Q4 2024 Earnings Summary
- Strong Momentum and Growth Acceleration: iRhythm experienced increasing growth every quarter in 2024, culminating in a strong finish to the year. This momentum is continuing into 2025, with management expressing optimism about sustained performance.
- Expansion into Primary Care and Undiagnosed Monitoring Markets: The company is significantly expanding its market opportunity from 6.5 million tests to potentially 25-27 million patients by targeting primary care physicians and undiagnosed monitoring. This represents a substantial opportunity for future growth.
- Positive Impact from Innovative Channel Partners and Epic Integration: New innovative channel partners contributed to growth in Q4 2024, and there is potential for continued contribution in 2025. Additionally, the partnership with Epic is improving workflow for customers, leading to positive feedback and potential volume growth. Early signs from integrated accounts are very positive.
- The company anticipates potential tariffs that could negatively impact gross margins by 50 to 75 basis points in 2025, assuming the proposed tariffs move forward in early March. Additionally, they expect a low single-digit pricing pressure in 2025, including an 8% Medicare price decline for Zio AT, which could offset operational efficiencies and result in flat gross margins year-over-year.
- The strong growth experienced in Q4 2024 was partially due to a temporary benefit from a new innovative channel partner and competitive disruption in the market, contributions which have not continued into the first 1.5 months of 2025. The company expresses uncertainty about the continuation of these drivers, which raises concerns about sustaining the growth momentum into 2025.
- The growth in Zio AT, which has a slightly lower gross margin compared to Zio monitor, may impact overall profitability. Furthermore, international expansion is expected to contribute only about 1 point of growth in 2025, and sales through distributors in some markets will be at lower gross margins. This shift towards lower-margin products and geographies could limit margin expansion and profitability improvements.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +24% (from $132.6M to $164.36M) | Total revenue grew by 24% in Q4 2024, driven by stronger performance across all business segments—especially Healthcare Institutions and Non-Contracted Third-Party Payors—which built on the previous period’s improvements in market penetration and service volume. |
Healthcare Institutions Revenue | +58% (from $18.93M to $29.84M) | Healthcare Institutions revenue surged by 58% YoY, likely reflecting accelerated adoption of services by healthcare providers and successful account expansions that built upon previous gains from Q4 2023, indicating robust market demand. |
Non-Contracted Third-Party Payors Revenue | +44% (from $8.90M to $12.79M) | Non-Contracted Third-Party Payors revenue increased by 44% YoY, which may be attributed to improved service volume and potentially stronger collection efficiency or successful resolution of payment defaults compared to Q4 2023. |
Contracted Third-Party Payors Revenue | +18% (from $70.66M to $83.24M) | Contracted Third-Party Payors revenue grew by 18% YoY, reflecting steady volume increases and continued strength in established partnerships that provided a stable revenue base from Q4 2023. |
Centers for Medicare and Medicaid Revenue | +13% (from $33.99M to $38.29M) | CMS revenue increased by 13% YoY, driven by higher volumes of Zio services despite stable pricing, building on past performance where volume was previously the chief revenue driver. |
Operating Income | Improved from a loss of $39.18M to a loss of $4.08M | Operating income improved dramatically, with losses narrowing from $39.18M to $4.08M, as revenue gains and operating efficiencies significantly offset expenses compared to Q4 2023. |
Net Income | Improved from a loss of $38.70M to a loss of $1.33M | Net income showed a strong turnaround with losses contracting from $38.70M to $1.33M, indicating that the combination of revenue growth and effective cost control markedly reduced overall net losses compared to the previous quarter. |
EPS | Improved from –$1.26 to –$0.04 | EPS improved sharply as the reduced net loss resulted in a per-share loss moving from –$1.26 to –$0.04, reflecting the enhanced financial performance and near break-even operations relative to Q4 2023. |
SG&A Expenses | Declined slightly from $100.11M to $99.77M | SG&A expenses decreased marginally, which may indicate efficient cost management efforts that built upon prior period expense levels, even as revenue increased in Q4 2024. |
R&D Expenses | Increased by ~24% (from $15.42M to $19.08M) | R&D expenses rose by about 24% YoY, reflecting increased investments in product development and innovation that aim to strengthen future offerings, continuing an upward trend compared to the previous period. |
Interest Expense | Increased from ~$941K to ~$3,320K (over 250% increase) | Interest expense surged by more than 250% due to the significant borrowings under the 2029 Notes and utilization of a $75M term loan facility, markedly increasing financing costs compared to Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Full Year Revenue | FY 2025 | $582.5 million to $587.5 million | $675 million to $685 million | raised |
Gross Margin | FY 2025 | 68.5% to 69% | Modest improvements driven by clinical and manufacturing factors, offset by tariffs (50–75 bps) and an 8% Medicare price decline | raised |
Adjusted EBITDA Margin | FY 2025 | Approximately negative 2% to negative 1.5% | 7% to 8% | raised |
Adjusted EBITDA Margin | Q1 2025 | no prior guidance | Negative low to mid-single digits | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | Slightly free cash flow–negative | no prior guidance |
International Revenue Contribution | FY 2025 | no prior guidance | Approximately 1 point of growth, including $2 million from the Japanese market | no prior guidance |
Operating Expenses | FY 2025 | no prior guidance | Expected to follow normal seasonality with higher expenses in the first half | no prior guidance |
FDA Remediation Expenses | FY 2025 | no prior guidance | Approximately $15 million | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Growth Momentum | Every quarter from Q1 through Q3 highlighted solid and accelerating year‐over‐year revenue growth (e.g., 18.4% in Q1; 19.3% in Q2; progressive acceleration noted in Q3) | Q4 emphasized record performance with 24% YoY growth driven by record volume demand and new account openings | Consistent positive momentum with an improvement in scale and record-setting performance in Q4. |
Unit Volume Expansion | Across Q1–Q3, growth was supported by significant new store growth and consistent contributions from home enrollment (ranging from 40%–46% of volume growth) | Q4 continued to highlight robust unit volume expansion with new store growth and home enrollment making up a significant portion of the increase | Stable and consistent expansion; the drivers remain key components and continue to deliver strong incremental volume. |
Primary Care Expansion | Q1 disclosed a two-pronged strategy including partnerships with large primary care networks; Q2 and Q3 reaffirmed expansion into primary care markets | Q4 reported deeper penetration with over 50% of large IDNs now having at least one primary care prescriber, shortening clinical decision times significantly | Enhanced execution – primary care expansion has become more efficient and is yielding faster clinical decision-making. |
Undiagnosed Monitoring | Q1 and Q2 introduced the focus on undiagnosed arrhythmia monitoring and early pilots were noted; Q3 had little focus on this topic | Q4 doubled down on targeting undiagnosed patients with clear market size estimates and pilot successes supporting proactive monitoring strategies | Growing emphasis with an expanded scope – a renewed and more robust focus in Q4 compared to earlier periods. |
Strategic Partnerships and Channel Integrations | Q1 featured the Epic Aura partnership; Q2 mentioned Epic integrations; Q3 broadened the discussion to include both Epic and BioIntelliSense initiatives | Q4 concentrated on the Epic integration with workflow benefits and efficiency gains, with no mention of BioIntelliSense | Stable Epic collaboration while the BioIntelliSense aspect is no longer mentioned, indicating a narrowed strategic emphasis in the current period. |
International Expansion Opportunities | Q1 and Q3 discussed European and Japanese market opportunities; Q2 did not elaborate on international expansion | Q4 reported launches in four Western European countries and plans for Japan amid mixed sentiment about early-stage progress and margin pressures from distributor channels | Continued focus but with emerging caution – expansion remains strategic, though there is recognition of early-stage challenges. |
Product Pipeline Challenges and Zio MCT Launch Delays | Q1 noted preparations for a late 2024 submission; Q2 mentioned planned submissions and some delays; Q3 disclosed a voluntary delay of the submission to Q3 2025 due to FDA observation requirements | Q4 clarified that despite the challenges, the timeline remains on track with the submission planned for Q3 2025, with no further delay announced | Challenges persist but with a steady commitment to the timeline – improved clarity and controlled delay management over time. |
Regulatory and Legal Challenges | Q1 showed constructive dialogue with the FDA and mentioned minor adjustments; Q2 highlighted detailed remediation responses and the DOJ inquiry; Q3 described significant quality management rebuilding and resource expansion | Q4 continued addressing FDA 483 observations and the warning letter with monthly updates and planned third‐party audits, while legal costs remain significant | An ongoing challenge that is being managed proactively – the focus on compliance and quality improvements has intensified over time. |
Emerging Pricing Pressures and Tariff Risks | Not mentioned in Q1–Q3 | Q4 introduced concerns about low single-digit pricing headwinds (including an 8% Medicare price decline) and tariff risks that could reduce gross margins by 50–75 basis points | A new and potentially negative factor emerging in Q4 that could impact margins if not offset by operational efficiencies. |
Gross Margin Dynamics and Sustainability Concerns | Q1 set expectations for margin improvement through automation and operational efficiencies; Q2 benefited from one-time items and efficiency gains; Q3 emphasized automation and cost reductions driving a steady outlook | Q4 reported a 70% margin with expectations of flat year‐over‐year margins in 2025 due to offsetting elements, while underscoring long-term efficiency and automation plans | Cautiously optimistic – near‐term pressures are offset by sustainable initiatives, though margin stabilization is a key focus for the future. |
Favorable Coverage Policy Shifts Driven by Clinical Evidence (CAMELOT Study) | Q2 highlighted compelling CAMELOT data that shifted payer policy to improve access, influencing coverage for millions | Q4 did not mention this topic | The emphasis on policy shifts driven by CAMELOT data has diminished in Q4, suggesting either integration into broader narratives or a shift in focus away from this particular study. |
Competitive Pressures in the MCT Market | Q1 described a competitive landscape with opportunities for market share gains, noting a 7% current share and future revenue potential; Q2 focused on differentiation via clinical evidence; Q3 discussed delays in submission as a temporary competitive challenge | Q4 detailed that competitor disruption benefited Zio AT’s performance and noted a market share of 11–12%, while also comparing different pricing models between competitors and iRhythm | The competitive environment remains dynamic – while challenges persist, competitive disruptions have provided short-term advantages, though long-term positioning continues to require innovation and differentiation. |
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Growth Guidance and Outlook
Q: What's implied in the high end of the guidance, and what could drive growth closer to 20% moving forward?
A: The company sees multiple potential growth levers but wants to be cautious in its guidance. There are additional headwinds in 2025, including low single-digit pricing pressure unique to this year. In Q4, benefits from Zio AT due to competitive disruption and an innovative channel partner contributed to growth. The company wants to ensure these factors continue before incorporating them fully into the guidance but is encouraged by the business momentum. -
FDA 483 Remediation Progress
Q: Can you update us on the FDA 483 observations remediation and the collaboration with the FDA?
A: The company is pleased with the remediation progress and aims to complete remediation-specific activities by mid-2025. They are holding themselves to a higher standard by going beyond the FDA's identified issues and continuing improvements throughout the year. Monthly updates are provided to the FDA, and all deliverables have been met without significant questions from the FDA. An independent third-party review will begin in Q2 to audit improvements. -
Zio MCT FDA Submission Timeline
Q: Is the submission for Zio MCT approval still expected around Q3 this year, and is it dependent on 483 remediation?
A: The company remains on track to submit Zio MCT to the FDA in the third quarter. Clearance of the 483 remediations is not required before submission. They have prioritized certain remediation activities ahead of submitting MCT to demonstrate seriousness to the FDA and feel good about the progress. -
Impact of Epic Integration on Demand
Q: How is the Epic integration progressing, and how might it contribute to incremental volume?
A: The partnership with Epic has been excellent, with great progress in integrating accounts from Q4. Customers have provided positive feedback, noting the improved workflow efficiency. Additional accounts are slated to come on board in Q1 2025, including a significant competitive conversion due to the Aura system. Early signs indicate potential volume uplift, but the company wants to see this play out across a broader group before adjusting expectations. -
Primary Care Expansion Potential
Q: Given the expansion in primary care and value-based care partnerships, where could PCP volume go in 2025?
A: The company believes primary care will be a larger mix of the business but isn't ready to provide specific figures. They are accessing the market through two pathways: collaborating with large IDNs to include PCPs earlier in the care pathway and partnering with innovative primary care networks managing populations in risk models. Early pilots show that proactively monitoring patients identifies arrhythmias in nearly 80% of at-risk patients. The company is excited about this growth avenue and plans to update figures in the future. -
Gross Margin and Tariff Impact
Q: Excluding potential tariffs, are you expecting gross margin improvement over 2025, and what's the impact of OUS launches?
A: The gross margin for 2025 is expected to be flat year-over-year from 2024, with improvements offset by potential tariffs of 50 to 75 basis points. There's also an 8% Medicare price decline for Zio AT. International contributions, including markets served through distributors at lower gross margins, are factored into guidance. Beyond 2025, the company sees opportunities for gross margin expansion through manufacturing automation and moving to a single hardware platform with Zio MCT. -
Zio AT Market Share and Growth
Q: How are you thinking about your Zio AT market share in FY '25?
A: Currently, the company's market share in the MCT market is around 11% to 12%. Historically, they've gained 1 to 2 percentage points of market share annually. While they gained more share in Q4, they prefer to let performance play out before adjusting guidance. They see an opportunity to capture more share as they are already present in many accounts with long-term cardiac monitoring. -
Sleep Apnea Contribution
Q: Is there any sleep apnea contribution contemplated for 2025 revenue guidance?
A: No revenue contribution from sleep apnea is included in the 2025 guidance. The company expects to make progress on the sleep apnea business model and believes they can simplify identification of sleep disease through their digital platform. They will incorporate revenue expectations once contributions become evident. -
International Expansion Including Japan
Q: Can you update us on early trends in new international markets and thoughts on Japan's contribution?
A: The company launched in four Western European countries in late 2024; it's still early days but progressing well. One market is through a distributor, and three are direct. In Japan, they expect a reimbursement decision soon and plan to launch commercially around mid-2025. International markets are expected to contribute about 1 percentage point of growth in 2025. -
Q4 Performance Drivers and Profitability Impact
Q: How did the innovative channel partner and MCT business impact Q4 results and future profitability?
A: Both Zio AT and the innovative channel partner contributed to the Q4 beat on both top and bottom lines. While they wouldn't attribute all profitability to these components, they acknowledge their contribution. Innovative channels offer leverage on the bottom line due to a one-to-many selling model. Zio AT has a slightly lower gross margin than Zio monitor, so not all revenue flows to the bottom line. As these areas grow as a mix of the business, they could be upside drivers to EBITDA guidance in 2025. -
Efficiency Gains from Philippines Team
Q: Can you provide an update on the use of the Philippines team and expected efficiency gains?
A: The team in the Philippines has become a significant asset, with several hundred employees across many functions. They contribute to both financial efficiency and enabling around-the-clock operations, which is crucial for serving global markets. This initiative has helped reduce G&A spend to the low 40s percentage of revenue, down from over 50%. The company anticipates further efficiency improvements.