iRhythm Technologies, Inc. (IRTC) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon, everybody, and welcome to today's iRhythm Technologies, Inc. Q2 2022 Earnings Conference Call. My name is Drew, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Stephanie Zhadkevich, Director of Investor Relations, to begin. Please go ahead.

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the second quarter ended June 30, 2022. 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 provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts 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-Q for a reconciliation of these measures to the most directly comparable GAAP financial measures. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 4, 2022. IRhythm disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Quentin Blackford, iRhythm's President and CEO.

Thank you, Stephanie and good afternoon, and thank you all for joining us. Doug Devine, our Chief Operating Officer and Chief Financial Officer; and Dan Wilson, our EVP of Corporate Strategy and Development, join me on today's call. My prepared remarks today cover progress we've made throughout the first half of 2022 and discuss the near and long-term growth initiatives for our business. I'll then turn the call over to Doug to provide a detailed review of our second quarter financial results. Starting with our second quarter results, we were pleased with the performance during the quarter with revenues up 10% sequentially and 26% year-over-year, and we achieved record quarterly registrations amidst a difficult market environment. Our top line results were ahead of expectations and position us well for the second half of 2022 and beyond. We also continue to make progress in driving an increased focus on operational discipline, delivering nearly 200 basis points of sequential improvement in our gross margin profile. In our core U.S. commercial business, we achieved another record of quarterly registrations driven by an all-time high number of new accounts doing business with us in the quarter with new account openings in the second quarter, up 22% compared to the first quarter of 2022. Our volume performance outperformed the market year-to-date, driven by our strong growth in primary care and other specialty segments as we continue to grow our overall share of the market. While we realized our highest level of daily registrations ever in the month of June, we have already seen seasonality typical of the summer months, and there continues to be clinical staffing shortages and a challenging macroeconomic environment, which we anticipate will continue through the back half of the year. On the pricing front, we shared last month that CMS published the proposed calendar year 2023 Physician Fee Schedule, which contained proposed payment rates for the two main CPT codes related to long-term continuous ECG monitoring. In the proposed rule, CMS published data that implies payment rates ranging from $207 to $295 across the Company's three IDTFs. We estimate that proposed rates will have an immaterial impact on our overall ASP in calendar year 2023 versus calendar year 2022. We are now in a public comment period that runs through early September before CMS issues a final rule anticipated in early November for implementation on January 1, 2023. During the open comment period, we are continuing to fully participate in the rule-making process to share relevant information as CMS finalizes their rates for calendar year 2023. Turning to updates on the innovation front. We were excited to announce that we gained 510(k) clearance for the clinically integrated ZEUS System for the Zio Watch. This is an important early step in expanding our platform to more patients who may benefit from preventative and proactive cardiac monitoring. The ZUES system produced in partnership with Verily combines deep learned algorithms with our proven and trusted ECG monitoring service in a clinical-grade long-term noninvasive wearable device. Using a continuous PPG AI-based algorithm, the Zio Watch not only detect AFib, but also characterizes the amount of AFib over time, the calculated AFib burden estimate with accuracy comparable to the Zio XT patch as a reference. This contextualization of patient native presence or absence collected through the monitoring period is important and clinically meaningful to aid in a potential diagnosis. With full integration into our Zio service, the Zio Watch is intended to be complementary to Zio monitors by adding the modality with longer wear times for patients who require long-term monitoring. We plan to introduce the ZUES system for a limited market evaluation in 2023. Another highlight of our ongoing product innovation efforts, the Zio Monitor, our next-generation biosensor, has demonstrated an initial positive impact on patient compliance following an initial launch several months ago. While preliminary, we are encouraged by the impact of this lighter, smaller, and thinner form factor could potentially have on our patient's experience while also providing opportunity for greater manufacturing and scalability efficiencies. We continue to anticipate full-scale commercialization and conversion to this next-generation device in 2023. And finally, we were excited to launch a new clinical resource center on our website to enable clinicians centralized access to clinical evidence, on-demand webinars and case studies. This resource serves as a gateway to publish clinical evidence, offering summaries of significant research, as well as a list of more than 35 clinically relevant published articles to support the clinical validity of Zio. Furthermore, the webinar library post on-demand educational videos featuring respected physicians and clinical staff discussing the impacts and outcomes of their experiences with Zio. In a case study section offers evidence illustrating how the Zio service has helped health care systems improve cardiac patient care. Turning toward progress against the pillars that we have identified for our future success, I'm excited that we have rounded out our executive leadership team to include a number of new individuals, which we believe will be important for growth and transformation of the business in the coming years. Dr.MintuTurakhia, our recently appointed Chief Medical Officer and Chief Scientific Officer, has hit the ground running in his first two months to drive innovation, lead research and evidence generation and enhance our clinical vision. Chad Patterson who joined the Company as our new Chief Commercial Officer in late July, has extensive experience driving revenue growth through strategic sales and marketing execution in global markets, which will be leveraged as we expand geographically, and into adjacent spaces. Reyna Fernandez has also recently joined iRhythm as our Chief Human Resource Officer, to develop and lead implementation of strategies to support our global growth imperatives bringing a wealth of experience in leading HR functions in large global organizations as well as companies with fast-paced, high-growth focused environments. Finally, we are also excited to have Brice Bobzien join us on August 8 as our new Chief Financial Officer, to guide our organization through financial and operational transformation, as well as help position the Company to scale internal processes as we prepare for future growth. I'm very excited to welcome these seasoned leaders into our leadership team and look forward to executing on our vision of building iRhythm into a market leader in the digital health care space. Finally, we are also pleased to announce that we will hold an Investor Day on the morning of September 21 in New York City for analysts and investors of the Company. This half-day event will focus on key elements of a refreshed vision, renewed long-term business strategy, details of our growth pillars, and long-range financial targets. We appreciate that investors and stakeholders have been asking for greater granularity on these topics, and we are excited to be able to host this event in person as well as via live video webcast. In conclusion, we finished the first half of 2022 having made steady progress against our goals and in a strong position to capitalize on the sizable opportunities ahead of us to serve millions more patients. We see significant runway for growth within our core market that we serve today as we continue to shift the standard of care to Zio, the gold standard in this space. With more than $200 million of cash on the balance sheet, and a clear path to being profitable, we continue to invest in our mid- and long-term initiatives that will leverage our technology platform in new geographies and across new markets. We are excited about our future here at iRhythm. I'll now turn the call over to Doug to discuss our financials.

Thanks, Quentin. Our second quarter results demonstrated the strength of our business as revenue grew 26% year-on-year and 10% quarter-on-quarter. Registrations and new account onboarding continued growth and new stores again contributed strongly to our growth. Taking a more detailed look at our second quarter financial results on a sequential basis, revenue increased 10% quarter-on-quarter from $92 million to $102 million. We had strong growth in the number of new accounts onboarded increasing by 22% from first to the second quarter. Average volume from new accounts was flat from the first quarter to the second quarter. Looking at new store same-store mix, new store defined as accounts that have been opened for less than 12 months accounted for 38% of our year-over-year growth, down from 55% in the first quarter of 2022. XT Home enrollment was about 20% in the second quarter, approximately flat compared to the first quarter. Turning our attention to the rest of the P&L. Gross margin for the second quarter was 68.8%, a 1.9% increase from gross margin of 66.9% during the first quarter. Increases in volume and a reduction in average unit costs contributed to stronger gross margins during the second quarter versus the first quarter. Second quarter adjusted operating expenses, net of restructuring, were $93.5 million, up 12% from the first quarter and up 29% year-over-year. Nonrecurring costs related to executive transitions and professional services contributed to the increases in operating expenses. Adjusted EBITDA of negative $5 million during the second quarter was down $0.2 million versus adjusted EBITDA of negative $4.8 million during the first quarter. Cash and short-term investments declined $4.3 million from the first quarter to $204.5 million. Adjusted EBITDA losses were the primary uses of cash. Accounts receivable increased by $2.1 million to $57.4 million from $55.3 million in the first quarter, primarily driven by the increase in revenue from the first quarter to the second quarter. Net loss was negative $23.9 million or a loss of $0.80 per share compared to a net loss of negative $17.4 million or $0.59 per share in the same period of the prior year. Turning to updated guidance for 2022. We expect full year revenue to range between $415 million and $420 million, reflecting year-over-year growth of 29% to 30%. We expect gross margin to range between 68% and 69%. We expect operating expenses to range between $375 million and $385 million, and we expect adjusted EBITDA to range between negative $12.5 million and negative $17.5 million. The adjusted EBITDA will exclude restructuring costs and will continue to exclude stock compensation expense. We continue to anticipate adjusted EBITDA breakeven or better by the fourth quarter of 2022. Looking at the third quarter, we expect volumes to be approximately flat to the second quarter due to continued staffing limitations with providers and high levels of patient and provider vacations in the July and August time frame. As previously stated, we expect to see about $7 million of benefit from the NGS pricing in second half 2022, roughly evenly split between the third and fourth quarters. And with that, Quentin, Dan and I would like to open the call for questions. Operator?

[Operator Instructions] Our first question today comes from Cecilia Furlong from Morgan Stanley.

This is Calvin on for Cecilia. Congrats on a good quarter. Two from me. I wanted to start with a two-part geographic volume question. So would national pricing kind of now potentially in place for '23, a, I wanted to confirm your plan of shifting volume over time to San Francisco. Is perhaps a two-year time line, a reasonable time frame as you think about executing the shift of cleans and human capital? And b, is the plan to shift a portion of the claims to the NGS region throughout the balance of this year like you previously planned and then redirect those to San Francisco sometime next year with that MGM portion just kind of staying [indiscernible] on a permanent basis?

Yes. Well, thanks for the question. Appreciated. I think my answer will address both of those questions in one response, if not, follow up with a clarifying question, feel free to. I think one of the greatest benefits that we have with getting a final rule put in place is that for the first time, we're able to effectively really manage across all three of our IDTFs and the most operationally efficient manner possible. We haven't been able to do that historically. And so now that we have a final rule coming into place, that's going to allow us to do that in a way that we just haven't historically been able to do, which means processing through Houston, processing through Chicago or Lincolnshire and also processing through the San Francisco location. So we're excited by the opportunity that gets created from that perspective. And keep in mind, more than half of our volumes come from the Western part of the United States today. So naturally being able to serve those locally to those IDTFs or that San Francisco IDTF is advantageous to us. So we certainly are excited by that. We will continue down the path with NGS over the course of this year. I think that just naturally takes advantage of the capacity and what we have built out there or have been building out there throughout the rest of this year. And I would expect volumes will continue to remain there into the next year as well. So I think that will continue to be a part of how we operate into the future.

Very helpful. If I could just add a quick follow-up? So looking forward to the September Analyst Day, I was wondering if you could talk a little bit about your outlook for just the support for silent AF reimbursement from here on the heels really of GUARD-AF likely not providing statistically significant results just given the enrollment. So thoughts on how this ultimately shifts payer momentum, shifts USPSTF guidelines? Or could [indiscernible] Move or something else?

Yes. Look, we're very excited with the progress that continues to be made in the silent AF efforts in our Know Your Rhythm program in the discussions with many of the commercial payers and different potential partners that are out there. We'll share a lot more around that at the Analyst Day, but I will tell you, we're excited by what we're seeing. We're excited by the engagement from a payer's perspective with respect to how we're positioning the program, how we've designed the program. In terms of longer-term reimbursement, I think that's going to continue to take some time to build up and create evidence with, but I do see it on the commercial payer side, something that's very interesting and quite a bit of engagement with our partners that are out there and look forward to sharing much more of that in the Analyst Day.

Our next question today comes from Allen Gong from JPMorgan.

For my first question, I kind of just want to have a follow-up to the question on the IDTFs. So given the kind of preliminary guide you gave at the time of the proposed [ZEUS] release, it sounds like you are planning to have a mix of IDTF or at this, you're going to have always gone through a mix of IDTFs through 2023. But when we think about longer term 2024, it sounds like you see some benefit to maintaining some level of volumes at all three of the IDTFs that we're talking about through Texas, Illinois and California. Is that going to be continuing on 2024, or do you plan to shift predominantly all of your revenues to San Francisco given the favorable GPCI there?

Yes, Allen, I think that's something that we'll continue to evaluate into the future. Having the ability to leverage all three IDTFs now, unlike what we've been able to do historically is going to give us the opportunity to see where we're most efficient and how we can most efficiently managed through volumes into the future. We're expecting significant growth in this company as we think about the terrific opportunity in existed core market, just to move this to the standard of the year, but then to expand into the primary care channel, there's tremendous volume growth that's going to sit in front of us. So how we're best served or position to serve that volume demand as it comes is something we'll evaluate over the course of '23, and we'll talk about '24 as we get closer to it. But I guess what has me most excited is for the first time we can really begin to leverage the operational efficiency that exists to the Company than what we have historically. So we're looking forward to that.

Got it. And I appreciate that the Zio Watch won't be launching until next year or the ZEUS. But when we think about kind of its role in the portfolio, how should we think about it playing alongside your current launch of the next-gen patch in symptomatic AF? And how should we think about the role of it in asymptomatic because I think when investors were originally contemplating the watch everything now is maybe a solution for asymptomatic given the longer wear times?

Yes. Thanks, Allen. I'll ask Dan to comment on that. I can jump in as well. But Dan, do you want to comment on it?

Yes. Thanks, Allen, for the question. I can start here and Quentin can add anything that he'd like to add. So we're excited about Zio Watch and excited about the potential that it adds to our portfolio. As we look at the market, we see a clear gap in terms of -- between kind of long-term monitoring as it's defined today, between 14 to 30 days. And then longer term, the only real option out there today is ILRs, which is an invasive procedure. So we see a clear opportunity for a noninvasive clinical-grade long-term monitoring platform like Zio Watch, and we're excited to have achieved regulatory clearance and getting that into market next year. We do see a number of clinical use cases both on the symptomatic and potentially on the asymptomatic side, we'll certainly share more details around that in terms of how we are evaluating those opportunities and prioritizing those opportunities as we get closer to market, but certainly see opportunities for that for Zio Watch in our portfolio and in the market.

Our next question comes from Joanne Wuensch from Citi.

It seems to me like we're going to be talking more about the international opportunity, and it also seems to be some of your new hires may be more targeted to that. Could you just sort of give us a mile-high view of how you think about that contributing maybe not this year, but over the next couple of years?

Yes. Sure, Joanne. Certainly, international for us is a meaningful opportunity that I think we've just begun to scratch the surface with the presence we have in the U.K. As we've shared before, we'll start market access efforts in a select number of countries in the back part of this year, notably the Netherlands, Switzerland, Germany, France, Sweden, those are some of the [indiscernible] countries on the road that, each one of those countries have [indiscernible] with respect to getting reinvestment in place. But I think to think [indiscernible] revenue contribution is really probably 2024, I think you'll see a market valuation, you'll see us beginning to [indiscernible] with products being built in the country in the back part of '23. I think that's really going to [indiscernible] more of a market evaluation sort of efforts and then [indiscernible] that '24 time frame. So hopefully, that brings us from a timing perspective and how we're thinking about it. I think as we begin into 2023, we'll continue to explore other opportunities that are out there. We are moving forward to [indiscernible] the world. We expect to submit for a regulatory approval in the [indiscernible] in the future. we're excited by what we see there, that's probably a 2024 time frame as well. So right now, it's feeling like '24 is the right time frame to really start to think about some contribution, but you'll hear more about it over the course of '23 for sure.

And as a follow-up, do you think that the reimbursement is in place in most of these markets or do you think you'll have to go back for that there?

What's interesting is ambulatory cardiac monitoring is in place in each of those countries. There's reimbursement established already. The Holter monitor is incredibly popular there that the challenge is how do we articulate our value differentiation and clinical distinction relative to those offerings. And that's what the market access efforts are for. But reimbursement is there in terms of monitoring. So it gives us a platform to start from and then to articulate our value and work for different reimbursement levels is really what we're focused on. But we're not going to have to articulate the need for monitoring. That's understood, which is a big part of why we selected the countries that we did select, to be quite honest with you.

Our next question comes from Margaret Kaczor from William Blair.

This is Brandon on for Margaret. Congrats on a great quarter. And I wanted to talk a little bit about the new [indiscernible] openings. In the past, we used to talk about individual cardiology practices and that kind of going into [indiscernible] You guys obviously had a great and record quarter of new account openings. So can you talk a little bit about what those new accounts look like? Where are you guys kind of focused right now? Where is it coming from? what the potential size of the pits are in volumes and how they ramp?

Yes. Sure, Brandon. We continue to make great progress in the cardiologist sort of specialist EP space with respect to new account openings. We haven't really seen that trend line change from historical sort of levels of the last several quarters or so. But what we're seeing is that the interest level in the primary care physician space and some of these other specialties is elevating up. And we've talked very specifically around the fact that we have a high degree of confidence that you're going to see the primary care physician begin to utilize this sort of technology in their practice. And not only is our point of view, when you talk with payers, they also articulate the fact that they believe more and more of this sort of monitoring is going to find [indiscernible].

[indiscernible] would any other speaker like to take over that question or would you like me to ask the next one?

Sorry, are you not able to hear me?

I can hear you, Quentin.

Okay. So I'll continue on, if you can't, please interrupt me. But the point is we've got a strong belief that the primary care physician space will open up, and we're seeing that begin to be validated in our new account openings where a higher and higher mix is coming from that primary care channel. So it's validating our belief, our thesis that, that will be a significant space for us into the future. I do believe the average size of a primary care physician office in terms of the prescribing levels is going to be less than what you see in the cardiologist space. And I see that -- I think that's why we've seen a pretty good level of average volume from new accounts to be pretty consistent. Doug mentioned that. But it does put a little bit of pressure on that just because I think the PCP office is a bit smaller. There's a lot more of them, but they're a bit smaller. So we're mindful of that. I think we need more experience, to be honest with you, to really identify just what the right average volume is there. And so I'm not going to comment on that just yet, but we're very excited about the momentum that's being built in that primary care space.

Great. And in terms of -- Quentin, you've been bringing on a lot of new experienced leadership, obviously, with great backgrounds. I'm kind of curious, as you look at the organization and we look forward a couple of years, what kind of commercial changes do you think that iRhythm needs to make? You've been [indiscernible] grower for several years. This wasn't really a story that kind of "needed fixing." But perhaps you have identified the things that could take you to the next level and you brought in some management to do that. What are some of those opportunities that you've seen? And what [indiscernible] could we expect in terms of commercial or operational changes over the coming years?

Well, look, I'm excited to have the leadership team finally set. We have with us around the table who we're going to battle with for the future now. And I'm excited to be able to really get after it from that perspective. We've added a lot of global capabilities and incredibly strong commercial experience set from different perspectives, one that has experience with med device sort of medical background but also blending the lines with consumerism, which is where I think the future of this sort of technology will go and continue to blur those lines. And so that excites me. When you look about it, I think there's a couple of different things from a commercial perspective. We have to continue to evolve the model here in the U.S. that allows us to continue to pursue the primary care physician space. I think that's done in multiple ways, not just simply putting feet on the street. I think the marketing aspect becomes a much bigger part of who we are and how we move forward and how we create awareness but not only awareness, education that articulates why we're unique and different just versus any other monitoring capability that's out there because we truly are differentiated with our AI capability, the algorithmic efforts that have been put forward in the data that stands behind our products. So we've got to continue to elevate our ability in that sense. But I think you will see us evolve in the U.S. marketplace. And then internationally, every market is a little bit unique and different. And I think that how we approach that, having skills around our leadership table who have been there before, have seen what success looks like there, is only going to position us for greater success and faster success. So I'm excited to see what that looks like as we move into the future. But we're in the middle of understanding exactly what that design looks like as we go. So we'll talk more about it into the future, but we now have a capability in the organization that I believe meets up very well with the opportunity that sits in front of us.

Our next question comes from David Rescott from Truist Securities.

Congrats on the strong quarter. First, just on Zio AT, I guess the first part of the question is, is that product at all or has that product at all been having a positive impact as it relates opening the new accounts that you saw in the quarter? And I think in the past, you've discussed how the product is a 14-day wear device, whereas the majority of the market, and I believe reimbursement kind of covers this longer 30-day wear monitor devices. So can you just talk about what the maybe future iterations of that device would be and how that would open up the market to you guys?

Sure. Today, we hold, I would call it, mid-20s in terms of sort of market share of the overall ECM market. Yet, we're probably around 7% when we think about the MCT space or where AT really can play and it just speaks to the opportunity that sits there from a product perspective. In terms of new account openings, it has the opportunity to open some new accounts. The vast majority are being opened with XT and AT happens to get pulled into it sort of after the fact. So it's not the lead in to many of these new account openings I believe there's that opportunity into the future. But today, XT is really continuing to be that door opener. In terms of the product configuration itself, 14 days versus 30 days, we understand there's a difference there. The reality is in 30 days of monitoring though, you're going to get on average about 12 really good days of feedback and data that you're paying attention to and monitoring. With our 14-day product, you're going to get 14 good days of monitoring. So I think there's a little bit of education that needs to continue to be had and made on our part. But I also think there are some things we can do from a product features and functionality that can close that gap down in terms of 14 to 30 days. And so -- we're focused on that efforts. I won't give around way specifics of exactly how we're looking at that product offering, but we are looking to continue to evolve it and I think become even more effective player in that space where I don't see any reason why we can't hold the same sort of market share there that we hold in the XT business over time as we continue to educate and close that gap on the product side.

All right. That makes sense. I guess as it relates to the ZEUS Watch, I'm just wondering what the -- as far as the product has been developed, kind of what the differentiation here is between some of the existing watches out there that suggest that they could identify at least something similar to what the ZEUS Watch is going after? And just following up on Dan's comments around potentially maybe going after or looking at a little bit of the implantable loop recorder market with the watch. I guess, how do you kind of move into that space or address that space and build or develop the market there?

Well, maybe I'll let Dan continue on with his response, and I'm happy to take the latter part of how we enter into it. But Dan, you want to comment on that?

Yes. Yes, I could start, Quentin, you should chime in. So David, I would say the distinction is pretty straightforward as we think about how Zio Watch compares to consumer wearables. Zio Watch and ZEUS is designed as a prescription diagnostic-grade wearable that integrates into clinical workflows and provides clinical context that is important to patient care and specifically estimating AFib burden. We know that's an important clinical metric for physicians. And that's one that is trusted as we deliver our Zio service for XT and AT. And that's exactly what we're looking to deliver with Zio Watch as well. So it's purpose built to kind of deliver that same level of service as Zio XT and Zio AT and part of that is generating the clinical evidence to back that up. And that is part of our initial efforts as we enter market evaluation efforts next year. Quen, you want to continue on from there?

Yes. No, I think you hit the nail on the head though. I mean, it's a very different offering, right? And what folks come to love about iRhythm and Zio is the entire offering, including the service component that our Zio Watch will have with it and continue to differentiate and set it apart. In terms of how we enter the space, in many respects, we're already in many of these accounts where ILRs are being implemented or implanted. And so we have a contact point into the centers. We just haven't had the right solution necessarily or an alternative solution maybe to the ILR. The interesting thing in that space is our market data would tell us that only 30% of all patients recommended for an ILR will actually have the procedure done, just not wanting to have something implanted in the body. I think we have a tremendous opportunity to offer up an alternative solution to continuous monitoring over a longer period of time, could even be over years, if you're -- we're in the watch over that period of time to compare to sort of the time frame that an ILR might be implanted for. So I like the way we're positioned there. We can continue to do work around, how we take it to market. But I think we continue to find different ways, different opportunities for this product to potentially play in the marketplace that excites me.

Our next question comes from Marie Thibault from BTIG.

I want to ask the first one here and try to level set on what an average sort of reimbursement rate would be, when you consider the guidance you've given, which you said, immaterial impact on calendar year '23 versus '22? Given there's been so many moving parts, I wanted to try to understand, is that average maybe somewhere around the 250 to 275 range. What are you seeing as sort of the average when you think about the Medicare reimbursement rate?

Yes. Marie, I think it's a good question. And I think from a couple of different perspectives. The 250 is about the right way to think about it. That's how we've thought about it. When we look out across the analyst models and how each of you have modeled it, I think, on average, is sitting somewhere around 250 as well. So I think that's the right way to think about it, an average rate in 2023, which is pretty comparable to where the average rate stands for 2022. So that's how we're thinking about it.

Okay. That's really helpful. I appreciate that. And then I wanted to go back to your comments on primary care physicians. That's a really interesting potential growth opportunity. Wondering if you have carved out a portion of your sales force to focus on that market. Is there sort of a differentiation on how you approach those doctors or sort of educate them on how to use the device? Any color there would be helpful.

Well, Marie, I think that's where we have the opportunity to really elevate up our ability, our capability, to target those sort of opportunities with the right tools and education. From the time being, most of the progress that's been made there have been our top reps seeing that as an opportunity and going in and beginning to educate the accounts on their own. And we've tried to create that opportunity in the field force by adding what we call key account managers or customer experience managers that maybe will step in and maintain the existing accounts that -- now we have working with us, who have been long-term customers and free up the territory manager to go out there and hunt for new business. What we find is they're seeing the opportunity in the primary care space and they're naturally sort of hunting there on their own. That's great to see in terms of the results that we're putting up in terms of the new account openings, but it's also being done without what I think are the most effective and most efficient tools that we can create. And I think that's a big part of bringing in some incremental focus on the marketing side, on the educational side, building out capabilities, investing into our teams that are here. I think you can see us really make some headway there. So we're excited about it, but we're in the early stages. And I would tell you there's a lot of progress to be made there.

Our next question comes from Bill Plovanic from Canaccord.

I'm going to ask a couple of financial questions, if I may. Just on the guidance, Doug, as we think about the incremental $7 million, $3.5 million in the third quarter, from the NGS, was there any contribution from NGS in the second quarter? Or is that up and above what we saw from NGS in the second quarter?

Yes, Bill. I mean, we certainly ran some test claims through in the second quarter. As we talked about before, we have an existing staff out of the MGS, out of our Chicago -- North Chicago office. And -- so we've now kind of ramped up the people -- the existing Chicago staff into this by kind of mid-July-ish. And so think of the $7 million, $3.5 million a quarter, that's the incremental benefit you're going to see going forward for the rest of this year.

Okay. That's helpful. And then just I was wondering if you could provide us any directional guidance on the levels of growth or any other metrics regarding your payer mix, including the contracted third-party noncontracted CMS and health care institutions?

Yes, Doug, feel free to jump on that.

Yes. And so Bill, on that one, when you're looking at it on the year-on-year basis, you're seeing about 10% more of our mix going to CMS, and that's a combination of two factors. I mean one is the pricing that we're seeing better pricing than we were seeing last year. But the second is that the -- there were some shifts in pricing on Zio AT and our mix has continued to rich incrementally towards Zio AT as well. Not -- we've been working on the noncontracted -- so noncontracted has not been -- you're not seeing any real growth in the noncontracted segment.

Okay. And then if I could ask just one last follow-up question. It's kind of a clarification. You talked about the PCP. I don't know if you talked a lot about the post TAVR. And if you have specialized -- the reps are doing the same thing, where they're kind of focusing on those accounts and going in? Any clarity on that would be greatly appreciated.

Yes, Bill, on that last one. I think that continues to be an opportunity for us. We're in a very, very small amount of TAVR centers today. I think in terms of priority and focus, it's certainly something that's on our list and we see it as an opportunity. Primary care has been higher on that today, but not a lot of contribution coming out of the areas today.

Our next question comes from Suraj Kalia from Oppenheimer.

Quentin, can you hear me all right?

We got you. Yes, Suraj.

Perfect. So Quentin, I know you guys provided a lot of information on the call. Specifically on optimizing IDTFs in '23 and beyond, Quentin, will there be different technician reviews at the three locations or is there a [indiscernible that you'll anticipate moving forward? The reason I ask -- is just figuring out [indiscernible costs, levels of review how it impacts the P&L?

Yes, I think that's exactly sort of the opportunity that we have to evaluate and take a look at it now. Depending on the complexity of [indiscernible] or sorry, the data that comes off the devices off of the patients will identify or dictates what level of review is required. Whether it's a more simple sort of review or more complex sort of review. And we're going to have the opportunity to maximize those efficiencies into the future. There's obviously a different cost of doing business within each one of those [indiscernible] geographic perspective, we've got to contemplate that. And there's different service level that we can offer to our patients in terms of just timeliness of turnaround times when we start to consider [indiscernible] cost and freight costs and those things with different [indiscernible centers or distribution centers. Those are all things that we get a value [indiscernible] that business model. Historically, we have the real opportunity to look at it most efficient operational perspective. [Indiscernible] but on a go-forward basis, having a final rule in place, I think it makes it much easier for us to look at it through that lens and make the right decision for the Company.

[indiscernible] additional question, I'll hop back in the queue on ZEUS. So forgive me, maybe I missed this. How do you anticipate billing for ZEUS? I think that, that would be one part. And you'll obviously are looking at different strategies for market penetration. I heard your commentary about using -- it's tapping into ILR and MCOT so on and so forth. I'm curious because ILR, primary users, as we understand, whether it's unexplained syncope or convulsive syncope or -- it's -- and there are a bunch of randomized [indiscernible] trials that have been done in the space. I'd be curious [indiscernible] that is a route you are anticipating going, i.e., pouring in of the resources for an RCT. Any additional color on billing and/or clinical trials would be greatly appreciated.

Yes. Thanks for the question, Suraj. I think you hit the nail on the head with the reimbursement aspect. That's one of the pathways we got to continue to work through and it's part of why we talk about a market evaluation out in 2023 versus a whole lot sooner. We know that's a pathway that we've got have discussions with payers around and really determine how this fits and how the reimbursement landscape will work. So we're evaluating that. I think it looks different depending on the utilization of how the device is used. We're part of the Know Your Rhythm program that might be a little bit different than a traditional pathway outside of that. So we've got some learning to do there, but we do think there's a place for this in the marketplace. With respect to ILR, I think that's just an identification of another opportunity where something like this device could fit. It's early stages. We've got to continue to evaluate sort of how to compete, how to win in that space and what that looks like. So it's early stages. I think we're just sharing some ideas of what gets us excited with that sort of diagnostic capability in that wearable factor that doesn't exist today in the marketplace. So work to be done, but opportunity as we see it.

Our final question comes from Michael Polark from Wolfe Research.

I just want to make sure I understand the bridge in the current calendar year '22 guidance, a lot of moving parts on pricing. So for the full year, revenue growth of call it, 30%. The question really is what's the contribution net from price and volume in that outlook? And then in the context of initially, I think the Novitas move to 230s was a 10% lift. NGS is now coming into the mix that seems to be another two, three or four points. So it gets me to kind of 12 or 14 points of price and then MCT is experiencing a 20, I think, to 30% lift this year in payment rates, and that's another two or three points. So I'm kind of like mid-teens total -- mid-teens plus total pricing benefit for the year from all this. And I just want to get the updated view on how you see it? And what is embedded in the guidance at this point for full year volume growth?

Sure, Mike. I can speak to that. We came into the year, continue to reiterate sort of our views around our volume expectations being around that 20% growth rate from a volume perspective. you're right, when you look at those various price effects, you're getting into, call it, the mid-teens, lower mid-teens, but you're not meaningfully off. But then we contemplate sort of that low to mid-single-digit commercial pricing pressure that we commented on, and I think that continues to be a very accurate way to look at it and model it, which gets you down to call it, roughly 10% contribution from price on that 20% volume, that's your 30% growth rate. So that's how we think about it, continue to look at it here at the midpoint of the year, and we can update that in the future if we need to.

Appreciate that. Good segue to my follow-up. I'm curious for the updated thinking on -- in 2023, proposed rule moves to final you have a national rate with Medicare. I think the national average rates in the 215 zone. So what's the latest fresh thinking on, if this moves forward at current proposed rates? Is there a risk to your rates with Medicare Advantage plans, private payers? Or is there not? Any fresh thoughts on that would be welcome.

Yes. We've spent a lot of time looking at this across the payer landscape that we have and understanding sort of what positions we have with the payers, the discussions we're having, sort of the tone of those discussions. I continue to believe the right way to think about it, considering just kind of where things are at and the current price points we have is that low to mid-single-digit pricing pressure from a commercial payer perspective, feels like the right place to be. If we see something that changes or causes us to think differently about it, we'll be happy to talk about it and address it, but I continue to believe that's the right way to think about it into the future and certainly how we're thinking about our models right now.

That does conclude today's Q&A session. I will now refer you back to the management team for closing remarks.

Well, look, thanks for joining us today. I want to make sure that I take the opportunity just to thank our entire iRhythm team for the terrific progress that's been made to date and the momentum that's being built in the business overall. We continue to be excited by the future that sits in front of us and look forward to executing against the goals and the priorities that we've put forward. I look forward to the opportunity to see many of you guys here in September at our Analyst Day, where we'll share much more around many of the exciting things happening here at the Company. With that, we'll talk to you in just about 1.5 months. Take care.

That concludes today's iRhythm Technologies, Inc. Q2 2022 Earnings Conference Call. You may now disconnect your lines.