iRhythm(US:IRTC)2025-07-31 21:23PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the period ended June 30, 2025, show revenue growth and an improved net loss compared to the prior year. Total assets increased to $964.0 million, driven by a significant rise in marketable securities, while total liabilities grew to $860.4 million, primarily due to long-term convertible notes. Cash flow from operations turned positive, reflecting improved operational performance and working capital management Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $309,105 | $419,597 | | Marketable securities | $236,435 | $115,956 | | Total current assets | $663,917 | $645,819 | | Total assets | $964,030 | $931,449 | | Liabilities & Equity | | | | Total current liabilities | $132,211 | $110,920 | | Long-term senior convertible notes | $648,007 | $646,443 | | Total liabilities | $860,370 | $840,541 | | Total stockholders' equity | $103,660 | $90,908 | Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $186,687 | $148,047 | $345,364 | $279,976 | | Gross profit | $132,857 | $103,471 | $242,073 | $190,987 | | Loss from operations | $(18,708) | $(22,981) | $(51,264) | $(61,119) | | Net loss | $(14,218) | $(20,107) | $(44,918) | $(65,774) | | Net loss per share | $(0.44) | $(0.65) | $(1.41) | $(2.12) | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $19,768 | $(40,189) | | Net cash (used in) provided by investing activities | $(139,054) | $54,510 | | Net cash provided by financing activities | $8,823 | $508,429 | | Net (decrease) increase in cash | $(110,492) | $522,737 | - The significant increase in cash from financing activities in 2024 was primarily due to the issuance of the 2029 Notes, which generated proceeds of $661.3 million23 Notes to Condensed Consolidated Financial Statements - The company's principal business is providing ambulatory cardiac monitoring services using its proprietary Zio System, which combines a wearable biosensor with cloud-based data analytics3132 Revenue by Payor Type (Six Months Ended June 30) | Payor Type | 2025 Revenue (in thousands) | % of Revenue | 2024 Revenue (in thousands) | % of Revenue | | :--- | :--- | :--- | :--- | :--- | | Contracted third-party payors | $181,522 | 52% | $151,027 | 54% | | Centers for Medicare and Medicaid | $82,593 | 24% | $68,041 | 24% | | Healthcare institutions | $58,503 | 17% | $41,808 | 15% | | Non-contracted third-party payors | $22,746 | 7% | $19,100 | 7% | | Total | $345,364 | 100% | $279,976 | 100% | - The company is involved in multiple legal proceedings, including a securities class action lawsuit, DOJ subpoenas related to FDA communications, and patent infringement lawsuits filed by Welch Allyn and Bardy Diagnostics9598101102 - In March 2024, the company issued $661.3 million of 1.50% Senior Convertible Notes due 2029. Net proceeds were used for debt repayment, capped call transactions, and share repurchases111112 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 26% year-over-year revenue growth in Q2 2025 to increased service volume, particularly from the Zio AT product. The company's net loss narrowed due to higher gross profit, which outpaced the growth in operating expenses. Operating expenses rose from increased headcount, legal fees, and a $2.5 million impairment charge related to the Zio Watch project. The company reported positive Adjusted EBITDA of $15.7 million for the quarter. Liquidity remains strong with over $545 million in cash and marketable securities, deemed sufficient for at least the next 12 months, following significant financing activities in early 2024 Results of Operations Comparison of Results for the Three Months Ended June 30 (in thousands) | Line Item | 2025 | 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $186,687 | $148,047 | $38,640 | 26% | | Gross profit | $132,857 | $103,471 | $29,386 | 28% | | Total operating expenses | $151,565 | $126,452 | $25,113 | 20% | | Loss from operations | $(18,708) | $(22,981) | $4,273 | (19)% | | Net loss | $(14,218) | $(20,107) | $5,889 | (29)% | - Revenue growth for Q2 and H1 2025 was primarily driven by an increase in the volume of iRhythm Services, with significant growth in Zio AT as a proportion of total revenue170 - Selling, general and administrative expenses increased by 18% in Q2 2025, mainly due to higher headcount-related costs, legal and professional fees (including $3.0 million in IP litigation costs), and provisions for credit losses174 - A $2.5 million impairment charge was recorded in Q2 2025 related to capitalized internal-use software for the Zio Watch project, which the company does not intend to commercially launch175 Key Business Metric Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(14,218) | $(20,107) | $(44,918) | $(65,774) | | Adjustments | $29,914 | $25,098 | $57,979 | $58,644 | | Adjusted EBITDA | $15,696 | $4,991 | $13,061 | $(7,130) | - The company uses Adjusted EBITDA as a key non-GAAP measure to assess financial performance. Adjustments include stock-based compensation, impairment charges, business transformation costs, and certain litigation expenses144146 Liquidity and Capital Resources - As of June 30, 2025, the company had $309.1 million in cash and cash equivalents and $236.4 million in marketable securities. Management believes current liquidity is sufficient to meet requirements for at least the next 12 months182183 - Net cash provided by operating activities was $19.8 million for the first six months of 2025, a $60.0 million improvement from the same period in 2024, driven by lower net loss and improved working capital management188 - In Q1 2024, the company raised approximately $643.8 million in net proceeds from its 2029 Notes offering, which was used to repay existing debt (Braidwell and SVB loans), purchase capped calls, and repurchase $25.0 million of its common stock191192196200 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk on its cash, cash equivalents, and marketable securities, and to a lesser extent, foreign currency exchange risk. A hypothetical 10% change in interest rates would impact interest income by approximately $0.5 million for the second quarter of 2025. The company's $661.3 million in convertible notes carry a fixed interest rate, mitigating direct economic interest rate exposure on the debt itself, though its fair value is subject to market interest rate changes - The company's primary market risk is interest rate sensitivity on its $545.5 million of cash, cash equivalents, and marketable securities as of June 30, 2025205206 - A hypothetical 10% change in interest rates would have resulted in a $0.5 million impact on interest income for the three months ended June 30, 2025207 - The outstanding $661.3 million of 2029 Notes have a fixed interest rate, so the company does not have economic interest rate exposure on this debt, although its fair market value is sensitive to interest rate changes208 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2025, and concluded that they were effective at a reasonable assurance level. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025212 - No changes in internal control over financial reporting occurred during the three months ended June 30, 2025, that materially affected or are likely to materially affect internal controls213 PART II. OTHER INFORMATION Legal Proceedings The company is involved in several significant legal matters. These include a putative securities class action lawsuit alleging violations of the Exchange Act, related stockholder derivative actions, and an ongoing response to subpoenas from the U.S. Department of Justice regarding communications with the FDA. Additionally, the company is defending against two separate patent infringement lawsuits filed by Welch Allyn, Inc. and Bardy Diagnostics, Inc., both subsidiaries of Baxter International. The company believes these lawsuits are without merit and intends to defend itself vigorously - A putative class action lawsuit filed in February 2024 alleges violations of the Exchange Act. A motion to dismiss was partially granted in June 2025, and the case is now in discovery218 - The company received subpoenas from the U.S. Attorney's Office and the DOJ's Consumer Protection Branch regarding its products, services, and communications with the FDA, and is cooperating fully221 - The company is defending against patent infringement lawsuits from Welch Allyn, Inc. and Bardy Diagnostics, Inc. (subsidiaries of Baxter International) related to its Zio devices and has asserted counterclaims in the BardyDx case224225 Risk Factors The company faces numerous risks, with significant emphasis on reimbursement, regulatory compliance, and legal challenges. Key risks include potential reductions in Medicare reimbursement rates, which constitute 24% of revenue, and the complex, highly regulated billing process. The company is subject to extensive FDA oversight, as evidenced by a recent warning letter and Form 483 observations, which could lead to enforcement actions. Competition in the remote cardiac monitoring market is intense, and the company's reliance on its sole iRhythm Services offering creates concentration risk. Other major risks include ongoing legal proceedings, cybersecurity threats to patient data, and the complexities of international expansion - Reimbursement Risk: The company's revenue is highly dependent on Medicare (24% of total revenue) and commercial payors. Changes in coding, coverage, or pricing, particularly by CMS, could significantly harm the business230231234 - Regulatory and Compliance Risk: The company is subject to extensive FDA regulations for its medical devices and has recently received a warning letter and Form 483 observations, indicating heightened scrutiny that could lead to recalls or other enforcement actions263264273 - Legal and Investigation Risk: The company is subject to ongoing legal proceedings, including a securities class action lawsuit, and government investigations by the DOJ, which could result in substantial costs, penalties, and diversion of management's attention344346 - Cybersecurity Risk: The company handles sensitive patient health information, making it a target for cyber-attacks. A breach could lead to significant liability under HIPAA, remediation costs, and reputational damage366367 Unregistered Sales of Equity Securities and Use of Proceeds During the reporting period, the company did not have any unregistered sales of equity securities, nor were there any updates on the use of proceeds from registered offerings. There were also no issuer purchases of equity securities - There were no unregistered sales of equity securities or issuer purchases of equity securities during the period407408 Other Information During the second quarter of 2025, several Section 16 officers and directors, including the CEO Quentin Blackford and directors Abhijit Talwalkar and Mark Rubash, adopted Rule 10b5-1 trading arrangements. These plans were established in accordance with the company's insider trading policy, which includes a 90-day cooling-off period Adoption of Rule 10b5-1 Trading Arrangements | Name | Title | Action Date | Aggregate Shares to be Sold | Expiration Date | | :--- | :--- | :--- | :--- | :--- | | Abhijit Talwalkar | Director | May 12, 2025 | 24,230 | May 12, 2027 | | Mark Rubash | Director | May 5, 2025 | 15,000 | May 5, 2026 | | Quentin Blackford | President and CEO | May 5, 2025 | 30,000 | May 5, 2026 | | Sumi Shrishrimal | EVP, Chief Risk Officer | May 23, 2025 | 653 | May 23, 2026 | | Marc Rosenbaum | SVP, Chief Accounting Officer | May 12, 2025 | 506 | May 12, 2026 |