iRhythm Technologies, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The filing identifies the registrant as iRhythm Technologies, Inc.
Business context
iRhythm provides ambulatory cardiac monitoring services using its Zio wearable ECG patches and analytics platform. Revenue is generated primarily from Zio services and third-party payors; the company reports one operating segment. The Zio XT and Zio Monitor provide up to 14 days of continuous monitoring, while Zio AT adds near-real-time transmission for mobile cardiac telemetry.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $410.9 million | $322.8 million |
| Gross profit / gross margin | $281.6 million / 69% | $213.6 million / 66% |
| Operating expenses | $395.4 million | $313.5 million |
| Operating loss | $(113.8) million | $(99.9) million |
| Net loss | $(116.2) million | $(101.4) million |
| Adjusted EBITDA (non-GAAP) | $(11.3) million | $(35.7) million |
| Cash used in operating activities | $(23.0) million | $(37.8) million |
Revenue grew 27%, while gross margin expanded three percentage points. The net loss widened by 15%; higher operating expenses and one-time impairment and restructuring charges more than offset revenue growth. Adjusted EBITDA improved, but remained negative.
At year-end, cash and cash equivalents were $78.8 million and short-term investments were $134.3 million, totaling $213.1 million. Accounts receivable was $49.9 million. Current assets were $288.8 million versus current liabilities of $89.1 million. Net carrying value of debt was $34.9 million; no revolving-credit borrowings were outstanding. The company reported $35 million borrowed under its term facility, with up to another $40 million available under that facility and a $25 million revolving line.
Revenue mix: contracted commercial payors 55%; Medicare and Medicaid 25%; healthcare institutions 14%; non-contracted payors 6%. Medicare and Medicaid revenue rose to $103.0 million from $44.5 million in 2021. Stock-based compensation was $57.7 million, and accumulated deficit was $522.2 million.
Material changes versus FY2021
- Revenue increased $88.1 million, primarily from higher service volume and improved CMS reimbursement, partly offset by higher contractual allowances.
- Cost of revenue grew 18%, slower than revenue growth; management attributed the improvement in gross margin to higher average selling prices, higher volume and lower fixed cost per unit, partly offset by materials and freight costs.
- Research and development expense increased 21% to $46.6 million; selling, general and administrative expense increased 17% to $322.2 million.
- The company recorded $26.6 million of impairment and restructuring charges: $23.2 million related mainly to plans to sublease about half of its San Francisco headquarters, and $3.4 million for restructuring and severance.
- Operating cash use declined from $37.8 million to $23.0 million, but receivables increased $61.8 million during 2022 and remained a significant cash-flow factor.
Outlook, risks and unusual items
- Outlook: The filing provides no numerical FY2023 revenue or earnings guidance. Management expects available cash, short-term investments, term-loan capacity and service revenue to meet liquidity needs for the foreseeable future, while continuing investment in growth, technology and international expansion.
- Restructuring: A plan approved in February 2023 anticipates $15–20 million of pre-tax costs and $8–10 million of capital expenditures, primarily for transitioning or augmenting certain operations in the Philippines and transforming revenue-cycle operations. Activities were expected to be substantially complete by mid-2024.
- Reimbursement and collections: CMS set 2023 national rates of $243.65 for CPT 93247 and $231.79 for CPT 93243. Future rate changes, commercial-payor contract terms, claim denials and collection delays could affect revenue and cash flow. The $41.4 million contractual allowance balance is a material estimate; the auditor identified contracted-payor contractual allowances as a critical audit matter.
- Regulatory and legal: The company reported an FDA-related Zio AT labeling correction and ongoing FDA communications following an inspection. A securities class action dismissal was appealed; the company also continued cooperating with a U.S. Attorney’s Office investigation involving FDA communications and products. Outcomes and potential financial effects were not clear in the filing.
- Operational risks: Risks include reliance on single-source components and semiconductor availability, inflation and labor costs, scaling manufacturing and service capacity, and compliance concerns around third-party or offshore support for IDTF operations and patient data.
- Profitability and debt: The company has a history of losses and expects continued investment and operating losses. Term loans carry a floating interest rate; repayments are scheduled to begin in April 2025 and the facility matures in March 2027. The company reported compliance with loan covenants at year-end.
- Controls: Management and the auditor concluded internal control over financial reporting was effective at December 31, 2022; previously identified material weaknesses were reported as remediated.
Important facts for investors to verify
- How 2023 CMS rates and commercial-payor negotiations affect realized reimbursement, contractual allowances and gross margin.
- Whether receivables and collections improve, particularly given the year’s $61.8 million increase in accounts receivable and the revenue-cycle transition.
- Progress and realized costs of the Philippines and revenue-cycle restructuring, including whether projected efficiencies materialize.
- Developments in the FDA inspection and Zio AT labeling matter, the U.S. Attorney’s Office investigation, and the securities-litigation appeal.
- Supply availability and cost for single-source components, and the company’s ability to scale service capacity without disrupting quality or delivery.
- Liquidity, cash burn, use of remaining loan capacity and compliance with debt covenants as the company funds investment while reporting ongoing losses.