10q10k10q10k.net

What changed in iRhythm Holdings, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of iRhythm Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+576 added−470 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in iRhythm Holdings, Inc.'s 2023 10-K

576 paragraphs added · 470 removed · 398 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

131 edited+39 added−20 removed78 unchanged
Biggest changeFailure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: • warning letters, fines, injunctions, consent decrees, and civil penalties; • repair, replacement, refunds, recall, or seizure of our products; • operating restrictions, partial suspension, or total shutdown of production; • refusing our requests for 510(k) clearance or PMA approval of new products, new intended uses, or modifications to existing products; • withdrawing 510(k) clearance or PMA approvals that have already been granted; and • criminal prosecution.
Biggest changeFailure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include any of the following sanctions: • warning letters, fines, injunctions, consent decrees, and civil penalties; • repair, replacement, refunds, recall, or seizure of our products; • operating restrictions, partial suspension, or total shutdown of production; • refusing our requests for 510(k) clearance or PMA approval of new products, new intended uses, or modifications to existing products; • withdrawing 510(k) clearance or PMA approvals that have already been granted; and • criminal prosecution. 20 Table of Contents Privacy and Security Regulation Our business is subject to foreign, federal , and state privacy and security laws concerning the collection, use, analysis, retention, storage, protection, transfer, disclosure, and/or disposal of individually identifiable information including, without limitation, the General Data Protection Regulation (“GDPR”), the Health Insurance Portability and Accountability Act of 1996, as amended by the final regulations promulgated pursuant to the Health Information Technology for Economic and Clinical Health Act (“HITECH”), found in the American Recovery and Reinvestment Act of 2009 (collectively, “HIPAA”), the Telephone Consumer Protection Act, the CAN-SPAM Act, and state privacy, consumer protection, and breach notification laws.
We market our Zio Services to a variety of physician specialties including general cardiologists, electrophysiologists, neurologists, primary care physicians, and other physician specialists who diagnose and manage care for patients with arrhythmias.
We market our Zio Services to a variety of physician specialties including general cardiologists, electrophysiologists, primary care physicians, neurologists, and other physician specialists who diagnose and manage care for patients with arrhythmias.
We believe this manufacturing facility has capacity to meet our manufacturing needs for at least the next five years. Outside suppliers are the source for components and sub-assemblies in the production of the Zio Systems.
We believe this manufacturing facility has the capacity to meet our manufacturing needs for at least the next five years. Outside suppliers are the source for components and sub-assemblies in the production of the Zio Systems.
Food and Drug Administration Because we develop and manufacture the medical device technology used in the Zio Services (the hardware and software elements that FDA regulates as “devices”), we are subject to extensive and ongoing regulation by the FDA under the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and its implementing regulations, as well as other federal and state regulatory bodies in the United States.
Food and Drug Administration Because we develop and manufacture the medical device technology used in the Zio Services (the hardware and software elements that FDA regulates as “devices”), we are subject to extensive and ongoing regulation by FDA under the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and its implementing regulations, as well as other federal and state regulatory bodies in the United States.
The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with the determination not to seek a new 510(k) clearance or PMA approval, the FDA may retroactively require a new 510(k) clearance or PMA approval.
FDA requires each manufacturer to make this determination initially, but FDA can review any such decision and can disagree with a manufacturer’s determination. If FDA disagrees with the determination not to seek a new 510(k) clearance or PMA approval, the FDA may retroactively require a new 510(k) clearance or PMA approval.
The FDA could also require a manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines, penalties, and other enforcement actions, such as warning letters.
FDA could also require a manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or PMA approval is obtained. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines, penalties, and other enforcement actions, such as warning letters.
We have registered appropriate facilities with the FDA as a medical device specification developer, manufacturer, or designated complaint handling unit. We have also obtained a manufacturing license from the California Department of Public Health (“CDPH”). The FDA and CDPH have broad post-market and regulatory enforcement powers.
We have registered appropriate facilities with FDA as a medical device specification developer, manufacturer, or designated complaint handling unit. We have also obtained a manufacturing license from the California Department of Public Health (“CDPH”). FDA and the CDPH have broad post-market and regulatory enforcement powers.
We are subject to unannounced inspections by the FDA and the Food and Drug Branch of CDPH to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers.
We are subject to unannounced inspections by FDA and the Food and Drug Branch of CDPH to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers.
Initial findings demonstrated that in the older primary care population, 0.5% of screened participants had persistent AFib and 4% had paroxysmal Afib (PAF) detected within two weeks of monitoring. In those with PAF, the average AFib burden was low but more than 25% had an episode of ≥4.6 hours of continuous AFib, suggesting increased stroke risk.
Initial findings demonstrated that in the older primary care population, 0.5% of screened participants had persistent Afib and 4% had paroxysmal Afib (“PAF”) detected within two weeks of monitoring. In those with PAF, the average Afib burden was low but more than 25% had an episode of ≥4.6 hours of continuous Afib, suggesting increased stroke risk.
Ambulatory Cardiac Monitoring Overview The ambulatory cardiac monitoring market is well-established in the United States with an estimated 6 million diagnostic tests performed annually with meaningful expansion anticipated in the coming years due to an aging population, a rising number of heart-related disorders globally, and broader acceptance of innovative medical technologies.
Ambulatory Cardiac Monitoring Overview The ambulatory cardiac monitoring market is well-established in the United States with an estimated 6.4 million diagnostic tests performed annually with meaningful expansion anticipated in the coming years due to an aging population, a rising number of heart-related disorders globally, and broader acceptance of innovative medical technologies.
Though trial enrollment was limited to 11,931 participants due to the impact on COVID-19 pandemic on enrollment, GUARD-AF is the largest randomized trial in Afib screening to use a long-term continuous patch ECG monitor. The primary outcome measures will be stroke and bleeding events leading to hospitalization.
Though trial enrollment was limited to 11,931 participants due to the impact of the COVID-19 pandemic on enrollment, GUARD-AF is the largest randomized trial in Afib screening to use a long-term continuous patch ECG monitor. The primary outcome measures will be stroke and bleeding events leading to hospitalization.
Manufacturing and Quality Assurance We currently manufacture our Zio Systems, including the Zio XT System, Zio Monitor System and Zio AT System , in our leased facility in Cypress, California. This manufacturing facility is approximately 34,000 square feet and provides space for our manufacturing and production operations, including inspection, assembly, testing, packaging, labeling, storage, and shipping.
Manufacturing and Quality Assurance We currently manufacture our Zio Systems, including the Zio Monitor System and Zio AT System, in our leased facility in Cypress, California. This manufacturing facility is approximately 34,000 square feet and provides space for our manufacturing and production operations, including inspection, assembly, testing, packaging, labeling, storage, and shipping.
Our product portfolio includes patch-based solutions (utilized in the Zio XT System, Zio AT System, and Zio Monitor System) and the recently FDA-cleared Zio Watch that combine continuous monitoring for extended periods with accelerated notification of significant events through mobile transmission capabilities. • Customer workflow optimization.
Our product portfolio includes patch-based solutions (utilized in the Zio Monitor System, Zio AT System, and Zio XT System) and the FDA-cleared Zio Watch that combine continuous monitoring for extended periods with accelerated notification of significant events through mobile transmission capabilities. • Customer workflow optimization .
The Development Agreement provides each party with licenses to use certain intellectual property of the other party for development activities in the field of Afib screening, detection, or monitoring, together with perpetual non-exclusive licenses to certain shared know-how (which licenses shared know-how excludes certain technology or intellectual property, such as patent rights).
The Development Agreement provides each party with licenses to use certain intellectual property of the other party for development activities in the field of Afib screening, detection, or monitoring, together with perpetual non-exclusive licenses to certain shared know-how (which licensed shared know-how excludes certain technology or intellectual property, such as patent rights).
The wireless gateway, slightly larger than a smart phone, is provided to the patient at the time of Zio AT patch application and collects and transmits data from the Zio AT patch to the cloud via a long-term evolution (“LTE”) protocol.
The wireless gateway, slightly larger than a smart phone, is provided to the patient at the time of Zio AT patch application and collects and transmits data from the Zio AT patch to the cloud via a long-term evolution (“LTE”) cellular protocol.
We believe the principal competitive factors in our market include: • ease of use, comfort, and unobtrusiveness of the device for the patient; • quality and clinical validation of the deep-learned algorithms used to detect arrhythmias; • concise and comprehensive reports supporting efficient physician interpretation; • ease of use of service workflow for physicians and supporting clinicians; • digital tools for data management including the myZio mobile app, website tools and EHR integration; • contracted rates with third-party payors; 15 Table of Contents • government reimbursement rates associated with our Zio Services and supporting Zio Systems; • quality of clinical data and publications in peer-reviewed journals; • size, experience, knowledge, and training of sales and marketing teams; • availability and reliability of sales representatives and customer support services; • workflow protocols for solution implementation in existing care pathways; • reputation of existing device manufacturers and diagnostic service providers; and • relationships with physicians, hospitals, administrators, and other third-party payors.
We believe the principal competitive factors in our market include: • ease of use, comfort, and unobtrusiveness of the device for the patient; • quality and clinical validation of the deep-learned algorithms used to detect arrhythmias; • concise and comprehensive reports supporting efficient physician interpretation; • ease of use of service workflow for physicians and supporting clinicians; • digital tools for data management, including the myZio mobile app, website tools, and EHR integration; • contracted rates with third-party payors; • government reimbursement rates associated with our Zio Services and supporting Zio Systems; • quality of clinical data and publications in peer-reviewed journals; • size, experience, knowledge, and training of sales and marketing teams; • availability and reliability of sales representatives and customer support services; • workflow protocols for solution implementation in existing care pathways; • reputation of existing device manufacturers and diagnostic service providers; and • relationships with physicians, hospitals, administrators, and other third-party payors.
In addition, we agreed to make additional cash payments to Verily up to an aggregate of $12.75 million in milestone payments upon achievement of various development and regulatory milestones over the term of the Development Agreement.
In addition, we agreed to make additional milestone payments to Verily up to an aggregate of $12.75 million upon achievement of various development and regulatory milestones over the term of the Development Agreement.
Zio XT Patch The Zio Monitor System is the next generation of the Zio XT System, and is a prescription-only, remote ECG monitoring system that consists of a patch ECG monitor (the “Zio Monitor patch”) that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, which supports the capture and analysis of ECG data recorded by the Zio Monitor patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS System.
The Zio XT System is the previous generation of the Zio Monitor System and is a prescription-only, remote ECG monitoring system that consists of a patch ECG monitor (the “Zio XT patch”) that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, which supports the capture and analysis of ECG data recorded by the Zio XT patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS System.
We believe that proactive screening and monitoring using the Zio Services could increase Afib detection 10-fold over standard of care, potentially prompting oral anticoagulant use. • mSToPs : The mHealth Screening to Prevent Strokes (“mSToPS”) study, led by researchers at the Scripps Research Translational Institute in collaboration with Aetna Inc., Healthagen LLC, Janssen Research and Development, LLC, and Johnson & Johnson, utilized a web-based platform to remotely recruit 5,214 eligible patients from the Aetna Commercial Fully Insured and Medicare Advantage programs.
We believe that proactive screening and monitoring using the Zio Services could increase Afib detection 10-fold over standard of care, potentially prompting oral anticoagulant use. 11 Table of Contents • mSToPs: The mHealth Screening to Prevent Strokes (“mSToPS”) study, led by researchers at the Scripps Research Translational Institute in collaboration with Aetna Inc., Healthagen LLC, Janssen Research and Development, LLC, and Johnson & Johnson, utilized a web-based platform to remotely recruit 5,214 eligible patients from the Aetna Commercial Fully Insured and Medicare Advantage programs.
We also rely on trade secrets, technical know-how, and continuing innovation to develop and maintain our competitive position. 17 Table of Contents As of December 31, 2022, our trademark portfolio contained U.S. trademark registrations for the marks MyZIO, ZIO, ZIO SUITE, ZIO AT and IRHYTHM and pending U.S. trademark applications for the marks KNOW YOUR RHYTHM BY ZIO, KNOW YOUR RHYTHM, ZIO and ZIO MCT.
We also rely on trade secrets, technical know-how, and continuing innovation to develop and maintain our competitive position. 17 Table of Contents As of December 31, 2023, our trademark portfolio contained U.S. trademark registrations for the marks MyZIO, ZIO, ZIO SUITE, ZIO AT, and IRHYTHM and pending U.S. trademark applications for the marks KNOW YOUR RHYTHM BY ZIO, KNOW YOUR RHYTHM, ZIO and ZIO MCT.
The Compensation and Talent Management Committee of our Board of Directors has oversight of our culture and human capital management, including diversity, equity, and inclusion with respect to our employees.
The Compensation and Human Capital Management Committee of our Board of Directors has oversight of our culture and human capital management, including diversity, equity, and inclusion with respect to our employees.
While wearing a Zio patch, patients can mark when symptoms occur by pressing a trigger button on the device and separately recording contextual data like activities and circumstances in a written symptom diary or digitally via the myZio application. This allows physicians to match symptoms and activity with ECG data.
While wearing a Zio patch, patients can mark when symptoms occur by pressing a trigger button on the device and separately recording contextual data like activities and circumstances in a written symptom diary or digitally via the myZio application. This allows physicians to match symptoms and activity with ECG-based findings.
After clearance, changes made to devices must be evaluated on an ongoing basis, and may trigger the need for additional 510(k) clearances or – depending on the nature of the change – might require a higher level of FDA review (through the de novo premarket approval (“PMA”) process).
After clearance, changes made to devices must be evaluated on an ongoing basis and may trigger the need for additional 510(k) clearances or – depending on the nature of the change – might require a higher level of FDA review (through the de novo premarket approval or ("PMA") process).
We believe there is potential to increase the core symptomatic total addressable market by moving further upstream in the care pathway to the primary care physician call point. We estimate that 14 million patients in the United States visit a primary care physician annually with palpitations due to suspected cardiac disease.
We believe there is potential to increase the core symptomatic total addressable market by moving further upstream in the care pathway to the primary care physician call point. We estimate that 15 million patients in the United States visit a primary care physician annually with palpitations due to suspected cardiac disease.
The Zio patches include the following features: • patented clear, flexible, lightweight, wire-free design; • unobtrusive and inconspicuous profile; • proprietary adhesive backing designed to keep the Zio patch securely in place for the duration of the prescribed wear period; • water-resistant functionality, allowing patients to shower, sleep, and perform normal daily activities, including moderate exercise; • hydrogel electrodes and a compliant mechanical design to deliver a clear ECG with minimal artifact from movement; • large symptom button, or patient trigger, that is easy to find and press; • indicated single application wear period of up to 14 days (for longer prescribed wear periods for MCT services, additional Zio AT patches and gateways will be provided); and • sufficient battery power for the entire wear period, without the need to recharge or replace batteries.
The Zio patches include the following features: • patented clear, flexible, lightweight, wire-free design; • unobtrusive and inconspicuous profile; • proprietary adhesive backing designed to keep the Zio patch securely in place for the duration of the prescribed wear period; 8 Table of Contents • water-resistant functionality, allowing patients to shower, sleep, and perform normal daily activities, including moderate exercise; • hydrogel electrodes and a compliant mechanical design to deliver a clear ECG with minimal artifact from movement; • large symptom button, or patient trigger, that is easy to find and press; • indicated single application wear period of up to 14 days (for longer prescribed wear periods for MCT services, additional Zio AT patches and gateways can be provided); and • sufficient battery power for the entire wear period, without the need to recharge or replace batteries.
Our manufacturing operations are subject to regulatory requirements of the FDA’s Quality System Regulation (“QSR”) for medical devices authorized for manufacturing and sale in the United States ( set forth under 21 CFR Part 820 ) , the Medical Devices Directive 93/42/EEC (“MDD”) and the Medical Devices Regulation 2017/745 of the European Parliament and of the Council (“EU MDR”), which is required for doing business in the European Union (“EU”), and the UK Medical Device Regulations 2002 (as amended) (“UK MDR”).
Our manufacturing operations are subject to regulatory requirements of FDA’s Quality System Regulation (“QSR”) for medical devices authorized for manufacturing and sale in the United States (set forth under 21 CFR Part 820), the Medical Devices Directive 93/42/EEC (“MDD”) and the Medical Devices Regulation 2017/745 of the European Parliament and of the Council (“EU MDR”), which is required for doing business in the EU, and the UK Medical Device Regulations 2002 (as amended) (“UK MDR”).
These competitors and potential competitors may introduce new products and services that more directly compete with our Zio Services and Zio Systems . Future competition could come from manufacturers of wearable fitness products or large information technology companies focused on general health and wellness.
These competitors and potential competitors may introduce new products and services that more directly compete with our Zio Services and Zio Systems. Future competition may also come from manufacturers of wearable fitness products or large information technology companies focused on general health and wellness.
CMS has established guidelines for the coverage and reimbursement of certain products, supplies, and services, including ambulatory cardiac monitoring services. In general, Medicare will only reimburse ambulatory cardiac monitoring services, such as our Zio Services, that are reasonable and necessary for the diagnosis or treatment of patient.
CMS has established guidelines for the coverage and reimbursement of certain products, supplies, and services, including ambulatory cardiac monitoring services. In general, Medicare will only reimburse ambulatory cardiac monitoring services, such as our Zio Services, that are reasonable and necessary for the diagnosis or treatment of patients.
Food and Drug Administration (“FDA”) for our technology in 2009, we have supported physician and patient use of our technology and provided ambulatory cardiac monitoring services from our Medicare-enrolled independent diagnostic testing facilities ("IDTFs") and with our qualified technicians.
Food and Drug Administration (“FDA”) for our technology in 2009, we have supported physician and patient use of our technology and provided ambulatory cardiac monitoring services from our Medicare-enrolled independent diagnostic testing facilities (“IDTFs”) and with our qualified technicians.
Furthermore, the Zio Monitor patch incorporates a breathable adhesive construct, which enhances the patient experience by removing moisture otherwise captured next to the patient’s skin, as well as Bluetooth communication capabilities and improved processing power.
Furthermore, the Zio Monitor patch incorporates a breathable adhesive construct, which enhances the patient experience by removing moisture otherwise captured next to the patient’s skin, as well as Bluetooth communication capabilities and improved processing efficiency.
We plan to leverage our portfolio of products, including the Zio XT System and Zio AT System, and position the Zio Service as providing certainty in a single test due to high patient compliance and superior quality of uninterrupted data.
We plan to leverage our portfolio of products, including the Zio Monitor System and Zio AT System, and position the Zio Service as providing certainty in a single test due to high patient compliance and superior quality of uninterrupted data.
False Claims Act The federal civil FCA prohibits: (i) knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval and (ii) knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim.
False Claims Act The FCA prohibits: (i) knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval and (ii) knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim.
When physicians order long-term continuous monitoring service s with our Zio System, our technology collects an uninterrupted, long-term continuous recording of ECG data for up to 14 days and delivers a comprehensive end-of-wear report, which includes specific arrhythmia events detected by the ZEUS algorithm upon return of the Zio XT patch or Zio Monitor patch (and with the Zio AT patch, each, a “Zio patch”) and analysis of the stored data by qualified technicians.
When physicians order long-term continuous monitoring services with our Zio System, our biosensor technology collects an uninterrupted, long-term continuous recording of ECG data for up to 14 days and delivers a comprehensive end-of-wear report, which includes specific arrhythmia events detected by the ZEUS algorithm upon return of the Zio Monitor patch or Zio XT patch (and with the Zio AT patch, each, a “Zio patch”) and analysis of the stored data by qualified technicians.
Our core competencies are the foundation for programs and tools being developed to identify top talent, prepare future managers and leaders, and provide equal access to growth opportunities. 23 Table of Contents We offer a variety of training opportunities, whether focused on building vocational, management, or leadership skills.
Our core competencies are the foundation for programs and tools being developed to identify top talent, prepare future managers and leaders, and provide equal access to growth opportunities. We offer a variety of training opportunities, whether focused on building vocational, management, or leadership skills.
Zio AT Patch and Wireless Gateway We support physician and patient use of our Zio Systems through our Medicare-enrolled IDTF and certified cardiographic technicians (“CCTs”), who perform the technical monitoring services associated with a physician’s order for long-term continuous monitoring or MCT monitoring services.
Zio AT Patch and Wireless Gateway 7 Table of Contents We support physician and patient use of our Zio Systems through our Medicare-enrolled IDTF and certified cardiographic technicians (“CCTs”), who perform the technical monitoring services associated with a physician’s order for long-term continuous monitoring or MCT monitoring services.
For the MCT services, physicians will receive daily reports, routine reports, and more immediate notifications from CCTs if there are significant events that meet predetermined and physician-specified notification criteria.
For the MCT services, physicians will receive daily reports, routine reports, and notifications from CCTs if there are significant events that meet predetermined and physician-specified notification criteria.
Fraud and Abuse Laws and Other Healthcare Compliance Requirements Medicare is a federal healthcare program administered by CMS that is available to individuals age 65 or over, and certain other individuals. The Medicare program provides, among other things, healthcare benefits that cover most medically necessary care for such individuals, subject to certain deductibles and copayments.
Fraud and Abuse Laws and Other Healthcare Compliance Requirements Medicare is a federal healthcare program administered by CMS that is available to individuals age 65 or over, and certain other individuals. The Medicare program provides, among other things, healthcare benefits that cover most medically necessary care for such individuals, subject to certain deductibles and co-payments.
The scope of the FCPA includes interactions with certain healthcare professionals and hospital administrators in many countries. In addition, in Europe, various countries have adopted anti-bribery laws providing for severe consequences in the form of criminal penalties and significant fines for individuals or companies committing a bribery offense.
The scope of the FCPA includes interactions with certain healthcare professionals and hospital administrators in many countries. 21 Table of Contents In addition, in Europe, various countries have adopted anti-bribery laws providing for severe consequences in the form of criminal penalties and significant fines for individuals or companies committing a bribery offense.
Our U.S. issued patents as of December 31, 2022 are set to expire over a range of years, from November 2028 to August 2041, subject to any extensions.
Our U.S. issued patents as of December 31, 2023 are set to expire over a range of years, from November 2028 to August 2041, subject to any extensions.
The United States has historically been the primary focus of the delivery of our services, but based on our operations we are subject to a range of laws and regulations outside the United States, and we expect the complexity of the global regulatory landscape to which we are subject to continue to increase. 18 Table of Contents U.S.
The United States has historically been the primary focus of the delivery of our services, but based on our operations we are subject to a range of laws and regulations outside the United States, and we expect the complexity of the global regulatory landscape to which we are subject to continue to increase. U.S.
Zio Monitor Patch 8 Table of Contents The Zio AT System is a prescription-only, remote ECG monitoring system that similarly consists of a patch ECG monitor (the “Zio AT patch”) that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, but which also incorporates the Zio AT wireless gateway that provides connectivity between the Zio AT patch and the ZEUS System during the patient wear period.
Zio Monitor Patch and Zio XT Patch The Zio AT System is a prescription-only, remote ECG monitoring system that similarly consists of a patch ECG monitor (the “Zio AT patch”) that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, but which also incorporates the Zio AT wireless gateway that provides connectivity between the Zio AT patch and the ZEUS System during the patient wear period.
While our initial commercial focus is the U.S. market, we have initiated efforts that will allow for future expansion into international geographies. We have a presence in the United Kingdom with efforts underway to pursue national reimbursement.
While our initial commercial focus is the U.S. market, we have initiated efforts that will allow for future expansion into international geographies. We have a presence in the UK with efforts underway to pursue national reimbursement.
ZioSuite web portal via desktop or mobile application 9 Table of Contents For our MCT services, the Zio AT patch and wireless gateway also offer the additional capability of providing actionable transmissions during the wear period to assist physicians in diagnosing and treating patients in situations where their physician has determined that there is a medical need to receive more immediate, clinically actionable information.
ZioSuite web portal via desktop or mobile application For our MCT services, the Zio AT patch and wireless gateway also offer the additional capability of providing actionable transmissions during the wear period to assist physicians in diagnosing and treating patients in situations where their physician has determined that there is a medical need to receive more timely, clinically actionable information.
Women over the age of 65 and men over 55 with certain risk factors were selected to participate based on information derived from claims data that placed them at a potentially increased risk of undiagnosed asymptomatic Afib. Three peer-reviewed articles were published on the mSToPS study between 2018 and 2021.
Women over the age of 65 and men over 55 with certain risk factors were selected to participate based on information derived from claims data that placed them at a potentially increased risk of undiagnosed asymptomatic Afib. Four peer-reviewed articles were published on the mSToPS study between 2018 and 2023.
(acquired by Baxter International, Inc.) to offer remote cardiac monitoring technology and also function as diagnostic service providers. We also compete with companies that sell traditional, 24 to 48 hour Holter monitors, including GE Healthcare, Philips Healthcare, Mortara Instrument, Inc., Spacelabs Healthcare Inc. and Welch Allyn Holdings, Inc. (acquired by Baxter International, Inc.).
(acquired by Baxter International, Inc.) to offer remote cardiac monitoring technology and also function as diagnostic service providers. We also compete with companies that sell traditional, 24-to-48-hour Holter monitors, including GE Healthcare, Philips Healthcare, Mortara Instrument, Inc., Spacelabs Healthcare Inc., and Welch Allyn Holdings, Inc. (acquired by Hill-Rom Holdings, Inc. which was acquired by Baxter International, Inc.).
Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the U.K.
Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations, and reputation. For instance, in the UK, under the U.K.
The Zio Monitor patch is 72% smaller, 55% lighter, and 20% thinner than our Zio XT patch, attributes which we believe will have a positive impact on patient experience, patient satisfaction and associated improvement in device wear times.
The Zio Monitor patch is 72% smaller, 62% lighter, and 23% thinner than our Zio XT patch, attributes which we believe will have a positive impact on patient experience, patient satisfaction, and associated improvement in device wear times.
Initial findings from the 5,713 patients who wore the Zio XT monitor in the GUARD-AF study were presented at The American College of Cardiology’s 71 st Annual Scientific Session & Expo in April 2022 and the trial’s design and rationale were published by Singer et al. in the American Heart Journal in July 2022.
Initial findings from the 5,713 patients who wore the Zio XT patch in the GUARD-AF study were presented at The American College of Cardiology’s 71st Annual Scientific Session & Expo in April 2022 and the trial’s design and rationale were published by Singer et al. in the American Heart Journal in July 2022.
Zio XT System, which provides continuous long-term ECG monitoring, is appropriate for the majority of patients that require ambulatory cardiac monitoring while Zio AT System, which includes near real-time monitoring, is appropriate for more acute patients that require timely notification. We estimate our current market penetration in the United States to be approximately 25%.
The Zio Monitor System, which provides continuous long-term ECG monitoring, is designed to be appropriate for the majority of patients that require ambulatory cardiac monitoring while the Zio AT System, which includes near real-time monitoring, is intended for more acute patients that require timely notification. We estimate our current market penetration in the United States to be approximately 30%.
Mean or median patient wear times for the Zio XT patch reported in the literature have ranged between 10.8 and 11.8 days, and Kaura et al. reported that the majority of 56 subjects randomized to the Zio XT System achieved the full 14-day wear time.
Mean or median patient wear times have ranged for the Zio XT patch reported in the literature, and Kaura et al. reported that the majority of 56 subjects randomized to the Zio XT System achieved the full 14-day wear time.
Patent Office (“USPTO”), ten issued patents from the Japanese Patent Office, three issued patents from the Australian Patent Office, four issued patents from the Canadian Patent Office, six issued patents from the European Patent Offices, four issued patents from the Korean Patent Office, and one issued patent from the Chinese Patent Office.
Patent Office (“USPTO”), ten issued patents from the Japanese Patent Office, three issued patents from the Australian Patent Office, four issued patents from the Canadian Patent Office, six issued patents from the European Patent Offices, five issued patents from the Korean Patent Office, and two issued patents from the Chinese Patent Office.
We are subject to risks related to privacy and security regulation. For further details on these risks, see “Risk Factors,” below. European Union and United Kingdom The Zio XT patch is currently regulated in the European Union as a Class IIa medical device pursuant to the MDD.
We are subject to risks related to privacy and security regulation. For further details on these risks, see “Risk Factors,” below. European Union and United Kingdom The Zio XT patch is currently regulated in the EU as a Class IIa medical device pursuant to the MDD. The MDD sets out the basic regulatory framework for medical devices in the EU.
Also, within existing accounts, we expect to continue to introduce our Zio Service beyond cardiology and electrophysiology into other departments, including neurology, emergency rooms and primary care offices. To enable this broader adoption within a hospital system, we have successfully interfaced the Zio ordering and report posting processes into a number of large health systems’ EHR systems.
Within existing accounts, we expect to continue to introduce our Zio Service beyond cardiology and electrophysiology into other departments, including primary care, neurology, and emergency room. To enable this broader adoption within a hospital system, we have successfully interfaced the Zio ordering and report posting processes into a number of large health systems’ electronic health record (“EHR”) systems.
We are committed to nurturing our workforce and have also established a Global Leadership Forum that is led by our Chief Human Resource Officer to ensure broader alignment across organization's leadership on key corporate initiatives, company culture, and transformation objectives.
We are committed to nurturing our workforce and have also established a Global Leadership Forum that is led by our Executive Leadership Team to ensure broader alignment across our organization's leadership on key corporate initiatives, company culture, and transformation objectives.
We are working on building our infrastructure and ensuring global compliance as we identify appropriate opportunities for international growth. 16 Table of Contents • Advancing our technology offering.
We are working on building our infrastructure and ensuring global compliance as we identify appropriate opportunities for international growth. • Advancing our technology offering.
The AHA and American Stroke Association (“ASA”) have published treatment guidelines for patients diagnosed with Afib to manage heart rhythm and rate and prevent stroke. These early treatments include medications such as oral anticoagulants, treatment with anti-arrhythmic drugs, and interventions such as cardiac ablation therapy to help control heart rhythm and rate.
The AHA and ASA have published treatment guidelines for patients diagnosed with Afib to manage heart rhythm and rate and to support stroke prevention. These early treatments include medications such as oral anticoagulants, treatment with anti-arrhythmic drugs, and interventions such as cardiac ablation therapy to help control heart rhythm and rate.
The FCA is the federal government's preferred enforcement vehicle for addressing a variety of alleged misconduct and provides for treble damages and civil money penalties ranging from $12,537 to approximately $25,076 per claim, as well as exclusion from participation in federal healthcare programs and potential criminal penalties, including imprisonment and criminal fines.
The FCA is the federal government’s preferred enforcement vehicle for addressing a variety of alleged misconduct and provides for treble damages and civil money penalties ranging from $13,508 to approximately $27,018 per claim, as well as exclusion from participation in federal healthcare programs and potential criminal penalties, including imprisonment and criminal fines.
With at least 12 million individuals in the United States estimated to be at risk for undiagnosed and/or asymptomatic cardiac arrhythmias, we believe this is a significant market opportunity. Initial efforts to proactively monitor this population with Zio XT System, including end-to-end care pathway pilots, are planned for 2023.
With at least 12 million individuals in the United States estimated to be at risk for undiagnosed cardiac arrhythmias, we believe this could be a significant market opportunity. Initial efforts to proactively monitor this population with the Zio Monitor System, including end-to-end care pathway pilots, are planned for 2024.
We are initiating market development and market access initiatives in multiple European countries in 2023 and pursuing regulatory clearance in Japan. We estimate the total addressable market in our initial selected countries of the United Kingdom, Japan, and prioritized European countries to be at least 5 million existing ambulatory monitoring tests annually. • Expanding into adjacent market opportunities .
We are initiating market development and market access initiatives in multiple European countries in 2024 and pursuing regulatory clearance in Japan. We estimate the total addressable market in our initial selected countries of the UK, Japan, and prioritized European countries to be at least 5 million existing ambulatory monitoring tests annually. • Exploring adjacent market opportunities.
These include: • the FDA’s QSR, which requires manufacturers, including their suppliers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the product lifecycle, including the manufacturing process; • labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses, including parameters around manufacturer communications with payors and healthcare professionals; • medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; • medical device recalls, which require that manufacturers report to the FDA any recall of a medical device, provided the recall was initiated to either reduce a risk to health posed by the device, or to remedy a violation of the FD&C Act caused by the device that may present a risk to health; and • post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device. 20 Table of Contents After a device receives 510(k) clearance or PMA approval, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, performance, or functionality may require a new clearance or approval.
These include: • the FDA’s QSR, which requires manufacturers, including their suppliers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the product lifecycle, including the manufacturing process; • labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved, or off-label uses, including parameters around manufacturer communications with payors and healthcare professionals; • medical device reporting regulations, which require that manufacturers report to FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; • medical device recalls, which require that manufacturers report to FDA any recall of a medical device, provided the recall was initiated to either reduce a risk to health posed by the device, or to remedy a violation of the FD&C Act caused by the device that may present a risk to health; and • post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Comparison of the Zio XT and Zio AT Systems 7 Table of Contents The Zio XT System is a prescription-only, remote ECG monitoring system that consists of a patch ECG monitor (the “Zio XT patch”) that records the electric signal from the heart continuously for up to 14 days and the Zio ECG Utilization Software (“ZEUS”) System, which supports the capture and analysis of ECG data recorded by the Zio XT patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS System.
We currently offer three Zio System options — the Zio Monitor System, the Zio XT System, and the Zio AT System. 6 Table of Contents The Zio Service Monitoring Solutions The Zio Monitor System is a prescription-only, remote ECG monitoring system that consists of a patch ECG monitor (the “Zio Monitor patch”) that records the electric signal from the heart continuously for up to 14 days and the Zio ECG Utilization Software (“ZEUS”) System, which supports the capture and analysis of ECG data recorded by the Zio Monitor patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS System.
It also contained registered trademarks for the mark IRHYTHM in Australia, the European Union, Austria, Canada, China, Denmark, Finland, France, Germany, Japan, Italy, Norway, Sweden, Switzerland, and the United Kingdom. It further contained trademark registrations for the mark ZIO in Australia, Canada, China, the European Union, Japan, Norway, and Switzerland.
It also contained registered trademarks for the mark IRHYTHM in Australia, the EU, Austria, Canada, China, Denmark, Finland, France, Germany, Japan, Italy, Norway, Sweden, Switzerland, and the UK. It further contained trademark registrations for the mark ZIO in Australia, Canada, China, the EU, Japan, Norway, and Switzerland.
The Physician Payment Sunshine Act requires transparency around certain transfers of value and ownership interests that may raise parallel scrutiny of the appropriateness of financial relationships. Notably, some kickback allegations are also interpreted as violations of the federal False Claims Act (“FCA”).
The Physician Payments Sunshine Act requires transparency around certain transfers of value and ownership interests that may raise parallel scrutiny of the appropriateness of financial relationships. Notably, some kickback allegations are also interpreted as violations of the FCA.
We believe early detection of Afib is critical to optimizing patient care, delivering earlier treatment to help avoid further adverse clinical events, managing symptoms caused by Afib, and reducing the total public health burden of treating stroke.
Between 15% and 20% of people who have strokes also have Afib. We believe early detection of Afib is critical to optimizing patient care, delivering earlier treatment to help avoid further adverse clinical events, managing symptoms caused by Afib, and reducing the total public health burden of treating stroke.
By 2022, that partnership evolved into the Zio® Watch (Study Watch with Irregular Pulse Monitor) with our clinically integrated ZEUS System, a new health solution that is intended to be integrated into clinical care delivery and to assist healthcare providers in identifying and monitoring Afib.
We have since developed the Zio® Watch (Study Watch with Irregular Pulse Monitor) with our clinically integrated ZEUS System, a new health solution that is intended to be integrated into clinical care delivery and to assist healthcare providers in identifying and monitoring Afib.
Each report is then validated by CCTs and sent to the patient's prescribing physician who may access the Zio report on our proprietary, cloud-based portal, referred to as the ZioSuite. Our technicians also notify physicians of potential urgent arrhythmias according to the ordering physician’s specified notification criteria.
Each report is then validated by CCTs and sent to the patient’s prescribing physician who may access the Zio report on our proprietary, web-based portal, referred to as ZioSuite, and also through our Electronic Health Record ("EHR") connections or ZioSuite mobile apps. Our technicians also notify physicians of potential urgent arrhythmias according to the ordering physician’s specified notification criteria.
These competitors have also developed patch-based cardiac monitors that have received FDA and foreign regulatory clearances. We are also aware of some small start-up companies entering the patch-based cardiac monitoring market. Large medical device companies may continue to acquire or form alliances with these smaller companies in order to diversify their product offering and participate in the digital health space.
We are also aware of some small start-up companies entering the patch-based cardiac monitoring market. Large medical device companies may continue to acquire or form alliances with these smaller companies to diversify their product offering and participate in the digital health space.
Our research and development activities are focused on: • Continuous improvement and extensions to existing products and services. We are continuously working to improve the Zio Services to increase patient comfort, product quality, operational scalability, and security. • International expansion.
We employ engineering and research and development staff to focus on delivering future innovations and sustaining improvements. Our research and development activities are focused on: • Continuous improvement and extensions to existing products and services. We are continuously working to improve the Zio Services to increase patient comfort, product quality, operational scalability, and security. • International expansion .
Environmental, Social and Governance Matters At iRhythm, we believe that effectively managing environmental, social, and corporate governance (“ESG”) risks and opportunities drives business success, and that when fully integrated into the business, ESG can provide a competitive advantage.
In accordance with these values, we believe that effectively managing environmental, social, and corporate governance (“ESG”) risks and opportunities drives business success, and that when fully integrated into the business, ESG can provide a competitive advantage.
Because of the significant federal funding involved, the government actively enforces a number of laws and regulations to eliminate fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws. The most significant of these laws for our business include the federal Anti-Kickback Statute and the federal False Claims Act.
Because of the significant federal funding involved, the government actively enforces a number of laws and regulations to eliminate fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws.
As of December 31, 2022, we had thirty-one pending patent applications globally, including eleven in the United States, four in the European Patent Office, four in Japan, three Patent Cooperation Treaty (“PCT”) international applications, two in each of Australia, Korea, China, and India, and one in Canada.
As of December 31, 2023, we had forty-eight pending patent applications globally, including eleven in the United States, seven in the European Patent Office, seven in Japan, two Patent Cooperation Treaty ("PCT") international applications, six in Australia, four in each of Korea, China, and India, and three in Canada.
Anti-Kickback Laws Under the federal Anti-Kickback Statute (the “AKS”), it is a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for purchasing, ordering, or recommending, or arranging for, the purchase or order of items or services (or referrals of the same) reimbursable by a federal healthcare program.
The most significant of these laws for our business include the federal Anti-Kickback Statute (the “AKS”) and the federal False Claims Act (the “FCA”). 18 Table of Contents Anti-Kickback Laws Under the AKS, it is a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for purchasing, ordering, or recommending, or arranging for, the purchase or order of items or services (or referrals of the same) reimbursable by a federal healthcare program.
Our common stock is traded on the Nasdaq Global Select Market under the symbol “IRTC.” Cardiac Arrhythmias and the Ambulatory Cardiac Monitoring Market Cardiac Arrhythmias Every year, millions of patients experience symptoms potentially associated with cardiac arrhythmias, a condition in which the electrical impulses that coordinate heartbeats do not occur properly, causing the heart to beat too quickly, too slowly or irregularly.
Cardiac Arrhythmias and the Ambulatory Cardiac Monitoring Market Cardiac Arrhythmias Every year, millions of patients experience symptoms potentially associated with cardiac arrhythmias, a condition in which the electrical impulses that coordinate heartbeats do not occur properly, causing the heart to beat too quickly, too slowly, or irregularly.
As of December 31, 2022, we owned, or retained an exclusive license to, thirty-six issued patents from the U.S.
As of December 31, 2023, we owned, or retained an exclusive license to, forty-two issued patents from the U.S.
In 2022, we further developed our approach to ESG by conducting an ESG Priority Assessment to identify the ESG priority topics that are important to internal and external stakeholders and operationalizing ESG within the organization by forming an ESG Steering Committee and multiple ESG Working Groups focusing on specific ESG substantive areas or workstreams.
In 2022, we set out on a journey to develop iRhythm’s approach to ESG by conducting an ESG Priority Assessment to identify the ESG priority topics that are important to internal and external stakeholders and operationalizing ESG within the organization by forming an ESG Steering Committee and multiple ESG Working Groups, which focus on specific ESG substantive areas or workstreams.
The study design was published in the JAMA in July 2018. The one-year results were published in Heart Rhythm O2 in December 2020. The results showed that at one year, Afib was newly diagnosed in 6.6% of patients who were actively monitored by the Zio Service versus 2.4% in the observational control group receiving routine care.
The results showed that, at one year, Afib was newly diagnosed in 6.6% of patients who were actively monitored by the Zio Service versus 2.4% in the observational control group receiving routine care.
Afib burden, the amount of time a patient spends in Afib during a monitoring period, has been identified in the clinical community as an important measure for determining appropriate and effective therapeutic interventions to manage patients with Afib and for assessing stroke risk.
Afib burden, or the amount of time a patient spends in Afib during the period of time the patient is wearing a heart monitor, has been identified in the clinical community as an clinically relevant measure for helping to determine appropriate and effective therapeutic interventions to manage patients with Afib and for assessing stroke risk.
We also hope that additional informative data will be generated in the GUARD-AF study. In November 2019, we announced our participation in the “ReducinG stroke by screening for UndiAgnosed atRial fibrillation in elderly inDividuals” (“GUARD-AF”) study, a randomized, controlled study sponsored by the Bristol-Myers Squibb-Pfizer Alliance.
In November 2019, we announced our participation in the “ReducinG stroke by screening for UndiAgnosed atRial fibrillation in elderly inDividuals” (“GUARD-AF”) study, a randomized, controlled study sponsored by the Bristol-Myers Squibb-Pfizer Alliance.
Our research and development activities consist of software development, algorithm and product development, regulatory affairs, and clinical research. Our research and development expense was $46.6 million, $38.7 million, and $41.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Our research and development activities consist of software development, algorithm and product development, regulatory affairs, and clinical research. Our research and development expenses were $60.2 million, $46.6 million, and $38.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Up to 80% of patients with Afib may also have sleep apnea, and there is a large prevalence of patients with undiagnosed sleep apnea. ◦ Heart failure patients, with an estimated prevalence of over 8 million in the United States.
Approximately 50% to 80% of patients with Afib may also have sleep apnea compared with 30% to 60% in control groups, and there is a large prevalence of patients with undiagnosed sleep apnea. • Heart failure patients, with an estimated prevalence of over 8 million in the United States by the year 2030.

… 110 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

180 edited+90 added−18 removed212 unchanged
Biggest changeOur international operations are, and will continue to be, subject to a number of risks, including: • multiple, conflicting and changing laws and regulations such as tax laws, privacy laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and licenses; • obtaining and sustaining regulatory approvals, certifications, and regulatory compliance where required for the sale of our Zio Services in various countries; • requirements to maintain data and the processing of that data on servers located within such countries; • complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems; • logistics and regulations associated with shipping and returning our Zio patches following use; • limits on our ability to penetrate international markets if we are required to process our Zio Services locally; • financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the effect of local and regional financial pressures on demand and payment for our services, fluctuations in trade policy and tariff regulations, changes in international tax regulations applicable to our business, and exposure to foreign currency exchange rate fluctuations, which may reduce the reported value of our foreign currency denominated revenues, expenses, and cash flows; • decreased emphasis or enforcement or intellectual property protections in some countries outside the United States in comparison to that in the United States; • increased risk of litigation or administrative proceedings in connection with our relationships with international business partners, including litigation against persons whom we believe have infringed on our intellectual property, infringement litigation filed against us, litigation against a competitor, or litigation filed against us by distributors or service providers resulting from a breach of contract or other claim, as well as disputes regarding government and public tenders, any of which may result in substantial costs to us, adverse judgments, settlements, and diversion of our management’s attention; • natural disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease, boycotts, curtailment of trade, and other market restrictions; • regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the FCPA, UK Bribery Act of 2010, and comparable laws and regulations in other countries; • compliance risks associated with the GDPR (including as it applies in the United Kingdom by virtue of the Data Protection Act 2018), enacted to protect the privacy of all individuals in the European Union and the United Kingdom, and which places certain restrictions on the export of personally identifiable data outside of the European Union or the United Kingdom, as applicable; • compliance risks associated with the revised regulations in the EU MDR that outline the requirements for medical device CE marking; and 33 Table of Contents • compliance risks associated with the UK MDR, which replaced the CE marking requirements for medical devices marketed and sold in the United Kingdom with a UKCA mark following the United Kingdom’s withdrawal from the European Union.
Biggest changeOur international operations are, and will continue to be, subject to a number of risks, including: • multiple, conflicting, and changing laws and regulations such as tax laws, privacy laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and licenses; • obtaining and sustaining regulatory approvals, certifications, and regulatory compliance where required for the sale of our Zio Services in various countries; 34 Table of Contents • requirements to maintain data and the processing of that data on servers located within such countries, which requirements that may be subject to change; • complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems, as well as with participating in public tenders or procurement processes run by national healthcare systems; • logistics and regulations associated with shipping and returning our Zio patches following use; • limits on our ability to penetrate international markets if we are required to process our Zio Services locally; • financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the effect of local and regional financial pressures on demand and payment for our services, fluctuations in trade policy and tariff regulations, changes in international tax regulations applicable to our business, and exposure to foreign currency exchange rate fluctuations, which may reduce the reported value of our foreign currency denominated revenues, expenses, and cash flows; • decreased emphasis or enforcement of intellectual property protections in some countries outside the United States in comparison to that in the United States; • increased risk of litigation or administrative proceedings in connection with our relationships with international business partners, including litigation against persons whom we believe have infringed on our intellectual property, infringement litigation filed against us, litigation against a competitor, or litigation filed against us by distributors or service providers resulting from a breach of contract or other claim, as well as disputes regarding government and public tenders, any of which may result in substantial costs to us, adverse judgments, settlements, and diversion of our management’s attention; • natural disasters, political and economic instability, including wars and other geopolitical conflicts, terrorism, political unrest, outbreak of disease, boycotts, curtailment of trade, and other market restrictions; • regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), UK Bribery Act of 2010, and comparable laws and regulations in other countries; • compliance risks associated with the General Data Protection Regulation (the “GDPR”) (including as it applies in the UK by virtue of the Data Protection Act 2018), enacted to protect the privacy of all individuals in the EU and the UK, and which places certain restrictions on the export of personally identifiable data outside of the EU or the UK, as applicable; • compliance risks associated with the revised regulations in the EU MDR that outline the requirements for medical device CE marking; • compliance risks associated with the UK MDR, which replaces the CE marking requirements for medical devices marketed and sold in the UK with a UKCA mark following the UK’s withdrawal from the EU, and the UK government’s announcement to amend the UK MDR, in particular to create a new access pathway to support innovation and create an innovative framework for regulating software and AI as medical devices; • compliance risks associated with new or upcoming regulations associated with AI applicable to Software as a Medical Device; and • compliance risks associated with new or upcoming requirements and expectations associated with medical device cybersecurity.
Before a new medical device or a new intended use for a medical device can be marketed in the United States, a company must first submit an application and receive either 510(k) clearance, De Novo marketing rights or premarket approval from the FDA, unless an exemption applies. All of these processes can be expensive, lengthy and unpredictable.
Before a new medical device or a new intended use for a medical device can be marketed in the United States, a company must first submit an application and receive either 510(k) clearance, De Novo marketing rights, or premarket approval from FDA, unless an exemption applies. All of these processes can be expensive, lengthy, and unpredictable.
Failure to maintain compliance with, or not fully complying with the requirements of the FDA and state regulators could result in enforcement actions, which could include the issuance of warning letters, adverse publicity, seizures, prohibitions on product sales, recalls, and civil and criminal penalties, any one of which could significantly impact our manufacturing supply and provision of services and impair our financial results.
Failure to maintain compliance with, or not fully complying with, the requirements of FDA and state regulators could result in enforcement actions, which could include the issuance of warning letters, adverse publicity, seizures, prohibitions on product sales, recalls, and civil and criminal penalties, any one of which could significantly impact our manufacturing supply and provision of services and impair our financial results.
If we initiate a field action (whether a “correction” made relative to a device that remains in the field, which could be through a labeling or software update, or “removal” or “recall” and return of that device to us, or field advisory notices) to reduce a risk to health posed by our Zio System, we would be required to report the Correction or Removal to the FDA and, in many cases, similar reports to other regulatory agencies.
If we initiate a field action (whether a “correction” made relative to a device that remains in the field, which could be through a labeling or software update, or “removal” or “recall” and return of that device to us, or field advisory notices) to reduce a risk to health posed by our Zio System, we would be required to report the Correction or Removal to FDA and, in many cases, similar reports to other regulatory agencies.
Depending on the reason for the correction or removal and the potential severity of the impact to patient safety or the effectiveness of the device, the FDA may require differing degrees of communication to alert those who may be in possession of an impacted device.
Depending on the reason for the correction or removal and the potential severity of the impact to patient safety or the effectiveness of the device, FDA may require differing degrees of communication to alert those who may be in possession of an impacted device.
Support of these efforts requires significant resources, including research and development, manufacturing, quality assurance, and clinical and regulatory personnel. Even with the FDA’s clearance of our clinically-integrated ZEUS System for the Zio Watch, continued product testing, market research, and related activities may result in a delay to device launch and additional expense associated with any commercialization efforts.
Support of these efforts requires significant resources, including research and development, manufacturing, quality assurance, and clinical and regulatory personnel. Even with FDA’s clearance of our clinically-integrated ZEUS System for the Zio Watch, continued product testing, market research, and related activities may result in a delay to device launch and additional expense associated with any commercialization efforts.
We also expect that our general and administrative expenses will continue to increase due, among other things, to the operational and regulatory burdens applicable to medical service providers that are public companies. As a result, we expect to continue to incur operating losses in the future.
We also expect that our general and administrative expenses will continue to increase due to, among other things, the operational and regulatory burdens applicable to medical service providers that are public companies. As a result, we expect to continue to incur operating losses in the future.
Risks Related to Healthcare Regulatory Matters Our use of third-party service providers or iRhythm company resources located outside the United States to support certain customer care, clinical and other operations of our IDTFs may present challenges, and if we are ineffective in limiting work performed by these service providers or iRhythm consistent with applicable regulations or our contractual agreements with commercial payors, we may be subject to penalties or experience loss of revenue.
Risks Related to Healthcare Regulatory Matters Our use of third-party service providers or company resources located outside the United States to support certain customer care, clinical, and other operations of our IDTFs may present challenges, and if we are ineffective in limiting work performed by these service providers or company resources consistent with applicable regulations or our contractual agreements with commercial payors, we may be subject to penalties or experience loss of revenue.
Further, any such access, disclosure or other loss of information could result in legal claims or proceedings, and liability under laws that protect the privacy of personal information and regulatory penalties, increase in operating expenses, incurrence of expenses, including notification and remediation costs, disrupt our operations and the services we provide to our clients or damage our reputation, any of which could adversely affect our profitability, revenue and competitive position.
Further, any such access, disclosure, or other loss of information could result in legal claims or proceedings, and liability under laws that protect the privacy of personal information and regulatory penalties, increase in operating expenses, incurrence of expenses, including notification, mitigation, and remediation costs, disrupt our operations and the services we provide to our clients, or damage our reputation, any of which could adversely affect our profitability, revenue, and competitive position.
In aggregate, these material weaknesses (including the previously remediated material weaknesses) contributed to the misstatement of our revenues, revenue reserves, bad debt expense, property and equipment, research and development expense, and related financial disclosures, and in the revision of the Company’s consolidated financial statements for the years ended December 31, 2017, December 31, 2018, and each interim period therein as well as the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019.
In aggregate, these material weaknesses (including the previously remediated material weaknesses) contributed to the misstatement of our revenues, revenue reserves, bad debt expense, property and equipment, research and development expense, and related financial disclosures, and in the revision of our consolidated financial statements for the years ended December 31, 2017, December 31, 2018, and each interim period therein as well as the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019.
Our leverage ratio, combined with our other financial obligations and contractual commitments, may affect our ability to obtain additional capital resources as well as our operations in several ways, including: • the possible lack of availability of additional credit; • the terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and the legal covenants; • the potential for higher levels of interest expense to service or maintain our outstanding debt; • the possibility that we are required to incur additional debt in the future to repay our existing indebtedness when it comes due; • the possibility that our level of indebtedness make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation; • limiting our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes; • the possible diversion of capital resources from other uses; and • making an acquisition of our company less attractive or more difficult.
Our leverage ratio, combined with our other financial obligations and contractual commitments, may affect our ability to obtain additional capital resources as well as our operations in several ways, including: • the possible lack of availability of additional credit; • the terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and the legal covenants; • the potential for higher levels of interest expense to service or maintain our outstanding debt; • the possibility that we are required to incur additional debt in the future to repay our existing indebtedness when it comes due; • the possibility that our level of indebtedness makes us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation; • limiting our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes; • the possible diversion of capital resources from other uses; and • making an acquisition of our company less attractive or more difficult.
Risks Related to Our Industry, Business and Operations Reimbursement by Medicare is highly regulated and subject to change, and our failure to comply with applicable regulations, including regulations not designed for diagnostic tests like our Zio Services, could prevent us from receiving reimbursement under the Medicare program and some commercial payors, subject us to penalties, and adversely affect our reputation, business and results of operations.
Risks Related to Our Industry, Business and Operations Reimbursement by Medicare is highly regulated and subject to change, and our failure to comply with applicable regulations, including regulations not designed for remote diagnostic tests like our Zio Services, could prevent us from receiving reimbursement under the Medicare program and some commercial payors, subject us to penalties, and adversely affect our reputation, business, and results of operations.
Because remote cardiac monitoring technology, including the Zio System, are rapidly evolving, there is a continuing risk that relative value units assigned, and reimbursement rates set, by CMS may not adequately reflect the value and expense of this technology and associated monitoring services, and CMS may reduce these rates in the future, which would adversely affect our financial results.
Because remote cardiac monitoring technology, including the Zio System, is rapidly evolving, there is a continuing risk that relative value units assigned, and reimbursement rates set, by CMS may not adequately reflect the value and expense of this technology and associated monitoring services, and CMS may reduce these rates in the future, which would adversely affect our financial results.
Further, we rely on single suppliers for the supply of our adhesive sub-assembly, disposable plastic housings, instruments and other materials that we use to manufacture and label our Zio patches. We have not qualified additional suppliers for some of these components and materials and we do not carry a significant inventory of these items.
Further, we rely on single suppliers for the supply of components related to our adhesive sub-assembly, disposable plastic housings, instruments, and other materials that we use to manufacture and label our Zio patches. We have not qualified additional suppliers for some of these components and materials and we do not carry a significant inventory of these items.
We may also seek to communicate certain information with physicians and scientists or with payors and similar entities, and may rely on a range of laws, regulations, regulatory guidance governing topics including scientific exchange and communication of healthcare economic information (“HCEI”) and product information under the Preapproval Information Exchange Act.
We may also seek to communicate certain information with physicians and scientists or with payors and similar entities, and may rely on a range of laws, regulations, regulatory guidance governing topics, including scientific exchange, and communication of healthcare economic information and product information under the Preapproval Information Exchange Act.
The loss of key personnel, including key members of our senior management team or members of our board of directors, as well as certain of our key finance, legal, regulatory, research and development, and clinical personnel, could disrupt our operations and have a material and adverse effect on our ability to grow our business.
The loss of key personnel, including key members of our senior management team or members of our board of directors, as well as certain of our key finance, legal, regulatory, research and development, quality, and clinical personnel, could disrupt our operations and have a material and adverse effect on our ability to grow our business.
These quality improvement organizations may deny payment for services or assess fines and have the authority to recommend to CMS that a provider in substantial noncompliance applicable Medicare requirements and quality standards be excluded from participation in the Medicare program.
These quality improvement organizations may deny payment for services or assess fines and have the authority to recommend to CMS that a provider in substantial noncompliance with applicable Medicare requirements and quality standards be excluded from participation in the Medicare program.
Any action brought against us for violations of these laws or regulations, even successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
Any action brought against us for violations of these laws or regulations, even if successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
We have limited visibility as to when we will receive payment for our Zio Services with non-contracted payors and we or XIFIN must appeal any negative payment decisions, which often delays collections further.
We have limited visibility as to when we will receive payment for our Zio Services with non-contracted payors and we, XIFIN, or Omega must appeal any negative payment decisions, which often delays collections further.
Our reliance on third-party vendors subjects us to a number of risks, including: 30 Table of Contents • inability to obtain adequate supply in a timely manner or on commercially reasonable terms, including due to our reliance on a single supplier for certain critical components and materials for which, in some cases, there are relatively few alternative sources of supply; • modifications to, or discontinuation of, a vendor’s operations due to natural disasters, labor disruptions, human error, infrastructure failure, pandemics, military conflicts, or political or economic disruption, which may adversely impact our operations or otherwise lead to interruption of or shortage or delays in supply, including shortages impacting our printed circuit board assembly; • production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; • inability of the manufacturer or supplier to comply with our quality criteria and specifications and, where applicable, the QSR, state regulatory authorities, and, in some cases, the Notified Body audits; • miscommunication of design specifications due to errors/omissions by either the vendor or our company, resulting in delayed delivery of acceptable materials or components for incorporation into our devices; • delays in device shipments resulting from quality issues or defects, reliability issues, or a supplier’s failure to consistently produce quality components; • price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components; • inability to control the quality of products manufactured by third parties; • delays in delivery by our suppliers due to changes in demand from us or their other customers; and • delays in obtaining required materials and components that are in short supply within the time frames we require, at an affordable cost, or at all.
Our reliance on third-party vendors subjects us to a number of risks, including: • inability to obtain adequate supply in a timely manner or on commercially reasonable terms, including due to our reliance on a single supplier for certain critical components and materials for which, in some cases, there are relatively few alternative sources of supply; • modifications to, or discontinuation of, a vendor’s operations due to natural disasters, labor disruptions, human error, infrastructure failure, pandemics, military conflicts, or political or economic disruption, which may adversely impact our operations or otherwise lead to interruption of or shortage or delays in supply, including shortages impacting our printed circuit board assembly; • production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; • inability of the manufacturer or supplier to comply with our quality criteria and specifications and, where applicable, the QSR, state regulatory authorities, and, in some cases, the Notified Body audits; • miscommunication of design specifications due to errors/omissions by either the vendor or our company, resulting in delayed delivery of acceptable materials or components for incorporation into our devices or recall of finished products; • delays in device shipments resulting from quality issues or defects, reliability issues, or a supplier’s failure to consistently produce quality components; • price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components; • inability to control the quality of products manufactured by third parties; • delays in delivery by our suppliers due to changes in demand from us or their other customers; and • delays in obtaining required materials and components that are in short supply within the time frames we require, at an affordable cost, or at all.
As previously disclosed, in preparing our consolidated financial statements as of and for the years ended December 31, 2021 and 2020, our management concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to a failure to maintain a sufficient number of professionals with an appropriate level of accounting and internal control knowledge, training, and experience to timely and accurately analyze, record, and disclose accounting matters.
As previously disclosed, in preparing our consolidated financial statements as of and for the years ended December 31, 2021 and 2020, our management concluded that our disclosure controls and procedures and our internal control over financial reporting were not effective at the reasonable assurance level due to a failure to maintain a sufficient number of professionals with an appropriate level of accounting and internal control knowledge, training, and experience to timely and accurately analyze, record, and disclose accounting matters.
If regulators disagree with our decision, or take issue with either our investigation process or the resulting documentation or course of action, we may be subject to a range of potential regulatory enforcement actions or required to take corrective actions, which depending on their nature and scope could harm our business. 29 Table of Contents Because of the patient populations for which our services are provided and the complexity of the healthcare environment in which we operate, a high degree of medical and clinical input may be necessary to evaluate complaints and adverse events, and in some cases, there may be disagreement over whether our services or the medical devices used in our service may have caused or contributed to an event.
If regulators disagree with our decision, or take issue with either our investigation process or the resulting documentation or course of action, we may be subject to a range of potential regulatory enforcement actions or required to take corrective actions, which depending on their nature and scope could harm our business. 30 Table of Contents Because of the patient populations for which our services are provided and the complexity of the healthcare environment in which we operate, a high degree of medical and clinical input may be necessary to evaluate complaints and adverse events, and in some cases, there may be disagreement over whether our services or the medical devices used in our services may have caused or contributed to an event.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities. 47 Table of Contents We are subject to complex and evolving U.S. and foreign laws and regulations and other requirements regarding privacy, data protection, security, and other matters.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities. 50 Table of Contents We are subject to complex and evolving U.S. and foreign laws and regulations and other requirements regarding privacy, data protection, security, and other matters.
We are undertaking a transformation of our revenue cycle management function, which plan contemplates the engagement of service providers to support certain activities. The success of this plan depends on our ability to integrate these service providers in a timely manner to scale our operations to facilitates growth opportunities, without adversely affecting current revenues and accounts receivable.
We are undertaking a transformation of our revenue cycle management function, which plan contemplates the engagement of service providers to support certain activities. The success of this plan depends on our ability to integrate these service providers in a timely manner to scale our operations to facilitate growth opportunities, without adversely affecting current revenues and accounts receivable.
A fter the initial term and scope of the Development Agreement, and in order to commercialize any services in connection with the developed devices with Verily, we will need to enter into a commercialization agreement. There is no guarantee that we will be able to enter into such an agreement on commercially reasonable terms or at all.
After the initial term and scope of the Development Agreement, and in order to commercialize any services in connection with the developed devices with Verily, we will need to enter into a commercialization agreement. There is no guarantee that we will be able to enter into such an agreement on commercially reasonable terms or at all.
We have agreed to make additional payments over the term of the Development Agreement up to an aggregate of $1.75 million, subject to the achievement of certain development and regulatory milestones. The success of our collaboration with Verily is highly dependent on the efforts provided to the collaboration by Verily and us and the skill sets of our respective employees.
We have agreed to make additional payments over the term of the Development Agreement up to an aggregate of $1.75 million, subject to achievement of certain specified milestones. The success of our collaboration with Verily is highly dependent on the efforts provided to the collaboration by Verily and us and the skill sets of our respective employees.
We are involved in legal proceedings related to securities litigation and may become involved in other legal proceedings that arise from time to time in the future.
We are involved in legal proceedings related to securities litigation and other matters and may become involved in other legal proceedings that arise from time to time in the future.
We have developed operational and technical controls to limit the work performed by these vendors consistent with our interpretation of the Medicare coverage exclusion for items of services furnished outside the United States, other applicable laws and regulations, and any requirements imposed pursuant to our contracts with commercial payors.
We have developed operational and technical controls to limit the work performed by these vendors consistent with our interpretation of the Medicare coverage exclusion of services furnished outside the United States, other applicable laws and regulations, and any requirements imposed pursuant to our contracts with commercial payors.
We cannot predict whether or when the USPSTF’s recommendation on Afib screening will change or be modified based on findings from additional randomized trials, other research or through the continued use of our products and services or other similarly situated products and services designed for remote cardiac monitoring. 35 Table of Contents We may face risks associated with acquisitions of companies, products, and technologies and out business could be harmed if we are unable to address these risks.
We cannot predict whether or when the USPSTF’s recommendation on Afib screening will change or be modified based on findings from additional randomized trials, other research, or through the continued use of our products and services or other similarly situated products and services designed for remote cardiac monitoring. 37 Table of Contents We may face risks associated with acquisitions of companies, products, and technologies and our business could be harmed if we are unable to address these risks.
If we are unable to increase orders for our Zio Services, expand reimbursement for our Zio Services, or successfully develop and commercialize new services and related devices, our revenue and our ability to achieve and sustain profitability would be impaired. The market for ambulatory cardiac monitoring solutions is highly competitive.
If we are unable to increase orders for our Zio Services, expand reimbursement for our Zio Services, or successfully develop and commercialize new services and related devices, our revenue and our ability to achieve and sustain profitability would be impaired. The market for remote cardiac monitoring solutions is highly competitive.
We are also developing alternative service delivery models that include using our Zio XT System to screen at-risk patient populations as part of a value-added service offered by managed care organizations, including Medicare Advantage Organizations, to qualifying participants.
We are also developing alternative service delivery models that include using our Zio Monitoring System or Zio XT System to screen at-risk patient populations as part of a value-added service offered by managed care organizations, including Medicare Advantage Organizations, to qualifying participants.
These difficulties include challenges supporting certain operations and activities with more than one service providers, integrating technologies (including IT systems and processes, procedures, policies and operations, and retaining key personnel). These activities may be complex and time consuming and involve delays or additional and unforeseen expenses.
These difficulties include challenges supporting certain operations and activities with more than one service provider, integrating technologies (including IT systems and processes, procedures, policies and operations, and retaining key personnel). These activities may be complex and time-consuming and involve delays or additional and unforeseen expenses.
For example, when the patient returns the Zio XT patch to us at the end of the patient wear period, we provide the Zio XT Services, which include the end of service report based on the data stored on the Zio XT patch, after which we submit a claim to the relevant payor or to the patient for the services rendered.
For example, when the patient returns the Zio Monitor patch to us at the end of the patient wear period, we provide the Zio Monitor Services, which include the end of service report based on the data stored on the Zio Monitor patch, after which we submit a claim to the relevant payor or to the patient for the services rendered.
Any of these factors could harm our business and financial condition. 42 Table of Contents Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability.
Any of these factors could harm our business and financial condition. 44 Table of Contents Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations which could subject our business to higher tax liability.
As part of the Development Agreement, we paid Verily an up-front fee of $5.0 million in cash, and through December 31, 2022, we have achieved milestones and additional related payment obligations totaling $11.0 million.
As part of the Development Agreement, we paid Verily an up-front fee of $5.0 million in cash, and through December 31, 2023, we have achieved milestones and additional related payment obligations totaling $11.0 million.
Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in customer growth or engagement, or otherwise harm our business.
In the ordinary course of our business, we collect and store sensitive data, such as our proprietary business information and that of our suppliers, contractors, customers, vendors and others, as well as personal information, including health information, of these parties and of our patients.
In the ordinary course of our business, we collect, use and store, and transmit sensitive data, such as our proprietary business information and that of our suppliers, contractors, customers, vendors and others, as well as personal information, including health information, of these parties and of our patients.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 40 Table of Contents Our financial results may fluctuate significantly from quarter-to-quarter and may not fully reflect the underlying performance of our business.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. Our financial results may fluctuate significantly from quarter-to-quarter and may not fully reflect the underlying performance of our business.
Our operations may be directly or indirectly affected by various broad state and federal healthcare fraud and abuse laws, including the AKS, the FCA, the Anti-Mark Up Rule, and the Medicare Beneficiary Inducement Statute.
Our operations may be directly or indirectly affected by various broad state and federal healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, the FCA, the Anti-Mark Up Rule, and the Medicare Beneficiary Inducement Statute.
While we believe we will have the ability to service our obligations under the SVB Loan Agreement and obtain additional financing in the future if and when needed, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factors that may be beyond our control.
While we believe we will have the ability to service our obligations under the Braidwell Credit Agreement and obtain additional financing in the future if and when needed, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factors that may be beyond our control.
Continuing or increasing our sales and marketing and other external communication efforts may expose us to additional risk of being alleged or deemed to be non-compliant by regulatory, enforcement authorities, or competitors.
Continuing or increasing our sales and marketing and other external communication efforts may expose us to additional risk of being alleged or deemed to be non-compliant by regulators, enforcement authorities, or competitors.
Several factors make the billing and collection process uncertain, including differences between the submitted claim price for our Zio Services and the reimbursement rates of payors; compliance with complex federal and state regulations related to billing the Medicare and Medicaid programs; the effect of patient co-payments, co-insurance, and deductible amounts, which may vary depending on the timing of the claim relative to the insured’s annual policy year; differences in coverage policies, criteria, and billing requirements among payors; and incorrect or missing patient history, indications, or billing information and delays in verifying and resolving the same.
Several factors make the billing and collection process uncertain, including differences between the submitted claim price for our Zio Services and the reimbursement rates of payors; compliance with complex federal and state regulations related to billing the Medicare and Medicaid programs and collecting co-payments, co-insurance, and deductible amounts from patients and other guarantors; the effect of patient co-payments, co-insurance, and deductible amounts, which may vary depending on the timing of the claim relative to the insured’s annual policy year; differences in coverage policies, criteria, and billing requirements among payors; and incorrect or missing patient history, indications, or billing information and delays in verifying and resolving the same.
Any failure to execute these activities effectively and efficiently may cause our revenue and account receivable to be delayed or reduced and could have an adverse effect on our business and cause reputational harm.
Any failure to execute these activities effectively and efficiently may cause our revenue and accounts receivable to be delayed or reduced and could have an adverse effect on our business and cause reputational harm.
Additionally, we are aware of at least one third party that has registered the “IRHYTHM” mark in the European Union in connection with computer software for controlling and managing patient medical information, heart rate monitors, and heart rate monitors to be worn during moderate exercise, among other uses.
Additionally, we are aware of at least one third party that has registered the “IRHYTHM” mark in the EU in connection with computer software for controlling and managing patient medical information, heart rate monitors, and heart rate monitors to be worn during moderate exercise, among other uses.
As a result, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. 50 Table of Contents Risks Related to Our Debt Increasing our financial leverage could affect our operations and profitability.
As a result, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. Risks Related to Our Debt Increasing our financial leverage could affect our operations and profitability.
If a patient fails to return a device, we experience financial losses, which include the cost of the device as well as the loss of potential revenue for the service that is contingent on the returned device for the submission of the associated claim. Our plans include a high degree of focus on the mSToPs criteria for AF screening.
If a patient fails to return a device, we experience financial losses, which include the cost of the device as well as the loss of potential revenue for the service that is contingent on the returned device for the submission of the associated claim. Our strategic plans include a high degree of focus on the mSToPs criteria for Afib screening.
This USPTSF recommendation statement may deter some clinicians or payors from accepting the mSToPs study inclusion and exclusion criteria as a standard for selecting patients for screening for Afib.
This USPSTF recommendation statement may deter some clinicians or payors from accepting the mSToPs study inclusion and exclusion criteria as a standard for selecting patients for screening for Afib.
Securities class action litigation could result in substantial costs and a diversion of our management’s attention and resources. 49 Table of Contents Anti-takeover effects of our charter documents and Delaware law could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.
Securities class action litigation could result in substantial costs and a diversion of our management’s attention and resources. Anti-takeover effects of our charter documents and Delaware law could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.
We could incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period. In addition, healthcare companies are subject to numerous investigations and inquiries by various governmental agencies.
We could incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period. 45 Table of Contents In addition, healthcare companies are subject to numerous investigations and inquiries by various governmental agencies.
If CMS or any of our key commercial payors reduce reimbursement rates for our Zio Services, our business, operating results, and prospects would be adversely affected. CMS updates the reimbursement rates for diagnostic tests performed by IDTFs annually via the Medicare Physician Fee Schedule.
If CMS or any of our key commercial payors reduce reimbursement rates for our Zio Services, our business, operating results, and prospects would be adversely affected. 24 Table of Contents CMS updates the reimbursement rates for diagnostic tests performed by IDTFs annually via the Medicare Physician Fee Schedule.
Although we have obtained 510(k) clearances to market our Zio System, our clearances can be revoked if safety, efficacy, or significant regulatory compliance problems develop. Even planned changes and improvements to devices and their uses can trigger the need for a new 510(k).
Although we have obtained 510(k) clearances to market our Zio Systems, our clearances can be revoked if safety, efficacy, or significant regulatory compliance problems develop. Even planned changes and improvements to devices and their uses can trigger the need for a new submission.
We intend for these services to include benefits verification, billing, collections, and customer service, which will require complex oversight and monitoring for appropriate capture and escalation of complaint information that may be relevant to the quality, performance, and safety of our medical devices or the quality of our clinical services.
These services include benefits verification, billing, collections, and customer service, which require complex oversight and monitoring for appropriate capture and escalation of complaint information that may be relevant to the quality, performance, and safety of our medical devices or the quality of our clinical services.
While it is possible that Congress may modify or repeal this provision, we have no assurance that this provision will be modified or repealed and even if Congress makes any such decision, it may not be retroactive to January 1, 2022, and could still therefore result in an impact on cash from operating activities and on the balance of our deferred taxes.
While it is possible that Congress may modify or repeal this provision, we have no assurance that this provision will be modified or repealed and even if Congress makes any such decision, it may not be retroactive, and could still therefore result in an impact on cash from operating activities and on the balance of our deferred taxes.
Such production or service delays or shortfalls may be caused by many factors, including the following: • while we intend to continue to expand our manufacturing capacity, our production processes may have to change to accommodate this growth, potentially involving significant capital expenditures; • we may experience technical challenges to increasing manufacturing capacity, including in connection with equipment design, automation, validation and installation, contractor issues and delays, licensing and permitting delays or rejections, materials procurement, manufacturing site expansion, problems with production yields and quality control and assurance; • key components of our Zio Systems are provided by a sole or single supplier or limited number of suppliers, and we do not maintain large inventory levels of these components; if we experience a shortage or quality issues in any of these components, we would need to identify and qualify new supply sources, which could increase our expenses and result in manufacturing delays; • global demand and supply factors concerning commodity components common to all electronic circuits, including Zio Systems, could result in shortages that manifest as extended lead times for circuit boards, which could limit our ability to sustain and/or grow our business; • we may experience a delay in completing validation and verification testing for new production processes and/or equipment at our manufacturing facilities; • to increase our manufacturing output significantly and scale our services, we will have to attract and retain qualified employees for our operations; and • in response to unexpectedly rapid growth of our business, clinical operations capacity may not meet demand while new resources are being recruited and trained, which could negatively impact our volume capacity for our Zio Services.
Such production or service delays or shortfalls may be caused by many factors, including the following: • while we intend to continue to expand our manufacturing capacity, our production processes may have to change to accommodate this growth, potentially involving significant capital expenditures; • we may experience technical challenges to increasing manufacturing capacity, including in connection with equipment design, automation, validation and installation, contractor issues and delays, licensing and permitting delays or rejections, materials procurement, manufacturing site expansion, problems with production yields, and quality control and assurance; • key components of our Zio Systems are provided by a sole or single supplier or limited number of suppliers, and we do not maintain large inventory levels of these components; if we experience a shortage or quality issues in any of these components, we would need to identify and qualify new supply sources, which could increase our expenses and result in manufacturing delays; • global demand and supply factors concerning commodity components common to all electronic circuits, including Zio Systems, could result in shortages that manifest as extended lead times for circuit boards, which could limit our ability to sustain and/or grow our business; • we may experience a delay in completing validation and verification testing for new production processes and/or equipment at our manufacturing facilities; • to increase our manufacturing output significantly and scale our services, we will have to attract and retain qualified employees for our operations; and • in response to unexpectedly rapid growth of our business, clinical operations capacity may not meet demand while new resources are being recruited and trained, which could negatively impact our volume capacity for our Zio Services. 31 Table of Contents If we were unable to successfully manufacture our Zio Systems in sufficient quantities, or to maintain sufficient capacity to provide our Zio Services, it would materially harm our business.
We and the third party are involved in adversary proceedings before the Trademark Office in the European Union, and those proceedings could impact our ability to obtain a European Union trade mark registration for the “IRHYTHM” mark, although we already own many national registrations for IRHYTHM in Europe.
We and the third party are involved in adversary proceedings before the Trademark Office in the EU, and those proceedings could impact our ability to obtain a EU trade mark registration for the “IRHYTHM” mark, although we already own many national registrations for IRHYTHM in Europe.
Failure to maintain these relationships, interactions, and arrangements in compliance with applicable laws and regulations, including those targeted at fraud and abuse like the federal Anti-Kickback Statute and the False Claims Act, could expose us to significant legal and financial repercussions, including government civil and criminal investigations, civil monetary penalties, criminal penalties, and/or exclusion from federal healthcare programs.
Failure to maintain these relationships, interactions, and arrangements in compliance with applicable laws and regulations, including those targeted at fraud and abuse like the federal Anti-Kickback Statute and the FCA, could expose us to significant legal and financial repercussions, including government civil and criminal investigations, civil monetary penalties, criminal penalties, and/or exclusion from federal healthcare programs.
While we currently derive substantially all of our revenue and maintain substantially all of our assets in the United States, we intend to continue to pursue growth opportunities outside of the United States, especially in the Philippines and the United Kingdom, and we may increase our use of administrative and support functions from locations outside the United States, which could expose us to risks associated with international sales and operations.
While we currently derive substantially all of our revenue and maintain substantially all of our assets in the United States, we intend to continue to pursue growth opportunities outside of the United States, especially in the Philippines, the EU, the UK and Japan, and we may increase our use of administrative and support functions from locations outside the United States, which could expose us to risks associated with international sales and operations.
Although in both scenarios there is the potential that a patient will not return the device(s) at the conclusion of the wear period, home hookups result in a higher likelihood that the patient will fail to return his or her device, which negatively impacts our financial condition when we are unable to provide the Zio Services.
Although in all three scenarios there is the potential that a patient will not return the device(s) at the conclusion of the wear period, home hookups historically result in a higher likelihood that the patient will fail to return his or her device, which negatively impacts our financial condition when we are unable to provide the Zio Services.
Federal and state healthcare laws and regulations that may affect our ability to conduct business, include, without limitation: 36 Table of Contents • federal and state laws and regulations regarding billing and claims payment; • the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs; • the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government; • federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • the FCPA, the UK Bribery Act of 2010, and other local anti-corruption laws that apply to our international activities; • the federal Physician Payment Sunshine Act, or Open Payments, and its implementing regulations, which requires us to report payments or other transfers of value made to licensed physicians and certain mid-level health practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which impose certain requirements relating to the privacy, security, and transmission of individually identifiable health information; HIPAA also created criminal liability for knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; • the GDPR and the UK Data Protection Act 2018, which each provide legal requirements for the handling and disclosure (including across borders) of personal data collected in the European Union and the United Kingdom, respectively; • the FDA’s Code of Federal Regulations, including but not limited to, 21 CFR Parts 820, 803, 806, and 801, that outlines requirements for medical device design, testing, marketing authorization, manufacturing, labeling, distribution, and post-market surveillance requirements; • the EU MDD and EU MDR that outline requirements for medical device CE marking; • the UK MDR, which, post the United Kingdom’s withdrawal from the European Union, replaces the CE marking requirement for medical devices sold in the United Kingdom with a UKCA mark; and • state law equivalents of each of the above U.S. federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Federal and state healthcare laws and regulations that may affect our ability to conduct business, include, without limitation: 38 Table of Contents • federal and state laws and regulations regarding billing and claims payment; • the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs; • the federal False Claims Act (the “FCA”), which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government; • federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • the FCPA, the UK Bribery Act of 2010, and other local anti-corruption, anti-kickback, and transparency laws that apply to our international activities; • the federal Physician Payment Sunshine Act, or Open Payments, and its implementing regulations, which requires us to report payments or other transfers of value made to licensed physicians and certain mid-level health practitioners and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; • Health Insurance Portability and Accountability Act (“HIPAA“), as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which impose certain requirements relating to the privacy, security, and transmission of individually identifiable health information; HIPAA also created criminal liability for knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services; • the GDPR and the UK Data Protection Act 2018, which each provide legal requirements for the handling and disclosure (including across borders) of personal data collected in the EU and the UK, respectively; • the FDA’s Code of Federal Regulations, including but not limited to, 21 CFR Parts 820, 803, 806, and 801, that outlines requirements for medical device design, testing, marketing authorization, manufacturing, labeling, distribution, and post-market surveillance requirements; • the EU MDD and EU MDR that outline requirements for medical device CE marking; • the UK MDR, which, post the UK’s withdrawal from the EU, replaces the CE marking requirement for medical devices sold in the UK with a UKCA mark; and • state law equivalents of each of the above U.S. federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state and foreign laws governing the privacy and security of individually identifiable information in certain circumstances (e.g., the Telephone Consumer Protection Act, the CAN-SPAM Act, and state privacy, consumer protection, and breach notification laws), many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
In addition, we could be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters. If we are not effective in addressing ESG matters affecting our business, or setting and meeting relevant ESG goals, our reputation and financial results may suffer. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable.
In addition, we could be criticized for the scope of such initiatives or goals or perceived as not acting responsibly in connection with these matters. If we are not effective in addressing ESG matters affecting our business, or setting and meeting relevant ESG goals, our reputation and financial results may suffer. ITEM 1B.
For example, because a significant proportion of the regulatory framework in the United Kingdom is currently derived from EU directives and regulations, Brexit could result in material changes to the regulatory regime applicable to many of our current operations.
For example, because a significant proportion of the regulatory framework in the UK is currently derived from EU directives and regulations, Brexit could result in material changes to the regulatory regime applicable to many of our current operations.
If reimbursement or other payment for our Zio Services is reduced or modified in the United States, including through cost containment measures or changes to policies with respect to pricing, our business could suffer.
If reimbursement or other payment for our Zio Services is reduced or modified in the United States, including through cost containment measures or changes to policies with respect to coding, coverage, and pricing, our business could suffer.
In addition, we are currently engaging with other third-party service providers that have resources located outside the United States, and we are establishing iRhythm company resources in the Philippines to provide services in support our IDTFs.
In addition, we are currently engaging with other third-party service providers that have resources located outside the United States, and we have established company resources in the Philippines to provide services in support our IDTFs.
This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. Notwithstanding the foregoing, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act. 53 Table of Contents Notwithstanding the foregoing, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Although the Trade and Cooperation Agreement offers UK and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas, economic relations between the United Kingdom and the European Union are on more restricted terms than existed previously.
Although the Trade and Cooperation Agreement offers UK and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas, economic relations between the UK and the EU are on more restricted terms than existed previously.
Over the past several years, cyber-attacks have become more prevalent and much harder to detect and defend against.
Over the past several years, cyber-attacks and other cyber incidents have become more prevalent and much harder to detect and defend against.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the SVB Loan Agreement, depends on our future financial condition and operating performance, which is subject to economic, financial, competitive, and other factors beyond our control.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Braidwell Credit Agreement, depends on our future financial condition and operating performance, which is subject to economic, financial, competitive, and other factors beyond our control.
Further, should we be found out of compliance with any of these laws, regulations, or programs, depending on the nature of the findings, our business, our financial position, and our results of operations could be negatively impacted. 43 Table of Contents Compliance with requirements of being a public company matters and reporting may strain our resources and divert management’s attention.
Further, should we be found out of compliance with any of these laws, regulations, or programs, depending on the nature of the findings, our business, our financial position, and our results of operations could be negatively impacted. Compliance with requirements of being a public company may strain our resources and divert management’s attention.
Failure to maintain full compliance with the requirements of EU MDD, EU MDR, and UK MDR could result in similar disruptions in these markets. We are required to file various reports with the FDA, and EU or UK regulators, including reports required by each jurisdiction's adverse event and field action reporting regulations.
Failure to maintain full compliance with the requirements of EU MDD, EU MDR, and UK MDR could result in similar disruptions in these markets. 29 Table of Contents We are required to file various reports with FDA, and EU or UK regulators, including reports required by each jurisdiction’s adverse event, certain malfunctions, and field action reporting regulations.
However, such methods may not be adequate to protect us or permit us to gain or maintain a competitive advantage. For example, our patent applications may not issue as patents in a form that will be advantageous to us, or at all.
However, such methods may not be adequate to protect us or permit us to gain or maintain a competitive advantage. 48 Table of Contents For example, our patent applications may not issue as patents in a form that will be advantageous to us, or at all.
Further, we may need to refinance all or a portion of our debt on or before maturity, and our ability to refinance the SVB Loan Agreement or any future indebtedness will depend on the capital markets and our financial condition at such time.
Further, we may need to refinance all or a portion of our debt on or before maturity, and our ability to refinance the Braidwell Credit Agreement or any future indebtedness will depend on the capital markets and our financial condition at such time.
Further, the turnover in our employee base could result in operational and administrative inefficiencies, which could adversely impact the results of our operations, stock price, and customer relationships, and could make recruiting for future management and other positions more difficult. 34 Table of Contents Our continued rapid growth could strain our personnel resources and infrastructure, and if we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.
Further, the turnover in our employee base could result in operational and administrative inefficiencies, which could adversely impact the results of our operations, stock price, and customer relationships, could complicate our efforts to retain other valuable employees, and could make recruiting for future management and other positions more difficult. 36 Table of Contents Our continued rapid growth could strain our personnel resources and infrastructure, and if we are unable to manage the anticipated growth of our business, our future revenue and operating results may be harmed.
If we violate these or any other covenants under the SVB Loan Agreement or fail to make payments in connection therewith, Silicon Valley Bank could declare an event of default, which would give it the right to terminate its commitment to provide additional loans and declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
If we violate these or any other covenants under the Braidwell Credit Agreement or fail to make payments in connection therewith, Braidwell could declare an event of default, which would give it the right to terminate its commitment to provide additional loans and declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
There are still a number of areas of uncertainty in connection with the future of the United Kingdom and its relationship with the European Union following the United Kingdom’s exit from the European Union in 2020 (commonly referred to as “Brexit”), including the application and interpretation of the UK-EU trade agreement (the “Trade and Cooperation Agreement”), which went into force in May 2021.
There are still a number of areas of uncertainty in connection with the future of the UK and its relationship with the EU following the UK’s exit from the EU in 2020 (commonly referred to as “Brexit”), including the application and interpretation of the UK-EU trade agreement (the “Trade and Cooperation Agreement”), which went into force in May 2021.
Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under the SVB Loan Agreement and any future indebtedness we may incur and to make necessary capital expenditures.
Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under the Braidwell Credit Agreement and any future indebtedness we may incur and to make necessary capital expenditures.
For example, as discussed further in Note 8 to our Consolidated Financial Statements (as defined below), a putative securities class action lawsuit has been filed against the Company and certain current officers or former officers of the Company alleging violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder.
For example, as discussed further in Note 8, Commitments and Contingencies, to the consolidated financial statements included herein, a putative securities class action lawsuit has been filed against the company and certain current officers or former officers of the company alleging violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder.
Therefore, we cannot give assurances that sufficient credit will be available on terms that we consider attractive, or at all, if and when necessary or beneficial to us. Failure to comply with covenants in the SVB Loan Agreement could result in our inability to borrow additional funds and adversely impact our business.
Therefore, we cannot give assurances that sufficient credit will be available on terms that we consider attractive, or at all, if and when necessary or beneficial to us. 54 Table of Contents Failure to comply with covenants in the Braidwell Credit Agreement could result in our inability to borrow additional funds and adversely impact our business.
Although our current Zio Systems are comprised of medical devices that have received FDA marketing authorization (510(k) clearance), we may regularly engage in product enhancements and in iterative changes to existing products, as well as seeking to develop new technology or use of technology for new indications for use.
Although our current Zio Systems are comprised of medical devices that have received FDA marketing authorization (510(k) clearance) as well as regulatory certifications in the EU and the UK, we may regularly engage in product enhancements and in iterative changes to existing products, as well as seek to develop new technology or use of technology for new indications for use.
For example, as discussed further in Note 8 to our Consolidated Financial Statements, in March 2021, we received a grand jury subpoena from the U.S. Attorney’s Office for the Northern District of California requesting information related to communications with the FDA and our Zio Systems, and, in October 2021, received a second subpoena requesting additional information.
For example, as discussed further in Note 8, Commitments and Contingencies, to the consolidated financial statements included herein, in March 2021, we received a grand jury subpoena from the U.S. Attorney’s Office for the Northern District of California requesting information related to communications with FDA and our Zio Systems, and, in September 2021, received a subpoena requesting additional information.
System failures or outages, including any potential disruptions due to significantly increased global demand on certain cloud-based systems during or as a result of the COVID-19 pandemic, or failures to adequately scale our data platforms and architectures support patient care could compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business or delay our financial reporting.
System failures or outages, including any potential disruptions due to significantly increased global demand on certain cloud-based systems, or failures to adequately scale our data platforms and architectures to support patient care could compromise our ability to perform these functions in a timely manner, which could harm our ability to conduct business or delay our financial reporting.

… 208 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

0 edited+3 added−3 removed0 unchanged
Removed
ITEM 2. PROPERTIES We currently lease approximately 117,600 square feet for our corporate headquarters located in San Francisco, California under a twelve-year lease term which will expire in September 2031.
Added
ITEM 2. PROPERTIES The following table summarizes the facilities leased as of December 31, 2023, including the location and size of each principal facility and their designated use. We believe that these facilities are sufficient to meet our current and anticipated future needs.
Removed
In the United States, we also lease (i) approximately 44,600 square feet in Deerfield, Illinois, for our corporate office under a lease agreement that will expire in June 2033, (ii) approximately 20,300 square feet in Houston, Texas for a clinical center under a lease agreement that will expire on October 2027, (iii) approximately 68,900 square feet in Cypress, California for our office and manufacturing facilities under a lease agreement that will expire in April 2032, (iv) approximately 3,200 square feet in Encinitas, California for office space under a lease agreement that will expire in February 2024.
Added
Location Primary Use Approximate Square Footage Lease Expiration Year San Francisco, California Corporate Headquarters and Clinical Center 117,600 2031 Cypress, California Corporate Office and Manufacturing Facilities 68,900 2032 Deerfield, Illinois Corporate Office and Clinical Center 44,600 2033 Manila, Philippines Corporate Office 24,000 2028 Houston, Texas Clinical Center 20,300 2027 London, U.K.
Removed
We lease approximately 9,000 square feet of office space in London, U.K. under a lease agreement that will expire in January 2029. We believe that these facilities are sufficient to meet our current and anticipated future needs. 53 Table of Contents
Added
Corporate Office and Clinical Center 9,000 2029 Solana Beach, California Corporate Office 8,300 2031 Encinitas, California Corporate Office 3,200 2024

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

5 edited+5 added−4 removed2 unchanged
Biggest changeSee also Part I, Item 1A “Risk Factors — Risks Related to Other Legal and Regulatory Matters” for more information on these matters. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 54 Table of Contents PART II
Biggest changeWe believe this lawsuit is without merit and plan to defend ourselves vigorously. 59 Table of Contents At this time, we are unable to predict the eventual scope, duration or outcome of the aforementioned proceedings. See also Part I, Item 1A “Risk Factors — Risks Related to Other Legal and Regulatory Matters” for more information on these matters. ITEM 4.
King, our former Chief Executive Officer, Michael J. Coyle, and former Chief Financial Officer and current Chief Operating Officer, Douglas J. Devine. The purported class in the amended complaint includes all persons who purchased or acquired our common stock between August 4, 2020 and July 13, 2021, and seeks unspecified damages purportedly sustained by the class.
Coyle, and former Chief Financial Officer and former Chief Operating Officer, Douglas J. Devine. The purported class in the amended complaint includes all persons who purchased or acquired our common stock between August 4, 2020 and July 13, 2021, and seeks unspecified damages purportedly sustained by the class.
We believe the Securities Class Action Lawsuit to be without merit and plan to defend ourselves vigorously. On March 26, 2021, we received a grand jury subpoena from the U.S. Attorney’s Office for the Northern District of California requesting information related to communications with the Food and Drug Administration and our products.
We believe the above securities class action lawsuits to be without merit and plan to continue to defend ourselves vigorously. On March 26, 2021, we received a grand jury subpoena from the U.S. Attorney’s Office for the Northern District of California requesting information related to communications with the Food and Drug Administration and our products and services.
King, violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder (“Securities Class Action Lawsuit”). On August 2, 2021, the lead plaintiff filed an amended complaint, and filed a further amended complaint on September 24, 2021. The amended complaint names as defendants, in addition to us and Mr.
King, violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder. On August 2, 2021, the lead plaintiff filed an amended complaint, and filed a further amended complaint on September 24, 2021. The amended complaint names as defendants, in addition to us and Mr. King, our former Chief Executive Officer, Michael J.
On March 31, 2022, the Court issued an order granting our motion to dismiss the Securities Class Action Lawsuit, without allowing plaintiff further leave to amend, and entered judgment in favor of us and the other defendants. On April 29, 2022, the plaintiff that filed the initial complaint in the action filed a notice of appeal.
On October 27, 2021, we filed a motion to dismiss, which the Court granted on March 31, 2022, entering judgment in favor of us and the other defendants. On April 29, 2022, the original named plaintiff appealed to the Ninth Circuit Court of Appeals.
Removed
On October 27, 2021, we filed a motion to dismiss the amended complaint. The motion to dismiss was fully briefed and the Court held a hearing on the motion on February 4, 2022, after which the Court took the matter under submission.
Added
On October 11, 2023, after briefing by the parties and oral argument, the Ninth Circuit dismissed the appeal for lack of jurisdiction. The appellant filed a petition for rehearing en banc, which was denied on December 6, 2023.
Removed
On September 7, 2022, the plaintiff-appellant filed its opening brief, and we filed a motion to dismiss for lack of standing to appeal and Article III standing on September 27, 2022.
Added
On February 6, 2024, a second putative class action lawsuit was filed in the Court alleging that we and our current Chief Executive Officer, Quentin Blackford, our current Chief Financial Officer, Brice Bobzien, and Mr. Devine violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder, and seeks unspecified damages purportedly sustained by the class.
Removed
On October 17, 2022, the plaintiff filed its response to our motion to dismiss, and we filed our reply in support of the motion to dismiss on November 3, 2022. Our motion to dismiss the appeal was denied without prejudice on December 8, 2022. We filed our responding brief on the appeal on February 16, 2023.
Added
On September 14, 2021, we received a second subpoena requesting additional information. On April 4, 2023, we received a Subpoena Duces Tecum from the Consumer Protection Branch, Civil Division of the U.S. Department of Justice, requesting production of various documents regarding our products and services. We are cooperating fully on these matters. On February 20, 2024, Welch Allyn, Inc.
Removed
On September 14, 2021, we received a second subpoena requesting additional information. We are cooperating fully and are providing the requested information. At this time, we are unable to predict the eventual scope, duration or outcome of the aforementioned proceedings.
Added
(“Welch Allyn”), a subsidiary of Hill-Rom Holdings, Inc. which was acquired by Baxter International, Inc., filed a lawsuit against us in the United States District Court for the District of Delaware, alleging that our Zio patches infringe certain of its patents. Welch Allyn seeks money damages and attorneys’ fees.
Added
MINE SAFETY DISCLOSURES Not applicable. 60 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−0 removed3 unchanged
Biggest changeThe stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns. 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 iRhythm Technologies, Inc. $ 100 $ 187 $ 232 $ 227 $ 791 $ 392 $ 312 NASDAQ Composite $ 100 $ 128 $ 123 $ 167 $ 239 $ 291 $ 194 NASDAQ Biotechnology $ 100 $ 121 $ 110 $ 137 $ 172 $ 171 $ 152 55 Table of Contents Securities Authorized for Issuance under Equity Compensation Plans Information regarding our equity compensation plans and the securities authorized for issuance thereunder is set forth in Part III, Item 12 of this Annual Report on Form 10-K.
Biggest changeThe stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns. 61 Table of Contents 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 iRhythm Technologies, Inc. $ 100 $ 98 $ 341 $ 169 $ 135 $ 154 NASDAQ Composite $ 100 $ 135 $ 194 $ 236 $ 158 $ 226 NASDAQ Biotechnology $ 100 $ 124 $ 156 $ 155 $ 138 $ 144 S&P Healthcare Equipment Select Industry $ 100 $ 123 $ 163 $ 169 $ 130 $ 122 Securities Authorized for Issuance under Equity Compensation Plans Information regarding our equity compensation plans and the securities authorized for issuance thereunder is set forth in Part III, Item 12 of this Annual Report on Form 10-K.
As of February 16, 2023, there were 420 holders of record of our common stock. Certain shares are held in “street” name and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. Dividend Policy We have never declared or paid cash dividends on our capital stock.
Certain shares are held in “street” name and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. Dividend Policy We have never declared or paid cash dividends on our capital stock.
The following graph shows the total stockholder return of an investment of $100 in cash at market close on December 31, 2016, through December 31, 2022 for (i) our common stock, (ii) the NASDAQ Composite Index (U.S.) and (iii) the NASDAQ Biotechnology Index.
The following graph shows the total stockholder return of an investment of $100 in cash at market close on December 31, 2018, through December 31, 2023 for (i) our common stock, (ii) the NASDAQ Composite Index (U.S.), (iii) the NASDAQ Biotechnology Index and (iv) the S&P Healthcare Equipment Select Industry.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information for Common Stock Our common stock is traded on The Nasdaq Global Select Market under the symbol “IRTC” and began trading on October 20, 2016. Prior to that, there was no public trading market for our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information for Common Stock Our common stock is traded on The Nasdaq Global Select Market under the symbol “IRTC”. As of February 15, 2024, there were 353 holders of record of our common stock.
Pursuant to applicable Securities and Exchange Commission rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date.
Since the NASDAQ Biotechnology Index was presented in the prior year, it has also been presented in the current year for comparison purposes. Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date.
Added
For the year ended December 31, 2023, the Company has elected to present the S&P Healthcare Equipment Select Industry for its peer group comparison. The Company believes that the holdings of this index more accurately reflect its peer companies.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

69 edited+40 added−27 removed23 unchanged
Biggest changeComparison of the Years Ended December 31, 2022, and 2021 Year Ended December 31, 2022 2021 Change % Change (dollars in thousands, except percentages) Revenue $ 410,921 $ 322,825 $ 88,096 27 % Cost of revenue 129,289 109,258 20,031 18 % Gross profit 281,632 213,567 68,065 32 % Operating expenses: Research and development 46,610 38,671 7,939 21 % Selling, general and administrative 322,198 274,839 47,359 17 % Impairment and restructuring charges 26,608 — 26,608 100 % Total operating expenses 395,416 313,510 81,906 26 % Loss from operations (113,784) (99,943) (13,841) 14 % Interest expense (4,138) (1,169) (2,969) 254 % Other income (expense), net 2,036 118 1,918 1625 % Loss before income taxes (115,886) (100,994) (14,892) 15 % Income tax provision 269 367 (98) (27) % Net loss $ (116,155) $ (101,361) $ (14,794) 15 % Revenue Revenue increased $88.1 million, or 27%, to $410.9 million during the year ended December 31, 2022 from $322.8 million during the year ended December 31, 2021.
Biggest changeComparison of the Years Ended December 31, 2023, and 2022 Year Ended December 31, 2023 % Revenue 2022 % Revenue $ Change % Change (dollars in thousands, except percentages) Revenue $ 492,681 100 % $ 410,921 100 % $ 81,760 20 % Cost of revenue 160,875 33 % 129,289 31 % 31,586 24 % Gross profit 331,806 67 % 281,632 69 % 50,174 18 % Operating expenses: Research and development 60,244 12 % 46,610 11 % 13,634 29 % Selling, general and administrative 385,645 78 % 322,198 78 % 63,447 20 % Impairment and restructuring charges 11,078 2 % 26,608 6 % (15,530) (58) % Total operating expenses 456,967 92 % 395,416 95 % 61,551 16 % Loss from operations (125,161) (25) % (113,784) (28) % (11,377) 10 % Interest expense (3,650) (1) % (4,138) (1) % 488 (12) % Interest and other income, net 6,155 1 % 2,036 1 % 4,119 202 % Loss before income taxes (122,656) (25) % (115,886) (28) % (6,770) 6 % Income tax provision 750 — % 269 — % 481 179 % Net loss $ (123,406) (25) % $ (116,155) (28) % $ (7,251) 6 % Revenue Revenue increased $81.8 million, or 20%, to $492.7 million during the year ended December 31, 2023, as compared to $410.9 million during the year ended December 31, 2022.
We receive revenue for the Zio Services primarily from third-party payors, which include contracted third-party payors and the CMS. The remainder of our revenue comes from healthcare institutions, which are typically hospitals or private physician practices, who purchase the Zio Services from us directly.
We receive revenue for the Zio Services primarily from third-party payors, which include contracted third-party payors and CMS. The remainder of our revenue comes from healthcare institutions, which are typically hospitals or private physician practices, who purchase the Zio Services from us directly.
Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, rising interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic wind down.
Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, rising interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic continue to wind down.
The Zio XT System is a prescription-only, remote ECG monitoring system that consists of the Zio XT patch that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, which supports the capture and analysis of ECG data recorded by the Zio XT patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS algorithm.
The Zio Monitor System is a prescription-only, remote ECG monitoring system that consists of the Zio Monitor patch that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, which supports the capture and analysis of ECG data recorded by the Zio Monitor patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS algorithm.
We believe Adjusted EBITDA is helpful to investors, analysts and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, this measure is frequently used by analysts, investors and other interested parties to evaluate and assess performance.
We believe Adjusted EBITDA is helpful to investors, analysts, and other interested parties because it can assist in providing a more consistent and comparable overview of our operational performance across our historical financial periods. In addition, this measure is frequently used by analysts, investors, and other interested parties to evaluate and assess performance.
Accounts Receivable, Allowance for Doubtful Accounts and Contractual Allowances Accounts receivable includes amounts due to us from healthcare institutions, third-party payors, and government payors and our related patients as a result of our normal business activities. Accounts receivable is reported on the consolidated balance sheets net of an estimated allowance for doubtful accounts and contractual allowances.
Accounts Receivable, Allowance for Doubtful Accounts, and Contractual Allowances Accounts receivable include amounts due to us from healthcare institutions, third-party payors, and government payors and our related patients as a result of our normal business activities. Accounts receivable is reported on the consolidated balance sheets net of an estimated allowance for doubtful accounts and contractual allowances.
Cost of Revenue and Gross Margin Cost of revenue includes direct labor, material costs, equipment and infrastructure expenses, amortization of internal-use software, allocated overhead, and shipping and handling. Direct labor includes payroll-related costs including stock-based compensation involved in manufacturing, clinical data curation, and customer service.
Cost of Revenue Cost of revenue includes direct labor, material costs, equipment and infrastructure expenses, amortization of internal-use software, allocated overhead, and shipping and handling. Direct labor includes payroll-related costs including stock-based compensation involved in manufacturing, clinical data curation, and customer service.
Revenue may be impacted by the outcome of adjudications with contracted and non-contracted payors, as well as changes in CMS reimbursement rates like we experienced with final rates being established for our Zio Services as of January 1, 2023. Clinical capacity limitations may also restrict our ability to complete the performance obligations to achieve revenue recognition.
Revenue may be impacted by the outcome of adjudications with contracted and non- contracted payors, as well as changes in CMS reimbursement rates like we experienced with final, lower rates being established for our Zio Services as of January 1, 2024. Clinical capacity limitations may also restrict our ability to complete the performance obligations to achieve revenue recognition.
Our Zio XT services are generally billable when the Zio report is issued to the physician. 63 Table of Contents The Zio Monitor System is the next generation of the Zio XT System, and is a prescription-only, remote ECG monitoring system that consists of the Zio Monitor patch that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, which supports the capture and analysis of ECG data recorded by the Zio Monitor patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS algorithm.
Our Zio Monitor services are generally billable when the Zio report is issued to the physician. 69 Table of Contents The Zio XT System is the previous generation of the Zio Monitor System and is a prescription-only, remote ECG monitoring system that consists of the Zio XT patch that records the electric signal from the heart continuously for up to 14 days and the ZEUS System, which supports the capture and analysis of ECG data recorded by the Zio XT patch at the end of the wear period, including specific arrhythmia events detected by the ZEUS algorithm.
Material costs include both the disposable materials costs of the Zio patches and amortization of the re-usable printed circuit board assemblies (“PCBAs”). Each Zio XT patches includes a PCBA, and each Zio AT patch includes a PCBA and gateway board, the cost of which is amortized over the anticipated number of uses of the board.
Material costs include both the disposable materials costs of the Zio patches and amortization of the re-usable printed circuit board assemblies ("PCBAs"). Each Zio XT patch and Zio Monitor patch includes a PCBA, and each Zio AT patch includes a PCBA and gateway board, the cost of which is amortized over the anticipated number of uses of the board.
Each Zio System combines FDA-cleared and CE-marked, wire-free, patch-based, 14-day wearable biosensor that continuously records ECG data with a proprietary cloud-based data analytic software to help physicians monitor patients and diagnose arrhythmias. Since receiving FDA clearance, we have provided the Zio Services to over five million patients and have collected over one billion hours of curated heartbeat data.
Each Zio System combines an FDA-cleared and CE-marked, wire-free, patch-based,14-day wearable biosensor that continuously records ECG data with a proprietary, FDA-cleared, CE-marked cloud-based data analytic software to help physicians monitor patients and diagnose arrhythmias. Since receiving FDA clearance, we have provided the Zio Services to over six million patients and have collected over 1.8 billion hours of curated heartbeat data.
Research and development expenses include payroll-related costs, including stock-based compensation, consulting services, clinical studies, laboratory supplies and allocated facility overhead costs. In addition, we expense milestone payments, when probable, for the development agreement with Verily.
Research and Development Expenses We expense research and development costs as they are incurred. Research and development expenses include payroll-related costs, including stock-based compensation, consulting services, clinical studies, laboratory supplies, and allocated facility overhead costs. In addition, we expense milestone payments, when probable, for the Development Agreement with Verily.
Since first receiving clearance from the FDA for our technology in 2009, we have supported physician and patient use of our technology and provided remote cardiac monitoring services from our Medicare-enrolled IDTFs and our qualified technicians. We have provided our Zio Services using our Zio Systems.
Since first receiving clearance from FDA for our technology in 2009, we have supported physician and patient use of our technology and provided ambulatory cardiac monitoring services from our Medicare-enrolled IDTFs and with our qualified technicians. We have provided our Zio Services using our Zio Systems.
Under the SVB Loan Agreement, we had borrowed $35.0 million and had made repayments through March 2022, at which time the outstanding balance was $18.5 million. 62 Table of Contents On March 28, 2022, we entered into a Second Amendment (the “2022 Amendment”) to our SVB Loan Agreement which provided for a term loans facility in the aggregate principal amount of up to $75.0 million (the “2022 Term Loans”), of which $35.0 million was borrowed at closing and a portion of the proceeds was used to pay in full the outstanding balance of $18.5 million under the SVB Loan Agreement.
On March 28, 2022, we entered into a Second Amendment (the “2022 Amendment”) to our SVB Loan Agreement which provided for a term loans facility in the aggregate principal amount of up to $75.0 million (the “2022 Term Loans”), of which $35.0 million was borrowed at closing and a portion of the proceeds was used to pay in full the outstanding balance of $18.5 million under the SVB Loan Agreement.
See Note 8, Commitments and Contingencies, to the Consolidated Financial Statements for more information. • Debt interest and principal payments - On March 28, 2022, we entered into the 2022 Amendment to our SVB Loan Agreement which provided for a term loans facility in the aggregate principal amount of up to $75.0 million, of which $35.0 million was borrowed at closing.
See Note 8, Commitments and Contingencies, to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for more information. • Debt interest and principal payments - On March 28, 2022, we entered into the 2022 Amendment to our SVB Loan Agreement which provided for a term loans facility in the aggregate principal amount of up to $75.0 million, of which $35.0 million was borrowed at closing.
We define Adjusted EBITDA for a particular period as net loss or income before interest, taxes, depreciation and amortization, interest expense and interest income and as further adjusted for stock-based compensation expense, impairment and restructuring charges and transformation costs.
We define Adjusted EBITDA for a particular period as net loss before income tax provision, depreciation and amortization, interest expense, and interest income and as further adjusted for stock-based compensation expense, impairment and restructuring charges, and business transformation costs.
Upon completion, we expect to achieve operational efficiencies in our administrative expenses. Interest expense is attributable to borrowings under our loan agreements. See Note 9, Debt, in the Notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K (the “Consolidated Financial Statements”) for further information on our loan agreements.
Interest Expense Interest expense is attributable to borrowings under our loan agreements. See Note 9, Debt, in the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K (the “Consolidated Financial Statements”) for further information on our loan agreements.
The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA (in thousands): Year Ended December 31, 2022 2021 2020 Net loss $ (116,155) $ (101,361) $ (43,830) Income tax provision 269 367 229 Depreciation and amortization 13,405 9,842 6,900 Interest expense 4,138 1,169 1,519 Interest income (2,350) (249) (1,138) Stock-based compensation 57,740 54,527 41,515 Impairment and restructuring charges 26,608 — — Transformation costs 5,082 — — Adjusted EBITDA $ (11,263) $ (35,705) $ 5,195 Macroeconomic Factors and the Effects of COVID-19 Our future results of operations and liquidity could be materially adversely affected by macroeconomic factors contributing to delays in payments of outstanding receivables, supply chain disruptions, including shortages and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers.
The following table presents a reconciliation of Net loss, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA (in thousands): Year Ended December 31, 2023 2022 2021 Net loss $ (123,406) $ (116,155) $ (101,361) Interest expense 3,650 4,138 1,169 Interest income (6,353) (2,350) (249) Income tax provision 750 269 367 Depreciation and amortization 16,348 13,405 9,842 Stock-based compensation 77,204 57,740 54,527 Impairment and restructuring charges 11,078 26,608 — Business transformation costs 15,866 5,082 — Adjusted EBITDA $ (4,863) $ (11,263) $ (35,705) 63 Table of Contents Macroeconomic Factors Our future results of operations and liquidity could be materially adversely affected by macroeconomic factors contributing to delays in payments of outstanding receivables, supply chain disruptions, including shortages and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers.
Revenue The majority of our revenue is derived from provision of our Zio Services to customers in the United States. We earn revenue from the provision of our Zio Services primarily from contracted third-party payors, CMS and healthcare institutions. A small percentage of our revenue is from non-contracted third-party payors.
We earn revenue from the provision of our Zio Services primarily from contracted third-party payors, CMS, and healthcare institutions. A small percentage of our revenue is from non-contracted third-party payors.
A summary of the payment arrangements with third-party payors and healthcare institutions is as follows: • Contracted third-party payors – We have contracts with negotiated prices for services provided for patients with commercial healthcare insurance carriers. • Centers for Medicare and Medicaid Services – We have received IDTF approval from regional Medicare Administrative Contractors and will receive reimbursement per the relevant CPT code rate for the services rendered to the patient covered by CMS. • Healthcare institutions – Healthcare institutions are typically hospitals or physician practices in which we have negotiated amounts for our monitoring services, including certain governmental agencies such as the Veteran’s Administration and Department of Defense. • Non-contracted third-party payors – Non-contracted commercial and government payors often reimburse out-of-network rates provided under the relevant CPT codes on a case-by-case basis.
A summary of the payment arrangements with third-party payors and healthcare institutions is as follows: • Contracted third-party payors – We have contracts with negotiated prices for services provided to patients with commercial healthcare insurance coverage. • CMS - We have received IDTF approval from regional Medicare Administrative Contractors and will receive reimbursement per the relevant CPT code rates for the services rendered to the patient covered by CMS. • Healthcare institutions – Healthcare institutions are typically hospitals or physician practices in which we have negotiated amounts for our monitoring services, including certain governmental agencies such as the Veterans Administration and U.S.
Revenue Recognition We have developed a proprietary system that combines an FDA-cleared and CE-marked wire-free, patch-based, 14-day wearable biosensor that continuously records ECG data, with a proprietary cloud-based data analytic platform to help physicians monitor patients and diagnose arrhythmias. We currently offer three Zio System options—the Zio XT System, the Zio AT System, and the Zio Monitor System.
Revenue Recognition We have developed a proprietary system that combines an FDA-cleared and CE-marked wire-free, patch-based, 14-day wearable biosensor that continuously records ECG data, with a proprietary cloud-based data analytic platform to help physicians monitor patients and diagnose arrhythmias. In addition, we have received CE-mark and UKCA certification for Zio XT System and ZEUS algorithm.
For performance-based restricted stock units, we estimate the fair value based on the closing price of our stock on the grant date and, if the award includes a market condition, a Monte Carlo simulation model. In addition, for performance-based restricted stock units, we apply a probability assessment to determine the probable achievement of the performance-based metrics.
For performance-based restricted stock units (“PRSUs”), we estimate the fair value based on the closing price of our stock on the grant date and, if the award includes a market condition, a Monte Carlo simulation model.
The following are Zio Services shown as a percentage of revenue: Year Ended December 31, 2022 2021 2020 Contracted third-party payors 55 % 60 % 51 % Centers for Medicare and Medicaid 25 % 14 % 27 % Healthcare institutions 14 % 18 % 16 % Non-contracted third party payors 6 % 8 % 6 % 56 Table of Contents Key Business Metric Non-GAAP Financial Measure Adjusted EBITDA is a key measure we use to assess our financial performance and it is also used for internal planning and forecasting purposes.
We rely on third-party billing partners to submit patient claims and collect from commercial payors, certain government agencies, and patients. 62 Table of Contents The following are Zio Services shown as a percentage of revenue: Year Ended December 31, 2023 2022 2021 Contracted third-party payors 54 % 55 % 60 % Centers for Medicare and Medicaid 25 % 25 % 14 % Healthcare institutions 14 % 14 % 18 % Non-contracted third party payors 7 % 6 % 8 % Key Business Metric Non-GAAP Financial Measure Adjusted EBITDA is a key measure we use to assess our financial performance and it is also used for internal planning and forecasting purposes.
The fair value of our PCBAs is included in Other Assets on the Consolidated Balance Sheets. Stock-Based Compensation We measure the estimated fair values of our restricted stock units based on the closing price of our stock on the grant date.
We periodically evaluate and update these estimates. PCBAs are included in Other Assets in our consolidated balance sheets. Stock-Based Compensation We measure the estimated fair values of our restricted stock units (“RSUs”) based on the closing price of our stock on the grant date.
We have based our estimate of how many times a PCBA can be used in testing in research and development, loss rates, product obsolescence, and the amount of time it takes the device to go through the manufacturing, shipping, customer shelf, and patient wear time and upload process. We periodically evaluate the use of these estimates.
We base our length of time estimates for charging a portion of the PCBAs cost by evaluating how many times a PCBA can be used in testing in research and development, device loss rates, product obsolescence, and the amount of time it takes the device to go through the manufacturing, shipping, customer shelf, and patient wear time and upload process.
In determining the amount to accrue for a delivered Zio report, we consider factors such as claim payment history from both payors and patient out-of-pocket costs, payor coverage, whether there is a contract between the payor or healthcare institution and us, historical amount received for the service, and any current developments or changes that could impact reimbursement and healthcare institution payments.
In determining the collectability and transaction price for our service, we consider factors such as insurance claims which are adjudicated as allowable under the applicable policy and payment history from both payors and patient out-of-pocket costs, payor coverage, whether there is a contract between the payor or healthcare institution and us, historical amount received for the service, and any current developments or changes that could impact reimbursement and healthcare institution payments.
We believe that our current cash, cash equivalents, short-term investment balances, and term loans facility, together with income to be derived from the sales of our Zio Services, will be sufficient to meet our liquidity requirements for the foreseeable future.
We believe that our current cash, cash equivalents, marketable securities balances, and term loans facility (discussed below), together with income to be derived from the sales of our Zio Services, will be sufficient to meet our liquidity requirements for at least the next 12 months.
We provide for estimates of uncollectible patient accounts receivable, based upon historical experience, at the time revenue is recognized, with such provisions presented as bad debt expense within the selling, general and administrative line item of the consolidated statement of operations. Adjustments to these estimates for actual experience are also recorded as an adjustment to bad debt expense.
We provide for estimates of uncollectible patient accounts receivable, based upon historical experience where judgment includes the historical period utilized, at the time revenue is recognized, with such provisions presented as bad debt expense within the selling, general and administrative line item of the consolidated statements of operations.
PCBA Valuation We use PCBAs in each wearable Zio AT patch, Zio XT patch and the Zio Monitor, as well as the wireless gateway used in conjunction with the Zio AT patch. The PCBAs are used numerous times and have useful lives beyond one year.
PCBA Valuation We reuse PCBAs in each wearable Zio Monitor patch, Zio XT patch, and Zio AT patch, as well as the wireless gateway used in conjunction with the Zio AT patch.
See Note 8, Commitments and Contingencies, to the Consolidated Financial Statements for more information. • Operating leases - We lease our facilities under non-cancelable operating leases.
See Note 8, Commitments and Contingencies, to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for more information. • Operating leases - We lease our facilities under non-cancelable operating leases.
See Note 9, Debt, to the Consolidated Financial Statements for more information. Recent Accounting Guidance For a description of recently issued accounting guidance that is applicable to our financial statements, see Note 2 Significant Accounting Policies, to the Consolidated Financial Statements.
See Note 9, Debt, and Note 16, Subsequent Events to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for more information. Recent Accounting Guidance For a description of recently issued accounting guidance that is applicable to our financial statements, see Note 2, Significant Accounting Policies, to the Consolidated Financial Statements.
For non-contracted portfolios, we are providing an implicit price concession because we do not have a contract with the underlying payor, the result of which requires us to estimate transaction price based on historical cash collections utilizing the expected value method. Subsequent adjustments to the transaction price are recorded as an adjustment to revenue and not as bad debt expense.
For non-contracted portfolios, we provide an implicit price concession due to the lack of a contracted rate with the underlying payor. As a result, we estimate the transaction price based on historical cash collections utilizing the expected value method. All subsequent changes to the transaction price are recorded as adjustments to revenue.
Our gross margin has been and will continue to be affected by a variety of factors, including increased contracting with third-party payors and institutional providers. We have in the past been able to increase our pricing as third-party payors become more familiar with the benefits of the Zio Services and move to contracted pricing arrangements.
We have in the past been able to increase our pricing as third-party payors become more familiar with the benefits of the Zio Services and move to contracted pricing arrangements.
Hospitals are experiencing staffing shortages and supply chain issues that could affect their ability to provide patient care.
The current macroeconomic environment is impacting our customers, both financially and operationally. Hospitals are experiencing staffing shortages and supply chain issues that could affect their ability to provide patient care.
Adjusted EBITDA is a non-GAAP financial measure and is presented for supplemental informational purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP.
Business transformation costs include professional services and employee termination costs to augment and restructure the organization, inclusive of both outsourced and offshore resources. Adjusted EBITDA is a non-GAAP financial measure and is presented for supplemental informational purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP.
For restricted stock, the compensation cost for these awards is based on the closing price of the Company’s common stock on the date of grant, and recognized as compensation expense on a straight-line basis over the requisite service period. 65 Table of Contents We recognize compensation expense related to the Employee Stock Purchase Plan based on the estimated fair value of the options on the date of grant, net of estimated forfeitures.
For restricted stock, the compensation cost for these awards is based on the closing price of our common stock on the date of grant, and is recognized as compensation expense on a straight-line basis over the requisite service period.
Stock-based compensation expense is recognized over the requisite service period using the straight-line method and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest.
In addition, for PRSUs, we apply a probability assessment to determine the probable achievement of the performance-based metrics. 71 Table of Contents Stock-based compensation expense is recognized over the requisite service period using the straight-line method and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest.
Also in February 2022, the Board approved a restructuring plan to allow the Company to effectively and efficiently scale its business, which resulted in severance and other employment related costs of $3.4 million during the year ended December 31, 2022.
Additionally, in the first quarter of 2022, our Board approved a restructuring plan, which resulted in severance and other employment related costs of $3.4 million for the year ended December 31, 2022.
As a consequence of the financial pressures and decreased profitability, some hospitals have indicated that they are lowering their capital investment plans and tightening their operational budgets. 57 Table of Contents We have adapted our Zio Services to meet the immediate needs of physicians, customers, and patients and significantly increased the utilization of our home enrollment service, which allows patients to receive and wear the single-use Zio patch without going to a healthcare facility.
We have adapted our Zio Services to meet the immediate needs of physicians, customers, and patients and significantly increased the utilization of our home enrollment service, which allows patients to receive and wear the single-use Zio patch without going to a healthcare facility.
Based on history with these portfolios and the similar nature and characteristics of the patients within each portfolio, we have concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis. 64 Table of Contents For contracted and CMS portfolios, we are providing an implicit price concession because, while we have a contract with the underlying payor, we expect to accept a lower amount of consideration when claims are adjudicated and allowable claims are determined by the commercial payor.
Based on history with these portfolios and the similar nature and characteristics of the patients within each portfolio, we have concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis.
Each time a PCBA is used in a wearable Zio AT patch, the Zio XT patch, or the Zio Monitor or a wireless gateway is used with a Zio AT patch a portion of the cost of the PCBA and/or gateway is recorded as a cost of revenue.
As PCBAs are used in a wearable Zio Monitor patch, Zio XT patch, or Zio AT patch, a portion of the cost of the PCBA is recorded as a cost of revenue. The PCBAs are charged over a period beyond one year.
As such, we have not provided an implicit price concession but, rather, have chosen to accept the risk of default, and adjustments to the transaction price are recorded as bad debt expense.
As such, we are not providing an implicit price concession but, rather, has chosen to accept the risk of default, and any subsequent uncollected amounts are recorded as bad debt expense to selling, general and administrative expense in the consolidated statements of operations.
Other significant expenses include professional fees for legal and accounting services, consulting fees, recruiting fees, bad debt expense, third-party patient claims processing fees, and travel expenses. In addition, we incurred transformation costs to scale our organization during the year and expect to incur additional transformation costs throughout 2023 with the restructuring activities to be substantially complete by mid-2024.
Other significant expenses include professional fees for legal and accounting services, consulting fees, recruiting fees, bad debt expense, third-party patient claims processing fees, and travel expenses. In addition, we incurred business transformation costs to scale our organization during 2022 and 2023, which are intended to achieve operational efficiencies in our administrative expenses over the long-term.
We expect to continue to decrease the cost of revenue per device by obtaining volume purchase discounts for our material costs, implementing scan-time algorithms and process improvements, automating manufacturing assembly and packaging, and through software-driven and other workflow enhancements to reduce labor costs.
We expect increases to the cost of revenues due to increases to materials and electronics components pricing, labor rates, shipping rates, amortization of capitalized internal-use software, and increases in the general level of inflation, partially offset by reduced costs from obtaining volume purchase discounts for our material costs, implementing scan-time algorithms and process improvements, automating manufacturing assembly and packaging, and through software-driven and other workflow enhancements to reduce labor costs.
Separate contractual arrangements exist between us and many third-party payors that establish amounts the third-party payor will pay on behalf of a patient for covered services rendered and should be considered in determining collectability and the transaction price for services provided to a patient covered by that third-party payor.
In addition to the patient, often a third-party payor, for example a commercial or governmental payor or healthcare institution will pay us for some or all of the service on the patient’s behalf. Separate contractual arrangements exist between us and third-party payors that establish amounts the third-party payor will pay on behalf of a patient for covered services rendered.
We expect cost of revenue to increase in absolute dollars as our revenue increases due to increased direct labor, direct materials, and variable spending, partially offset by economies of scale in relation to fixed costs such as overhead, depreciation and amortization, and facilities costs. We calculate gross margin as gross profit divided by revenue.
We expect cost of revenue to increase in absolute dollars as our revenue increases due to increased direct labor, direct materials, and variable spending, as well as amortization of internal-use software, partially offset by economies of scale in relation to fixed costs such as overhead and facilities costs. 64 Table of Contents Our gross margin has been and will continue to be affected by a variety of factors, including increased contracting with third-party payors and institutional providers.
As of December 31, 2022, no loans were outstanding under the revolving credit line.
As of December 31, 2023, no loans were outstanding under the revolving credit line and we had used $8.4 million in letters of credit.
An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value. If an asset is determined to be impaired, the impairment is measured by the amount that the carrying value of the asset exceeds its fair value.
Lease Impairment We account for the impairment of long-lived assets in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets . An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value.
The remaining $40.0 million of 2022 Term Loans may be borrowed from time to time at our option, in increments of at least $10.0 million, through December 31, 2023.
The remaining $40.0 million of 2022 Term Loans was available to be borrowed from time to time at our option, in increments of at least $10.0 million, through December 31, 2023. The 2022 Amendment also amended the terms of the revolving credit line under the SVB Loan Agreement, which provided for an aggregate principal amount of $25.0 million.
Interest expense and other income (expense), net Interest expense increased by $3.0 million to $4.1 million during the year ended December 31, 2022 from $1.2 million during the year ended December 31, 2021 due to the additional financing fees of $1.75 million related to the payment of the original loans as well as higher interest expense from the higher term loans balance in 2022 and due to higher interest rates.
Offsetting this reduction resulted in an increase in interest expense of $1.3 million due to higher interest rates period over period. Interest and other income, net Interest and other income, net increased by $4.1 million to $6.2 million for the year ended December 31, 2023, as compared to $2.0 million for the year ended December 31, 2022.
Cost of Revenue and Gross Margin Cost of revenue increased $20.0 million, or 18%, to $129.3 million during the year ended December 31, 2022 from $109.3 million during the year ended December 31, 2021.
Cost of Revenue Cost of revenue increased $31.6 million, or 24%, to $160.9 million during the year ended December 31, 2023, as compared to $129.3 million during the year ended December 31, 2022.
The Zio AT service revenue is recognized over the patient wear period and delivery of electronic Zio reports with two performance obligations.
The Zio AT service revenue is recognized under two performance obligations — the patient wear period and delivery of electronic Zio reports. We recognize as revenue the amount of consideration to which we expect to be entitled in exchange for performing our service.
Financing Activities During the year ended December 31, 2022, cash provided by financing activities was $26.7 million, primarily due to $35.0 million proceeds of a term loans and $13.2 million in proceeds from the issuance of common stock in connection with employee option exercises and our Employee Stock Purchase Plan, partially offset by a $21.4 million repayment of a long-term debt.
The decrease was primarily attributed to net proceeds during the first half of 2022 of $13.6 million, associated with a $35.0 million term loan offset by a $21.4 million debt repayment. Additionally, there was a decrease of $4.4 million in proceeds from the issuance of common stock in connection with our employee equity incentive plan.
Impairment and Restructuring Charges In February 2022, our board of directors (the “Board”) approved reducing our leased space for our headquarters in San Francisco, California. As a result, we recognized an impairment of our right-of-use ("ROU") asset and related leasehold improvements and furniture and fixtures in the amount of $23.2 million during the year ended December 31, 2022.
Our hybrid work arrangements and decision to pursue a sublease for our leased San Francisco headquarters resulted in an impairment of our right-of-use (“ROU”) asset and related leasehold improvements and furniture and fixtures during the year ended December 31, 2022.
We are continuously reviewing our liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic environment, including inflation and rising interest rates, and the COVID-19 global pandemic.
We continuously review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic environment, including inflation, interest rate volatility, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, and potential instability in the global banking system.
We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model for each purchase period. The grant date fair value is expensed on a straight-line basis over the offering period. Lease Impairment We account for the impairment of long-lived assets in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets .
We recognize compensation expense related to our 2016 Employee Stock Purchase Plan (“ESPP”) based on the fair value at each enrollment date of the offering period using the Black-Scholes-Merton option-pricing model value. The stock-based compensation is reduced by the estimated forfeiture and is expensed on a straight-line basis over the offering period.
Research and Development Expenses Research and development expenses increased $7.9 million, or 21%, to $46.6 million during the year ended December 31, 2022 from $38.7 million during the year ended December 31, 2021.
Research and Development Expenses Research and development expenses increased $13.6 million, or 29%, to $60.2 million during the year ended December 31, 2023, as compared to $46.6 million during the year ended December 31, 2022. Our research and development expenses remained proportionately inline relative to revenue between 2023 and 2022.
The transaction price used for determining revenue recognition is based on factors including an average of our historical collection experience for our non-contracted services. This rate is reviewed at least quarterly. We are utilizing the portfolio approach practical expedient under Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers .
Department of Defense. • Non-contracted third-party payors – Non-contracted commercial and government payors often reimburse out-of-network rates provided under the relevant CPT codes on a case-by-case basis. The transaction price used for determining revenue recognition is based on factors including an average of our historical collection experience for our non-contracted services. This rate is reviewed at least quarterly.
The increase in revenue was primarily attributable to the increase in volume of the Zio Services provided as a result of increased demand and improved CMS reimbursement rates, partially offset by an increase in contractual allowance with contracted and non-contracted payors.
The increase in revenue was primarily attributable to increases in the volume of Zio Services resulting from increased demand, partially offset by a slight decline in average selling price.
Indebtedness Bank Debt In October 2018, we entered into the Third Amended and Restated Loan and Security Agreement with SVB.
Bank Debt In October 2018, we entered into the Third Amended and Restated Loan and Security Agreement (“SVB Loan Agreement”) with Silicon Valley Bank (“SVB”). Under the SVB Loan Agreement, we had borrowed $35.0 million and had made repayments through March 2022, at which time the outstanding balance was $18.5 million.
The increase was primarily attributable to an increase of $16.7 million in professional service fees, an increase of $13.6 million in payroll related costs, including employee stock-based compensation as a result of increased headcount and executive hires to support the growth in our operations, an increase of $7.6 million of bad debt expense related to revenue growth.$7.5 million of travel, and general office expenses and an increase of $1.8 million related to software and hardware costs.
Our selling, general and administrative expenses remained proportionately inline relative to revenue between 2023 and 2022. The increase in selling, general and administrative expenses was primarily attributable to an increase in headcount-related costs (including stock-based compensation) to support growth in our operations, as well as for incremental headcount, including executive hires, to the organization.
The increase was primarily attributable to an increase of $13.6 million in payroll-related costs, including stock-based compensation, an increase of $1.8 million in consulting fees, partially offset by an increase of $6.8 million in costs capitalized for internal-use software and a decrease of $3.0 million from a milestone payment pursuant to the Development Agreement with Verily incurred during the year ended December 31, 2021 and none incurred during the year ended December 31, 2022. 60 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses increased $47.4 million, or 17%, to $322.2 million during the year ended December 31, 2022 from $274.8 million during the year ended December 31, 2021.
The increase in research and development expenses was primarily due to higher headcount-related costs (including stock-based compensation) and further development, enhancement, and functionality of our current and future product offerings. 66 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses increased $63.4 million, or 20%, to $385.6 million during the year ended December 31, 2023, as compared to $322.2 million during the year ended December 31, 2022.
The implicit price concession is recorded as variable consideration to the transaction price and recorded as an adjustment to revenue as a contractual allowance. Historical cash collection indicates that it is probable that substantially all of the contracted claim amount will be received.
Adjustments to these estimates for actual experience are also recorded as an adjustment to bad debt expense. For healthcare institutions, the transaction price is determined based on negotiated rates, and we have historical experience collecting substantially all of these contracted rates. Historical cash collections indicate that it is probable that substantially all of the transaction price will be received.
We account for the contracts within each portfolio as a collective group, rather than individual contracts.
We are utilizing the portfolio approach practical expedient under Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers , whereby services provided under each of the above payor types form a separate portfolio. We account for the contracts within each portfolio as a collective group, rather than individual contracts.
Other income (expense), net increased by $1.9 million to $2.0 million for the year ended December 31, 2022, compared to $0.1 million for the year ended December 31, 2021. The increase is primarily due to higher interest earned because of rising interest rates from our cash and cash equivalents and short-term investments during the year ended December 31, 2022.
The increase is primarily due to higher interest earned from our cash and cash equivalents and marketable securities during the year ended December 31, 2023. Liquidity and Capital Expenditures Overview As of December 31, 2023, we had cash and cash equivalents of $36.2 million, marketable securities of $97.6 million, and accounts receivable of $61.5 million.
The following table summarizes our cash flows for the years indicated (in thousands): Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by: Operating activities $ (23,012) $ (37,753) $ (13,759) Investing activities (52,434) 105,264 (132,391) Financing activities 26,716 (28,577) 214,316 Net (decrease) increase in cash and cash equivalents $ (48,730) $ 38,934 $ 68,166 61 Table of Contents Operating Activities During the year ended December 31, 2022, cash used in operating activities was $23.0 million and consisted of a net loss of $116.2 million, adjusted by non-cash charges of $158.7 million and a net change of $65.5 million in our net operating assets and liabilities.
We have achieved milestones tied to payments totaling $11.0 million through December 31, 2023, and anticipate making additional milestone payments of $1.75 million, subject to the achievement of specified milestones. 67 Table of Contents The following table summarizes our cash flows for the years indicated (in thousands): Year Ended December 31, 2023 2022 $ Change Net cash used in operating activities $ (50,101) $ (23,012) $ (27,089) Net cash (used in) provided by investing activities (1,209) (52,434) 51,225 Net cash provided by (used in) financing activities 8,820 26,716 (17,896) Operating Activities During the year ended December 31, 2023, cash used in operating activities was $50.1 million, an increase of $27.1 million, as compared to $23.0 million during the year ended December 31, 2022.
During the year ended December 31, 2021, cash used in operating activities was $37.8 million and consisted of a net loss of $101.4 million, adjusted by non-cash charges of $109.8 million and a net change of $46.2 million in our net operating assets and liabilities.
Investing Activities During the year ended December 31, 2023, cash used in investing activities was $1.2 million, a decrease of $51.2 million as compared to cash used in investing activities of $52.4 million during the year ended December 31, 2022.
We are also required to pay fees on any prepayment of the 2022 Term Loans, ranging from 3.0% to 1.0% depending on the date of prepayment, and a final payment equal to 5.0% of the principal amount of the 2022 Term Loans drawn. Once repaid or prepaid, the 2022 Term Loans may not be reborrowed.
Accrued interest on the Braidwell Term Loan Facility is payable quarterly in arrears. We are also required to pay fees on any prepayment of the Braidwell Term Loan Facility, ranging from zero to 2.0% depending on the date of prepayment.
Our remote work arrangements subsequent decision to pursue a sublease for the 5th floor of our San Francisco headquarters caused us to recognize an impairment on our right of use asset and related leasehold improvements and furniture and fixtures and we believe we may incur additional impairment charges related to our real property lease agreements.
In the fourth quarter of 2023, we recorded an additional impairment of our ROU asset and related leasehold improvements and furniture and fixtures on our leased San Francisco headquarters, due to a continued soft real estate rental market within the city proper San Francisco, California.
Removed
We rely on third-party billing partners to submit patient claims and collect from commercial payors, certain government agencies, and patients.
Added
We may identify additional charges and gains to exclude from Adjusted EBITDA that are significant in nature which may impact period to period comparability and do not represent the ongoing results of the business. Other companies, including other companies in our industry, may not use this measure or may calculate this measure differently, limiting its usefulness as a comparative measure.
Removed
Other companies, including other companies in our industry, may not use this measure or may calculate this measures differently than as presented in this Annual Report on Form 10-K, limiting their usefulness as a comparative measure.
Added
As a consequence of the financial pressures and decreased profitability, some hospitals have indicated that they are lowering their capital investment plans and tightening their operational budgets.
Removed
We have experienced business disruptions affecting the availability and cost of materials, which has impacted our supply chain and reduced margins, from the COVID-19 pandemic. In addition, we have continued to deliver our Zio Services by operating with remote employees and essential employees on site. The current macroeconomic environment is impacting our customers, both financially and operationally.
Added
As we continue to evaluate our global real estate footprint, we may incur additional impairment charges related to real property lease agreements. Revenue The majority of our revenue is derived from provision of our Zio Services to customers in the United States.
Removed
In the first quarter of 2022, we re-opened our offices for use and certain groups of employees have begun returning to work in our offices across the United States. We continue to monitor developments regarding health pandemics or other health concerns, including COVID-19, and will implement any additional safety protocols that may become necessary in the future.
Added
Interest and Other Income, Net Interest and other income, net consists primarily of interest income which consists of interest received on our cash and cash equivalents and marketable securities as well as realized and unrealized foreign currency exchange gains or losses. 65 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022, and 2021 For discussion related to the results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021 refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2022 Annual Report on Form 10-K, which was filed with the SEC on February 23, 2023.
Removed
These decreases may be offset by increases to materials and electronics components pricing, labor rates, shipping rates, depreciation and amortization of investments, and increases in the general level of inflation. 58 Table of Contents Research and Development Expenses We expense research and development costs as they are incurred.
Added
The increase in cost of revenue was primarily due to increases in headcount-related costs associated with the increase in volume of Zio Services, as well as an increase of approximately $3.1 million for excess Zio XT PCBA components, and an increase of approximately $2.7 million in amortization of Zio XT PCBAs in conjunction with the commercial launch of Zio Monitor.
Removed
Other Income (Expense), Net Other income, net consists primarily of interest income which consists of interest received on our cash and cash equivalents and short-term investments and foreign exchange gain or loss from our UK subsidiary.

… 56 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed0 unchanged
Biggest changeInterest Rate Sensitivity We had cash, cash equivalents and short-term investments of $213.1 million and $239.1 million as of December 31, 2022 and 2021, respectively; which consisted of bank deposits, money market funds and U.S. government securities. Such interest-earning instruments carry a degree of interest rate risk.
Biggest changeThese risks primarily include risk related to interest rate sensitivities and foreign currency exchange rate sensitivity. 72 Table of Contents Interest Rate Sensitivity We had cash, cash equivalents and marketable securities of $133.8 million and $213.1 million as of December 31, 2023 and 2022, respectively; which consisted of bank deposits, money market funds and U.S. government securities.
We do not utilize any forward foreign exchange contracts, although may choose to do so in the future. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
We do not utilize any forward foreign exchange contracts, although we may choose to do so in the future. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
In the event our foreign currency denominated assets, liabilities, sales, or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. 67 Table of Contents
In the event our foreign currency denominated assets, liabilities, sales, or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. 73 Table of Contents
Foreign Currency Exchange Rate Sensitivity We face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly in British Pound Sterling. As of December 31, 2022 and 2021, we do not consider this risk to be material.
Foreign Currency Exchange Rate Sensitivity We face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly in British Pound Sterling and in Philippine Pesos. As of December 31, 2023 and 2022, we do not consider this risk to be material.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.
Such interest-earning instruments carry a degree of interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.
The SVB Loan Agreement Note carries a variable interest rate based on the “Prime Rate” published by The Wall Street Journal. A hypothetical 10% change in interest rates during the years ended December 31, 2022 and 2021 would have resulted in an immaterial impact on our Consolidated Financial Statements.
The SVB Loan Agreement carried a variable interest rate based on the “Prime Rate” published by The Wall Street Journal. A hypothetical 10% change in interest rates during each of the years ended December 31, 2023 and 2022 would have resulted in an immaterial impact on our Consolidated Financial Statements.
A hypothetical 10% change in interest rates would have had a $0.5 million and an immaterial impact to interest income for the years ended December 31, 2022 and 2021, respectively. 66 Table of Contents For the years ended December 31, 2022 and 2021, we had total outstanding debt of $34.9 million and $21.4 million, respectively, net of debt issuance costs.
A hypothetical 10% change in interest rates would have had a $0.6 million and an $0.5 million impact to interest income for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, we had total outstanding debt of $35.0 million and $34.9 million, respectively, net of debt issuance costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to market risks in the ordinary course of our business. These risks primarily include risk related to interest rate sensitivities and foreign currency exchange rate sensitivity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks in the ordinary course of our business.

Other IRTC 10-K year-over-year comparisons