iRhythm Technologies Inc

Previous wording

We define Adjusted EBITDA for a particular period as net loss before income tax provision, depreciation and amortization, interest expense, and interest income and as further adjusted for stock-based compensation expense, impairment and restructuring charges, business transformation costs, and loss on extinguishment of debt. Business transformation costs include professional services and employee termination costs to augment and restructure the organization, inclusive of both outsourced and offshore resources.

Current wording

We define Adjusted EBITDA for a particular period as net loss before income tax provision, depreciation and amortization, interest expense, and interest income and as further adjusted for stock-based compensation expense, impairment and restructuring charges, business transformation costs, and loss on extinguishment of debt. Business transformation costs include costs associated with professional services, employee termination and relocation, third-party merger and acquisition, integration, and other costs to augment and restructure the organization, inclusive of both outsourced and offshore resources.

Previous wording

Our hybrid work arrangements and decision to pursue a sublease for our leased San Francisco headquarters resulted in an impairment of our right-of-use ("ROU") asset and related leasehold improvements and furniture and fixtures during the three months ended March 31, 2022. In the fourth quarter of 2023, we recorded an additional impairment of our ROU asset and related leasehold improvements and furniture and fixtures on our leased San Francisco headquarters, due to a continued soft real estate rental market within the city proper San Francisco, California. As we continue to evaluate our global real estate footprint, we may incur additional impairment charges related to real property lease agreements.

Current wording

Our hybrid work arrangements and decision to pursue a sublease for our leased San Francisco headquarters resulted in an impairment of its right-of-use ("ROU") asset and related leasehold improvements and furniture and fixtures during the years ended December 31, 2023 and 2022. As we continue to evaluate our global real estate footprint, we may incur additional impairment charges related to real property lease agreements.

Previous wording

Our general and administrative expenses consist primarily of payroll-related costs for executive, finance, legal and administrative personnel, including stock-based compensation. Other significant expenses include professional fees for legal and accounting services, consulting fees, recruiting fees, bad debt expense, third-party patient claims processing fees, and travel expenses. In addition, we incurred business transformation costs to scale our organization during 2023, which are intended to achieve operational efficiencies in our administrative expenses over the long-term.

Current wording

Our general and administrative expenses consist primarily of payroll-related costs for executive, finance, legal and administrative personnel, including stock-based compensation. Other significant expenses include professional fees for legal and accounting services, consulting fees, recruiting fees, bad debt expense, third-party patient claims processing fees, business transformation, and travel expenses.

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023.

Current wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Revenue increased by $20.5 million, or 18%, to $131.9 million during the three months ended March 31, 2024, as compared to $111.4 million during the three months ended March 31, 2023. The increase in revenue was primarily attributable to increases in the volume of Zio Services resulting from increased demand. Average selling price remained relatively stable period over period.

Current wording

Revenue increased by $23.9 million, or 19%, to $148.0 million during the three months ended June 30, 2024, as compared to $124.1 million during the three months ended June 30, 2023. Revenue increased by $44.4 million, or 19%, to $280.0 million during the six months ended June 30, 2024, as compared to $235.6 million during the six months ended June 30, 2023. For the three and six months ended June 30, 2024, the increases in revenue was primarily attributable to increases in the volume of Zio Services resulting from increased demand. Average selling price remained relatively stable period over period.

Previous wording

Cost of revenue increased by $8.7 million, or 24%, to $44.4 million during the three months ended March 31, 2024, as compared to $35.8 million during the three months ended March 31, 2023. The increase in cost of revenue was due primarily to increases in headcount-related costs associated with the increase in volume of Zio Services. Additional impacts to cost of revenue include an increase of approximately $1.3 million in amortization charges for Zio XT and Zio Monitor PCBAs in conjunction with the ongoing commercial launch of Zio Monitor, as well as an increase of approximately $1.0 million in amortization charges for internal use software which support our revenue cycle.

Current wording

Cost of revenue increased by $6.7 million, or 18%, to $44.6 million during the three months ended June 30, 2024, as compared to $37.9 million during the three months ended June 30, 2023. Cost of revenue increased by $15.3 million, or 21%, to $89.0 million during the six months ended June 30, 2024, as compared to $73.7 million during the six months ended June 30, 2023. The increase in cost of revenue was due primarily to increases in headcount-related costs associated with the increase in volume of Zio Services. For the three and six months ended June 30, 2024, additional impacts to cost of revenue include an increase of approximately $1.3 million and $2.6 million, respectively, in amortization charges for Zio XT and Zio Monitor PCBAs in conjunction with the ongoing commercial launch of Zio Monitor, as well as an increase of approximately $0.9 million and $1.9 million, respectively, in amortization charges for internal use software which support our revenue cycle.

Previous wording

Research and development expenses increased by $2.2 million, or 14%, to $17.0 million during the three months ended March 31, 2024, as compared to $14.8 million during the three months ended March 31, 2023. The increase in research and development expenses was primarily due to higher headcount-related costs (including stock-based compensation), consulting costs to support regulatory and legal matters, and further development, enhancement, and functionality of our current and future product offerings.

Current wording

Research and development expenses increased by $6.0 million, or 44%, to $19.7 million during the three months ended June 30, 2024, as compared to $13.7 million during the three months ended June 30, 2023. Research and development expenses increased by $8.2 million, or 29%, to $36.7 million during the six months ended June 30, 2024, as compared to $28.5 million during the six months ended June 30, 2023. The increase in research and development expenses was primarily due to higher headcount-related costs (including stock-based compensation), consulting costs to support regulatory and legal matters, and further development, enhancement, and functionality of our current and future product offerings.

Previous wording

Selling, general and administrative expenses increased by $8.3 million, or 8%, to $108.7 million during the three months ended March 31, 2024, as compared to $100.3 million during the three months ended March 31, 2023. The increase in selling, general and administrative expenses was primarily attributable to third-party patient claims processing fees, offset by reductions in headcount-related costs (including stock-based compensation) and consulting fees to support scaling the organization. During the first quarter of 2023, we incurred $5.7 million of business transformation costs, primarily related to severance and professional services, to support the growth in our operations, which were not incurred during the first quarter of 2024.

Current wording

Selling, general and administrative expenses increased by $15.3 million, or 17%, to $106.8 million during the three months ended June 30, 2024, as compared to $91.4 million during the three months ended June 30, 2023. Selling, general, and administrative expenses increased by $23.7 million, or 12%, to $215.4 million during the six months ended June 30, 2024, as compared to $191.8 million during the six months ended June 30, 2023. For the three and six months ended June 30, 2024, the increase in selling, general and administrative expenses were primarily attributable to third-party patient claims processing fees, stock-based compensation expense, and legal fees, offset by reductions in headcount-related costs and professional fees to support scaling the organization. During each of the three and six months ended June 30, 2024, we incurred $1.3 million of business transformation costs, primarily related to merger and acquisition activities. During the three and six months ended June 30, 2023, we incurred $5.4 million and $11.1 million of business transformation costs, respectively, primarily related to severance and professional fees, to support the growth in our operations.

Previous wording

Interest expense increased by $1.9 million to $2.9 million during the three months ended March 31, 2024, as compared to $1.0 million during the three months ended March 31, 2023. The increase in interest expense was attributable to the $75.0 million Braidwell Term Loan Facility borrowed and repaid during the first quarter of 2024, as well as the $661.3 million 2029 Notes borrowed in March 2024.

Current wording

Interest expense increased by $2.5 million to $3.3 million during the three months ended June 30, 2024, as compared to $0.8 million during the three months ended June 30, 2023. Interest expense increased by $4.4 million to $6.2 million during the six months ended June 30, 2024, as compared to $1.8 million during the six months ended June 30, 2023. The increase in interest expense was primarily attributable to the $75.0 million Braidwell Term Loan Facility borrowed and repaid during the first quarter of 2024, as well as the $661.3 million 2029 Notes borrowed in March 2024.

Previous wording

Interest and other income, net increased by $1.5 million to $3.0 million during the three months ended March 31, 2024, as compared to $1.4 million during the three months ended March 31, 2023. The increase was attributable to higher market interest rates earned from our cash and cash equivalents and marketable securities, as well as an increase in the average invested balances during the three months ended March 31, 2024, as compared to the same period in 2023, as a result of the borrowing under the 2029 Notes in March 2024.

Current wording

Interest and other income, net increased by $4.9 million to $6.4 million during the three months ended June 30, 2024, as compared to $1.4 million during the three months ended June 30, 2023. Interest and other income, net increased by $6.5 million to $9.3 million during the six months ended June 30, 2024, as compared to $2.9 million during the six months ended June 30, 2023. The increase was attributable to higher market interest rates earned from our cash and cash equivalents and marketable securities, as well as an increase in the average invested balances during the three and six months ended June 30, 2024, as compared to the same period in 2023, primarily as a result of the borrowing under the 2029 Notes in March 2024.

Previous wording

Loss on extinguishment of debt was $7.6 million for the three months ended March 31, 2024. The loss was related to the early extinguishment of both the SVB Loan Agreement and the Braidwell Term Loan Facility during the first quarter of 2024. See Note 8, Debt, in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for details of our financing activities.

Current wording

Loss on extinguishment of debt was nil and $7.6 million for the three and six months ended June 30, 2024, respectively. The loss was related to the early extinguishment of both the SVB Loan Agreement and the Braidwell Term Loan Facility during the first quarter of 2024. See Note 8, Debt, in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for details of our financing activities.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $520.4 million, marketable securities of $48.7 million, and accounts receivable of $89.7 million. We continuously review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic environment, including inflation, interest rate volatility, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, and potential instability in the global banking system. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. During the first quarter of 2024, we experienced a temporary delay in the billing of our contracted and non-contracted payer customers, performed by our third-party claims processing vendor. The delay was due to a cybersecurity incident experienced by Change Healthcare, a division of UnitedHealth Group, which our third-party vendor engages for services relating to billing and collections. While we substantially cleared the billing backlog as of the end of the first quarter of 2024, the delay in billing resulted in a temporary delay in our cash collections. We expect our accounts receivable balance to approach more normalized levels over the course of the second quarter of 2024. We believe that our current cash, cash equivalents, and marketable securities balances, together with income to be derived from the sales of our Zio Services, will be sufficient to meet our liquidity requirements for at least the next 12 months.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $550.6 million, marketable securities of $10.9 million, and accounts receivable of $85.5 million, with a significant portion of our cash and cash equivalents balance deposited within our interest-bearing bank concentration accounts. We continuously review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic environment, including inflation, interest rate volatility, and potential instability in the global banking system. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. During the first quarter of 2024, we experienced a temporary delay in the billing of our contracted and non-contracted payer customers, performed by our third-party claims processing vendor. The delay was due to a cybersecurity incident experienced by Change Healthcare, a division of UnitedHealth Group, which our third-party vendor engages for services relating to billing and collections. While we substantially cleared the billing backlog as of the end of the first quarter of 2024, the delay in billing resulted in a temporary delay in our cash collections. During the second quarter of 2024, we made significant progress on cash collections received associated with the delayed billings, and we expect further progress on cash collections from those delayed billings during the second half of the year. We believe that our current cash, cash equivalents, and marketable securities balances, together with income to be derived from the sales of our Zio Services, will be sufficient to meet our liquidity requirements for at least the next 12 months.

Previous wording

During the three months ended March 31, 2024, cash used in operating activities was $52.0 million, a increase of $21.2 million, as compared to $30.8 million during the three months ended March 31, 2023. The increase was primarily attributable to the timing of collections associated with our accounts receivable as discussed above. Additional increases in cash used in operating activities result from the timing of payments associated with our accrued liabilities and other assets, offset by a reduction in our prepaid and other current assets. During the first quarter of 2024, we purchased additional PCBAs for use with our Zio Monitor to support the advancement of our commercial launch.

Current wording

During the six months ended June 30, 2024, cash used in operating activities was $40.2 million, an increase of $4.9 million, as compared to $35.3 million during the six months ended June 30, 2023. The increase was primarily attributable to the timing of collections associated with our accounts receivable as discussed above. Additional increases in cash used in operating activities result from the timing of payments associated with our accrued liabilities and other assets, offset by a reduction in our prepaid and other current assets.

Previous wording

During the three months ended March 31, 2024, cash provided by investing activities was $40.0 million, an increase of $36.2 million as compared to cash provided by investing activities of $3.8 million during the three months ended March 31, 2023. The increase was primarily attributable to a net increase in investments in marketable securities of $37.5 million, offset by increases in purchases of property and equipment of $1.4 million.

Current wording

During the six months ended June 30, 2024, cash provided by investing activities was $54.5 million, an increase of $41.7 million as compared to cash provided by investing activities of $12.8 million during the six months ended June 30, 2023. The increase was primarily attributable to a net increase in the change in marketable securities of $54.1 million, offset by increases in purchases of property and equipment of $0.4 million, as well as an increase of $12.0 million in purchases of strategic investments driven by the purchase of a $15.0 million strategic loan investment in a privately-held company during the three months ended June 30, 2024.

Previous wording

During the three months ended March 31, 2024, cash provided by financing activities was $504.6 million, a increase of $503.7 million as compared to $0.9 million during the three months ended March 31, 2023. The increase was primarily attributed to $661.3 million in proceeds from the issuance of our 2029 Notes. The increase was offset by $37.8 million associated with the payment of the SVB Loan Agreement and related termination costs, payment of $5.5 million associated with the Braidwell Term Loan Facility debt issuance and termination costs, payment of $16.6 million associated with debt issuance costs for our 2029 Notes, payment of $72.4 million for the purchase of the 2029 Capped Calls, and payment of $25.0 million for the repurchase of shares of our common stock.

Current wording

During the six months ended June 30, 2024, cash provided by financing activities was $508.4 million, an increase of $503.1 million as compared to $5.3 million during the six months ended June 30, 2023. The increase was primarily attributed to $661.3 million in proceeds from the issuance of our 2029 Notes. The increase was offset by $37.8 million associated with the payment of the SVB Loan Agreement and related termination costs, payment of $5.6 million associated with the Braidwell Term Loan Facility debt issuance and termination costs, payment of $17.2 million associated with debt issuance costs for our 2029 Notes, payment of $72.4 million for the purchase of the 2029 Capped Calls, and payment of $25.0 million for the repurchase of shares of our common stock.

Previous wording

On March 7, 2024, we completed an offering of $661.3 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 1.50% and a maturity date of September 1, 2029 (the “2029 Notes”). The proceeds include the full exercise of the option granted by us to the initial purchasers of the 2029 Notes to purchase up to an additional $86.3 million aggregate principal amount of notes. Interest on the 2029 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024. The net proceeds from the offering, after deducting initial purchasers’ discounts and estimated costs directly related to the offering, were approximately $643.6 million. The initial conversion rate of the 2029 Notes is 6.7927 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $147.22 per share, subject to adjustments. The 2029 Notes may be settled in cash, stock, or a combination thereof, solely at the Company's discretion.

Current wording

On March 7, 2024, we completed an offering of $661.3 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 1.50% and a maturity date of September 1, 2029 (the “2029 Notes”). The proceeds include the full exercise of the option granted by us to the initial purchasers of the 2029 Notes to purchase up to an additional $86.3 million aggregate principal amount of notes. Interest on the 2029 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024. The net proceeds from the offering, after deducting initial purchasers’ discounts and estimated costs directly related to the offering, were $643.8 million. The initial conversion rate of the 2029 Notes is 6.7927 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $147.22 per share, subject to adjustments. The 2029 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion.

Previous wording

On March 7, 2024, in conjunction with the issuance of the 2029 Notes, the Company used approximately $80.2 million of the net proceeds for the repayment in full of the $75.0 million outstanding Initial Loan and $5.2 million for interest, fees and expenses associated with terminating the Braidwell Credit Agreement.

Current wording

On March 7, 2024, in conjunction with the issuance of the 2029 Notes, we used approximately $80.2 million of the net proceeds for the repayment in full of the $75.0 million outstanding Initial Loan and $5.2 million for interest, fees and expenses associated with terminating the Braidwell Credit Agreement.

Previous wording

Our contractual obligations as of December 31, 2023, are presented in our Annual Report on Form 10-K filed with the SEC on February 22, 2024. There were no significant changes to our lease obligations during the three months ended March 31, 2024. As of March 31, 2024, we had approximately $59.0 million of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year. See Note 8, Debt, in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for changes in our debt obligations during the first quarter of 2024.

Current wording

Our contractual obligations as of December 31, 2023, are presented in our Annual Report on Form 10-K filed with the SEC on February 22, 2024. There were no significant changes to our lease obligations during the six months ended June 30, 2024. As of June 30, 2024, we had approximately $40.4 million of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year. See Note 8, Debt, in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for changes in our debt obligations during the six months ended June 30, 2024.

Previous wording

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The critical accounting estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There were no material changes to our critical accounting estimates during the three months ended March 31, 2024.

Current wording

Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The critical accounting estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There were no material changes to our critical accounting estimates during the six months ended June 30, 2024.