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 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.

Current wording

We define Adjusted EBITDA for a particular period as net loss before income tax provision, depreciation and amortization, interest expense, interest income and as further adjusted for stock-based compensation expense, changes in fair value of strategic investments, 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

The current macroeconomic environment is impacting our customers, both financially and operationally. Hospitals are experiencing staffing shortages and supply chain issues that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, rising interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic continue to wind down. As a consequence of the financial pressures and decreased profitability, some hospitals have indicated that they are lowering their capital investment plans and tightening their operational budgets.

Current wording

The current macroeconomic environment is impacting our customers, both financially and operationally. Hospitals are experiencing staffing shortages and supply chain issues that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, rising interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic continue to wind down. As a consequence of the financial pressures and decreased profitability, some hospitals have indicated that they are lowering their capital investment plans and tightening their operational budgets. Climate-related events, including the increasing frequency of extreme weather events, natural disasters, or other catastrophic events may cause damage or disruption to our domestic or global customers or our operations, which could have an adverse effect on our business, operating results, and financial condition.

Previous 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.

Current wording

Our hybrid work arrangements and decision to pursue a sublease for our leased San Francisco headquarters resulted in an impairment of its 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

Cost of revenue includes direct labor, material costs, equipment and infrastructure expenses, amortization of internal-use software, allocated overhead, royalties, and shipping and handling. Direct labor includes payroll-related costs including stock-based compensation involved in manufacturing, clinical data curation, and customer service. Material costs include both the disposable materials costs of the Zio patches and amortization of the re-usable printed circuit board assemblies ("PCBAs"). Each Zio XT patch and Zio Monitor patch includes a PCBA, and each Zio AT patch includes a PCBA and gateway board, the cost of which is amortized over the anticipated number of uses of the board. We expect cost of revenue to increase in absolute dollars as our revenue increases due to increased direct labor, direct materials, and variable spending, as well as amortization of internal-use software, partially offset by economies of scale in relation to fixed costs such as overhead and facilities costs.

Current wording

Cost of revenue includes direct labor, material costs, equipment and infrastructure expenses, amortization of internal-use software, allocated overhead, royalties, and shipping and handling. Direct labor includes payroll-related costs including stock-based compensation involved in manufacturing, clinical data curation, and customer service. Material costs include both the disposable materials costs of the Zio patches and amortization of the re-usable printed circuit board assemblies ("PCBAs"). Each Zio XT patch and Zio Monitor patch includes a PCBA, and each Zio AT patch includes a PCBA and gateway board, the cost of which is amortized over the expected useful life of the board. We expect cost of revenue to increase in absolute dollars as our revenue increases due to increased direct labor, direct materials, and variable spending, as well as amortization of internal-use software, partially offset by economies of scale in relation to fixed costs such as overhead and facilities costs.

Previous wording

Interest expense is attributable to borrowings under our loan agreements and senior convertible notes due 2029. 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 further information on our debt.

Current wording

Interest expense is attributable to borrowings under our loan agreements and 2029 Notes. 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 further information on our debt.

Previous wording

Interest and other income, net consists primarily of interest income which consists of interest received on our cash and cash equivalents and marketable securities as well as realized and unrealized foreign currency exchange gains or losses.

Current wording

Other income (expense), net consists primarily of changes in fair value of our strategic loan and equity investments, as well as realized and unrealized foreign currency exchange gains or losses.

Previous wording

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

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous 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.

Current wording

Revenue increased by $22.9 million, or 18%, to $147.5 million during the three months ended September 30, 2024, as compared to $124.6 million during the three months ended September 30, 2023. Revenue increased by $67.3 million, or 19%, to $427.5 million during the nine months ended September 30, 2024, as compared to $360.2 million during the nine months ended September 30, 2023. For the three and nine months ended September 30, 2024, the increases in revenue were 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 $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.

Current wording

Cost of revenue increased by $3.9 million, or 9%, to $46.1 million during the three months ended September 30, 2024, as compared to $42.1 million during the three months ended September 30, 2023. Cost of revenue increased by $19.3 million, or 17%, to $135.1 million during the nine months ended September 30, 2024, as compared to $115.8 million during the nine months ended September 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 nine months ended September 30, 2024, additional impacts to cost of revenue include an increase of approximately $1.3 million and $3.9 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 $0.5 million and $2.4 million, respectively, in amortization charges for internal-use software which support delivery of our services.

Previous 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.

Current wording

Research and development expenses decreased by $0.6 million, or 4%, to $15.7 million during three months ended September 30, 2024, as compared to $16.3 million during the three months ended September 30, 2023. Research and development expenses increased by $7.6 million, or 17%, to $52.4 million during the nine months ended September 30, 2024, as compared to $44.8 million during the nine months ended September 30, 2023. The decrease in research and development expenses during the three months ended September 30, 2024 was primarily related to lower headcount-related costs (including stock-based compensation). The increase in research and development expenses during the nine months ended September 30, 2024 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 $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.

Current wording

Selling, general and administrative expenses increased by $9.6 million, or 10%, to $103.4 million during the three months ended September 30, 2024, as compared to $93.8 million during the three months ended September 30, 2023. Selling, general, and administrative expenses increased by $33.3 million, or 12%, to $318.8 million during the nine months ended September 30, 2024, as compared to $285.5 million during the nine months ended September 30, 2023. For the three months ended September 30, 2024, the increase was primarily attributable to third-party patient claims processing fees, legal and professional fees, and patient credit loss provisions, offset by a reduction of stock-based compensation expense. For the nine months ended September 30, 2024, the increase was primarily attributable to third-party patient claims processing fees, stock-based compensation expense, and legal fees, offset by reductions in professional fees to support scaling the organization. During the three and nine months ended September 30, 2024, we incurred $7.4 million and $8.7 million of business transformation costs, respectively, primarily related to severance, professional fees, and third-party merger and acquisition fees. During the three and nine months ended September 30, 2023, we incurred $3.0 million and $14.1 million of business transformation costs, respectively, primarily related to severance and professional fees, to support growth in our operations.

Previous 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.

Current wording

Interest income increased by $4.7 million to $6.5 million during the three months ended September 30, 2024, as compared to $1.7 million during the three months ended September 30, 2023. Interest income increased by $11.6 million to $16.2 million during the nine months ended September 30, 2024, as compared to $4.6 million during the nine months ended September 30, 2023. The increase was attributable to higher market interest rates earned from our cash and cash equivalents and marketable securities, an increase in the average invested balances during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, primarily as a result of the borrowing under the 2029 Notes in March 2024.

Previous 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.

Current wording

Interest expense increased by $2.4 million to $3.3 million during the three months ended September 30, 2024, as compared to $0.9 million during the three months ended September 30, 2023. Interest expense increased by $6.8 million to $9.5 million during the nine months ended September 30, 2024, as compared to $2.7 million during the nine months ended September 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

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.

Current wording

Loss on extinguishment of debt was nil and $7.6 million for the three and nine months ended September 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 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.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $519.5 million, marketable securities of $2.5 million, and accounts receivable of $77.4 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 and third quarters of 2024, we received a significant portion of our cash collections from the delayed billings. 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

Under the terms of the Development Agreement, we agreed to make milestone payments to Verily up to an aggregate of $12.75 million upon achievement of various development and regulatory milestones. We have achieved milestones tied to payments totaling $11.0 million through June 30, 2024, and anticipate making additional milestone payments of $1.75 million, subject to the achievement of specified milestones.

Current wording

Under the terms of the Development Agreement with Verily, we agreed to make milestone payments to Verily up to an aggregate of $12.75 million upon achievement of various development and regulatory milestones. We have achieved milestones tied to payments totaling $11.0 million through September 30, 2024, and may make additional milestone payments of $1.75 million, subject to the achievement of specified milestones.

Previous 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.

Current wording

During the nine months ended September 30, 2024, cash used in operating activities was $15.8 million, a decrease of $18.3 million, as compared to cash used in operating activities of $34.1 million during the nine months ended September 30, 2023. The reduction in cash used in operating activities was primarily attributable to favorable impacts from decreases in prepaid and other current assets, and a reduction in other long-term assets primarily from lower levels of purchases of PCBAs. Additionally, timing of collections associated with our accounts receivable, offset with the timing of payments associated with our accounts payable and accrued liabilities, is further contributing to our net usage levels of cash in operations.

Previous 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.

Current wording

During the nine months ended September 30, 2024, cash used in investing activities was $0.8 million, an decrease of $1.8 million, as compared to cash used by investing activities of $2.6 million during the nine months ended September 30, 2023. The decrease was primarily attributable to a net increase in the change in marketable securities of $69.0 million. This was offset by an increase of $52.0 million in cash used for the purchases of strategic investments, as well as $15.0 million of acquired in-process research and development from BioIS, during the nine months ended September 30, 2024.

Previous 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.

Current wording

During the nine months ended September 30, 2024, cash provided by financing activities was $508.4 million, an increase of $503.0 million as compared to $5.4 million during the nine months ended September 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 $17.4 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

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.

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 nine months ended September 30, 2024. As of September 30, 2024, we had approximately $43.4 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 nine months ended September 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 six months ended June 30, 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. Updates to our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the notes to our unaudited condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q. 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 nine months ended September 30, 2024.