PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Q1 2020 financials show a 31% revenue increase to $63.5 million, a net loss of $9.1 million, and total assets of $282.9 million, with prior period revisions for immaterial errors [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $56,514 | $20,462 | | Short-term investments | $65,256 | $120,089 | | Total current assets | $154,431 | $172,792 | | Total assets | $282,940 | $306,212 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $42,845 | $52,066 | | Total liabilities | $157,963 | $170,803 | | Total stockholders' equity | $124,977 | $135,409 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Revenue, net | $63,535 | $48,334 | | Gross profit | $47,472 | $36,561 | | Loss from operations | $(9,173) | $(8,204) | | Net loss | $(9,065) | $(8,250) | | Net loss per common share | $(0.34) | $(0.34) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(22,366) | $(17,163) | | Net cash provided by investing activities | $59,911 | $26,379 | | Net cash used in financing activities | $(1,493) | $(1,138) | | **Net increase in cash and cash equivalents** | **$36,052** | **$8,078** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company identified and revised prior period financial statements for immaterial errors in its historical accounting for revenues, contractual allowances, and allowance for doubtful accounts, impacting 2017, 2018, and early 2019 financials[29](index=29&type=chunk) - The COVID-19 outbreak caused significant business disruptions, including travel restrictions and reduced customer access. The company transitioned to remote work and increased utilization of its home enrollment service[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) - Revenue is disaggregated by payor type, with **Contracted third-party payors** and **Centers for Medicare & Medicaid (CMS)** being the largest contributors[58](index=58&type=chunk) - Due to the impact of the COVID-19 pandemic, management determined that achievement of performance targets for Performance-based RSUs (PRSUs) is not probable. As a result, **$4.8 million in PRSU expense recognized in 2019 was reversed in Q1 2020**[104](index=104&type=chunk) - In response to COVID-19, the company initiated cost reduction measures starting in April 2020, including temporary salary reductions for all salaried employees, furloughs, layoffs, and reduced executive and board compensation[114](index=114&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q1 2020 revenue grew 31% to $63.5 million, operating expenses increased, resulting in a $9.1 million net loss; financial guidance suspended due to COVID-19 - The company's Zio service combines a wearable biosensor (Zio XT and Zio AT) with cloud-based data analytics to diagnose cardiac arrhythmias. Revenue is primarily from third-party payors, with **CMS accounting for approximately 27% of revenue in Q1 2020**[117](index=117&type=chunk)[118](index=118&type=chunk) - In response to COVID-19, the company has suspended financial guidance, transitioned employees to remote work, and significantly increased the use of its home enrollment service to ensure uninterrupted patient care[122](index=122&type=chunk)[124](index=124&type=chunk) Results of Operations Comparison (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $63,535 | $48,334 | 31% | | Gross profit | $47,472 | $36,561 | 30% | | Gross margin | 75% | 76% | -1 ppt | | Total operating expenses | $56,645 | $44,765 | 27% | | Net loss | $(9,065) | $(8,250) | 10% | - As of March 31, 2020, the company had **cash and cash equivalents of $56.5 million** and **short-term investments of $65.3 million**. Net cash used in operating activities was **$22.4 million** for the quarter[141](index=141&type=chunk)[144](index=144&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk exposure from interest rates and foreign currency exchange rates is deemed immaterial as of March 31, 2020 - The company's interest-earning instruments and variable-rate debt carry interest rate risk, but a hypothetical **10% change in interest rates** would not have a material impact[163](index=163&type=chunk)[166](index=166&type=chunk) - Foreign exchange risk from transactions in currencies other than U.S. dollars, particularly the British Pound Sterling, is not considered material as of March 31, 2020[167](index=167&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective as of March 31, 2020, due to material weaknesses in control environment, financial close, and revenue recognition; a remediation plan is underway - Management concluded that disclosure controls and procedures were **not effective** as of March 31, 2020, due to ongoing material weaknesses[168](index=168&type=chunk) - Specific material weaknesses include: an ineffective control environment lacking sufficient accounting professionals, ineffective controls over the financial statement close process, and ineffective controls over revenue recognition and related accounts receivable[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) - A remediation plan is in progress, focusing on new finance hires, enhanced internal control education, and consistent execution of controls, particularly in financial close and order-to-cash cycles[175](index=175&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings but may become involved in future matters - As of the report date, the company is **not a party to any material legal proceedings**[179](index=179&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include COVID-19 impacts, a history of net losses, dependence on Zio service, reimbursement uncertainties, and material weaknesses in internal controls - The COVID-19 pandemic poses a significant risk, potentially impacting sales due to reduced access to hospitals, deferred diagnostic procedures, and increased unemployment affecting patient insurance coverage[181](index=181&type=chunk)[182](index=182&type=chunk) - The company has a history of net losses, with a **net loss of $9.1 million for Q1 2020** and an **accumulated deficit of $269.9 million**, and expects to continue incurring losses[188](index=188&type=chunk) - Business success is highly dependent on the adoption of the Zio service by physicians and securing adequate reimbursement from third-party payors, including **CMS, which accounted for 27% of revenue in Q1 2020**[189](index=189&type=chunk)[190](index=190&type=chunk)[196](index=196&type=chunk) - The company faces risks from its reliance on single suppliers for critical components, which could lead to supply shortages and price fluctuations that could harm the business[215](index=215&type=chunk)[218](index=218&type=chunk) - Previously identified material weaknesses in internal control over financial reporting could result in material misstatements in financial statements if not successfully remediated[271](index=271&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period - Not applicable[330](index=330&type=chunk) [Defaults Upon Senior Securities](index=72&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period - Not applicable[331](index=331&type=chunk) [Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - Not applicable[332](index=332&type=chunk) [Other Information](index=73&type=section&id=Item%205.%20Other%20Information) Corporate contact information and channels for investor communication, including social media, are disclosed - The company discloses its principal executive office location and contact information and states that it uses various channels, including social media, to communicate material information to investors[333](index=333&type=chunk) [Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act of 2002[337](index=337&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________________________________________________ FORM 10-K ________________________________________________________________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHA ...

Financial Data and Key Metrics Changes - Full year 2019 revenue was $214.6 million, representing a 46% growth over the prior year, exceeding initial guidance of $201 million to $206 million [11] - Gross margin for the year was 75.5%, a 1.8 percentage point improvement over the prior year [12] - Fourth quarter revenue was $59.1 million, up 41% compared to the prior year period, with gross margins increasing to 76.5%, a 2.4 percentage point improvement [12][35] - The net loss for the fourth quarter 2019 was $17.3 million, or a loss of $0.65 per share, compared with a net loss of $16.3 million, or loss of $0.67 per share for the same period of the prior year [43] Business Line Data and Key Metrics Changes - The full commercial launch of Zio AT in October 2019 has enabled the company to be a single supplier to large integrated delivery systems [21] - Customer feedback on Zio AT remains extremely positive, with significant clinical advantages noted [23] - The diagnostic yield of Zio AT is 83%, approximately 20 points higher than traditional MCTs [24] Market Data and Key Metrics Changes - The company anticipates full year 2020 revenues to range from $280 million to $290 million, representing annual revenue growth of 31% to 35% [14] - The silent AFib market is a major part of the company's expansion strategy, with participation in three large-scale clinical trials [27] Company Strategy and Development Direction - The three primary components of the company's growth strategy are increased market penetration, increased operating leverage, and expanding the addressable market into new indications and geographies [18] - The company plans to add 20 additional sales representatives in 2020, ending the year with approximately 160 sales reps [19] - The company is focused on developing next-generation atrial fibrillation products in partnership with Verily [30] Management's Comments on Operating Environment and Future Outlook - Management expressed high confidence in the ability to grow and expand the business, driven by competitive differentiation and clinical superiority [13] - The company does not foresee any material impact from the coronavirus on its business in the near term [51] - Management anticipates achieving cash flow breakeven no later than the first half of 2021 [50] Other Important Information - The company raised net proceeds of approximately $107 million from a follow-on offering in September 2019 to fund growth initiatives [17] - The transition of the category three CPT code to a category one code is progressing as expected, with a recommendation to CMS anticipated in July [31][32] Q&A Session Summary Question: Update on RVU process and timing - Management confirmed that full disclosure regarding RVU values is expected in July [54][55] Question: Impact of delayed returns on revenue - Management estimated that approximately $1 million in revenue was delayed, with a 70-30 split between December and January [56][57] Question: Growth impact of Zio AT - Management indicated that Zio AT is contributing to growth, enhancing the overall platform's value [60][62] Question: Commercial pricing stability - Management stated that commercial contract rates have remained stable, with potential for increases based on clinical evidence [126][127] Question: Long-term growth outlook - Management remains bullish on long-term growth opportunities, emphasizing the large market potential and competitive dynamics [117][118]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for iRhythm Technologies, Inc. as of September 30, 2019, and for the three and nine-month periods then ended, including a revision of prior period financial statements to correct immaterial errors [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | September 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$310,080** | **$117,523** | | Total current assets | $184,880 | $104,295 | | **Total Liabilities** | **$167,495** | **$65,386** | | Total current liabilities | $45,467 | $30,334 | | **Total Stockholders' Equity** | **$142,585** | **$52,137** | - Total assets increased significantly from **$117.5 million** at the end of 2018 to **$310.1 million** as of September 30, 2019, primarily driven by an increase in cash, cash equivalents, and investments, as well as the recognition of operating lease right-of-use assets[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | **Revenue, net** | **$54,673** | **$38,441** | **$155,448** | **$105,495** | | Gross profit | $40,888 | $28,488 | $116,878 | $77,506 | | Loss from operations | $(18,260) | $(9,221) | $(37,029) | $(32,600) | | **Net loss** | **$(18,293)** | **$(9,727)** | **$(37,268)** | **$(34,108)** | | Net loss per share | $(0.72) | $(0.40) | $(1.50) | $(1.44) | - Revenue grew **42% YoY** for the third quarter and **47%** for the nine-month period, while net loss also widened due to a significant increase in operating expenses, particularly in Research and Development and Selling, General and Administrative[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,003) | $(24,720) | | Net cash (used in) provided by investing activities | $(76,766) | $29,848 | | Net cash provided by financing activities | $108,380 | $3,546 | | **Net increase in cash and cash equivalents** | **$14,611** | **$8,674** | - Financing activities provided **$108.4 million** in cash, primarily from a public stock offering of **$107.1 million**, which significantly boosted the company's cash position despite negative cash flow from operations and investing activities[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, financial statement line items, prior period revisions, revenue recognition, collaboration agreements, debt, and stock-based compensation - On September 10, 2019, the company completed a public offering of 1,575,342 shares of common stock, raising total net proceeds of **$107.3 million**[31](index=31&type=chunk) - The company identified and corrected immaterial errors in its historical accounting for revenues, contractual allowances, and other items, leading to a revision of previously issued financial statements to avoid a significant cumulative impact on Q3 2019 results[32](index=32&type=chunk) Disaggregation of Revenue by Payor Type (in thousands) | Payor Type | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Contracted third-party payors | $72,040 | $38,270 | | Non-contracted third-party payors | $9,016 | $10,302 | | Centers for Medicare & Medicaid | $42,573 | $29,317 | | Healthcare Institutions | $31,819 | $27,606 | | **Total** | **$155,448** | **$105,495** | - On September 3, 2019, the company entered into a Development Collaboration Agreement with Verily Life Sciences, involving an upfront fee of **$5.0 million** and potential milestone payments up to **$12.75 million** for next-generation atrial fibrillation screening products[91](index=91&type=chunk)[92](index=92&type=chunk) - Subsequent to the quarter end, on November 12, 2019, the company entered into a Master Services Agreement with Bristol-Meyers Squibb (BMS) to provide Zio services for clinical studies, with potential fees up to **$6.8 million** under the first Statement of Work[134](index=134&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations)) Management discusses the company's financial performance, highlighting **47%** revenue growth, increased operating expenses, and a strong cash position following a public stock offering - Revenue for the nine months ended September 30, 2019, increased by **47%** year-over-year, primarily due to increased volume of Zio services from expanded payor coverage, growing physician acceptance, and sales force expansion[161](index=161&type=chunk) - Gross margin improved to **75%** for the nine months of 2019 from **73%** in 2018, attributed to lower manufacturing costs, fixed cost absorption, and algorithm-driven labor efficiencies[163](index=163&type=chunk) - Research and Development expenses increased **103%** for the nine months of 2019 compared to 2018, largely due to a **$5.0 million** payment to Verily and a **$6.4 million** increase in payroll and personnel-related expenses from increased headcount[164](index=164&type=chunk) - Selling, General and Administrative expenses rose **31%** for the nine months of 2019, driven by a **$22.6 million** increase in payroll and personnel costs, a **$5.5 million** increase in bad debt expense, and **$3.9 million** in rent for the new San Francisco headquarters[165](index=165&type=chunk) - As of September 30, 2019, the company had **$34.6 million** in cash and cash equivalents and **$118.1 million** in short-term investments, bolstered by a recent public offering[169](index=169&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company discloses its exposure to market risks, primarily interest rate and foreign currency exchange rate sensitivity, concluding neither is material to its financial position - The company's primary market risks are interest rate sensitivity on its cash, investments, and variable-rate debt, and foreign currency exchange risk related to the British Pound Sterling[198](index=198&type=chunk)[202](index=202&type=chunk) - Management has determined that the company is not exposed to material risks from changes in interest rates or foreign currency exchange rates, and a hypothetical **10%** change would not have a material impact[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) [Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2019, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that as of September 30, 2019, the company's disclosure controls and procedures were not effective due to material weaknesses[203](index=203&type=chunk) - Identified material weaknesses include an ineffective control environment due to insufficient accounting personnel, ineffective controls over the financial statement close process, and ineffective controls over the accounting for revenue, bad debt, and related reserves[204](index=204&type=chunk)[205](index=205&type=chunk) - These weaknesses resulted in the misstatement and subsequent revision of financial statements for 2017, 2018, and interim periods in 2019, with a remediation plan being executed to address the underlying causes[206](index=206&type=chunk)[209](index=209&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) The company states it is not currently a party to any material legal proceedings but may become involved in such matters in the ordinary course of business - As of the filing date, the company is not a party to any material legal proceedings[212](index=212&type=chunk) [Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks that could adversely affect the company's business, financial condition, and operating results, including business, intellectual property, regulatory, and common stock-related risks [Risks Related to Our Business](index=51&type=section&id=Risks%20Related%20to%20Our%20Business) - The company has a history of net losses, with a net loss of **$37.3 million** for the nine months ended September 30, 2019, and expects to continue incurring losses as it invests in growth[214](index=214&type=chunk) - Business success is highly dependent on physician adoption of the Zio service and securing adequate reimbursement from third-party payors and CMS[215](index=215&type=chunk)[227](index=227&type=chunk) - The company's revenue relies substantially on the Zio service, its only product offering, and failure to maintain or grow its market acceptance would harm the business[216](index=216&type=chunk) - The company relies on single suppliers for critical components of the Zio monitor, making it vulnerable to supply shortages and price fluctuations[240](index=240&type=chunk) - A collaboration with Verily Life Sciences to develop new products may not result in commercially viable products or significant future revenue[257](index=257&type=chunk) [Risks Related to Our Intellectual Property](index=68&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) - The company may become involved in costly intellectual property litigation, as the medical device industry is characterized by extensive patent disputes[296](index=296&type=chunk) - The company's intellectual property rights, including patents and trade secrets, may not provide adequate protection, potentially allowing competitors to develop similar products[301](index=301&type=chunk)[303](index=303&type=chunk) - Recent and future changes in U.S. patent law, such as the Leahy-Smith Act and recent court decisions, could diminish the value of patents and impair the ability to protect products[309](index=309&type=chunk)[310](index=310&type=chunk) [Risks Related to Government Regulation](index=71&type=section&id=Risks%20Related%20to%20Government%20Regulation) - The company is subject to extensive and complex healthcare regulations, including the federal Anti-Kickback Statute, False Claims Act, and HIPAA, with non-compliance potentially resulting in substantial penalties[313](index=313&type=chunk) - Failure to obtain and maintain necessary regulatory clearances from the FDA and other bodies for products and services could harm commercial operations[317](index=317&type=chunk) - Manufacturing processes must comply with the FDA's Quality System Regulation (QSR), and failure to pass regulatory inspections could lead to a shutdown of manufacturing operations[325](index=325&type=chunk) [Risks Related to Our Common Stock](index=76&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) - The market price of the company's common stock may fluctuate substantially due to a variety of factors, including operational results, analyst recommendations, and market conditions[336](index=336&type=chunk) - The identification of material weaknesses in internal control over financial reporting could cause investors to lose confidence in financial reports, potentially decreasing the stock price[293](index=293&type=chunk)[294](index=294&type=chunk) - Future sales of equity securities to raise capital could dilute the ownership of existing stockholders[333](index=333&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=79&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period [Defaults Upon Senior Securities](index=79&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period [Mine Safety Disclosures](index=79&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period [Other Information](index=79&type=section&id=Item%205.%20Other%20Information) This section provides the company's principal executive office address and notes the channels it uses for investor communications [Exhibits](index=79&type=section&id=Item%206.%20Exhibits) This section refers to the Exhibit Index, which lists all documents filed as part of the Quarterly Report on Form 10-Q

iRhythm Technologies, Inc. (NASDAQ:IRTC) Q3 2019 Earnings Conference Call November 5, 2019 4:30 PM ET Company Participants Lynn Lewis – Investor Relations-Gilmartin Group Kevin King – President and Chief Executive Officer Matthew Garrett – Chief Financial Officer Conference Call Participants Allen Gong – JPMorgan Jason Mills – Canaccord Genuity Lynn Lewis Thank you, this is Lynn Lewis from Gilmartin Group. Thank you all for participating in today's call to iRhythm’s Q3 2019 conference call. Joining me are K ...

Market Opportunity and Expansion - The Total Addressable Market (TAM) for iRhythm's Zio service is over $2 billion[9] - The symptomatic initial diagnosis market is estimated at 4.5 million patients per year[9, 10] - Zio AT adoption is experiencing early benefits, potentially capturing 14% of the high-acuity segment, while Zio XT captures 10%[19] - A study showed a 3x increase in stroke risk in paroxysmal AF patients with a True AF burden greater than 11% when measured by Zio[21] - mSToPS study showed a 9x increase in detection of AF with Zio at 4 months and a 3x increase at 1 year[23] Technology and Clinical Advantages - iRhythm's Zio service is clinically proven and highly differentiated, utilizing a patented wearable biosensor and proprietary data analytics[8] - iRhythm's deep neural network (DNN) exceeded cardiologist ECG interpretation for all 12 rhythm classes[27] - The DNN optimization is built on a proprietary database of over 10 years and >400 million hours of curated data[27] - Incidence of First Critical Arrhythmias Detected Beyond 7-Days: Paroxysmal AF 13%, AV block 16%, Pause 18%, Ventricular tachycardia 22%[16] Business Performance - The company's revenue is estimated to be between $212 million and $216 million in 2019[36] - The company's gross margin has increased from 51% in 2014 to an estimated 75.5-76.5% in 2019[34, 35]

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis of financial condition and operations [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for iRhythm Technologies, Inc., including the Balance Sheets, Statements of Operations, Comprehensive Loss, Cash Flows, and Stockholders' Equity, along with detailed notes explaining significant accounting policies, financial instrument fair values, balance sheet components, commitments, debt, income taxes, and equity-related activities [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $207,295 | $119,710 | | Total Liabilities | $158,687 | $65,288 | | Total Stockholders' Equity | $48,608 | $54,422 | - Total assets increased significantly from **$119.7 million** at December 31, 2018, to **$207.3 million** at June 30, 2019, primarily due to the recognition of operating lease right-of-use assets[13](index=13&type=chunk) - Total liabilities also saw a substantial increase from **$65.3 million** to **$158.7 million**, largely driven by the recognition of operating lease liabilities[13](index=13&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $53,331 | $35,469 | $100,545 | $66,034 | | Gross Profit | $40,506 | $25,979 | $75,990 | $47,933 | | Net Loss | $(11,467) | $(12,206) | $(19,486) | $(23,323) | | Net Loss Per Share | $(0.46) | $(0.51) | $(0.79) | $(0.99) | - Revenue increased by **50%** for the three months ended June 30, 2019, and by **52%** for the six months ended June 30, 2019, compared to the respective prior periods[15](index=15&type=chunk) - Net loss decreased for both the three-month and six-month periods ended June 30, 2019, indicating improved operational efficiency despite continued investments[15](index=15&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section presents the net loss and other comprehensive income (loss) components, reflecting total comprehensive loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(11,467) | $(12,206) | $(19,486) | $(23,323) | | Comprehensive Loss | $(11,434) | $(12,159) | $(19,410) | $(23,296) | - Comprehensive loss for the three months ended June 30, 2019, was **$(11,434) thousand**, an improvement from **$(12,159) thousand** in the prior year period[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(16,781) | $(19,623) | | Net cash provided by investing activities | $11,106 | $28,162 | | Net cash provided by financing activities | $1,806 | $2,031 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,869) | $10,570 | - Net cash used in operating activities decreased from **$(19.6) million** in H1 2018 to **$(16.8) million** in H1 2019[21](index=21&type=chunk) - Cash provided by investing activities significantly decreased from **$28.2 million** in H1 2018 to **$11.1 million** in H1 2019, mainly due to changes in purchases and maturities of available-for-sale investments[21](index=21&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Equity Component (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------ | :----------------------------- | :----------------------------- | | Common stock, ending balance | $23 | $23 | | Additional paid-in capital, ending balance | $271,551 | $247,039 | | Accumulated other comprehensive income (loss), ending balance | $35 | $(38) | | Accumulated deficit, ending balance | $(223,001) | $(178,557) | | Total stockholders' equity | $48,608 | $68,467 | - Total stockholders' equity decreased from **$68.5 million** at June 30, 2018, to **$48.6 million** at June 30, 2019, primarily due to an increased accumulated deficit[23](index=23&type=chunk) - Additional paid-in capital increased by **$24.5 million** for the six months ended June 30, 2019, driven by stock-based compensation expense and proceeds from common stock issuance[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, financial instrument fair values, and other financial statement components [1. Organization and Description of Business](index=9&type=section&id=1.%20Organization%20and%20Description%20of%20Business) This note describes iRhythm Technologies, Inc.'s core business, incorporation details, and operational focus on cardiac arrhythmia diagnosis - iRhythm Technologies, Inc. is a digital healthcare company incorporated in Delaware in September 2006, focused on diagnosing cardiac arrhythmias using wearable biosensing technology, cloud-based data analytics, and deep-learning capabilities[26](index=26&type=chunk) - The company commenced commercial operations in the U.S. in 2009 and manages its operations as a single segment, with substantially all assets and revenue derived from the United States[26](index=26&type=chunk)[27](index=27&type=chunk) [2. Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the condensed consolidated financial statements - The financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting rules, with certain footnotes condensed or omitted[28](index=28&type=chunk) - Accounts receivable are reported net of estimated allowance for doubtful accounts and contractual allowance, with provisions recognized as selling, general and administrative expenses or reductions to revenue, respectively[30](index=30&type=chunk)[31](index=31&type=chunk) Allowance for Doubtful Accounts and Contractual Allowance (in thousands) | Allowance Type (in thousands) | June 30, 2019 | December 31, 2018 | | :---------------------------- | :------------ | :---------------- | | Allowance for doubtful accounts | $4,672 | $4,851 | | Contractual allowance | $14,369 | $10,601 | - Federal government agencies (CMS and military) accounted for approximately **36%** of revenue for the three and six months ended June 30, 2019[35](index=35&type=chunk) - Revenue is primarily generated from the Zio XT cardiac rhythm monitoring service, recognized upon delivery of monitoring reports to healthcare providers[36](index=36&type=chunk) Revenue by Payor Type (in thousands) | Payor Type (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :------------------------ | :------------------------------- | :----------------------------- | | Commercial Payors | $27,631 | $51,978 | | Centers for Medicare & Medicaid | $14,747 | $27,493 | | Healthcare Institutions | $10,953 | $21,074 | | Total Revenue | $53,331 | $100,545 | - The company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019, recognizing right-of-use assets of **$10.4 million** and lease liabilities of **$10.2 million**, with no cumulative-effect adjustment[58](index=58&type=chunk) [3. Cash Equivalents and Investments](index=14&type=section&id=3.%20Cash%20Equivalents%20and%20Investments) This note details the composition and fair value of the company's cash equivalents and available-for-sale marketable debt securities Available-for-Sale Marketable Debt Securities (in thousands) | Security Type (in thousands) | Fair Value (June 30, 2019) | Fair Value (December 31, 2018) | | :--------------------------- | :------------------------- | :----------------------------- | | Money market funds | $9,748 | $10,606 | | U.S. government securities | $33,058 | $9,975 | | Corporate notes | $1,999 | $16,499 | | Commercial paper | $8,183 | $36,331 | | Total | $52,988 | $73,411 | - Total available-for-sale marketable debt securities decreased from **$73.4 million** at December 31, 2018, to **$53.0 million** at June 30, 2019[62](index=62&type=chunk) - As of June 30, 2019, no investments were in an unrealized loss position, and the weighted average maturity of available-for-sale securities was **93 days**[62](index=62&type=chunk) [4. Fair Value Measurements](index=15&type=section&id=4.%20Fair%20Value%20Measurements) This note explains the company's methodology for fair value measurements and the classification of financial assets into valuation levels - The company classifies fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - Corporate notes, commercial paper, and U.S. government securities are classified as Level 2, valued based on quoted market prices for similar instruments or model-based techniques with observable inputs[67](index=67&type=chunk) Fair Value Measurements by Level (in thousands) | Asset Type (in thousands) | Level 1 (June 30, 2019) | Level 2 (June 30, 2019) | Total (June 30, 2019) | | :------------------------ | :---------------------- | :---------------------- | :-------------------- | | Money market funds | $9,748 | — | $9,748 | | U.S. government securities | — | $33,058 | $33,058 | | Corporate notes | — | $1,999 | $1,999 | | Commercial paper | — | $8,183 | $8,183 | | Total | $9,748 | $43,240 | $52,988 | [5. Balance Sheet Components](index=16&type=section&id=5.%20Balance%20Sheet%20Components) This note provides a breakdown of specific balance sheet items, including inventory, property and equipment, and accrued liabilities Inventory Components (in thousands) | Inventory Component (in thousands) | June 30, 2019 | December 31, 2018 | | :--------------------------------- | :------------ | :---------------- | | Raw materials | $1,974 | $1,028 | | Finished goods | $4,543 | $3,565 | | Total | $6,517 | $4,593 | | Classified as: Inventory | $2,774 | $2,062 | | Classified as: Other assets | $3,743 | $2,531 | Property and Equipment, Net (in thousands) | Property and Equipment (in thousands) | June 30, 2019 | December 31, 2018 | | :------------------------------------ | :------------ | :---------------- | | Total property and equipment, gross | $19,140 | $14,388 | | Less: accumulated depreciation and amortization | $(6,522) | $(5,230) | | Total property and equipment, net | $12,618 | $9,158 | Accrued Liabilities (in thousands) | Accrued Liabilities (in thousands) | June 30, 2019 | December 31, 2018 | | :--------------------------------- | :------------ | :---------------- | | Accrued vacation | $3,646 | $2,825 | | Accrued payroll and related expenses | $13,338 | $18,188 | | Accrued professional services fees | $895 | $1,243 | | Claims payable | $3,220 | $2,374 | | Other | $2,205 | $1,940 | | Total accrued liabilities | $23,304 | $26,570 | [6. Commitments and Contingencies](index=17&type=section&id=6.%20Commitments%20and%20Contingencies) This note describes the company's lease obligations and potential future liabilities from legal proceedings or other contingencies - The company leases office, manufacturing, and clinical centers under non-cancelable operating leases expiring through **2031**[76](index=76&type=chunk) - A new San Francisco office lease commenced on May 13, 2019, expiring on August 31, 2031, with a tenant improvement allowance of up to **$2.4 million** and a **$6.9 million** standby letter of credit[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) Operating Lease Liabilities (in thousands) | Period Ending December 31: | Operating Lease Liabilities (in thousands) | | :------------------------- | :--------------------------------------- | | 2019 (remainder of year) | $1,743 | | 2020 | $11,757 | | 2021 | $11,760 | | 2022 | $11,317 | | 2023 | $11,639 | | Thereafter | $100,764 | | Total lease liabilities | $95,490 | [7. Debt](index=18&type=section&id=7.%20Debt) This note details the company's debt agreements, including the SVB Term Loan and revolving credit line, and their associated terms - The company repaid the **$30.0 million** Pharmakon Loan Agreement in October 2018, incurring a **$3.0 million** loss on early extinguishment[86](index=86&type=chunk) - In October 2018, the company entered into a Third Amended and Restated Loan and Security Agreement with SVB, obtaining a **$35.0 million** term loan to pay off the Pharmakon loan[89](index=89&type=chunk)[91](index=91&type=chunk) - The SVB Term Loan requires interest-only payments through October 31, 2020, followed by 36 monthly principal and interest payments, with an interest rate greater of Prime Rate minus **0.75%** or **4.25%**[91](index=91&type=chunk) - The company also has a revolving credit line with SVB up to **$25.0 million**, including an **$11.0 million** standby letter of credit sublimit, with no outstanding amount as of June 30, 2019[92](index=92&type=chunk) [8. Income Taxes](index=19&type=section&id=8.%20Income%20Taxes) This note discusses the company's income tax provision and the impact of net operating loss carryforwards and valuation allowances - The company recorded an income tax provision for its U.K. entity during the three and six months ended June 30, 2019[96](index=96&type=chunk) - No income tax benefit was recognized for net operating loss carryforwards and other deferred tax assets due to a full valuation allowance[96](index=96&type=chunk) [9. Stockholders' Equity](index=19&type=section&id=9.%20Stockholders'%20Equity) This note outlines the authorized and issued shares of common and preferred stock, along with shares reserved under stock plans - The company is authorized to issue **100,000,000** shares of common stock and **5,000,000** shares of preferred stock, with no preferred stock issued[97](index=97&type=chunk) Reserved Shares | Reserved Shares | June 30, 2019 | December 31, 2018 | | :---------------------- | :------------ | :---------------- | | Options issued and outstanding | 1,715,389 | 2,094,137 | | Unvested restricted stock units | 886,404 | 547,891 | | Common stock warrants issued and outstanding | 4,857 | 4,857 | | Shares available for grant under future stock plans | 6,763,074 | 5,607,014 | | Total | 9,369,724 | 8,253,899 | [10. Stock Incentive Plans](index=20&type=section&id=10.%20Stock%20Incentive%20Plans) This note provides details on the company's stock option activity, including outstanding options and their weighted-average exercise prices Stock Option Activity | Stock Option Activity | June 30, 2019 | December 31, 2018 | | :-------------------- | :------------ | :---------------- | | Options outstanding | 1,715,389 | 2,094,137 | | Weighted-average exercise price | $26.06 | $23.20 | | Weighted-average remaining contractual life (years) | 6.57 | 7.02 | | Aggregate intrinsic value (in thousands) | $91,452 | $97,976 | - The weighted-average grant date fair value of options granted was **$38.29** per share for the six months ended June 30, 2019, compared to **$30.80** per share for the same period in 2018[100](index=100&type=chunk) [11. Stock-Based Compensation](index=21&type=section&id=11.%20Stock-Based%20Compensation) This note details the stock-based compensation expense recognized across various functional areas and the impact of performance-based RSUs Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $137 | $21 | $225 | $138 | | Research and development | $1,278 | $781 | $2,151 | $1,357 | | Selling, general and administrative | $5,915 | $3,274 | $9,369 | $5,828 | | Total stock-based compensation expense | $7,330 | $4,076 | $11,745 | $7,323 | - Total stock-based compensation expense increased by **79.8%** for the three months and **60.4%** for the six months ended June 30, 2019, compared to the prior year periods[104](index=104&type=chunk) - The company granted performance-based RSUs (PRSUs) to key executives in February 2019, with a 2-year performance period measuring target revenue CAGR. As of June 30, 2019, management expects to achieve performance targets at the **125%** level, recognizing **$1.7 million** in PRSU expense[105](index=105&type=chunk) [12. Net Loss Per Common Share](index=21&type=section&id=12.%20Net%20Loss%20Per%20Common%20Share) This note presents the calculation of basic and diluted net loss per common share, explaining the anti-dilutive effect of potential common shares Net Loss Per Common Share | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss (in thousands) | $(11,467) | $(12,206) | $(19,486) | $(23,323) | | Weighted-average shares, basic and diluted | 24,724,808 | 23,747,131 | 24,600,250 | 23,614,281 | | Net loss per common share, basic and diluted | $(0.46) | $(0.51) | $(0.79) | $(0.99) | - All potential common shares were excluded from diluted net loss per common share calculations for both periods due to the company's net losses, making them anti-dilutive[106](index=106&type=chunk)[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, highlighting revenue growth driven by increased Zio service adoption and expanded payor coverage. It details changes in revenue, cost of revenue, operating expenses, and net loss for the three and six months ended June 30, 2019, compared to the prior year, and discusses liquidity, capital expenditures, and debt [Overview](index=23&type=section&id=Overview) This section introduces iRhythm Technologies, Inc.'s business model, its Zio service, market disruption goals, and revenue sources - iRhythm Technologies is a digital healthcare company focused on diagnosing cardiac arrhythmias using its Zio service, which combines wearable biosensing technology with cloud-based data analytics and deep-learning capabilities[111](index=111&type=chunk) - The Zio service includes Zio XT and Zio AT monitors, cloud-based analysis, certified cardiographic technician review, and an easy-to-read Zio report for physicians[115](index=115&type=chunk) - The company aims to disrupt the **$1.8 billion** U.S. ambulatory cardiac monitoring market, having provided the Zio service to over **one million** patients and collected approximately **400 million** hours of heartbeat data[113](index=113&type=chunk) - Revenue is primarily from third-party payors (commercial and government agencies like CMS), with a smaller portion from healthcare institutions. Third-party payors accounted for approximately **91%** of revenue for the six months ended June 30, 2019[112](index=112&type=chunk) [Components of Results of Operations](index=24&type=section&id=Components%20of%20Results%20of%20Operations) This section explains the key drivers and accounting treatment for revenue, cost of revenue, and operating expenses - Revenue is primarily from Zio service sales in the U.S., recognized on an accrual basis based on estimated realizable amounts, considering claim payment history, payor coverage, and contracts[116](index=116&type=chunk)[117](index=117&type=chunk) - Cost of revenue includes direct labor, materials (Zio monitors and amortized PCBAs), equipment, infrastructure, and allocated overhead. Gross margin is influenced by increased contracting with payors and institutional providers, leading to higher average selling prices and efforts to reduce per-device service costs[119](index=119&type=chunk)[120](index=120&type=chunk) - Research and development expenses are expensed as incurred, covering payroll, consulting, clinical studies, and laboratory supplies, expected to increase with new product development[121](index=121&type=chunk) - Selling, general and administrative expenses include payroll, sales commissions, travel, professional fees, and bad debt, expected to increase with salesforce expansion and international market exploration[122](index=122&type=chunk)[123](index=123&type=chunk) [Comparison of the Three Months Ended June 30, 2019 and 2018](index=25&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202019%20and%202018) This section analyzes the financial performance changes for the three-month period, including revenue, gross margin, and operating expenses Financial Performance Comparison (Three Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2019 | June 30, 2018 | $ Change | % Change | | :-------------------- | :------------ | :------------ | :------- | :------- | | Revenue | $53,331 | $35,469 | $17,862 | 50% | | Cost of revenue | $12,825 | $9,490 | $3,335 | 35% | | Gross profit | $40,506 | $25,979 | $14,527 | 56% | | Gross margin | 76% | 73% | | | | Research and development | $8,639 | $4,564 | $4,075 | 89% | | Selling, general and administrative | $43,189 | $33,094 | $10,095 | 31% | | Loss from operations | $(11,322) | $(11,679) | $357 | 3% | | Net loss | $(11,467) | $(12,206) | $739 | 6% | - Revenue increased by **$17.9 million** (**50%**) due to higher Zio service volume, expanded coverage, increased payors, and improved collection experience[127](index=127&type=chunk) - Gross margin improved to **76%** from **73%**, driven by reduced manufacturing costs, fixed cost absorption, and lower labor costs per device[129](index=129&type=chunk) - Research and development expenses surged by **89%** to **$8.6 million**, primarily due to Zio AT and other product development efforts, including increased payroll and facility-related expenses[130](index=130&type=chunk) - Selling, general and administrative expenses rose by **31%** to **$43.2 million**, mainly from increased headcount, stock-based compensation, and rent expense from the new San Francisco Lease[131](index=131&type=chunk) [Comparison of the Six Months Ended June 30, 2019 and 2018](index=26&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018) This section analyzes the financial performance changes for the six-month period, including revenue, gross margin, and operating expenses Financial Performance Comparison (Six Months Ended June 30, in thousands) | Metric (in thousands) | June 30, 2019 | June 30, 2018 | $ Change | % Change | | :-------------------- | :------------ | :------------ | :------- | :------- | | Revenue | $100,545 | $66,034 | $34,511 | 52% | | Cost of revenue | $24,555 | $18,101 | $6,454 | 36% | | Gross profit | $75,990 | $47,933 | $28,057 | 59% | | Gross margin | 76% | 73% | | | | Research and development | $15,395 | $8,583 | $6,812 | 79% | | Selling, general and administrative | $79,894 | $61,671 | $18,223 | 30% | | Loss from operations | $(19,299) | $(22,321) | $3,022 | 14% | | Net loss | $(19,486) | $(23,323) | $3,837 | 16% | - Revenue increased by **$34.5 million** (**52%**) due to increased Zio service volume, expanded payor coverage, physician acceptance, sales force expansion, and improved collection experience[136](index=136&type=chunk) - Gross margin improved to **76%** from **73%**, driven by reduced manufacturing costs, fixed cost absorption, and lower labor costs per device through algorithm and workflow enhancements[138](index=138&type=chunk) - Research and development expenses increased by **79%** to **$15.4 million**, primarily due to Zio AT and other product development, including a **$4.4 million** increase in payroll and personnel-related expenses[139](index=139&type=chunk) - Selling, general and administrative expenses increased by **30%** to **$79.9 million**, mainly from a **$13.4 million** increase in payroll and stock-based compensation, and **$1.3 million** in rent expense from the San Francisco Lease[140](index=140&type=chunk) [Liquidity and Capital Expenditures](index=28&type=section&id=Liquidity%20and%20Capital%20Expenditures) This section discusses the company's cash position, short-term investments, accumulated deficit, and future capital needs - As of June 30, 2019, the company had **$16.2 million** in cash and cash equivalents, **$43.2 million** in short-term investments, and an accumulated deficit of **$223.0 million**[144](index=144&type=chunk) - Future capital requirements depend on expanding the customer base, salesforce, and technology development, with potential for dilution from equity issuance or restrictive covenants from debt financing[144](index=144&type=chunk)[145](index=145&type=chunk) [Cash Flows](index=28&type=section&id=Cash%20Flows) This section provides a detailed analysis of cash flows from operating, investing, and financing activities for the period Cash Flow Activities (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(16,781) | $(19,623) | | Net cash provided by investing activities | $11,106 | $28,162 | | Net cash provided by financing activities | $1,806 | $2,031 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,869) | $10,570 | - Cash used in operating activities decreased by **$2.8 million**, primarily due to non-cash charges like stock-based compensation and allowance for doubtful accounts, partially offset by an increase in accounts receivable[147](index=147&type=chunk)[148](index=148&type=chunk) - Cash provided by investing activities decreased by **$17.1 million**, mainly due to changes in purchases and maturities of available-for-sale investments and capital expenditures[149](index=149&type=chunk)[150](index=150&type=chunk) - Cash provided by financing activities decreased slightly, driven by tax withholding on restricted stock awards and proceeds from common stock issuance[151](index=151&type=chunk)[152](index=152&type=chunk) [Indebtedness](index=29&type=section&id=Indebtedness) This section details the company's debt obligations, including the SVB Term Loan and revolving credit facility, and compliance with covenants - The company repaid the **$30.0 million** Pharmakon Loan Agreement in October 2018, incurring a **$3.0 million** loss on early extinguishment[155](index=155&type=chunk) - A **$35.0 million** SVB Term Loan was obtained in October 2018 to pay off the Pharmakon loan, with interest-only payments until October 2020[159](index=159&type=chunk) - The company has a **$25.0 million** revolving credit line with SVB, including an **$11.0 million** standby letter of credit sublimit, with no outstanding balance as of June 30, 2019[160](index=160&type=chunk) - The company was in compliance with all loan covenants as of June 30, 2019, and the obligations are collateralized by substantially all assets[161](index=161&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of off-balance sheet arrangements or variable interest entities - The company has not entered into any off-balance sheet arrangements and does not hold any variable interest entities[164](index=164&type=chunk) [Contractual Obligations](index=30&type=section&id=Contractual%20Obligations) This section notes that there have been no material changes to the company's contractual obligations since the last annual report - There have been no material changes to the company's contractual obligations since December 31, 2018, as presented in its Form 10-K[165](index=165&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section refers to the annual report for a comprehensive overview of critical accounting policies and estimates - For a complete description of critical accounting policies and estimates, refer to the Annual Report on Form 10-K for the year ended December 31, 2018, with an update on the lease accounting policy upon adoption of ASC 842[166](index=166&type=chunk) [Recently Adopted Accounting Guidance](index=30&type=section&id=Recently%20Adopted%20Accounting%20Guidance) This section describes the impact of newly adopted accounting standards, specifically ASU No. 2016-02 on leases - The company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019, using the modified retrospective method, recognizing **$10.4 million** in right-of-use assets and **$10.2 million** in lease liabilities[167](index=167&type=chunk) - Practical expedients adopted include not reassessing embedded leases, lease classification, and indirect costs, and combining lease and non-lease components[168](index=168&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate sensitivity and foreign currency exchange rate sensitivity. It notes that a hypothetical 10% change in interest rates would not materially impact financial statements and that foreign exchange risk is currently not material - The company had **$59.4 million** in cash, cash equivalents, and investments as of June 30, 2019, exposed to interest rate risk, but historical fluctuations in interest income have not been significant[170](index=170&type=chunk) - A hypothetical **10%** change in interest rates would not have a material impact on the condensed consolidated financial statements, including the **$34.9 million** outstanding debt with a variable interest rate[171](index=171&type=chunk)[172](index=172&type=chunk) - Foreign currency exchange rate sensitivity, primarily in British Pound Sterling, is not considered material as of June 30, 2019, and the company does not use forward foreign exchange contracts[173](index=173&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2019, due to unremediated material weaknesses related to the control environment, financial statement close process, and revenue/accounts receivable accounting. Despite these weaknesses, the financial statements are deemed to fairly present the company's financial position. The company is actively implementing a remediation plan, including increasing finance staff experience and hiring an Internal Audit Director - Disclosure controls and procedures were not effective as of June 30, 2019, due to material weaknesses identified in the control environment, financial statement close process, and review of revenue and related accounts receivable[174](index=174&type=chunk)[175](index=175&type=chunk) - Despite material weaknesses, management concluded that the condensed consolidated financial statements fairly present the financial position, results of operations, and cash flows[176](index=176&type=chunk) - The company is remediating material weaknesses by increasing finance organization depth and experience, hiring an Internal Audit Director, and improving key controls for transaction cycles and financial statement preparation[178](index=178&type=chunk)[179](index=179&type=chunk) PART II. OTHER INFORMATION This section contains other information not included in the financial statements, such as legal proceedings and risk factors [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings but acknowledges potential involvement in future litigation related to product liability, unfair competition, or intellectual property. Such disputes could be costly, divert management attention, and adversely affect financial results - The company is not currently involved in any material legal proceedings[182](index=182&type=chunk) - Potential future litigation includes product liability, unfair competition, or intellectual property disputes, which could be costly, divert management resources, and harm reputation and financial performance[182](index=182&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks to investors, including the company's history of net losses and uncertainty of future profitability, dependence on physician adoption of the Zio service, fluctuations in quarterly results due to seasonality and other factors, and regulatory risks related to CMS reimbursement and healthcare laws. Other risks include competition, reliance on third-party suppliers, potential for security breaches, product liability, and challenges in managing rapid growth and international expansion - The company has a history of net losses, with an accumulated deficit of **$223.0 million** as of June 30, 2019, and expects to continue incurring losses due to substantial investments in technology and market expansion[184](index=184&type=chunk) - Business success is highly dependent on broad physician adoption of the Zio service, which may be hindered by lack of compelling efficacy data or insufficient reimbursement from third-party payors and CMS[185](index=185&type=chunk) - Quarterly and annual results may fluctuate significantly due to factors like market acceptance, reimbursement rates, competition, seasonality (e.g., summer and holiday periods), and insurance deductibles[187](index=187&type=chunk)[189](index=189&type=chunk) - Changes in CMS reimbursement policies, CPT codes, or coverage determinations could significantly harm revenue, as approximately **27%** of revenue for the six months ended June 30, 2019, came from CMS[190](index=190&type=chunk)[191](index=191&type=chunk) - The company faces intense competition in the ambulatory cardiac monitoring market from larger companies with greater resources, and its ability to compete depends on continuous innovation and distinguishing its Zio service[220](index=220&type=chunk)[221](index=221&type=chunk) - Security breaches, data loss, or system disruptions could compromise sensitive patient information, leading to liability under HIPAA and GDPR, reputational harm, and increased costs[239](index=239&type=chunk)[244](index=244&type=chunk) - Material weaknesses in internal control over financial reporting, if not remediated, could result in material misstatements in financial statements and negatively affect stock price[300](index=300&type=chunk)[301](index=301&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the current report [Item 3. Defaults Upon Senior Securities](index=59&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the current report [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the current report [Item 5. Other Information](index=59&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the current report [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL-related documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as Exhibits 31.1 and 31.2, respectively, pursuant to the Sarbanes-Oxley Act of 2002[322](index=322&type=chunk) - XBRL Instance Document and Taxonomy Extension documents are also filed as exhibits[322](index=322&type=chunk) [Signatures](index=61&type=section&id=Signatures) The report is duly signed on behalf of iRhythm Technologies, Inc. by its President and Chief Executive Officer, Kevin M. King, and Chief Financial Officer, Matthew C. Garrett, on August 5, 2019 - The report was signed on August 5, 2019, by Kevin M. King, President and Chief Executive Officer, and Matthew C. Garrett, Chief Financial Officer[326](index=326&type=chunk)[328](index=328&type=chunk)

iRhythm Technologies, Inc. (NASDAQ:IRTC) Q2 2019 Earnings Conference Call July 31, 2019 4:30 PM ET Company Participants Lynn Lewis – Investor Relations-Gilmartin Group Kevin King – Chief Executive Officer Matthew Garrett – Chief Financial Officer Conference Call Participants David Lewis – Morgan Stanley Operator Good afternoon, my name is Sylvia and I will be your conference operator today. At this time I’d like to welcome everyone to the iRhythm Technologies Second Quarter 2019 Conference Call. [Operator ...

iRhythm 1 ©2019 iRhythm Technologies, Inc. Content is Confidential and Proprietary. Investor Presentation June 2019 Safe Harbor Certain data in this presentation was obtained from various external sources, and neither "iRhythm" or the "Company" nor its affiliates or representatives has verified such data with independent sources. Accordingly, neither the Company nor any of its affiliates, advisers or representatives makes any representations as to the accuracy of that data or undertakes to update such data ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-37918 iRhythm Technologies, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 20-8149544 (State or Other Jurisdiction of Incorporation or Orga ...