silicon Valley Bank and Brad Well, looking at the cadence of margin expansion throughout 2024, we expect to see second quarter adjusted EBITDA margin to be around breakeven with Progressive margin expansion in the back half of the year, along with anticipated progress in gross margin efficiency, operating expenses are historically more elevated in the first half of the year relative to revenue. As mentioned last quarter, we continue to believe that there will be approximately eight to $10 million of cost predominantly incurred in the first half of 2024 associated with the FDA warning letter and responses to the DOJ subpoena. As we navigate these two issues, the majority of these costs will come out of the P&L in the future.
Finally, we ended the first quarter in a strong financial position with approximately $569.1 million in unrestricted cash and short-term investments, inclusive of financing activities and uses of cash for operations and capital investments. As disclosed in March, we further bolstered our balance sheet with cost-efficient capital through the closing of $661.25 million of convertible senior notes at a 1.5% coupon interest rate. As we have demonstrated, we will continuously evaluate our capital structure to ensure financial flexibility and alignment with shareholder interests.
With that, I'd like to turn it back to Clayton before we open it up to questions.

Quentin Blackford

Thanks, Brice. We are incredibly pleased with the start of the year and couldn't be more excited about the future in front of us. I view them as building a digital health care portfolio of the future. We are uniquely positioned for success as we continue to build our technology platform and leverage our commercial reach, established market position, patient centric technology focus, extensive EKG data repository and robust evidence generation strategy, which puts us in a position to be a market leader in defining our patient monitoring of luck in the future as we address the quintuple aim of health care in the years to come.
With that price, Dan and I would like to now open the call for questions.

Operator?

Question and Answer Session

Operator

(Operator Instructions) Alan Gould, JPMorgan.
Now item.

Alan Gould

Thanks and congratulations on the good quarter. I just had one quick one to start. You know, in the first quarter you called out how you add a little bit of a challenge in January with some weather-related impacts, strong February and it looks like that momentum kind of continued into March. So just kind of curious to hear if you're still seeing that strong momentum from, say, Euromonitor and etc into the second quarter.

Quentin Blackford

And yes, it's Quinn here. We have continued to see that momentum continue into the second quarter to date. And to your point, really saw that momentum begin to pickup in the back part of Q1. And I would say it's been unchanged relatively speaking here in the first part of the second quarter through the month of April. So it has continued and we've seen it continue on both the monitor product line as well as the ATE product line.

Operator

Margaret Kaczor, William Blair.

Margaret Kaczor

Hey, good afternoon, guys. Thanks for taking the question. I guess I'd like to spend a little time around from the data and time savings that you guys referenced around Epic or somebody 5% sounds pretty meaningful. So I'm just curious how meaningful is that to the user, if you can conceptualize it. And kind of a follow-up to that is I imagine those time savings were passed step one, but ultimately that should lead to share-taking or market expansion. So I guess when should we start to get a better sense around those sorts of metrics? And I guess would you agree with that? Thank you.

Hey, Margaret said we certainly would agree with you on it. It's one of the reasons we get super excited about the whole relationship with Epic, and they've been just outstanding partners out of the gate here. So our excitement, enthusiasm, frankly, just continues to grow as we get closer to them in terms of the work savings and the time savings of these integrations that we currently go through today. And as you know, integration is a big part of our focus. Our goal is to get more than 50% of our accounts fully integrated with the EHR systems. That is a matter of many months of work that it takes both from our team, but also the teams on the account side. And that's a big lift, both time resources as well as financial resources with aura. We expect that construct to be counted in a matter of weeks. And for those accounts that are not or accounts now for folks that ultimately are Epic accounts and adopt or even if they're not a customer of ours today, we're going to end up right in their order set as a solution or as an offering without any incremental integration work really required. And that really excites us because when you think about that, not only are we calling on the accounts and coming in through the front doors, I like to think about it as we build those relationships. But for these accounts that we haven't yet gotten to and they're already Epic or users, they're also going to have access to our product as well. And so I think it only increases our odds of success and chances to win, which is why I do think it will be a needle mover for us and ultimately allow us to capture even more share as we go into the future.
Now over the course of 24, our work will continue with Epic as we design out sort of what that interface looks like and what that order set looks like within their system and in their platform, we'll pilot that with the selected accounts that I've already mentioned in my prepared remarks here in the back part of the year. And then we'll really turn that on in early 2025 to begin to really expand the offering out across the broader the broader universe but I don't expect a significant contribution in 24. I think 25 could be a really exciting year when it comes to Epic and the OR integration that we're working on, Keith.

Operator

Richard Newitter, Truist.

Richard Newitter

It's actually taking the questions.

Alan Gould

Maybe just the first one on the training and the onboarding that's going on in the San Francisco IDTF.

I guess I'm just curious, where are you in terms of the throughput shift to that item?

Alan Gould

IDTGIDTI. Tuzman. And how much does because what you're seeing in terms of their productivity improvements as we're moving through the quarter, how much of that increase where do you think you'll be exiting the year in terms of what we can put through that region? And then if you could also just talk to any implications for gross margin from that the transition?

Thank you.

Alan Gould

Yes, Rich, thanks for the question. I'll take that one is that when this is Bryce on, so I would say we're progressing nicely. Honestly, we talked about last quarter as we have that large investment in the fourth quarter, it takes about six to nine months for these individuals to get fully up to speed and start to optimize efficiently. And so I think we were caught sort of midway through. However, we're going to start to see some progress in Q2, and that's definitely more so in Q3, Q4 so it's progressing nicely.
As far as the volumes going through the IDTF., we talked about being slightly north of 60% and exiting 2023, we're continuing to make progress on that. And we feel good about the transition there. And frankly, having those resources allows us to do that. And it's the center of excellence for us.
Now and we want to make sure we're servicing that patient population as effectively and efficiently as we possibly can.
As you move into the back half of the year, the way I really think about the gross margin step up from the 66% we're seeing now up to that 70% or so range in the back half. Think about that clinical technician efficiency in San Francisco contributing about 200 basis points. I think about the automation component of the Zio monitor platform contributing about 100 basis points. And then I think about the scale as we continue to push Zio monitor further into our in-clinic business and then ultimately followed by home enrollment contributing about 100 basis points. We feel like all three are making progress in line with our expectations and feel good about the guidance we put out there in case.

Operator

Marie Thibault, PTBTIJ.

Marie Thibault

Good afternoon and thanks for taking the questions and congrats on a very nice Q1. I wanted to ask a little bit more on guidance. I mean you had a very nice quarter and I know that was against in the face of dealing with some weather disruption early in the quarter. So can you help us think about how you set that guide? Was there a little prudence staked? And how should we consider this new item?
Our revenue range?

Alan Gould

Yes, Henry, this is Price again, thanks for the question. I think you know what it was important for us to do was to pass through the beat from the Q from the first quarter. We did talk about a little bit of disruption early on. However, we saw incredible recovery in the back half and continued momentum into Q2. And so the way we feel about guidance moving forward. We certainly have tailwinds at our back. We've talked a lot about them and pretty quick prepared remarks as well as just the opportunity we have in front of us and we feel good about it. But I'll tell you when you look at the guidance set up and you're going to see growth rates that are relatively consistent at midpoint and under the top end of the range. It does have growth accelerating. We absolutely believe that's achievable, achievable, and we feel great about it. However, it does take some execution, right? We're in the midst of a launch of the monitor product, right? We're navigating the conversations with the FDA on it requires commercial launch internationally. There are some things we have to execute on and we truly believe we're going to be able to execute on all those. However, until we see that execution play through, we're going to be thoughtful in the guidance for the last three quarters of the year.

Operator

[Joanne Lucent], Citibank.
Good afternoon and thank you for taking the questions. Just a few catch up here on where are you on the FDA warning letter resolution, anything on the Department of Justice? And what is the current thinking of timing for the monitor for 18 Thank you.

Hey, Joe, and thanks for the question, Sam. Look, from the FDA perspective, I would tell you we continue to be really encouraged with the work that's going on with the FDA. I think the collaboration is as high as it's ever been. And I applaud our own teams, but also applaud the FDA just with the approach here that the two sides have taken. And again, I couldn't feel better about it. I'd feel like we're making great progress with it. We originally had anticipated that we would see an approval sometime around the mid part of the year. It's probably a couple, maybe a few months later behind that as we work through this and just go back and forth and and my confidence level has never been higher that we're going to ultimately see an approval here. It's just a matter of the back-and-forth with the agency and making sure we're answering all those questions. In a way that that addresses the questions they have. So feel good about the momentum there and the progress has been made there. Again, I think getting the new MCT. category, co-created being the first product put into that category code just continues to validate the progress has been made and appreciate the relationship again with the agency. And with respect to MCT. I continue to believe we'll get on file in the back half of this year with the agency. It's it's probably a little bit skewed towards the latter part of the back half of the year, but still expect to have MCT. filed in the second half of 2024, which means we're bringing that product into the market in 2025. So excited with MCT., I'll remind you when you think about growth levers in the future, we only have about 7% of that MCT marketplace, despite the fact that we have about 70% of the long-term cardiac monitoring place in every 10 points of growth that we can capture in that MCT. spaces pushing up on nearly 100 million of incremental revenue to us. So MCT. is an important one, and we're very excited about the enhanced features that are going to come in that MCT product once we get it through.
And then on the DOJ, not anything to update on at this point in time, we continue to answer questions when they come and provide information when the questions come. But there really hasn't been a lot of dialogue back and forth here, and there's not much to update on at this point in time. Certainly if that changes and there is something to update on, we'll be certain to do it, but there's just not a lot to update here.

Operator

Callum Pittsburgh, Morgan Stanley.

Calum Pittsburgh

Yes, guys, thanks for taking the question and just stick to MCT here. If that's okay. You alluded to about 7% share in this market 80 today. So realistically, I think, obviously the first couple of years of launch of MCT, where do you think your share could move to in this market because it seems as though there are a couple of pretty small lightweight high-tech MCT. devices coming through the market today from competitors. So I'm just curious what it is about your product that's encouraging you about a potential uptake here.

Thanks.
Lot.

Yes, look, how far we can can get Callum, I think we're going to wait and see out with the success that we have in the market. I think what's really fascinating and one of the reasons that we believe we have a high degree of opportunity to win. Here is the exact same customer call point that is prescribing long-term cardiac monitoring today in the way of Zio. He's also writing scripts for competitive MCT. products because our product just isn't quite what they're looking for. And I think we know very well why that is what is the duration of where while the data is incredibly compelling with respect to why 14 days of monitoring is sufficient. And I can tell you that data only continues to build the customers want to see out to 30 days of monitoring are up to 30 days. And so we need to continue to work towards closing that gap and frankly, just continue to compel them with data as well but we need to meet the customer where the customer wants to be met. And then that's one of the things that we're doing in this enhanced NCT. product, the other thing that a lot of our competitors will offer is a downgrade of capability when insurance is not able to be found for the actual MCT. device, can they step down into something like an event monitor. Those are capabilities that we're building into our product set as well and begin to eliminate the argument from a physician's perspective on why ZLMCT. is not the right product for them. So whether we can get all the way to 70% of the MCT. market like we have in long-term cardiac monitoring market. Certainly we're not setting our expectations that way, but there is a lot of room to run in there to capture market share and have success. So could you get half of that?
It's hard to say, but if we're just picking up 10 points, that's an incremental 100 million of revenue to our company. And I like our opportunities to get in there and compete for that and ultimately have success with it in case.

Operator

The next question on the line comes from a nascent trade back of Wells Fargo soon is now open.

Alan Gould

Hi.

Quentin Blackford

Congrats on a great quarter. I don't think I heard you specifically call out your partnership with Signify Health in your opening remarks.

Alan Gould

Can you provide an update on where you stand currently?

And are you still in pilot? And when do you expect a full rollout and also Signify just announced the CEO transition, does this impact your outlook from this partnership?
Yes, it is. And I don't think it changes anything in terms of how we look at the partnership here. I made a comment in the prepared remarks that Q1 was very encouraging. We actually he's signed up several new innovative primary care partners in this space, and we're excited about the collaboration with Signify. It is still in pilot phase, and we're still working through that, but it fully expect to turn that into a broader commercial launch in the back half of this year. So a little bit early to speak to the results at this point in time, I can tell you if we see results like we saw with some of the other innovative primary care players, I point back to TCC., we saw nearly 80% of the patients that were applied patches to that were a symptomatic ultimately were found to have an arrhythmia that is very informative and I think allows these these innovative channels to really address care the way that they need to. So we're excited by the prospects of the Signify relationship. We're excited by the prospects of some of the other innovative primary care players that are coming into this, I think validates our thesis that primary care is absolutely the place that this device is ultimately going to get applied into the future, just with its ease-of-use, its high diagnostic yield, it's incredible accuracy, the ability to create tremendous workflow efficiencies. And ultimately, all of that comes back into play with respect to delivering incremental value in this whole focus on value-based care, I just really like the way that Zio is positioned to address this into the future. So we couldn't be more excited, but we're going to let that play out in the back half of the year. And hopefully, we're talking a whole lot more about it.

Operator

David Prescott of bed.

Alan Gould

Oh, great, thanks and congrats on the strong start to the year here. Bryce, I just wanted to clarify one comment you made on it than I had a question for Chris, not signify up. Did you say that the percentage of volumes that came through San Francisco exiting 2023 were above 50% above 60%. And then I'm Signify for quick, and I appreciate the comments you just provided there, but I'm wondering if you could frame up maybe the size of the opportunity there. I think the last that that company called out was about 3 million annual at in-home evaluations. Wondering if you have a sense for how many of those are and the eligible after diagnostic preventive services and maybe therefore at risk for AF and then longer term and in the back half of the year and into 2025 beyond this initial rollout. I'm just trying to get a sense for how this rolls up into patients. Is it more getting rolled out across these eligible patients or is it more offer to the patients and therefore, it's up to the patient to decide whether or not they want to participate in some type of program like?

Thank you.
Hey, Dave, maybe I'll kick it off.

Alan Gould

Yes, just clarification and just north of 60% exiting 2023 with continued progress in Q1 and expected progress throughout the rest of the year?

Yes, I think, David, it's early right now. I can tell you we've had a lot of discussions with Signify around what the potential opportunity can look like. I think we're still nailing that down. Probably the best way to describe it is if you go back, you look at the end stops criteria, you look at some of the data that's out there around identifying arrhythmias in these co-morbid conditions where other disease states are present, maybe as diabetes, maybe it's COPD, maybe it's obesity, it's at least 25% or so of the population. And so if those if those rates applied to signify, I think you can see that it's a pretty significant opportunity.
And the question is, you know, is there is there more there? We know that that population tends to be one that needs care in the home can't get out to see a physician. So does that mean that it's a little bit of a different population where those rates are even higher, we'll see as we go.

Operator

Thank you.
The next question comes from the line of Bill Plovanic from Canaccord.
Please go ahead. Your line is open.

Alan Gould

Great. Thanks. Good evening, and thanks for taking my question. I'm just wanted to take a step back just on the launch of Zio monitor one, you're seeing good uptake in new accounts. Are all new accounts getting Zio monitor and you're still transitioning just the existing accounts or where are you with that? And then in terms of <unk> the compliance rate, I think one of the things you saw early on was a higher compliance rate and returning the device. I'm wondering if that is still carrying through?

Thanks.

Alan Gould

Yes, hey, Bill, it's Bryce on. So yes, on the rollout, that is absolutely the case. All new accounts coming on are starting with Zio monitor, and we're approaching call it that 80% or so some level of existing accounts also being converted. So the progress on Zio monitor has gone incredibly well, but you have it right. We're thinking all new accounts are on it and then existing accounts will slowly come up to speed here.
As far as the compliance rate, you're absolutely right. There is a benefit to Zio monitor much of which is related to the form factor, but frankly also on just the high diagnostic yield of the device and those coming back with data. And so we are seeing an improvement there. I will tell you there's a few dynamics at play here. Home enrollment ticking up a little bit. Compliance tends to be a little bit lower there. And as PCP. and some other of these sort of alternative channels come into place. There's a little bit different return dynamic for those. However, once ever, everyone's on monitor, we feel really good about that return device rate improving nicely over the over the time horizon.

Operator

Suraj Kalia, Oppenheimer.

Suraj Kalia

Quentin, can you hear me alright?

Quentin Blackford

Yes, we got you.

Operator

Perfect here.

Suraj Kalia

So I guess I'll just quickly throw one for you, Quinton one full-price sequentially in terms of sleep, I guess I'm curious why sleep just given always is so predictable and the relative complexity of algorithms is, if I can loosely use it de minimus compared to AF, which is complex right.
So I'm trying to understand what value proposition you see out there.
And Bryce, quickly, if I could. The SOIDTS. and has the decision been made I mean, if you guys are at 60% and going higher and there is obviously a trade-off between OpEx and top line, right? So I'm curious what the read throughs per report currently are in terms of technicians.
Thank you for taking my questions.

Quentin Blackford

Thanks, Suraj. So I'll hit that first one on sleep. Look, I think at the prevalence of OSA is incredibly high. And the reality is these patients need a diagnosis. And the further reality is there's so many of them start with the cardiologists, the EP. or even the primary care physician. Ultimately, they get referred on to a sleep specialist or they get a diagnosis and performed right there by that cardiologist EP, your primary care physician, we have access to these very same customers. And as we sit down in our advisory groups with these customers and we ask for ways to streamline their practice or ways that we could add incremental value consistently at the very top of the list, if not the absolute top of the list is help us figure out how to deal with this cumbersome challenging process that we have with our sleep patients. So many times, we'll refer him on to a sleep specialist. They can't be seen for five, six, seven months. They get lost in the fray. They never get a diagnosis and they're back in my office trying to figure out what is going on with our call point with our digital platform, Zio suite being integrated right into their accounts and our IDTF. capabilities. We think it's a natural synergy in a very easy opportunity to enable these physicians to be able to prescribe a home sleep test. We send that device to the home, just like we do in our home enrollment program and we leverage IDTF capabilities to perform the analysis and ultimately put a diagnosis back into the hands of the physician, you think about it serving north of 2 million patients a year now 60% to 70% of all patients who have a fib will have OSA. as well. There's a natural synergy here between what we do, what our customers are, what our call point is looking for and what we're able to offer. So we're incredibly excited by it. I think it could be a tremendous opportunity for us. Our product into the future, we believe will have the opportunity to diagnose sleep disease right off of the patch as we continue to enhance its feature set. And so again, it's just it's natural to step into this and take advantage of and what we've built to date and the service offering that we've become known for, which is easy to use and highly predictable, highly accurate price.
Yes.

Alan Gould

Hey, Suraj.

Yes.

Alan Gould

So a question on the CCT.s in that the San Francisco Center of Excellence. So remember, the CCT. costs themselves run through gross margin, not through OpEx on the administrative component. There's a piece of it that resides down and OpEx, but the vast majority of that rolls through gross margin. And so I would say the read throughs as they stand now, there's a little bit of inefficiency, which is causing the pressure on gross margin as it stands now. And that's that natural progression we expect in the back back half of the year, again, to the tune of about 200 basis points. There's no reason to believe the efficiency level will be any different in center of excellence than what we would see in either one or the other to EPS overtime. And so frankly, we we hired a tremendously talented group where you could see potential efficiency gains there over time. So again, we feel great about the gross margin and play through over time. It's just going to take a little bit of time for them to get up to the efficiency levels that we see with the other IDTF Thank you.

Operator

We have no further questions on the line, so I'll hand back to the management team for any closing remarks.

Well, thank you for joining us today. We're extremely pleased about the start to 2024 and couldn't be more excited about the growing momentum in our business as we begin to explore opening new adjacencies like sleep and continue to expand into the primary care channel in the back half of the year set up to demonstrate significant financial leverage as we continue to progress in our efforts to become more operationally excellent as we grow. In addition, we have many catalysts to growth that remain in front of us, which are yet to contribute to our success, including a new innovative ZOMCT. solution entry into the second largest ACM market in the world in Japan, expand further into primary care and step into adjacent sleep markets higher than future has truly never been brighter than it is today, and I'm grateful to each of our employees around the world as they're doing a great job in progressing our efforts forward. We'll see over the course of the next couple of months.

Brice Bobzien

Goodbye.

Operator

This concludes today's conference call. Thank you all for joining, and you may now disconnect your lines.