iRhythm Technologies Announces Third Quarter Financial Results

SAN FRANCISCO, Oct. 30, 2018 (GLOBE NEWSWIRE) -- iRhythm Technologies, Inc. (NASDAQ: IRTC), a leading digital health care solutions company focused on the advancement of cardiac care, today reported financial results for the three months ending September 30, 2018.

Third Quarter 2018 Highlights

  • Revenue of $38.1M
    - 52% increase compared to third quarter revenue reported in 2017, prior to the adoption of Accounting Standard Codification Topic 606 (ASC 606)
    - 55% increase compared to the same quarter of the prior year’s pro forma revenue adjusted for the effects of ASC 606 as if adopted in 2017
    - 7% sequential growth versus second quarter 2018 as adjusted for ASC 606
  • Gross margin was 73.9%
    - 150 basis point improvement over reported gross margin prior to the adoption of ASC 606
    - 200 basis point year-over-year improvement as compared 2017 pro forma third quarter gross margin adjusted for ASC 606
  • Results from the MESA (Multi-Ethnic Study of Atherosclerosis) trial published in the Journal of Electrocardiology found 4% newly diagnosed AFib or Atrial Flutter among 1,100 cardiovascular disease-free patients who were monitored with Zio XT
  • Successful launches of Zio AT in key pilot accounts leading to the adoption of iRhythm as a full solution in those accounts
  • Commitment to long-term hiring plans with continued near-term focus on salesforce productivity through the development and onboarding of new reps

Our strong results in the quarter reflect the exceptional progress we’ve made on salesforce productivity, large integrated system penetration and infrastructure support of the sales operation. In addition, our ability to now offer both Zio XT and AT on one platform is driving improved account penetration, with an increasing number of customers now migrating to the full range of Zio applications, said Kevin King, CEO. I am confident that Zio by iRhythm is displacing legacy options and emerging as the standard of care in long-term continuous monitoring.

Third Quarter Financial Results
Revenue for the three months ended September 30, 2018 increased 52% to $38.1 million, from $25.0 million during the same period in 2017 prior to the adoption of ASC 606 and increased 55% from $24.6 million during the same period in 2017 adjusted for the effects of ASC 606. The increase was primarily due to increased salesforce productivity, expansion into new accounts, improved penetration of existing accounts, and a continued shift to higher priced contracted units.

Gross profit for the third quarter of 2018 was $28.2 million, or 73.9% gross margin, up from $18.1 million, or gross margin of 72.4%, during the same period in 2017 prior to the adoption of ASC 606 and $17.7 million, or gross margin of 71.9%, for the same period of the prior year prior adjusted for the effects of ASC 606. Margin expansion was driven in part by productivity gains through our proprietary algorithms and workflow enhancements, a continued shift to higher priced contracted units, and improved claims collectability.

Operating expenses for the third quarter of 2018 were $37.9 million, an increase of 57% compared to the same period in 2017 prior to the adoption of ASC 606 and an increase of 60% compared to the same period in 2017 adjusted for the effects of ASC 606. The increase in operating expenses was driven by personnel-related costs from our sales team and sales support expansion, increased spend on long-term development efforts, increases in the company’s stock-based compensation expenses and costs associated with bad debt expense adjusted for Topic 606.

Net loss for the third quarter of 2018 was $10.2 million, compared to $6.5 million during the same period in 2017 prior to the adoption of ASC 606, and $6.5 million for the same period in 2017 adjusted for the effects of ASC 606.
Guidance for Full Year 2018
iRhythm projects revenue for the full year 2018 to range from $142 to $144 million, inclusive of ASC 606, which represents 49% to 52% growth over the company’s prior year, as adjusted and presented on a non-GAAP basis to show the effects of ASC 606.  Gross margins for the full year 2018 are expected to range from 73.5% to 74.5% and operating expenses for the full year 2018 to be between $147 to $149 million. This compares to previous revenue guidance of $138 to $141 million, gross margins of 73% to 74% and operating expenses of $143 to $147 million.

Webcast and Conference Call Information
iRhythm’s management team will host a conference call today beginning at 1:30 p.m. PT / 4:30 p.m. ET. Investors interested in listening to the conference call may do so by dialing (844) 348-0016 for domestic callers or (213) 358-0876 for international callers, and referencing Conference ID: 2187516 or from the webcast on the Investors section of the company’s website at:

About iRhythm Technologies, Inc. 
iRhythm is a leading digital health care company redefining the way cardiac arrhythmias are clinically diagnosed. The company combines wearable biosensor devices worn for up to 14 days and cloud-based data analytics with powerful proprietary algorithms that distill data from millions of heartbeats into clinically actionable information. The company believes improvements in arrhythmia detection and characterization have the potential to change clinical management of patients.

Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These statements include statements regarding financial guidance, market opportunity, ability to penetrate the market and expectations for growth. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties, many of which are beyond our control, include risks described in the section entitled Risk Factors and elsewhere in our filing made with the Securities and Exchange Commission on the Form 10-K on March 1, 2018. These forward-looking statements speak only as of the date hereof and should not be unduly relied upon. iRhythm disclaims any obligation to update these forward-looking statements.

Investor Relations Contact:  Media Contact
Lynn Pieper Lewis or Leigh Salvo Cherise Adkins
(415) 937-5404  (415) 486-3235 

Condensed Consolidated Balance Sheets
(In thousands)
    September 30,
  December 31,
Current assets:        
Cash and cash equivalents   $   17,345     $   8,671  
Short-term investments       63,832         93,692  
Accounts receivable, net       20,465         12,953  
Inventory       2,320         1,683  
Prepaid expenses and other current assets       2,769         2,582  
Total current assets       106,731         119,581  
Investments, long-term       —         2,994  
Property and equipment, net       8,250         6,221  
Goodwill       862         862  
Other assets       3,146         3,465  
Total assets   $   118,989     $   133,123  
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable   $   1,911     $   2,395  
Accrued liabilities       19,178         15,644  
Deferred revenue       1,174         1,238  
Accrued interest, current portion       —         154  
Debt, current portion       —         1,487  
Total current liabilities       22,263         20,918  
Debt       32,554         32,491  
Deferred rent, noncurrent portion       214         161  
Total liabilities       55,031         53,570  
Stockholders’ equity:        
Common stock       23         23  
Additional paid-in capital       252,765         236,184  
Accumulated other comprehensive loss       (29 )       (65 )
Accumulated deficit       (188,801 )       (156,589 )
Total stockholders’ equity       63,958         79,553  
Total liabilities and stockholders’ equity   $   118,989     $   133,123  

Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
   2018      2017      2018      2017  
Revenue $   38,104     $   25,035     $   104,138     $   70,327  
Cost of revenue     9,949        6,920         28,050        20,002  
Gross profit     28,155        18,115         76,088        50,325  
Operating expenses:              
Research and development     5,164        3,790         13,747        9,187  
Selling, general and administrative     32,739        20,308         94,410        57,787  
Total operating expenses     37,903        24,098         108,157        66,974  
Loss from operations     (9,748 )      (5,983 )       (32,069 )      (16,649 )
Interest expense     (861 )      (862 )       (2,580 )      (2,522 )
Other income, net     365        321         1,082        900  
Net loss $   (10,244 )   $   (6,524 )   $   (33,567 )   $   (18,271 )
Net loss per common share, basic and diluted $   (0.43 )   $   (0.29 )   $   (1.41 )   $   (0.81 )
Weighted-average shares used to compute net loss per common share,
  basic and diluted
  24,059,010        22,811,907       23,764,153        22,446,399  

Reconciliation between GAAP and Non-GAAP Financial Measures
(In thousands)

The adoption of ASC 606 resulted in a change to net revenue primarily due to timing differences in its recognition of revenue related to non-contracted third-party payor claims as a result of changing from recognition based on the earlier of notification of the payor benefits allowed or when payment is received to the accrual basis based on historical experience.

Based on the Company’s improving collections profile and interpretation of ASC 606 guidance, the collectability rate was deemed substantially all and customer credit risk is not deemed a price concession reducing revenue. Customer credit risk is deemed SG&A expense, an impairment loss per ASC 606. The table below presents an updated summary of the cumulative change of ASC 606 and includes the impact to the quarterly results for 2017.

ASC 606 Impact                                                                      
(Unaudited) Year ended December 31,     2017          
  2014     2015     2016     Q1     Q2     Q3     Q4     Total     Cumulative  
Total revenue adjustments   742       2,489       (1,504 )     (1,515 )     (938 )     (387 )     (479 )     (3,319 )     (1,592 )
Operating expenses   (30 )     (123 )     (663 )     (672 )     (558 )     (431 )     (469 )     (2,130 )     (2,946 )
Net loss adjustments $ 772     $ 2,612     $ (841 )   $ (843 )   $ (380 )   $ 44     $ (10 )   $ (1,189 )   $ 1,354  

In this release, the company refers to non-GAAP 2017 ASC 606 Revenue, non-GAAP 2017 ASC 606 Gross Margin, non-GAAP 2017 ASC 606 Operating Expense and non-GAAP 2017 ASC 606 Net Income. Effective January 1, 2018, the company adopted ASC 606 using the modified retrospective method, which means that the total amount of revenue reported from second quarter 2017 has not been restated in the current financial statements. The company has provided comparable information on revenue, operating expenses and net income in accordance with ASC 606 to allow investors comparability to the prior year results.  However, for periods beginning before the adoption date of ASC 606, those adjusted financial measures are considered not to be calculated in accordance with GAAP and are thus presented as non-GAAP financial metrics.

The company believes this additional information is vital during the transition year to allow readers of its financial statements to compare financial results from the preceding financial year given the absence of restatement of the prior period.  The company’s non-GAAP financial measures should be considered an addition to, not as a substitute for, nor superior to or in isolation from, measures prepared in accordance with GAAP.


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