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iRhythm Technologies, Inc. Common Stock (NASDAQ:IRTC)
Q1 2020 Earnings Call
May 07, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the iRhythm Technologies, Inc. Q1 2020 earnings conference call. [Operator nstructions] Please be advised that today's conference is being recorded. [Operator instructions] I would like to hand the conference over to one of your speakers, Ms.

Leigh Salvo of investor relations. Thank you. You may begin your conference.

Leigh Salvo -- Investor Relations

Thank you all for participating in today's call. Joining me are Kevin King, CEO; Matthew Garrett, CFO; and Dan Wilson, EVP, strategy, corporate development and investor relations. Earlier today, iRhythm released financial results for the first quarter ended March 31, 2020. A copy of the press release is available on the company's website.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made 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 facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, those statements related to the impact of COVID-19 on our business, expectations for economic recovery, market expansion and penetration, productivity improvements, reimbursement, release of clinical data, operating trends and our future financial expectations, including revenue, gross margins, profitability and operating expenses, are based upon our current estimates and various assumptions. These statements involve material 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, with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 7, 2020. 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 Kevin.

Kevin King -- Chief Executive Officer

Thank you, Leigh. Good afternoon, and thanks for joining us. Before we begin the discussion of our results and outlook, I would like to take a minute to express our deep appreciation to frontline healthcare professionals that have been working tirelessly to fight the COVID-19 battle. We are truly grateful for their dedication and compassion.

They give us high confidence that when we get through this pandemic, we will be even stronger. I would also like to thank the entire iRhythm team. I'm impressed by their enduring spirit and commitment to our customers and their patients. It's a testament to the resiliency of our team that we were able to quickly transition to a remote operating environment while continuing to deliver our ZIO service without disruption.

It's an honor to work alongside such a great team. Over the course of our prepared remarks, I'll cover Q1 highlights, provide our observations on current market dynamics and recap our priorities in the face of the COVID-19 pandemic. I will also provide commentary on what we are experiencing so far this quarter, how we are managing our business today and positioning for recovery long-term. Matt will cover our financial results for the first quarter in more detail before opening up to questions.

Starting with our first-quarter results. We had an exceptionally strong start to the year. Strong adoption of our single ZIO platform was ahead of our own expectations by almost all measures to the beginning of March. A strong ramp of ZIO AT and our focus on large systems drove sustained high sales force productivity.

We saw continued pull-through of XT in accounts that launched AT and we had strong growth from both new and existing accounts. The components of our near-term and midterm strategy remains sound, and we expect these to continue to drive expansion of our business as the recovery takes hold and in the longer term, post-recovery environment. Beginning in March, we began to see a significant impact on our patient registration patterns. As we are all highly aware, unprecedented changes emerged in the healthcare landscape that made it necessary to prioritize treatment for critically ill patients and limit the spread of COVID-19.

Patients were encouraged to avoid hospitals and stay at home, except in most extreme circumstances. Elective nonessential procedures were canceled or deferred, and diagnostic tests outside of those related to severe respiratory illnesses were largely unavailable. Most physician offices closed or reduced the minimal hours for essential procedures. These factors began to significantly impact our patient registration patterns starting the week of October 16.

Total revenue for the first quarter of 2020 was $63.5 million, an increase of 31% compared to the same period in 2019 and 8% sequential growth over the fourth quarter of 2019. As Matt will detail further in his comments, we estimate the impact of COVID-19 on our first-quarter revenue was approximately $2 million. Revenue for the quarter would have been $65.5 million, representing a 36% growth compared to the same period in 2019. We're extremely pleased with our quarterly results and the momentum we have in the marketplace.

At the onset of COVID-19 pandemic in mid-March, iRhythm began implementing initiatives that were focused on three key priorities. Our first priority is focused on protecting and supporting the health and well-being of our employees, our communities and our customers by limiting the potential transmission of COVID-19. Following recommendations on federal and local government and health agencies, we quickly transitioned all employees to a remote working environment. For a small number of our employees who continue to support essential operations at our facilities, we have instituted social distancing and other measures to ensure their safety.

As mentioned earlier, the iRhythm team was able to transition to this new work environment without disruption to our ZIO service. We continue to follow local and national guidelines to determine the appropriate time to resume in-office functions. Our second priority is ensuring uninterrupted patient care for both ZIO XT and AT and supporting efforts to monitor COVID-19 patients. COVID-19 has been associated with significant atrial and ventricular arrhythmias, and COVID-19 infected patients with underlying heart conditions are at high risk for complications.

Our digital service platform enables physicians to remotely monitor both of these patient populations' heart health. Our single-use and patient-friendly ZIO Patch is ideal for virtual model and eliminates the need for clinical staff to clean and reuse traditional Holter and Event monitors, which may lead to exposure to viruses and other pathogens. Another component of our second priority was to support health systems' efforts to monitor COVID-19 patients. ZIO AT is now deployed in both inpatient and outpatient settings to monitor real-time health of COVID-19 patients.

And finally, our third priority is to ensure continued financial strength by adjusting our operating plan. Given the disruption in demand and an uncertain length of time of recovery, we have adjusted our operating plan by taking steps to reduce our operating spend. These steps include eliminating or delaying project spend for nonessential programs, reducing spend on travel and consulting, implementing a hiring freeze, furloughing a select number of employees and implementing varying rates of temporary pay reductions for our salaried sales force. We are confident these initiatives, while not easy, will ensure the company continues to have appropriate liquidity while continuing to invest in the core drivers of our business and our future growth.

I would like to now provide some insights on the trends we're observing thus far. In the last two weeks of March, we saw a significant decrease in patient registrations as shelter-in-place orders took hold and patient visits were canceled or postponed. We began to see a modest recovery in late April and early May, but continue to see suppressed levels of patient registrations. In total, for the month of April, weekly registration rates were approximately 65% of our average weekly registration rates in the first quarter prior to the impact of COVID-19.

While we have seen signs of stabilization and would like to believe the worst may be behind us, it is our belief that we will be at suppressed levels of demand through the second quarter and potentially the remainder of the year. I will share more about our views of the market recovery momentarily. Home enrollment is one component of our complete platform that allows physicians to prescribe ZIO, register patients, view preliminary ZIO data and post final reports independent of location and without the need for direct patient contact. During this period, home enrollment has grown to be more than half of our current patient registration volume.

We expect home enrollment to remain a relatively high percentage of our total patient registrations well into the recovery period. Home enrollment with ZIO is more than mailing a device to a patient's home. The home enrollment process is extensive and takes slightly longer to complete than ZIO services prescribed in-clinic because of the need for iRhythm to remotely take on activities normally performed by our accounts. Our increased responsibilities include confirmation of the accuracy of patient registration information, confirming the application and activation of the ZIO Patch by the patient, providing 24/7 support services and ensuring the patient follows the appropriate steps to return the device upon completion of testing, generally after 14 days of wear.

In general, the number of days to complete the service is slightly longer for home enrollment. Turning back to ZIO AT. We've seen an increased COVID-19-related demand for ZIO AT. Hospitals are using ZIO AT as patients transfer to outpatient status, freeing up inpatient hospital beds while safely monitoring patients that are at an increased risk of lethal arrhythmias caused by the coronavirus.

Hospitals are also using ZIO AT in inpatient settings for QT monitoring in instances where there is a lack of available telemetry beds. As it relates to market recovery, we've been doing a tremendous amount of work with our customers to understand the processes they are experiencing and their expectation of full return of patient demand. The prevailing consensus among customers we've interviewed is that they expect to be operating in this COVID-like state for their foreseeable future at least 12 months. Most have formed dedicated recovery teams to shape their plans.

All are tethered to state and local guidelines and are in close collaboration with medical societies and related healthcare entities. The main focus for all is on staff and patient safety. New workflows are being developed that require prioritizing patient types and deferrals, establishing procedures for exam room and equipment cleaning after every patient visit and spreading out patient appointments. Together, these actions are expected to create near-term capacity constraints.

To offset these constraints, many are planning to extend hours and add weekend services. We believe the continued use of home enrollment service, combined with the benefits of a single-use wearable ZIO sensor will be a more favorable alternative than office visits and equipment that requires cleaning between patient visits. In the event of a resurgence in new cases, accounts are planning to use telehealth in virtual workflows to sustain patient care for various levels of acuity. Before closing, I want to provide a quick update on our market expansion initiatives as well as our CPT process.

We expect our market expansion efforts to continue with little or no impact on timing. In our collaboration with Verily, our teams continue to make progress on the development of an end-to-end solution, and we recently passed a development milestone that will trigger a milestone payment in the second quarter. While we have paused hiring for roles that were originally planned for the collaboration, the overall timing of the project remains on track. In regards to our silent AF efforts, we continue to expect important clinical data this year from both SCREEN AF and mSToPS.

And the GUARD-AF study, which we started with BMS-Pfizer late last year, is temporarily on hold, but is expected to restart in the coming weeks, and we will also now utilize a home enrollment option. And finally, on our CPT process, we continue to look forward to the July publication of the Medicare Physician Fee Schedule by CMS, which will include the proposed fee for the new permanent code sets. Our expectations on timing and our confidence and views of the ultimate outcome remain unchanged in the current environment. To close, the timing for what would seem like -- what would be likely a new normal remains unknown.

We're closely watching the patterns in the States that have opened up healthcare facilities for deferred procedures and other nonemergency visits. While these are challenging times for all, we recognize the need for a high-quality patient care is greater than at any point in our history. Our digital platform enables physicians and patients to access all the capabilities of our proven and complete platform in a virtual environment, whether they are using a mobile device, a tablet, a laptop or a desktop computer. Our single-use ZIO devices are patient-friendly and eliminate the need for cleaning traditional equipment.

We are highly confident that the strength of our ZIO platform and being clinically proven and operationally complete position us for further market penetration. Our strong start to 2020, our ability to quickly adapt to a predominantly virtual sales and service model and our adjusted operating plan to maintain our long-term growth objectives delivers confidence that we are in the best position possible to continue to gain share for our ZIO service. Moreover, the strategic initiatives that are key to our growth strategy remain unchanged: increased market penetration with our single ZIO platform; increased operating leverage through continued productivity and automation improvements; and expanding our addressable market into new indications and geographies. And with that, I would like to turn it over to Matt Garrett, our CFO, for a more detailed review of our Q1 2020 financial results.

Matt?

Matt Garrett -- Chief Financial Officer

Thanks, Kevin. Before I dive into first-quarter 2020 results, I would like to point out two key comments about the current state of our business. First, even after taking into account the impact of COVID-19 crisis, iRhythm posted a solid quarter with strong execution across the board. Secondly, and as importantly, in six short weeks, the company transitioned to the new normal, leveraging our database business and transitioning a significant portion of our operations to support home enrollment.

So while the company clearly sees challenges in the near term, we remain very confident in iRhythm's ability to weather the storm and come out of the back end in an even stronger position. Highlights for the first-quarter 2020 are as follows: revenue growth of 31% year over year and sequential growth of 8%; gross margins of 74.7%, inclusive of one-time inventory adjustments as announced in Q4 of 2019; continued traction and expansion of our ZIO AT market launch, making our MCT monitoring solution available to all customers across the country; and finally, sustained sales force productivity levels through the development and onboarding of new reps, investments in our sales organizational infrastructure, continued penetration of large integrated systems and of course, the launch of ZIO AT. Taking a more detailed look at the first-quarter financial results. Revenue for the three months ended March 31, 2020 was $63.5 million, an increase of 31% year over year and 8% sequentially.

Management has determined that revenue was negatively impacted in the quarter by the COVID-19 crisis on two fronts. First, the company booked additional reserves due to expectations of lost patient insurance and co-pay payments lower than historical averages. And secondly, the company has estimated that lower registrations and unit intake in the latter half of March had a material impact on Q1 revenues. In total, the company has determined the impact of loss revenue in the quarter to be approximately $2 million.

Despite the impact of COVID-19 on the business, we would like to continue to highlight some of the trends we are seeing which support our confidence in the business and in our ability to be ready to expand our footprint when we come out of this current environment. These trends include continued improvement and sustainability of sales productivity levels with significant number of reps surpassing $2.5 million in annual revenue productivity. Despite the late March impact of COVID-19, we continue to see strength in new store revenue growth, where new store revenue growth mix increased to 45%. We view this mix as a positive sign of our ability to penetrate new accounts in a post COVID-19 environment while still growing same-store accounts with both ZIO XT and AT.

And finally, in the last three weeks of March, the company successfully transitioned our business to support home versus in-clinic enrollment. Specifically, home enrollment over the past month now accounts for more than 50% of registrations, and the company has the ability to support all registrations through home enrollment as necessary moving forward. In summary, these trends continue to demonstrate our ability to scale our high-volume business and our flexibility to support virtual care moving forward in a meaningful way. Turning our attention to the rest of the P&L.

Gross margin for the quarter of 2020 was 74.7%, compared to 75.6%, a 0.9% decrease in gross margin over the same period of 2019. The gross margins as adjusted for one-time items in the quarter and the additional COVID-19 reserves was approximately 76.1% or a 0.5-percentage-point improvement over the same period in 2019. Non-adjusted operating expenses for the first quarter of 2020 were $56.7 million, compared to $44.8 million for the same period of the prior year, an increase of 27%. Excluding costs associated with Verily development, opex was $56.1 million or an increase of 25%.

In the quarter, opex was adjusted for the impact of COVID-19, where bonuses and some stock comp expense were eliminated or reversed. In addition, the company booked approximately $1 million of incremental bad debt expense in the quarter due to anticipated impact of COVID-19 for lost patient insurance and impact on lower copayments. Finally, the net loss for the first quarter of 2020 was $9.1 million or a loss of $0.34 per share, compared with a net loss of $8.3 million or a loss of $0.34 per share for the same period of the prior year. Turning to our expectations for the remainder of 2020.

As was announced as part of the 8-K filing on Thursday, April 9, the company has suspended guidance until which time management feels confident that internal expectations on revenue and operating expense can be reestablished and communicated publicly. We do, however, want to communicate to investors the following activities and steps the company is taking to ensure the long-term sustainability of the business. First, that the company's ability to transition from in-clinic to home enrollment operational environment was key in our ability to maintain meaningful registrations and revenue streams during this challenging period. And second, that the company has taken significant steps to decrease our expenditure profile and current spending run rate by reducing current employee expenditures, new hire freezes, eliminating cash bonus plans and materially lowering travel and consulting expenditures.

With these steps, the company intends to lower cash burn to the largest extent possible while still maintaining our ability to deliver benchmark services to our customers. With over $120 million of cash on hand, the company is in good position to weather any near-term challenges and to step up investment at the appropriate place in time. Kevin, Dan and I would now like to open the call for questions, and I turn it back over to the operator.

Questions & Answers:


Operator

Thank you, speakers. [Operator instructions] Your first question comes from the line of David Lewis. Your line is now open.

David Lewis -- Analyst

Good afternoon, and thanks for taking the question. I appreciate the comments on assumptions of the April into April recovery or April stabilization. I just wonder if you can kind of provide any additional feedback on sort of some of the trends you're seeing into early May. And is it reasonable to assume that we get back to growth as early as the third quarter? And then I have a couple of quick follow-ups.

Kevin King -- Chief Executive Officer

Sure. Hi, David. This is Kevin. OK.

I think there's three levels that you need to consider or we're considering when we're projecting the near term. And the first is the strength of the iRhythm platform and our ability to deliver the service. And we just have extreme confidence that our platform and services are going to be preferred over alternatives and that the proven and complete nature of what we do every day resonates more with customers. As for the second thing that we need to take into account here is account readiness and outlook.

And as I mentioned in the prepared remarks, account readiness in these plans are taking shape, while I'm sure you've heard lots from other customers and other companies as well. Accounts are building their plans that include telehealth, home enrollment to sustain operations, etc., and we think that this is going to help also looking forward. The real wildcard though was the third one, which is what are the expectations for regional recovery. And not all regions right now look the same, and not all regions have the same level of risk.

So this is the hard thing for us to view. We've seen, for example, in the northeast, steady declines. We see in California a steady rate, a low but steady rate. But in other parts of the country, we're still increasing anywhere from 10% to 50% over like a seven-day average.

So our view of what we're able to do going forward is more predicated by that regional recovery outlook than it is anything. We're certainly optimistic with the trends that we're seeing late April, early May. But I don't know if we have enough data points just yet to make a call on whether or not this is a Q2, Q3 type timing. I think it's all going to depend upon that regional recovery trend.

David Lewis -- Analyst

OK. Very helpful, Kevin. I'll just ask two more quick ones and I'll jump back in queue. First, just sort of give us any sense of the kind of installation you're seeing from either the use of AT in acute care settings or ZioSuite plus home patch solutions.

So what installation are those offerings providing? And then any update on Verily development time lines or any implications for development time lines in light of COVID? Thanks so much.

Kevin King -- Chief Executive Officer

Yeah. Sure. Yeah, look, home enrollment is an incredibly value-add service that we have. We've always had it in place, so what was a relatively low percentage of use in the earliest days.

And so we weren't ready to take this on. And as we said in our call, it's ramped up to over 50% of our volume, and I think our customers greatly appreciate the quality at which we do that. If one looks on our website, we've got a comparison of in-clinic to home enrollment performance metrics, and the performance metrics from patient wear time, diagnostic yields, signal quality, returns and all that stuff are essentially equivalent. And so that is greatly helping our customers as they become more and more comfortable with telehealth.

AT is a new story for us. And in this COVID environment, as I mentioned, both inpatients and patients that are being transferred to outpatient are increasingly wearing ZIO as the risk of atrial and ventricular arrhythmias in these infected patients come to bear. So we're extremely happy about that and extremely happy about ZioSuite tying everything together for us. The second part of your question, David, I just -- was there a second part to that?

David Lewis -- Analyst

Are there impacts with Verily, Kevin?

Kevin King -- Chief Executive Officer

Yeah. Dan, do you want take the Verily one? You were at the recent meeting with the Verily guys.

Dan Wilson -- Executive Vice President, Strategy, Corporate Development, and Investor Relations

Yup. Will do, Kevin. Hey, David. And so as Kevin mentioned in his prepared remarks, we continue to make progress on the development of an end-to-end solution.

And we recently crossed a milestone a few days ago that will trigger a milestone payment in the second quarter. The hiring freeze that we implemented did impact some roles we were planning to fill for this project, but we're certainly doing our best to maintain time lines despite that. And so at this time, we don't expect any timing delays, and we're certainly pleased with the development thus far, kind of, call it, nine months into the collaboration.

Operator

Your next question comes from the line of Margaret Kaczor. Your line is now open.

Brandon Vazquez -- Analyst

Hi, everyone. This is Brandon on for Margaret. Thanks for taking the question. I guess, first, just starting kind of on ZIO XT as we're moving to a more telemedicine world, and perhaps this is even here to stay as we go forward.

How do you guys feel about the reimbursement coverage under the telemedicine world? Is there a broad coverage that patients can just call up, do a telehealth, and there doesn't have to be any in-person tests? So how does that kind of track? And is that going to be sufficient for you guys to kind of recover through the year?

Kevin King -- Chief Executive Officer

Hi, Brandon. This is Kevin. So the telehealth visits are generally done physician-to-patients, and that's a healthcare provider or physician responsibility to bill for. The prescription of ZIO, whether the service is on in-clinic or remotely, bill the same way.

So there isn't any component to the technical fee that we receive for ZIO that's impacted, whether it's home enrollment or in-clinic enrollment.

Brandon Vazquez -- Analyst

OK. That's helpful. And then switching gears to ZIO AT. The comments that you guys have made on AT being used in the inpatient setting was especially interesting given -- I think in the past, when you've talked about this market for AT, it's generally been an outpatient real-time monitoring market.

So I guess the question is what are the capabilities of ZIO AT compared to some of the traditional inpatient? I think they maybe use some more aggressive 12-lead ECGs. And is this a potential market that you guys can kind of get into moving forward? Can the inpatient market also be used for ZIO AT in the long term, or is this a temporary COVID market? Thanks.

Kevin King -- Chief Executive Officer

So in answering the second question first, I think that market has to be developed. Right now, there is a, in many instances, there's a shortage of monitored beds in hospitals, whether they are in the critical care units, ICUs and CCUs, or they are in the step-down telemetry wards, and there aren't enough beds to monitor -- there aren't enough monitors to monitor patients. So ZIO AT has been called into action in these situations to monitor patients for life-critical-related events with great success. We had good feedback from customers about the accuracy of ZIO relative to their real-time telemetry monitors, for example.

It is something new that has emerged over time. We did receive FDA permission, if you will, to use it as an inpatient monitor for these particular instances, and we're really pleased with that. And we're just going to have to see where it goes going forward, whether it remains a key use in hospital. And we'll have to work on that as we work our way through the pandemic here.

A little bit early for us to tell, I think.

Brandon Vazquez -- Analyst

Great. Thanks for taking the questions.

Operator

Your next question comes from the line of Cecilia Furlong. Your line is now open.

Cecilia Furlong -- Analyst

Hi, Kevin, Matt and Dan. Thank you for taking the questions. I wanted to ask just the COVID's impact on and use in hospital settings. How do you see this, one, kind of expanding ZIO's utilization within the hospital and beyond your traditional cardiology and EP target centers? And what does that do for ZIO's kind of presence within the hospital longer-term?

Kevin King -- Chief Executive Officer

So Cecilia, you're referring to using ZIO as an inpatient service?

Cecilia Furlong -- Analyst

And just expanding beyond cardiology and EP and with COVID acting as a driver for that expansion going forward.

Kevin King -- Chief Executive Officer

Yeah. So we've talked a lot about this, the power of our digital platform and our focus on large integrated delivery systems where users -- the walls of the users have expanded beyond cardiology and EP. Those include the emergency departments, neurology, in many cases, primary care or general medicine. And I think given the environment we're in now, particularly with the movement to telehealth, we're optimistic that this is going to continue to build awareness among those various physician groups and also demonstrate the value of what we have.

As far as using it inside the hospital as an inpatient, it was just -- I just sort of answered that with Brandon, and I think with Brandon, it's a little bit too early for us to tell, although the value we are seeing out of ZIO AT in these transferred patients and in these select cases with COVID-19 infections is quite dramatic, and we're actually very pleased about that.

Cecilia Furlong -- Analyst

OK. Thank you. And I guess just looking forward, moving kind of past COVID, how are you thinking about home enrollment as a percentage of your business, but really the impact this could have, one, on sales force productivity, as well as how you view kind of a long-term sales force at scale?

Kevin King -- Chief Executive Officer

So there is no governor on our ability to scale home enrollment. This is a service that runs through ZioSuite, the information system that we deployed at the beginning of the year and formally, when ZIO reports its predecessor. As I said earlier in the prepared remarks, this service does take a little bit longer, mostly because we're mailing directly to the patient as opposed to mailing bulk to the account and having them do the patch application. Aside from that, it's perfectly scalable for us to continue to do this.

In conversations with many of our customers, telehealth was something of interest to a lot of people, but it didn't seem that there was a driving force behind them. And COVID has forced customers to engage in telehealth with great success or good success. And as a result of that, any hesitancy that one might have ordered -- one might have had to order a ZIO through a telehealth application has pretty much gone away. And that's highlighted also by the data that we have on our website, the comparisons of in-clinic to home enrollment, quality of service, outcomes to patients, patient satisfaction and things of that nature.

I think it's here to stay, and I think it's going to be a market expander for us. And I would just add that home enrollment is, as I said in the prepared remarks, is more than just delivering a device to a patient's doorstep. It's really enabling that entire end-to-end service to take place, prescribing, making sure the data is accurate, providing 24/7 information, independent of a platform that the caregiver or the patient is using, a mobile phone, a tablet, a desktop computer or a laptop, all of this service can be remotely managed through any type of a hardware platform, if you will.

Cecilia Furlong -- Analyst

Great. Thank you, Kevin.

Operator

Your next question comes from the line of Suraj Kalia. Your line is now open.

Suraj Kalia -- Analyst

Sure. Good afternoon, everyone. So Kevin, two questions for you and one for Matt. What percent of ZIO XT, if I look over the last four to five quarters, is used, let's say, within the two- to seven-day bucket? And also, there has been a lot of mention about use of AT in the inpatient setting, specifically related to COVID.

Could you care to characterize what volume contribution was received, let's say, in the last two weeks of March, let's say, or even April and early May? And Matt, for you, assuming the unemployment scenario increases, the way reserves are calculated for bad debt and patient co-pays, is it still going to be the portfolio approach or is there going to be any switch to any extent whatsoever?

Kevin King -- Chief Executive Officer

Sure, sure. Hi, Suraj. Good to hear from you. I'll take the ZIO AT one first.

In terms of ZIO AT volumes as they relate to response to COVID, I would say ZIO AT volumes are up by a factor of two to three easily in the short period of time. Relative to ZIO wear times, well over three quarters, they're going to be 85% of our prescriptions, are for 14 days. And the average wear time for those is like -- I think the last time we posted this, was about 13.8 days. The vast majority of people are realizing the benefits of long-term continuous monitoring relative to shorter alternatives.

We've presented data on 500,000 sequential patients and we noted the percent of time cardiac arrhythmias occurred after day seven, where those cardiac arrhythmias were the first events and they were life-critical events, heart pauses, complete heart block, ventricular tachycardia, etc. So there's probably evidence for them. And I think the medical community is beginning to realize that. Matt, do you want to take the question on bad debt?

Matt Garrett -- Chief Financial Officer

Sure. I think there's two parts of that question, Suraj. The first part is related to the noncontracted portion of our business, so our average collection rate. And we do take a portfolio approach of looking at that and have made appropriate adjustments.

As it relates to bad debt expense, obviously, we are going to be monitoring that very carefully. We did a preliminary analysis based on a very short time frame. And the challenge is trying to come up with anything, from a historical perspective, that matches where we are today. And the answer is there isn't anything.

The good news, I think, that we all feel is whether it's a V- or a U-shape recovery, that the hope and intent is that it's nothing like an extended long-term period of time with people out of work and thus having issues from ability to pay. But we'll continue to monitor it carefully and update accordingly on a quarterly basis.

Operator

[Operator instructions] Your next question comes from the line of Robbie Marcus. Your line is now open.

Robbie Marcus -- Analyst

Great. Thanks for taking the question. I've been bouncing between calls, so if this has been asked, apologies. But in our diligence, we've had a lot of doctors say that this could open new doors for -- in how they treat patients longer-term and could help accelerate the transition to ZIO and ZIO AT away from Holter over time.

Is that something you're thinking about? And how are you preparing to capitalize on that longer-term?

Kevin King -- Chief Executive Officer

Sure. Hi, Robbie, Kevin. Thanks for the question. Yes.

Certainly, in our work that we've been doing, there's two things that are behind that question. One of them is that customers tell us their staff, and it's likely that patients are not going to -- this isn't great English, but not going to want to interact with devices that have been worn by other patients because of the potential risk of contaminants and so forth. So -- or it's unlikely that they will. And so single wearable devices will be preferred, and this will help drive further adoption.

I think the second part is that people are seeing just an incredibly high level of quality in patient data that they hadn't seen before. I can speak to this from the early work that we've seen here with AT in these inpatient hospitals -- in inpatients in hospitals and in telemetry applications, as well as in the home enrollment application, where a patient can apply as themselves and we end up getting the same or better -- the same level of quality information, the same level of wear time. I think it's only going to help accelerate that adoption that we've been working on for so long in terms of getting away from technology that's 40 or 50 years old. Nothing like a crisis to help accelerate change, right? We're seeing that also with telehealth in terms of physician adoption.

They're embracing this more and more as a result of the need rather than -- or the necessity rather than just the need.

Robbie Marcus -- Analyst

Great. Maybe just as a quick follow-up. Has there been any impact to time lines on the Verily collaboration? Thanks.

Kevin King -- Chief Executive Officer

Yeah.

Dan Wilson -- Executive Vice President, Strategy, Corporate Development, and Investor Relations

Hey, Robbie. It's Dan.

Kevin King -- Chief Executive Officer

Go ahead, Dan. Yeah, go ahead, please.

Dan Wilson -- Executive Vice President, Strategy, Corporate Development, and Investor Relations

Sorry, Kevin. Robbie, that was one question you missed earlier. No impact to overall timing. In our prepared remarks, we mentioned that we recently surpassed a development milestone and expect to pay out a milestone payment in the second quarter.

So no update or no change to the overall timing of that project.

Robbie Marcus -- Analyst

Sorry about that. I guess that's what happens when I listen at four calls at once. My apologies.

Operator

[Operator instructions] Your next question comes from the line of David Rescott. Your line is now open.

David Rescott -- Analyst

Hey. This is David on for Kaila Krum. I was wondering if you guys touched on a little bit around the ZIO AT use for COVID patients in both the inpatient and outpatient setting. I was wondering if you would be able to either quantify or tease out what kind of net benefit you guys have seen from those type of patients versus just the downturn overall in the second half of March.

Kevin King -- Chief Executive Officer

Sure. David, just a clarifying point, by benefit, are you referring to a clinical benefit or financial benefit? Help me understand a little bit more.

David Rescott -- Analyst

Yeah. Yeah. Just trying to tease out kind of what the, I guess, the number of patients or the amount of revenue overall that you guys had in the quarter from either patients that were on an inpatient setting for COVID or those who kind of were in the outpatient setting for use for COVID, patients affected by COVID.

Kevin King -- Chief Executive Officer

So we don't break out product line-specific information. A couple of things to sort of put some corners on this. We noted the impact here of COVID-19 around March 16, so we had two weeks in the quarter. So there wasn't much time in a quarter to have a whole lot of impact, if you think about it that way.

Since that time, we've seen increased demand for AT in the environments that I described on the call. Patient transfer to outpatient status were in ZIO AT. This frees up inpatient beds for people that are at risk of lethal arrhythmias, and we're also seeing it in ZIO AT inpatient settings for Q2 monitoring, an instance, again, where there's lack of available bed overall. But we've not broken out that in terms of volume.

David Rescott -- Analyst

OK. Thanks. And then maybe just -- I know you talked about kind of the home enrollment. Have you guys provided any color around whether the -- or the breakup, I guess, of those types of patients whether beyond ZIO AT or ZIO XT?

Kevin King -- Chief Executive Officer

Yeah. The home enrollment can be either. And I would say the vast majority of it, just based upon the mix of our business, is ZIO XT right now. But ZIO AT is a home enrollment or a home-enabled application as well.

David Rescott -- Analyst

All right. Thanks.

Operator

[Operator instructions]

Leigh Salvo -- Investor Relations

Operator, I think we're done with the questions for today and we would like to conclude the call, please.

Operator

And I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Kevin King. You may continue.

Kevin King -- Chief Executive Officer

Thank you, operator. Thank you, everyone, for joining our Q1 2020 earnings conference call. We hope you all remain safe and healthy during this period of time. We remain totally confident in our ability to navigate through this period and believe the advantages of our proven and complete platform are resonating with customers and their needs more than ever.

We appreciate your interest and look forward to updating you as progress unfolds. Take care.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Leigh Salvo -- Investor Relations

Kevin King -- Chief Executive Officer

Matt Garrett -- Chief Financial Officer

David Lewis -- Analyst

Dan Wilson -- Executive Vice President, Strategy, Corporate Development, and Investor Relations

Brandon Vazquez -- Analyst

Cecilia Furlong -- Analyst

Suraj Kalia -- Analyst

Robbie Marcus -- Analyst

David Rescott -- Analyst

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