iRhythm(US:IRTC)2024-08-01 21:10PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024. It includes the balance sheets, statements of operations, comprehensive loss, cash flows, and stockholders' equity, along with detailed notes explaining the financial data and accounting policies Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $550,552 | $36,173 | | Total current assets | $677,508 | $230,812 | | Total assets | $919,185 | $433,144 | | Liabilities & Equity | | | | Total current liabilities | $97,895 | $107,370 | | Long-term senior convertible notes | $644,977 | $0 | | Total liabilities | $819,996 | $223,047 | | Total stockholders' equity | $99,189 | $210,097 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $148,047 | $124,130 | $279,976 | $235,566 | | Gross profit | $103,471 | $86,225 | $190,987 | $161,906 | | Loss from operations | $(22,981) | $(18,872) | $(61,119) | $(58,376) | | Net loss | $(20,107) | $(18,482) | $(65,774) | $(57,591) | | Net loss per share | $(0.65) | $(0.61) | $(2.12) | $(1.89) | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(40,189) | $(35,325) | | Net cash provided by investing activities | $54,510 | $12,829 | | Net cash provided by financing activities | $508,429 | $5,286 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 19% revenue increase for both the three and six months ended June 30, 2024, driven by higher Zio Services volume. The analysis covers key metrics like Adjusted EBITDA, revenue drivers, cost structures, operational results, and liquidity. The company's financial position was significantly strengthened by a $661.3 million convertible note offering in March 2024, with proceeds used for debt repayment, capped call purchases, and stock repurchases Results of Operations Comparison (in thousands) | Metric | H1 2024 | H1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $279,976 | $235,566 | $44,410 | 19% | | Gross Profit | $190,987 | $161,906 | $29,081 | 18% | | R&D Expense | $36,684 | $28,519 | $8,165 | 29% | | SG&A Expense | $215,422 | $191,763 | $23,659 | 12% | | Net Loss | $(65,774) | $(57,591) | $(8,183) | 14% | - Revenue growth of 19% for H1 2024 was primarily driven by an increase in the volume of Zio Services, while the average selling price remained relatively stable98 - The company's liquidity was significantly enhanced by the issuance of $661.3 million in 1.50% Senior Convertible Notes due 2029 in March 2024. Net proceeds of approximately $643.8 million were used to repay existing debt, purchase capped calls, repurchase common stock, and for general corporate purposes60112 - A loss on extinguishment of debt of $7.6 million was recorded in H1 2024 due to the early repayment of the SVB Loan Agreement and the Braidwell Term Loan Facility105 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate sensitivity and foreign currency exchange rate sensitivity. As of June 30, 2024, the company held $561.5 million in cash, cash equivalents, and marketable securities, which are subject to interest rate risk. The $661.3 million in fixed-rate 2029 Notes are not subject to economic interest rate exposure, but their fair market value can fluctuate with interest rate changes - The company's primary market risks are related to interest rate sensitivity on its cash and investments and foreign currency exchange rates118 - A hypothetical 10% change in interest rates would have impacted interest income by approximately $0.7 million and $1.0 million for the three and six months ended June 30, 2024, respectively119 - The company entered into capped call transactions to reduce potential dilution from its 2029 Notes, which introduces counterparty risk with the financial institutions involved121188 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2024. There were no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures are effective at the reasonable assurance level123 - No changes in internal control over financial reporting occurred during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting124 PART II. OTHER INFORMATION Legal Proceedings The company is involved in several significant legal matters. These include two putative securities class action lawsuits (filed Feb 2021 and Feb 2024), an ongoing investigation by the U.S. Department of Justice (DOJ) related to FDA communications and company services, and a patent infringement lawsuit filed by Welch Allyn. The company states it is defending itself vigorously in these matters - The company is defending against two putative securities class action lawsuits, one filed in February 2021 and a second in February 2024, alleging violations of the Exchange Act126 - The company is cooperating with a DOJ investigation that began with a grand jury subpoena in March 2021 and a subsequent subpoena in April 2023, requesting documents regarding its products, services, and communications with the FDA53126 - In February 2024, Welch Allyn, a subsidiary of Baxter International, filed a lawsuit alleging that the company's Zio devices infringe on its patents. The company believes the lawsuit is without merit55126 Risk Factors This section outlines numerous risks that could adversely affect the company's business. Key risks include dependence on Medicare reimbursement rates, which are subject to change; intense competition in the remote cardiac monitoring market; complex and highly regulated billing processes; and significant regulatory oversight from the FDA, including an outstanding warning letter from May 2023 and recent Form 483 observations. Other risks involve intellectual property disputes, cybersecurity threats, reliance on third-party suppliers, and risks associated with the company's substantial debt - The company's business is highly dependent on Medicare reimbursement, which accounted for approximately 24% of total revenue in H1 2024. Changes to coding, coverage, or pricing could significantly harm the business132133 - The company faces significant regulatory risk, highlighted by a May 2023 FDA warning letter regarding its Zio AT System and medical device quality system requirements. The company is working to address the issues, but failure to satisfy the FDA could lead to further legal or regulatory action142143 - The market for remote cardiac monitoring is highly competitive, with competition from large manufacturers like GE and Philips, specialized service providers like BioTelemetry (Philips), and consumer technology companies like Apple and Samsung135136137 - Billing for Zio Services is complex and relies on third-party vendors. A cybersecurity incident at Change Healthcare, a partner of the company's billing vendor, caused a temporary delay in billing and cash collections in Q1 202427139179 - The company's significant debt level, primarily from the 2029 Notes, requires substantial cash for servicing and could adversely affect financial health and flexibility187 Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities during the reporting period. It also notes there were no issuer purchases of equity securities - The company reported no sales of unregistered securities and no issuer purchases of its equity securities during the quarter195 Other Information The company reports that during the three months ended June 30, 2024, no Section 16 officers or directors adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No Section 16 officers or directors adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2024195 Exhibits This section provides an index of the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO, and XBRL data files