iRhythm Technologies, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; quarterly Q4 financial results are not clearly provided in the filing text. The company’s principal business is providing Zio remote cardiac monitoring services using wearable ECG patches and related analytics.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $492.7 million | $410.9 million | +20% |
| Gross profit / gross margin | $331.8 million / 67% | $281.6 million / 69% | Gross profit +18%; margin declined |
| Operating loss | $125.2 million | $113.8 million | Loss increased $11.4 million |
| Net loss | $123.4 million | $116.2 million | Loss increased $7.3 million |
| Adjusted EBITDA (non-GAAP) | $(4.9) million | $(11.3) million | Improved $6.4 million |
| Cash used in operating activities | $50.1 million | $23.0 million | Use increased $27.1 million |
Revenue growth was driven primarily by higher Zio service volume, partly offset by a slight decline in average selling price. Cost of revenue rose 24%, faster than revenue, contributing to lower gross margin. Selling, general and administrative expense increased 20% to $385.6 million; research and development expense increased 29% to $60.2 million. Stock-based compensation was $77.2 million.
At year-end, cash and cash equivalents were $36.2 million, marketable securities $97.6 million, and accounts receivable $61.5 million. Total current assets were $230.8 million versus current liabilities of $107.4 million. Year-end debt, net of issuance costs, was $35.0 million. Management stated that cash, investments, the term loan facility, and expected service revenue should be sufficient for at least 12 months.
Changes, outlook and notable items
- Revenue mix was 54% contracted commercial payors, 25% Medicare and Medicaid, 14% healthcare institutions, and 7% non-contracted payors. Medicare and Medicaid represented 25% of revenue in both 2023 and 2022, up from 14% in 2021.
- Cash used in operations increased, partly reflecting collection and payment timing and a $20.4 million year-over-year increase in PCBAs held in other assets in preparation for the Zio Monitor launch.
- The company recorded an $11.1 million impairment charge in Q4 2023 related to its San Francisco headquarters lease and related assets, citing weak local office-market conditions. This followed a $23.2 million impairment in 2022.
- CMS’s 2024 national reimbursement rates for specified long-term monitoring CPT codes were approximately 5% below 2023 rates, excluding geographic adjustments. Management identified reimbursement changes and commercial-payor negotiations as risks.
- On January 3, 2024, after year-end, the company drew $75 million under a senior secured Braidwell term-loan facility of up to $150 million, repaid and terminated its prior term loans and revolving credit line, and reported net proceeds of approximately $35 million after repayment, fees and expenses. The facility matures in 2029, bears interest at SOFR plus a 6.50% cash-pay margin (or 6.95% if a portion is paid in kind), and includes a 2.75% exit fee. The additional $75 million draw is subject to conditions.
- The Braidwell agreement includes quarterly liquidity requirements and a $350 million consolidated net-revenue covenant. The company reported material compliance as of the filing date.
- The company plans 2024 market-development and access work in Europe and Japan, evaluation or clinical work with additional wearables, and commercial pilots for its Know Your Rhythm screening program. The filing provides no specific numerical FY2024 revenue or earnings guidance.
Risks, contingencies and controls
- FDA and regulatory: The company received an FDA warning letter on May 25, 2023, concerning medical-device reporting and quality-system matters relating to Zio AT. It reported ongoing engagement with FDA, submitted a timely response, and retrospectively filed certain medical-device reports in Q4 2023. Resolution and timing remain uncertain; regulatory action could affect products, reimbursement or operations.
- Investigations and litigation: The company received DOJ subpoenas concerning its products and services, including a 2023 subpoena from the Consumer Protection Branch, and said it is cooperating. A new securities class action was filed in February 2024. Welch Allyn filed a patent-infringement lawsuit in February 2024. Outcomes and potential losses are not clearly quantifiable in the filing.
- Reimbursement and billing: Medicare rules for remote diagnostic testing, coding, claim denials and audits could affect payment. The company was transitioning claims processing from XIFIN to Omega, which it said could lead to delays, errors, increased denials or lost revenue if poorly executed.
- Business concentration and execution: Zio Services are currently the company’s principal offerings and account for substantially all revenue. Key risks include competition, adoption, single-source components, supply constraints, patient device returns, and the ability to scale clinical, manufacturing and billing operations.
- Financial and operating profile: The company has a history of losses and reported an accumulated deficit of $645.6 million. It expects continued investment and losses; future financing needs, debt costs and restrictive covenants could constrain operations.
- Controls: Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2023. The auditor identified the estimate for contracted-payor contractual allowances as a critical audit matter; the year-end contractual allowance balance was $52.7 million.
Important facts for investors to verify
- Whether 2024 reimbursement rates, commercial contracts and claim adjudications affect realized prices, collections and revenue.
- Progress and any further FDA actions regarding the warning letter, Zio AT quality-system matters and retrospective reporting.
- Cash conversion, receivables and contractual-allowance assumptions, especially as revenue-cycle processing transitions to Omega.
- Terms, covenant headroom, interest burden and liquidity impact of the Braidwell facility, including conditions for the delayed draw.
- Whether growth in service volume can offset cost growth and support improved gross margins while the company remains loss-making.
- Developments in DOJ inquiries, securities litigation and the Welch Allyn patent case, including any material change in expected exposure.