And so we already have this call point. We’ve got tremendous experience from an IDTF perspective and understanding how that aspect works and we can step in, I believe, and fill a tremendous void where we can make it very easy for the prescribing physician to prescribe the fact that they want a home sleep test or a sleep lab. We can step into that process, ensure that that sleep test gets performed, interpret the report and ultimately hand the diagnostic report right back to the physician, making it incredibly seamless for them and the physician, where that physician can see that report and make — ultimately make the final diagnosis. You can almost imagine, just making it as simple as having a single button in a single portal like Zio Suite where they can prescribe the device and the patient can get it at home, and ultimately, the report goes right back to the physician.
So I think we can completely transform that entire space. The home sleep test market today is north of a $1 billion market by most estimates. 50% to 80% of AFib patients have sleep apnea. We’re performing nearly 2 million tests a year. There’s a huge percent of that population that are likely going on the sleep test of some sort. We think we can disrupt it and streamline it for the physicians and the patients. So we’re super excited, we’ll see what we learn in this initial pilot, but I think we’re in a pretty interesting space here to leverage our product capabilities and our service capabilities to really deliver something that is transformational in this space. And the last thing I would add is, we spend a lot of time with our advisory boards.
These are physician advisory boards out across the nation and we listen for ideas of what we can do to streamline their practices or help make them more efficient. The number one item that comes back to us is around sleep, finding a way to make that entire process more efficient for them and I think this is a great way to do it.
Marie Thibault: Thank you, Quentin.
Quentin Blackford: Yeah.
Operator: Thank you. The next question is from the line of Richard Newitter with Truist. Your line is now open.
Unidentified Analyst: Hi. It’s Lee [ph] on for Rich. Thank you for taking the question. So could you help us understand the cadence of growth margin throughout the year and also how quickly can growth margin ramp once monitor transition is completed? Thank you.
Quentin Blackford: Yeah. Good question. Yeah. As we mentioned in the prepared remarks, we think the exit rate at that 66% or so rate is reasonable to think for the first couple quarters and the reason that timing is important is there’s a couple of different things. First of all, it takes about six months to nine months for a clinical cardiac technician to get fully up to speed and optimized, and we talked about hiring 100-plus or so in Q4. So it’s going to take a little bit of time for them to get up and be efficient. The second one is, we talked about automation, and automation comes into play in the back half of the year specific to Zio monitor, and remember, we had no automation in place for Zio XT, so that’s all incremental efficiency that will ultimately be created with the new product line.
So we’re thinking the exit rate for Q1, Q2 is a reasonable spot to think, call it, the 66% or so margin. To get to 68% to 69%, you’ll be able to do the math and you see how we’re going to put up some really nice growth margin numbers in Q3 and Q4. With automation in place, efficiency within the San Francisco COE, scale with the Zio monitor, effectively 80% of our total volume will be on Zio monitor at the time. All of those will be nice levers for us in the back half for gross margin and our exit rate is going to be at that 70% to north of 70% rate, which is some of the highest gross margins we’ve ever put up in companies’ history. So it — there’s some investments in the short-term, however, it comes with some really nice payback relatively quickly.
So that’s how we think about cadence for gross margin.
Operator: Thank you. The next question will be from the line of Nathan Treybeck with Wells Fargo. Your line is now open.
Nathan Treybeck: Thanks for taking the question. Can you talk about your guidance assumptions for competition and where your 70% market share goes in 2024 and also if you could just talk about the competitive dynamics in the PCP channel? Thanks.
Quentin Blackford: Yeah. So, when you think about 2023 and I mentioned the fact that it was a transformational year for us, all of our data would tell us that over the course of the years we saw our volume momentum really pick up and increase, and we increased unit volume growth in 2023 relative to 2022 in a pretty substantial way, that despite the fact that we have 70% of that long-term cardiac monitoring space, I actually think we picked up another couple points of share in that marketplace. That’s a market that, we had given a bit of share in the past as new competitors came into it, but on the heels of the CAMELOT data being out there on the move into the primary care channel, I’m convinced that we took share in the long-term cardiac monitoring space in 2023 and we hope to continue to find ways to do that into the future, but I think that’s pretty remarkable in a market where you already have 70%, so I do think we’re taking share there.
With respect to primary care, I think, we have a very unique and differentiated opportunity with primary care. Most of our competitors, they lead with the cardiologists and the electrophysiologists with an MCT-style product and then they simply step down into a long-term cardiac monitor or an event Holter, event recorder, extended Holter. So we take a very different approach. We come right in with long-term cardiac monitoring. We have a very different cost profile. At that price point, we’re able to deliver in the mid-60s what’s going to be to Brice’s comment he just made, 70% as we exit 2024, north of that on monitor alone. I just think we’re in a very unique position to go in and compete for that primary care space. I’ve had a couple folks that I’ve been able to sit with competitors and we talk about our success in the primary care channel and they look at it a bit skeptical, I think, primarily from an economic perspective, but with our gross margin profile, we know that we can drive a very nice business there and expect to be able to build it pretty significantly.
So I don’t think a lot of competitors are trying to move to primary care at this point. That’s why speed is of the essence and we’re going to move as fast as we can, but I think we have an opportunity to truly disrupt it and open it up to Brice’s point earlier, in a way that expands the market meaningfully versus just contributes to the overall market growth of 3% to 4% we’ve historically seen.
Nathan Treybeck: Okay. That’s helpful. And my follow-up, so you talked about international contributing a point of growth in 2024 and this is before the Japan launch, which you expect in early 2025. I guess, how should we think about that ramp in Japan? Can it be higher than a point of growth contribution from international in 2025 and maybe just timing for reimbursement in Japan? Thanks.
Quentin Blackford: Yeah. Maybe I’ll take the first one with reimbursement first. We need to get through the regulatory approval of the product that’s on file with them. We’re actively engaged going back and forth and that’s moving quite well. I would expect that to get approved in the back half of the year and then move directly into discussions around reimbursement, which probably take a couple of months. That should get us to the point where we’re ready to introduce the product from a commercial perspective right around the turn of the year, early part of 2025. So, that has us excited. When I think about 2024 and the point of growth coming from international, we really didn’t get any contribution to our growth profile in 2023 as we stepped through some of the NHS-related accounts in the U.K. and started to really focus in the private sector.
But the majority of that growth in 2024, frankly, will come from that U.K. business now that we’ve anniversaried some of those challenges. But I love the setup as I think about 2024 and even more so into 2025. You’ve got international where we’re expanding with Japan. You’ve got Switzerland coming on board, Netherlands, Spain, Austria, right there on the roadmap. And then you launch Japan in early 2025 and should be launching a new and exciting MCT product as well in 2025. I think the setup is terrific as we think about all the tailwinds that are in the business. So we’re excited with what’s in front of us and feel like we’ve got a lot of good tailwinds that we can execute against and I do think international will be another growth contributor, not only in 2024, but, yes, again in 2025.
Nathan Treybeck: Thanks.
Operator: Thank you. The next question will come from the line of Bill Plovanic with Canaccord. Your line is now open.
John Young: Hey, Quincy and Brice. It’s John on for Bill tonight. Thanks for taking our questions. I just wanted to focus on the pilot program for Know Your Rhythm that you mentioned on the call. Maybe just some more color on that, details on the revenue model and we’re sharing around that, and how much of that is being considered in 2024 guidance? Thanks.
Quentin Blackford: Yeah. So we haven’t considered a whole lot of incremental revenue from Know Your Rhythm in the 2024 guidance at this point. Our view has been let these models or these pilots play out. And once they’re validated and we know they’re going to be a commercial success, then we can start to bring those into the revenue expectation. So we’re going to let the pilot play out and then we’ll think about sort of how we think about revenue for the year. I will tell you the early indications in the pilot with PCC have been terrific. It’s very, very early. Look, out of the first 300 patients that came through or that have gone through the pilot with the Zio patch, and keep in mind, this is an asymptomatic population that we believe dangerous arrhythmias might be present, nearly 200 of them have come back or 70% of the asymptomatic patients have been identified with having a dangerous arrhythmia.
That’s pretty phenomenal and well above where sort of that diagnostic rate needs to be for the pilot to be considered a success. So early stages, but beyond our own expectations at this point in time and give us a lot of hope with respect to where Know Your Rhythm can go. In terms of the economic model, we’re still working through what that can look like at full larger scale and so I won’t get into the details of that just yet, but early indications are that we can be very good with our data, with our AI at identifying and targeting the right populations and finding these dangerous arrhythmias that frankly end up in a significant and a tremendous cost to our healthcare system if they go undiagnosed.
John Young: Great. Thanks, Quentin. And then just as a follow-up too, IDN has been a particular strength for you guys too. How much greenfield opportunities left there when it comes to these integrated networks for you guys to penetrate and go into? Thanks again for taking our questions.
Quentin Blackford: Yeah. Well, I think that, with the IDNs, you got to look at it from two different angles. In several cases, we might be in a small part of a larger IDN that we have the opportunity to go much more expansive with. And there’s other cases where we’re just not in the IDN at all and we can come in from sort of a top-down approach and be pushed down into their network. I would say we’re going at it from both ways. I was just reviewing the pipeline with the commercial team just yesterday and it’s as strong as we’ve ever seen it, including these large IDNs. And what I love about it is some of the highest growers, as a matter of fact, some of our strongest growers through the first two months of this year are coming from these new networks that we’re opening up. That’s pretty incredible and I think it just speaks to the sort of opportunity that sits out there.
John Young: Great. Thanks again.
Operator: Thank you. The next question comes from the line of David Rescott with Baird. Your line is now open.
David Rescott: Hey. Thanks for taking the questions. I have two questions. I’m just going to ask them up front. First, I’m excited to hear some of the updates around the sleep program. I know at the Analyst Day a couple years ago, you talked about the expected spend baked into the longer range plan, but some of the upside from revenue was not. So I’m wondering if that’s still the case. And then just on Japan, when you think about framing up the timing of that market, how should we think about the rollout into that international market, specifically Japan? Thank you.
Quentin Blackford: Yeah. So from the sleep perspective, that spend is in the base. It’s in our guide that Brice has provided and give you a bit of details around. So there’s not any incremental spend there that we’re thinking of at this point in terms of ramping up that sleep pilot. With success, we’ll see just how much success we think we can drive and how fast, and we’ll take a look at it. But I — again, I think, there’s a massive opportunity to disrupt that space, leveraging a lot of the existing infrastructure we already have put in place and so we’re going to look to do that to the greatest extent that we can. With respect to Japan, again, I think the timing, the right way to think about that is early part of 2025.
We’ve got our partner identified. We’re working very closely with them as we prepare from a commercial readiness perspective to be able to enter that market right after the turn of the year. And then, I think, just in that Japanese market, it’s probably prudent for us to think about relatively modest ramp as we go. I do think having a high medical needs designation specific to Zio puts us in a really unique position there. We know that patients need access to this product, but at the same time, we’re not going to get ahead of ourselves with expectations. We’re incredibly bullish on the market being the second largest market in the world, but at the same time, we want to let the results sort of play out, get a little bit of experience under our feet and then we’ll think about the right way to really, think about the cadence of growth.
Operator: Thank you. The next question will come from the line of Michael Polark with Wolfe Research. Your line is now open.
Michael Polark: Hey. Good afternoon. Quick one, the weather impacts for the first quarter, I haven’t heard that yet through reporting season. Was that cold weather, snow in January or was there some large storm I missed? I guess what specifically are you calling out there?
Quentin Blackford: Yeah. It’s a good question, David. What we did see is large storm impacts in the northeast and really across the country in certain respects. It’s not a huge number. It’s $1 million to $2 million, but we thought it was important to call out and we certainly have heard others in the industry talk about that. It’s not unique to us and I would expect you’ll continue to hear that as feedback. However, didn’t change the overall guidance at $575 million to $585 million, just a little bit of timing issue there.
Michael Polark: Helpful. And then my question on Switzerland at U$1,000 per case stands out, obviously, as a high number. Is that for an MCT configuration or is that more for an XT product? And if it’s XT, how did they get there?
Quentin Blackford: Yeah. That’s the long-term cardiac monitoring, so that’s not the MCT product. And Mike, we have been in sort of market eval, or I guess, a focused evaluation with the University of Basel over there for a little while now, and I think that, you look at the CAMELOT data, you look at their own internal data in terms of the cost avoidance downstream that they’re realizing from an earlier diagnosis, they see that the value of the product is far beyond just the initial diagnosis. It’s the avoidance of downstream unnecessary costs. And so, they worked those models together and they came up with their rates and certainly were pleased to see that value being recognized. Obviously, it’s a very attractive rate and it makes that Switzerland market, while the volumes aren’t near as large as some of the other markets throughout Europe, that one’s a pretty interesting one at those rates.
