iRhythm Technologies, Inc. (NASDAQ:IRTC) Q1 2022 Earnings Conference Call May 5, 2022 4:30 PM ET

Company Participants

Quentin Blackford - President and Chief Executive Officer
Douglas Devine - COO & CFO
Dan Wilson - EVP of Corporate Strategy and Development

Conference Call Participants

Allen Gong - JP Morgan
Maggie Boeye - William Blair
David Rescott - Truist Securities
William Plovanic - Canaccord Genuity
Marie Thibault - BTIG
Suraj Kalia - Oppenheimer

Operator

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the first quarter ended March 31, 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 provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. These are based upon our current estimates and various assumptions and reflect management's intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance. These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent annual and quarterly reports on Form 10-K and Form 10-Q, respectively, filed with the SEC.

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 and 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 their most directly comparable GAAP financial measures.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 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.

Quentin Blackford

Thank you, Lee. 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 portion 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 first quarter financial results as well as our updated guidance for 2022.

Our first quarter results came in ahead of expectations across the board and demonstrate the value of an increased focus and discipline that we are driving into the business. We were pleased with our first quarter revenue performance growing by 24% year-over-year to $92 million, fueled by strong unit volume growth as well as the benefit of the improved Novitas pricing that went into effect January 1.

Furthermore, we were pleased with the improved operational discipline and efficient management of costs, resulting in improved gross margin and lower-than-anticipated spending. As a result, we are providing favorable updates to both our revenue and profitability expectations for the year, which Doug will share in a bit.

We continue to make progress on the reimbursement front as we realized another positive step forward as NGS, the MAC that serves our suburban Chicago area and where one of our primary independent diagnostic testing facilities, or IDTFs, is located. They updated their payment rates for approximately $329 and $342 for the 2 main CPT codes that we use in our business effective April 1. We are pleased with this most recent update provided by NGS, which continues to demonstrate that the costs associated with delivering the Zio XT service and the value that it provides are being better understood. We will continue to engage with the other regional MACs on their internal review processes and will provide updates as appropriate.

As it relates to national pricing, we expect that CMS will release its 2023 Medicare physician fee schedule proposed rule in or around July of this year. This will be followed by an open comment period and final rulings, which have historically been communicated in the November time frame and with then be effective January 1, 2023. We are continuing to fully participate and coordinate with our industry partners, stakeholders, customers and medical societies on this process to establish fair and stable national CMS pricing for Zio XT moving forward, which we are confident can lead to increased access and improving care for all. We believe Zio offers the most complete ambulatory cardiac monitoring solution backed by the most advanced AI in the space so that providers can accurately diagnose patients more quickly and efficiently.

We also took additional steps forward in building our leadership team, announcing last week that Dr. Mintu Tarakhia will be joining iRhythm in the newly created role of Chief Medical Officer and Chief Scientific Officer. Mintu was one of the early adopters of Zio and performed one of the first ever silent AF studies with Zio. In addition to his clinical work, Mintu was the co-founder of the Stanford Center for Digital Health and is a seasoned operator who has led the development of virtual care and remote patient monitoring, software for clinical trials, academic research and commercialized health care products. Mintu will be responsible for guiding our innovation efforts and leading our research and evidence generation. I'm personally thrilled to have Mintu on board and look forward to having him hit the ground running.

Coming back to the business performance. Within our core U.S. market, we saw strong unit volumes and pricing performance during the quarter. Registrations rebounded nicely to record levels in March after a slow start to January due to the impact of the Omicron variant. We also saw continued momentum within new accounts as the number of new account openings were up 15% in the fourth quarter of 2021. And while we were very pleased with the strength that we saw exiting March, we believe some of that strength may have been attributable to patient backlogs from December and January.

We continue to believe that Zio should be the gold standard in ambulatory cardiac monitoring, and the opportunity ahead of us in this core market alone is immense. Approximately 5.6 million ambulatory cardiac monitoring tests are prescribed annually in the U.S., but we estimate that less than 25% of those are for our clinically superior extended wear monitors.

Our data-driven AI and deep learned algorithms are a significant differentiator from competitors, and we see ourselves increasingly as a provider of insights to our patients and customers within the larger digital health ecosystem. As a part of this, we believe that our core market will only expand over time as we create new opportunities to impact prediction and prevention of disease, move deeper into primary care and expand into additional use cases.

The clinical superiority of Zio remains a key reason we continue to increase our market share, and we are pleased to see the mounting clinical evidence continue to grow and further demonstrate how our innovative technology can be leveraged for the benefit of patients, clinicians and patient care networks. At the recent ACC meeting in Washington, D.C. as well as the HRS conference in San Francisco this past weekend, we saw important clinical data presented highlighting Zio AT, Zio XT and ZIO Watch.

For Zio AT, research presented at ACC highlighted that monitoring with post-TAVR discharge can identify AFib, high degree AV block and supraventricular tachycardia and patients who are at risk for arrhythmic disorders. The results found the presence of AFib in nearly 25% of the study population, including the younger cohort within the study. Separately, data was also presented that demonstrated Zio AT was safely able to monitor and aid in the diagnosis of patients upon discharge from the ER, thus avoiding hospital stay. This study estimated that the use of Zio AT saved this health care system approximately 136 inpatient hospitalization days.

With Zio XT, we recently presented additional data that further supports movement into the asymptomatic and undiagnosed AFib market. Top line data from the GUARD-AF study showed that the Zio service is a viable solution for the early detection and diagnosis of silent atrial fibrillation in moderate risk populations. Within the study, nearly 5% of the population had AFib detected within 2 weeks of monitoring. This further highlights the need to help undiagnosed populations effectively seek treatment before more serious problems can occur, therefore, improving patient outcomes.

And finally, at the recent HRS conference this past weekend, we announced exciting data on the Zio Watch, demonstrating our ability to detect arrhythmias using nonpatch-based technology. The findings from our first prospective study were designed to evaluate the performance of the Zio Watch's PPG sensor and AFib context engine algorithm in detecting irregular rhythms and those at risk with having AFib.

The data revealed that interval-level sensitivity and specificity of our proprietary algorithm were comparable to our Zio XT patch. Moreover, PPG-derived AFib burden from the Zio Watch was an accurate measure when compared to the Zio XT as a reference. The Zio Watch and the AI algorithms at use are currently under 510(k) review by the FDA and pending clearance.

In addition to the further pursuit of clinical evidence demonstrating the value of Zio, we are also committed to innovation. Underscoring that commitment, we are very pleased to announce that we have shipped the first batch of our next-generation biosensor, the Zio monitor for first patient use following regulatory clearance. This monitor will eventually replace Zio XT while providing a platform that delivers a dramatically smaller form factor, resulting in an improved patient experience and a reduced cost profile with greater efficiencies for manufacturability and scalability without sacrificing our quality of service. Full-scale commercialization and conversion of this next-generation device is anticipated in 2023.

Shifting to our strategy of international expansion. Our goal is to establish Zio as the standard of care in international markets, much as we are doing in the U.S. We have been working on a strategic pathway towards continued commercial expansion in the U.K. and introduction into other countries over the next 2 to 3 years.

Within the U.K., we continue to execute against the NHS AI award in select NHS sites as well as grow our business within the private payer market. We expect to use the remaining portion of the AI award within 2022 and are working with individual NHS sites to secure local funding and ensure continued access to Zio while we continue our efforts to secure sustainable reimbursement within the NHS. In the meantime, we expect our U.K. business to grow more moderately.

Beyond the U.K., we are excited to announce that we will be commencing market access initiatives in Germany, France, the Netherlands and Sweden in the coming months at roughly 1.7 million ambulatory cardiac monitoring tests to our addressable market. I'd mentioned previously we are also excited about the Japanese market where there are more than 1.5 million ambulatory cardiac monitoring tests prescribed annually. We anticipate initiating the reimbursement and regulatory pathways within the next few months, which would put us on a time line for commercial launch by the first half of 2024.

We continue to believe there's a large opportunity to bring Zio into international markets and are accelerating our efforts to initiate market access and commercial introduction. We look forward to sharing our milestones as these efforts progress.

Turning to our strategy of expansion into adjacent markets. As noted earlier, we saw additional clinical data presented that further supports the move into the asymptomatic and undiagnosed AFib market. To capture this opportunity, we are building a targeted detection program and capabilities that will allow us to deliver a compelling product to payers as well as an engaging experience to undiagnosed and underserved patient populations.

We are fully committed to providing access to valuable digital health tools to all patients who could benefit from them. And by harnessing the power of data-driven, deep-learned AI, we believe we can redefine the standard of care with earlier insights that predict and prevent disease. Our efforts with the silent AF align well with these goals, and we look forward to sharing more details on these initiatives and other growth strategies at an Investor Day later this year.

In closing, we have started 2022 very strong and are very confident in the sizable opportunities ahead of us to serve millions more patients. We see tremendous runway for growth within the core market that we serve today as we continue to shift the standard of care to Zio, the gold standard in this space. And we continue to invest in our mid- and long-term growth initiatives that will leverage our technology platform into new geographies and new markets. I have never been more excited about the future that I see at iRhythm, and we are intently focused on realizing our vision.

I'll now turn the call over to Doug.

Douglas Devine

Thanks, Quentin. Our first quarter 2022 financial results demonstrated the strength of our business as revenue grew 24% year-on-year, 13% quarter-on-quarter. Registrations and new account onboarding continued solid growth, and new account sales again contributed strongly to our growth. Although the economic environment remains uncertain, we are pleased with the way 2022 has started.

Taking a more detailed look at our first quarter financial results on a sequential basis, revenue increased 13% quarter-on-quarter from $82 million to $92 million. Growth in our average daily registrations was strong, increasing by about 13% during the first quarter as compared to 7% during the fourth quarter. We had strong growth in the number of new accounts onboarded, increasing by 15% from Q4 2021 to Q1 2022.

Looking at new store same-store mix. New store, defined as accounts that have been opened for less than 12 months, accounted for 55% of our year-over-year unit growth, up from 46% in the fourth quarter of 2021. Home enrollment was at 21% in the first quarter, flat from Q4 2021 levels.

Turning our attention to the rest of the P&L. Gross margin for the first quarter was 66.9%, a 4.2% increase from the gross margin of 62.7% in Q4 of 2021. Increases in volume and average selling prices, coupled with a reduction in average unit costs, all contributed to the increased gross margin during Q1 2022 versus Q4 of 2021.

For the first quarter, operating expenses, excluding restructuring, were $83.7 million, flat compared to Q4 of 2021 and up 7% year-over-year. Sequentially, hiring and compensation expenses during the quarter were offset by milestone expenses to Verily that did not reoccur in Q1. We expect the next Verily milestone to occur in 2023.

During Q1, we incurred $26.6 million in restructuring charges, primarily associated with a reduction in size of our San Francisco facility to better align the company to the new remote working environment.

Adjusted EBITDA of negative $4.8 million in Q1 2022 was up $12.5 million compared to Q4 '21 adjusted EBITDA of negative $17.3 million.

Cash and short-term investments declined $30.3 million from the fourth quarter of 2021 to $208.8 million. 2021 bonus payment, payroll taxes, 401(k) contribution, working capital and adjusted EBITDA losses consumed cash in the first quarter, partially offset by the initial loan drawdown of Silicon Valley Bank on our amended debt facility.

Accounts receivable increased by $8.9 million to $55.3 million from $46.4 million in Q4 2021, primarily driven by quarter-on-quarter increase in revenue.

Adjusted net loss, which excludes restructuring-related expenses, was negative $23.7 million or a loss of $0.80 per share compared with a net loss of negative $27.8 million or $0.95 per share for the same period of the prior year.

Finally, we amended our existing debt facility with Silicon Valley Bank to improve upon the pricing and terms of our prior facility. The amended credit facility is non-dilutive and consists of a term loan of up to $75 million and a revolving credit facility of up to $25 million. $35 million in the term loan was drawn down at closing to pay in full the approximately $18.5 million outstanding on the term loan under the prior credit facility and to fund working capital. The remaining $40 million of the term loan will remain available for us to draw through December 31, 2023, subject to applicable conditions. The revolving credit line availability is subject to a borrowing base comprised of our accounts receivable. The amended credit facility will mature March 1, 2027.

Turning to guidance for 2022. We are increasing our expectation for full year revenue to range between $410 million and $420 million, reflecting year-over-year growth of 27% to 30%. The increase in our guidance reflects our performance in the first quarter of 2022 as well as a positive impact from the updated NGS pricing. As we currently have an IDTF in suburban Chicago, we expect to see a small positive impact to revenue starting in the second quarter and increasing into the second half of the year.

We expect gross margin to be between 68% and 69% for the full year 2022. We expect adjusted operating expenses in the range of $375 million and $385 million, flat to our prior guidance. And we expect adjusted EBITDA to range between negative $15 million and negative $25 million. Our adjusted EBITDA for 2022 will exclude restructuring costs and stock compensation.

And with that, Quentin, Dan and I would like to now open the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we have our first question from Allen Gong with JPMorgan.

Allen Gong

This is Allen. Congrats on the good quarter. And I guess first question I really had is on the reimbursement change. It's definitely welcome to see, but with, in theory, a proposed rule and potentially a national rate decision from CMS and expected in a couple of months, why would they, I guess, go ahead and make this kind of change? And I guess what were their reimbursement rates previously?

Quentin Blackford

This is Quentin here. I think we've been working with the MACs from really in the mid part of last year, and this is a continuation of that process. And it's not just NGS, it's all of the MACs. And we've been pretty deliberate around the fact that we need to continue to work with them from a strategic perspective being that we believe there will be a final rule and we're hoping for a final rule. We want the final rule as it increases access to care for all. But in the case that there's not a final rule, we need to continue to articulate and demonstrate the value that we can deliver through our offering to each one of these MACs.

And so not only does the work continue with NGS as it did, and we saw a nice rate, but it continues with all of the MACs at this point, continuing just to put ourselves in a position where we're ready really no matter what the alternative is with the final rule. So this is much more of a strategic pathway forward and incredibly pleased to see the outcome with it. I think it continues to demonstrate that when the parties get to the table and get around the information, the cost data that is being presented, they see very clearly what it takes to put this sort of technology and capability into the marketplace, and it gets recognized, it gets valued. And so incredibly pleased with them.

Obviously, a rate of $340 is continuing to step north of the $230 rate that Novitas was at. And they all were looking at similar data sets, so continuing to sort of look at the overall cost profile of it. But it was a meaningful step-up from where they had been historically. And I think for us, what's most encouraging is it's put right within a jurisdiction where we already have an IDTF that lets us become much more efficient and effective with how we utilize our resources to serve this marketplace. So from many different angles, it hits on the strategic asset or aspect of what we're trying to achieve. So incredibly pleased.

Allen Gong

Got it. And then that obviously didn't contribute to the outperformance you saw in the quarter. Unfortunately, I think the webcast and the call might have been having some issues in the first 5 to 10 minutes, so apologies if you went over this. But just what really drove that outperformance in the first quarter? And then when we think about the fact that your guidance is a step above that, some of that to reflect the -- not the CMS, the MAC reimbursement rate increase on some of that to reflect hope of that momentum continuing, if you could give us a little bit of a breakdown there.

Quentin Blackford

Sure. And apologies for the first part of the call, we weren't getting that on our side. But for those of you who missed out on that, apologies and we'll make sure that the transcript is out there and you're able to get it.

When you look at the first quarter, the back end of the quarter was incredibly strong. We touched on the fact that March were record daily registrations for us in the prepared remarks, which is a significant rebound coming off of the slow start in January, early February as a result of the Omicron variant. How much of March was pent-up demand versus true underlying strength is yet to be decided. We continue to be encouraged by the results that we saw into April, so we're pleased from that perspective.

But from a guidance perspective, we didn't want to get ahead of ourselves. So how we thought about that was more or less passing through the beat of the first quarter, which, call it, roughly $3 million or so, and then increasing for the impact that we believe we can get from the NGS reimbursement over the remainder of the year, which is really going to be in the back half by the time we're able to get the resources utilized the way we want to. And that had the other, call it, roughly $7 million or so of benefit that gets you to the full $10 million raise on both the low and high end.

Operator

Our next question is from Joanne Wuensch with Citi.

Unidentified Analyst

This is [Anthony] on for Joanne. Congrats on a really good quarter. Just on gross margins, they compressed year-over-year, which I think was expected. But just given the -- that you raised guidance for them and you have some new products coming on with Watch and sensor, can you just talk about how you're thinking about margins for the rest of the year?

Quentin Blackford

Yes, Doug, why don't you jump for now?

Douglas Devine

Sure. Thanks, Quentin. So when -- first, when you look at the kind of the depressed -- slight depression on the gross margins, we've added a lot of capacity, particularly on the clinical side, and that added capacity is still coming up to full productivity.

As you look forward, and this is consistent with the message we gave you in Q1 that we're going to build throughout the year that we're expecting Q4 gross margins to be north of 70%. And you see a gradual step function move up in gross margin as we move throughout the year. Some of that's going to be volume. Some of that's going to be digesting the capacity increases that we've put into the company. And you're going to see the same thing on the EBITDA side, where, again, we're expecting to be at breakeven or slightly positive on adjusted EBITDA in the fourth quarter and making steady progress as we move throughout the year.

In regards to the new monitor, that's not going to -- first, that's not going to launch in larger commercial volumes until 2023. And second, I wouldn't expect that one to be a big mover on the gross margin.

Unidentified Analyst

That's helpful. And then if I could just ask one more. What is your outlook on private reimbursement? Do you expect it to sort of stay stable or down low single digits? I would just like to know your thoughts.

Quentin Blackford

We continue to be encouraged with what we see in the private/commercial reimbursement space. I think that those payers tend to take a bit of a different perspective and a different look at how to value this technology. And I think they understand that having a better capability to diagnose earlier in the care pathway and reduce downstream costs when they can see that, clearly, they're willing to pay for it. And we've seen that reflected in our negotiations with the payers.

I think the continual move with the MACs, the recent NGS rate, for example, I think it's just another good data point to put out there that when you get into the data and understand the value that this delivers, the reimbursed value is reflected in that. And so we were encouraged with NGS, and I think that plays well with us in terms of the discussions with the commercial payers. But I will tell you, there's not been anything in those commercial discussions that give us concern around commercial rates at this point in time. And those conversations have been pretty steady for the last 9 months or so.

Operator

We have our next question from Margaret Kaczor with William Blair.

Maggie Boeye

This is Maggie Boeye on for Margaret. I wanted to ask one on the Zio Watch. So I heard you guys say that it's pending for a 10-K approval. So just wanted to see if you could provide any updates on that pathway approval and then any more updates on the business model.

Douglas Devine

Yes. Dan, do you want to jump in and take this one on the Watch?

Daniel Wilson

Yes, sure, I'd be happy to. So thanks for the question, Maggie. It is still with the FDA. So we're -- as we've noted previously, FDA time lines are a bit harder to predict at the moment due to COVID, but it is with the FDA, and we're hoping for clearance here in the near term, and we'll certainly update folks once we hit that milestone.

From there, we will be entering market evaluation phase in the early part of next year, assuming we get clearance this year, and we'll be exploring that business model in various use cases. So I'd say more to share once we get certainly to the milestone of clearance. And then as we're getting into next year and launching into that market evaluation phase, we'll be sharing more with everyone.

Maggie Boeye

Got it. And then I just wanted to ask a more high-level question here. So you guys have had several years of strong growth and are headed towards your next leg of the adoption curve. So what's the green space left for you guys here? Obviously, there's a lot left to capture. And then what are you targeting in 2022 and 2023 to drive the next leg of growth?

Quentin Blackford

Yes. Terrific question and excited to answer that because I think there are so many different growth pathways that sit in front of the company. But one of the most significant opportunities and near-term opportunities continues to be the awareness and the adoption of the technology in this core market that we serve right here in the States. Less than 25% of the market utilizes extended wear patch technology and for the most part, continues to utilize the older traditional Holter monitor, which we know is just not a very good solution, and there's such an improvement out there with the ZIO that we believe it should be the standard of care and the gold standard in the space and that ultimately, we're going to see market adoption move to that 75%, 80% of volumes over time. And so that gives you a lot of runway in this core market alone, which has us excited.

I think you then think about being able to move into the primary care space, which we know even more folks than the 5.6 million ACM tests that are prescribed every year, call it, closer to 8 million people show up in the primary care space with palpitations. And with the ease of use around the product, it's easy to believe that we ought to see the market be able to expand. So I get encouraged from that perspective, and you're going to see us really focus in on getting after those opportunities.

But even within the core market, just an interesting data point, we call on less than 50% of the cardiologists and EP accounts in the States today. There's still a lot of greenfield opportunity just in the specialist area of the U.S. core market, but then you have got the primary care that comes behind it. So I think for the next couple of years, you're going to hear us talk a lot about just really refining our focus, our discipline of calling on those accounts, increasing visibility into it and really creating awareness and education to convert what sits in front of us in the core market.

Beyond that, and we've talked about this, the opportunity to take this technology into the international space is real. There's no reason why the international markets aren't enjoying the same sort of benefit that this product and technology can deliver like we're seeing right here in the States. And so we're excited to announce that we've identified kind of the next 4 key countries within the European region being Germany, France, Netherlands and Sweden, which add another $1.7 million of addressable market for us that we're excited about.

So there's a lot of growth sitting in front of us just in this core market and the international sort of symptomatic market that I think will deliver very nice growth results for us. And in the meantime, we'll continue to explore some of the adjacent opportunities that can only add to the addressable market over time. But our focus is in this core market right now.

Operator

We have our next question from David Rescott with Truist Securities.

David Rescott

Congrats on the good start of the year. I want to start first on the updated rate with the Chicago MAC. I just want to make sure I understand that correctly, is -- you mentioned a little bit how you're able to maybe optimize some of the services here. I mean, is this something that you can in a sense kind of reroute maybe the patients that you otherwise -- are CMS patients that otherwise may have gone through the Houston MAC now potentially going through this higher rate MAC in Chicago since you do have an IDTF there?

And just as a second part to that, does this at all impact the way that you were thinking about the NCD for 2023?

Quentin Blackford

I didn't -- can you repeat the second part of that question, David?

David Rescott

Yes. Just how, if at all, this does or does not impact the way that you are thinking about the NCD for 2023.

Quentin Blackford

Look, I think for us, one of the most exciting aspects of getting the rate adjusted with the MAC where we have an IDTF is the better ability to utilize our resources. We've been somewhat constrained in terms of just how we can drive the efficient use of those resources historically as CMS has been -- the Medicare claims will be in process through the Houston MAC. So absolutely, there becomes that opportunity to become much more efficient overnight.

We've got to get the resources in place and the systems in place to make sure we do this right. And it's a good experience for the patients. But at the same time, the opportunity sits there to be more efficient and then yes, you're going to get the benefit of the higher rate. So the way you describe it is the right way to think about it. That is how we will get that benefit.

In terms of 2023, yes, I think it gives us the opportunity to really think about resource utilization in the best way possible, the most efficient way possible for the company. And if we can get that CMS final rate, put in place a reasonable rate, then we feel very good about being most efficient with our resources. So I do think it leads into an opportunity for us as we think about 2023 just to be the most efficient operation that we can be.

David Rescott

Okay. That's helpful. And I guess kind of a quick follow-up to that but also a second question. I think the guidance or the prior guidance for the year, you had mentioned that Q1 would be around 20%, 22% of revenue. If you think about that relative to the guide now, that implies that you're at the upper end of the range if we think about Q1 being this 22% of revenue for the full year.

So I guess, one, is the raise here -- just trying to get some color on what the raise was driven by here. I mean, is this in part volume? Or does the Chicago rate impact that at all? And if so, how soon I think -- do you think that you'd be able to kind of optimize this Chicago IDTF with the higher rate?

Quentin Blackford

Doug, do you want to jump on that question?

Douglas Devine

Yes, sure. On the second piece of it, as Quentin said, we need to get our systems configured. We need to make sure the patient experience is correct. So at this point, we have sent a couple of hundred claims over to NGS. None of them have adjudicated yet. We do have a substantial patch of our clinical technician population that is located in that Midwestern and Chicago area. And so once we know the claims are successfully adjudicating, then we will start to bring more of the clinical technicians that are already in that area. And they basically process the Medicare records that would have naturally flowing through that area, through that area. But really, it's going to be a second half impact. It's going to be more minor.

And I think the first part of your question was more on the revenue. As Quentin said, the updated guidance is a component of passing through the Q1 beat and then this NGS impact that we're going to have in the second half of the year. So you should look at this as we now think that the first quarter represents a higher fraction of the full year revenue than we were thinking of before. And I think the thing we'd highlight is that January and February were noticeably slower because of Omicron. We saw a stronger pickup in March, as Quentin had mentioned, than we were expecting at the time of the February call, which is what changed our view on what fracturing of the year Q1 would be.

Quentin Blackford

David, I would just -- on that, while we're talking about seasonality, as we think about the second quarter, I just -- keep in mind that the NGS benefit, to Doug's point, is likely to come in the back part of the year. I think, sequentially, you're going to see a consistent step-up in the business that we've historically seen around that 8% to 9% step-up. And so that's sort of how we're thinking about Q1 into Q2, first half of the year and the back half of the year.

Operator

We have our next question from Bill Plovanic with Canaccord.

William Plovanic

Great. Can you hear me okay?

Quentin Blackford

We got you.

William Plovanic

Excellent. So a couple of questions here. First, just wanted a little clarification, if we could. Just -- I think I heard in the prepared remarks that revenue was up 13% sequentially and unit volume was up 13% sequentially. Did I hear that correctly?

Quentin Blackford

No, that's a little off, Bill. Revenue was up 13% sequentially. There's about a 10-point benefit in there from the Novitas increased rate effective January 1. So volumes were up closer to that 3.5% range sequentially.

William Plovanic

Okay. Thanks for the clarification. Sorry, I just heard that wrong. Just wanted to clarify. And then on XT, I think you -- Doug, your comments were that it's becoming a larger piece of the business. I think it was running somewhere around 10%-ish as you exited the year. Has that become a bigger piece of the business? Is it like 11% or 12%? Or as a percent of revenues, does it -- is it holding in?

Douglas Devine

Yes. It certainly went up a couple of tenths. So it is comfortably above 10% for Q1. And then expand...

William Plovanic

Okay. Just last question real quick. is just on supply, a lot of people, especially on the tech side, are having some challenges. Just wanted to ask, in terms of inventory circuit boards, all the electronic components you required, considering you're putting your high growth and you need a lot more and you're launching a new product, just any thoughts or commentary you could add on that?

Quentin Blackford

Yes, Bill, I'll tell you, Doug and team have done a terrific job of being out in front of that particular issue for the company, and this is something they started to tackle many, many months ago. And so we feel very good with respect to supply and access to the critical components chips, for example, throughout the remainder of the year and being able to supply and support the guidance that we've put out there and continue to drive even beyond that and as hard as we can. So I think the team has done a wonderful job here, and I feel pretty good about where we're at.

Doug, I don't know if there's anything you'd like to add, feel free.

Douglas Devine

No, I'd just reiterate what Quentin said. We're very comfortable in our position. And I'd certainly say, when you look at our balance sheet, the other assets, which is where the printed circuit boards are covered, and then the inventory, you see that we are increasing those faster than we are increasing sales, and it is very much that we are working to manage risk in this environment and bolstering up on the balance sheet assets here and tend to make sure we're in a good position to be able to fully service our customers without concern.

Operator

We have our next question from Marie Thibault with BTIG.

Marie Thibault

Congrats on a very nice quarter. Wanted to ask one direct one here on the reimbursement. Is national CMS aware of the updated NGS rates? Have you had any conversations with them at a national level on that?

Douglas Devine

Yes, Marie, I'm certain that they're aware of it. One of the interesting things that we've sort of picked up on in the last probably 4 months or so, and we've spoken about this earlier, is that whereas historically, we were never sure if CMS and the MACs were communicating together or not. It does seem like they have been communicating over the last several months here.

What to read into that, we won't speculate, but we know that CMS is trying to get their arms around this and really learn as much as they can. They were actively interested in looking through the same sort of cost model that an independent third-party pulled together from the industry and took all of the MACs through. And so we're encouraged by all of those things. Obviously, we won't speculate on where it goes. We can't speculate. And so we'll wait and see what that proposed rule comes out at. But it does seem like there is communication going on there, and I'm certain they're aware of that NGS rate.

Marie Thibault

Okay. Very good. And I'll ask my follow-up here sort of on the core business. We've certainly been hearing across the med tech landscape that labor shortages within -- or staffing shortages within doctor's office, physician's offices is maybe leading to less adoption of technology than ideal. So wondering if you've seen any of that to any extent. Clearly, a very strong quarter, and I know you have home enrollment, but trying get a sense of your -- where things are with the Zio XT in that.

Quentin Blackford

Yes. We continue to hear that noise in the field for sure. You go out and you spend time with the physicians, that's the #1 issue that you hear them express concern around is just staffing challenges. I do believe -- and that's been around for several months now really back into the fourth quarter. I believe we're learning how to navigate through that environment. And we've reflected that in our guidance expectations.

We do have the home enrollment model that I think we can continue to refine and get even better with and make it a real differentiating capability of the company, but it is something that we can lean on. And honestly, even back in the early part of January when Omicron sort of spiked a bit, we saw home enrollment spike a bit. So I think there's an awareness to that, that opportunity out there in the marketplace, but we can drive it in a bigger way, which I think helps us navigate through some of the staffing challenges and the noise that we hear there. But yes, it continues to be there. I do think we understand how to navigate through it at this point and feel like we've captured that in our guidance pretty appropriately.

Operator

And our next question is from Suraj Kalia with Oppenheimer & Co.

Suraj Kalia

Quentin, can you hear me all right?

Quentin Blackford

I got you, yes.

Suraj Kalia

Perfect. First and foremost, congrats on a great quarter, Quentin. Let me start out broader picture, Quentin. Since the time you have joined iRhythm, Quentin, what are the average report delivery times? And what are the average technician reviews done per report now?

Quentin Blackford

Yes. The average turnaround times are sitting down around 2 to 2.5 days on average. Our stated objective is to turn those reports around in less than 4 business days. And as you understand and the rest of the audience here probably understands, we ran into some challenges there back to the midpart of last year, but the team did a nice job of getting back ahead of that. And now we have the metrics in place that give us very clear visibility into how we're monitoring and managing that.

And so not only do we monitor average turnaround times, but we pay very close attention to the number of reports that fall outside that 4-day turnaround time, and it's minimal at this point. And it's been that way now for nearly 5 months getting back into the fourth quarter. So we feel great about the turnaround time issue and the ability to manage that, control that and have the right number of resources here to be able to ensure that we continue to deliver a terrific experience for the patient.

In terms of the number of technician reviews or oversight, that's something that we can't really answer specifically because it depends on the sort of complications within the report that comes in. And so we group our reports in different tiers, and depending on the tiers, might impact the amount of review that goes into that. So every tier is just a little bit different.

Suraj Kalia

Fair enough. And Quentin, I'll just ask one more. I'll let others pick up the baton after this. So Quentin, look, CMS has to know about Novitas and now NGS, right? It is almost inconceivable that they don't talk. At least that's what our field checks suggest. Please correct me if I'm wrong. So NGS went from about, give or take, $200 to, let's say, $329, whatever it is. Novitas went from $115 to $233. If no new information was provided, I'd love to understand your expectations about national rates being higher. Would you still contend it should be higher than Novitas? Or would you contend that it has to be higher than NGS now? Congrats again.

Quentin Blackford

Thanks, Suraj. Look, we continue to work with CMS and we won't speculate on where they're going to go. I will tell you, there has been a lot of work done across the entire industry, not just iRhythm, but industry partners who have come together to articulate the cost, the investment that goes into delivering the sort of product, service, value that we're able to offer here. And so it's not just an independent biased perspective of iRhythm. And we know, in many cases, the data that got presented or has come together in that model was higher than iRhythm's submission. So we know that we're not alone here in terms of the cost to provide this sort of service.

What CMS does with that, we're not going to speculate on what that would be. Is there an argument that the value could be above even where NGS is at? There is. But we'll continue to work with CMS and respect their process, answer their questions, and we'll let them arrive at the position they're going to arrive at. But we continue to feel good about where this is at. And I think we understand very clearly the sort of value we can deliver, and it could support a higher rate.

Operator

We have no further questions in queue. I will now turn the call over to Quentin Blackford for closing remarks.

Quentin Blackford

Well, thank you all for your time this evening. We appreciate the interest that you continue to demonstrate in iRhythm and incredibly excited by the progress that we continue to make here at the company. And I want to take the opportunity just to thank all of our fellow employees here at iRhythm for all of the hard work and the great work that's come together over the course of the first quarter. And I think I shared this across the entire company, we couldn't be more excited about the future that sits in front of this organization, not only in the core markets that we serve where we know there's a significant runway of opportunity in a greenfield to continue to get after, but the adjacent markets have us excited as well. And so thanks so much and look forward to having a conversation the next time. Take care.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.