What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-20 compared with 2024-02-22 · 411 added, 214 removed, 810 unchanged (44% of the section changed)

2 unchanged sentences

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( PCAOB ID:

Consolidated Balance Sheets

67 unchanged sentences

Operating lease right-of-use assets 47,564 49,317

Restricted cash

Goodwill 862 862

Long-term strategic investments

Other assets 41,852 45,039

8 unchanged sentences

Total current liabilities 110,920 107,370

Long-term senior convertible notes

Debt, noncurrent portion

34,950 34,935

Other noncurrent liabilities

7 unchanged sentences

Common stock, $ 0.001 par value – 100,000 shares authorized;

30,954 and 30,193 shares issued and outstanding at December 31, 2023 and 2022, respectively

31,621 shares issued and 31,392 shares outstanding at December 31, 2024, respectively;

and 30,954 shares issued and outstanding at December 31, 2023

Additional paid-in capital 874,607 855,784

Accumulated other comprehensive loss

( 112 ) ( 396 )

Accumulated other comprehensive income (loss)

Accumulated deficit ( 758,895 ) ( 645,606 )

Treasury stock, at cost;

229 and 0 shares at December 31, 2024 and 2023, respectively

Total stockholders’ equity 90,908 210,097

11 unchanged sentences

Research and development 71,459 60,244 46,610

Acquired in-process research and development

Selling, general and administrative 418,565 385,645 322,198

2 unchanged sentences

Loss from operations ( 115,505 ) ( 125,161 ) ( 113,784 )

Interest and other income (expense), net:

Interest income

21,938 6,353 2,350

Interest expense

Interest and other income, net

( 12,821 ) ( 3,650 ) ( 4,138 )

Loss on extinguishment of debt

( 7,589 ) — —

Other income (expense), net

1,253 ( 198 ) ( 314 )

Total interest and other income (expense), net 2,781 2,505 ( 2,102 )

Loss before income taxes

( 112,724 ) ( 122,656 ) ( 115,886 )

Income tax provision 565 750 269

10 unchanged sentences

Other comprehensive income (loss):

Net change in unrealized gains (losses) from marketable securities

Net change in unrealized (losses) gains from marketable securities

( 21 ) 453 ( 335 )

Cumulative translation adjustment

298 ( 169 ) —

Comprehensive loss $ ( 113,012 ) $ ( 123,122 ) $ ( 116,490 )

7 unchanged sentences

Comprehensive

Income (Loss) Total

Income (Loss) Treasury Stock

Stockholders’

2 unchanged sentences

Issuance of common stock in connection with employee equity incentive plans, net 699 1 13,182 — — — 13,183

Tax withholding upon vesting of restricted stock awards — — ( 25,853 ) — — ( 25,853 )

Stock-based compensation — — 63,604 — — — 63,604

5 unchanged sentences

Net loss — — — ( 123,406 ) — — ( 123,406 )

Net change in unrealized loss on marketable securities — — — — ( 335 ) ( 335 )

Net change in unrealized gain on marketable securities — — — — 453 — 453

Cumulative translation adjustment — — — — ( 169 ) — ( 169 )

Balances at December 31, 2023 30,954 $ 31 $ 855,784 $ ( 645,606 ) $ ( 112 ) $ — $ 210,097

Issuance of common stock in connection with employee equity incentive plans, net 667 — 8,473 — — — 8,473

Purchase of capped call transactions — — ( 72,407 ) — — — ( 72,407 )

Purchase of treasury stock ( 229 ) — — — — ( 25,000 ) ( 25,000 )

Stock-based compensation — — 82,757 — — — 82,757

Net loss — — — ( 113,289 ) — — ( 113,289 )

Net change in unrealized gain on marketable securities — — — — 453 453

Net change in unrealized loss on marketable securities — — — — ( 21 ) — ( 21 )

Cumulative translation adjustment — — — — 298 — 298

13 unchanged sentences

( 1,350 ) ( 5,040 ) ( 474 )

Provision for doubtful accounts and contractual allowances 69,628 58,349 37,074

Amortization of operating lease right-of-use assets 5,062 5,796 6,204

Amortization of debt discount

Change in fair value of strategic investments

( 1,902 ) — —

Provision for credit losses and contractual allowances

73,463 69,628 58,349

Acquired in-process research and development

Loss on extinguishment of debt

Impairment charges 641 11,078 23,164

5 unchanged sentences

Other assets 3,221 ( 22,787 ) ( 6,200 )

Accounts payable ( 1,973 ) ( 2,993 ) 6,135

Accrued liabilities 19,298 14,473 7,946

Accounts payable and accrued liabilities

( 7,408 ) 17,325 11,480

Deferred revenue ( 374 ) 255 2

Operating lease liabilities ( 7,716 ) ( 5,589 ) ( 2,984 )

Net cash used in operating activities ( 50,101 ) ( 23,012 ) ( 37,753 )

Net cash provided by (used in) operating activities

3,390 ( 50,101 ) ( 23,012 )

Cash flows from investing activities

5 unchanged sentences

101,200 206,500 131,000

Purchase of strategic investment ( 3,000 ) — —

Net cash (used in) provided by investing activities ( 1,209 ) ( 52,434 ) 105,264

Purchases of strategic investments

( 57,000 ) ( 3,000 ) —

Purchase of acquired in-process research and development

( 15,000 ) — —

Net cash used in investing activities

( 122,983 ) ( 1,209 ) ( 52,434 )

Cash flows from financing activities

Payment of loans — ( 21,389 ) ( 11,667 )

Proceeds from term loans — 35,000 —

Payment of SVB term loan and termination costs ( 37,751 ) — ( 21,466 )

Proceeds from SVB term loan

Proceeds from Braidwell debt 75,000 — —

Payments of issuance costs for Braidwell debt ( 2,100 ) — —

Payment of Braidwell debt and termination costs ( 78,660 ) — —

Proceeds from issuance of 2029 notes 661,250 — —

Payments of issuance costs for 2029 notes ( 17,424 ) — —

Purchases of capped call transactions ( 72,407 ) — —

Purchase of treasury stock ( 25,000 ) — —

Proceeds from issuance of common stock in connection with employee

equity incentive plans 8,473 8,820 13,182

Tax withholding upon vesting of restricted stock awards — — ( 25,853 )

Payment of issuance costs for long-term debt — ( 77 ) —

Net cash provided by (used in) financing activities 8,820 26,716 ( 28,577 )

Net cash provided by financing activities

511,381 8,820 26,716

Effect of exchange rate changes

Net (decrease) increase in cash and cash equivalents ( 42,659 ) ( 48,730 ) 38,934

( 6 ) ( 169 ) —

Net increase (decrease) in cash and cash equivalents

391,782 ( 42,659 ) ( 48,730 )

Cash and cash equivalents, beginning of year 36,173 78,832 127,562

Cash and cash equivalents, end of year $ 427,955 $ 36,173 $ 78,832

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents

$ 419,597 $ 36,173 $ 78,832

Restricted cash, long term

$ 8,358 $ — $ —

Total cash, cash equivalents and restricted cash

$ 427,955 $ 36,173 $ 78,832

Supplemental disclosures of cash flow information:

1 unchanged sentence

Cash taxes paid $ 923 $ 1,130 $ 287

Cash paid for operating lease liabilities $ 15,177 $ 14,105 $ 13,593

Cash received from tenant improvement allowances $ 736 $ 1,603 $ 3,279

15 unchanged sentences

The Company is headquartered in San Francisco, California, which also serves as a clinical center.

The Company has additional clinical centers in Deerfield, Illinois and Houston, Texas and a manufacturing facility in Cypress, California.

The Company formed wholly owned subsidiaries in the UK in March 2016, in Singapore in June 2021, in Japan in June 2022, and in the Philippines in February 2023.

The Company has additional clinical centers in Deerfield, Illinois and Houston, Texas, a manufacturing facility in Cypress, California and corporate office space in Solana Beach, California.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 unchanged sentences

All intercompany accounts and transactions have been eliminated.

Reclassification

Certain prior period amounts have been reclassified to conform to the current year presentation.

These reclassifications have no impact on previously reported results of operations or financial position.

Risks and Uncertainties

Macroeconomic Factors and Supply Chain Constraints

The Company’s operations and performance may vary based on worldwide economic and political conditions, which have been adversely impacted by continued global economic uncertainty, political instability, and military hostilities in multiple geographies including ongoing geopolitical conflicts, such as the war in Ukraine and conflict in the Middle East, domestic and global inflationary trends, interest rate volatility, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, potential instability in the global banking system, global supply shortages, and a tightening labor market.

The Company’s operations and performance may vary based on worldwide economic and political conditions, which have been adversely impacted by continued global economic uncertainty, political instability, and military hostilities in multiple geographies including ongoing geopolitical conflicts, such as the war in Ukraine and conflict in the Middle East, domestic and global inflationary trends, interest rate volatility, potential instability in the global banking system, global supply shortages, and a tightening labor market.

A severe or prolonged economic downturn or period of global political instability could drive hospitals and other healthcare professionals to tighten budgets and curtail spending, which could in turn negatively impact rates at which physicians prescribe the Company’s Zio Services.

4 unchanged sentences

The Company cannot predict the timing, strength, or duration of an economic downturn, instability, or recovery, whether worldwide, in the United States, or within its industry.

The Company’s hybrid work arrangements and decision to pursue a sublease for its leased San Francisco headquarters resulted in an impairment of its right-of-use (“ROU”) asset and related leasehold improvements and furniture and fixtures during the year ended December 31, 2022.

In the fourth quarter of 2023, the Company recorded an additional impairment of its ROU asset and related leasehold improvements and furniture and fixtures related to its leased San Francisco headquarters, due to a continued soft real estate rental market within the city proper San Francisco, California.

As the Company continues to evaluate its global real estate footprint, the Company may incur additional impairment charges related to real property lease agreements.

1 unchanged sentence

The Company believes it has adequate liquidity over the next 12 months to operate its business and to meet its cash requirements.

As of December 31, 2023, the Company is in compliance with its debt covenants.

The Company is in compliance with its convertible debt requirements.

Reimbursement

2 unchanged sentences

These CPT codes are subject to periodic change and update, which will impact the reimbursement rates for the Company’s Zio Services.

CMS updates the reimbursement rates for diagnostic tests performed by IDTFs annually via the Medicare Physician Fee Schedule, and effective January 1, 2023, CMS established national payment rates for the CPT codes the Company uses to report the long-term Holter monitoring services it performs with its Zio XT System:

CPT codes 93247 (for wear-time of greater than 7 days and up to 15 days) and 93243 (for wear-time of greater than 48 hours and up to 7 days).

Based on the relative value units CMS assigned to CPT codes 93247 and 93243, the national reimbursement rates for these services in 2023 are $ 243.65 and $ 231.79 , respectively, and range from $ 247.59 to $ 334.46 and $ 235.54 to $ 318.17 for the Company’s Medicare-enrolled IDTF locations in Deerfield, Illinois, Houston, Texas, and San Francisco, California, when considering the geographic practice cost index for these locations.

On average, the 2024 national payment rates are approximately 5 % lower than 2023 rates for services, when excluding impacts for the geographic practice cost index for the Company’s IDTF locations as noted above.

Based on relative value units, CMS annually updates the reimbursement rates for diagnostic tests performed by IDTFs via the Medicare Physician Fee Schedule.

CMS establishes national payment rates for the CPT codes the Company uses to report Zio Services performed by the Company.

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 the Company’s financial results.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the years presented.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contractual allowances, allowance for doubtful accounts, the useful lives of property and equipment, the recoverability of long-lived assets including the estimated usage of the printed circuit board assemblies (“PCBAs”), the incremental borrowing rate for operating leases, accounting for income taxes, impairment of ROU assets, and various inputs used in estimating stock-based compensation.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contractual allowances, provision for credit losses, the useful lives of property and equipment, the recoverability of long-lived assets, including the estimated usage of the printed circuit board assemblies (“PCBAs”), the incremental borrowing rate for operating leases, fair value of strategic loan investments, accounting for income taxes, impairment of ROU assets, contingent consideration liabilities, and various inputs used in estimating stock-based compensation.

Actual results may differ from those estimates.

For further details on estimates used to calculate the impairment on ROU assets, see Note 7, Restructuring and Impairment Charges, included in the notes to the consolidated financial statements .

Reportable Segment

Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker, which the Company has identified as being the chief executive officer, in deciding how to allocate resources and assessing performance.

The Company operates as one operating segment.

The Company's chief operating decision maker allocates resources and assesses performance at the consolidated level.

Fair Value of Financial Instruments

The carrying amounts of certain of the Company’s financial instruments, which include cash equivalents, marketable securities, accounts receivable, accounts payable, accrued liabilities, and debt, approximate fair value due to their short maturities.

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less from the date of purchase.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of short-term, highly liquid investments with an original maturity from the date of purchase of three months or less.

Under the terms of certain facility operating lease agreements, the Company is required to maintain a letter of credit as collateral during the term of the lease.

As of December 31, 2024, restricted cash of $ 8.4 million was pledged as collateral under the letter of credit with Silicon Valley Bank.

Fair Value Option

The Company elected the fair value option, Accounting Standards Codification (“ASC”) 825-10, Financial Instruments - Overall , to account for its strategic loan investments.

The Company recorded the strategic loan investments at fair value within long-term strategic investments in the Company’s consolidated balance sheets with changes in fair value recorded within other income (expense), net on the consolidated statements of operations.

The primary reason for electing the fair value option was for simplification and cost-benefit considerations of accounting for the strategic loan investments at fair value versus bifurcation of the embedded derivatives.

Refer to Note 5, Fair Value Measurements, for further details relating to the Company's strategic investments.

Contingent Consideration

Certain agreements the Company entered into involve payments that are contingent upon the achievement of milestones.

Contingent consideration obligations incurred in connection with acquired in-process research and development assets are recorded at fair value, with changes in fair value recorded to acquired in-process research and development expenses in the consolidated statements of operations.

Marketable Securities

The Company's marketable securities consist primarily of commercial paper, corporate bonds, U.S.

The Company's marketable security investments consist primarily of commercial paper, corporate bonds, U.S.

agency obligations and U.S.

6 unchanged sentences

There were no impairment charges for any unrealized losses during the years ended December 31, 2024, 2023, and 2022.

Accounts Receivable, Allowance for Doubtful Accounts, and Contractual Allowances

Accounts receivable includes amounts due to the Company from healthcare institutions, third-party payors, and government payors and their related patients, as a result of the Company's normal business activities.

Accounts receivable is reported on the consolidated balance sheets net of an estimated allowance for doubtful accounts and contractual allowances.

The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on its assessment of the collectability of customer accounts and recognizes the provision as a component of selling, general and administrative expenses.

The Company records a provision for contractual allowances based on the estimated differences between contracted amounts and expected collection rates for services performed.

Such provisions are based on the Company's historical experience and are reported as a reduction of revenue.

The Company regularly reviews the allowances by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The following table presents the changes in the allowance for doubtful accounts (in thousands):

Year Ended December 31,

2023 2022 2021

Balance, beginning of year $ 18,475 $ 14,012 $ 12,711

Provision for doubtful accounts

17,105 17,191 9,615

Write-offs, net of recoveries and other adjustments

( 15,291 ) ( 12,728 ) ( 8,314 )

Balance, end of year $ 20,289 $ 18,475 $ 14,012

The following table presents the changes in the contractual allowance (in thousands):

Year Ended December 31,

2023 2022 2021

Balance, beginning of year $ 41,389 $ 31,274 $ 21,281

provision for contractual adjustments

52,523 41,158 27,459

contractual adjustments ( 41,223 ) ( 31,043 ) ( 17,466 )

Balance, end of year $ 52,689 $ 41,389 $ 31,274

Concentrations of Risk

7 unchanged sentences

The Company does not require collateral.

The Company records an allowance for doubtful accounts based on the assessment of the collectability of customer accounts, considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

CMS accounted for approximately 25 %, 25 % and 14 % of the Company’s revenue for the years ended December 31, 2023, 2022, and 2021, respectively.

CMS accounted for 25 % and 22 % of accounts receivable as of December 31, 2023, and 2022, respectively.

During the first quarter of 2024, the Company experienced a temporary delay in the billing of the Company's contracted and non-contracted payer customers, performed by the Company's third-party claims processing

The delay was due to a cybersecurity incident experienced by Change Healthcare, a division of UnitedHealth Group, which the Company's third-party vendor engages for services relating to billing and collections.

While the Company substantially cleared the billing backlog as of the end of the first quarter of 2024, the delay in billing resulted in a temporary delay in the Company's cash collections.

As of December 31, 2024, the Company has received the majority of its cash collections from the delayed billings.

The Company records a provision for credit losses based on the assessment of the collectability of customer accounts, considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

CMS accounted for approximately 15 % and 25 % of accounts receivable for the years ended December 31, 2024 and 2023, respectively.

One commercial customer accounted for approximately 13 % of the Company's accounts receivable as of December 31, 2024.

As presented in Note 3, CMS accounted for approximately 24 %, 25 % and 25 % of the Company’s revenue for the years ended December 31, 2024, 2023, and 2022, respectively.

Inflationary Risk

6 unchanged sentences

These components and materials are critical, and there could be a considerable delay in finding alternative sources of supply.

A global semiconductor supply shortage is having wide-ranging effects across multiple industries.

The supply shortage has impacted multiple suppliers that provide the PCBAs to the Company.

The semiconductor supply shortage may have an impact on the Company until global supply is sufficient for global demand.

Inventory owned by the Company is valued at cost, on the first in, first out (“FIFO”) basis, or the lower of cost or net realizable value.

5 unchanged sentences

Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to five years .

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years .

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.

3 unchanged sentences

Costs related to planning and post implementation activities are expensed as incurred.

Capitalized internal-use software is amortized, and recognized as cost of revenue or selling, general and administrative expenses, on a straight-line basis over the estimated useful life of three years .

The Company reuses 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.

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.

The Company bases the 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.

The Company bases the length of time estimates for charging a portion of the PCBAs cost through several considerations, including evaluation during product development, device loss rates, product launches and 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.

The Company periodically evaluates and updates these estimates.

4 unchanged sentences

The Company amortizes capitalized implementation costs in a CCA on a straight-line basis over the terms of the associated hosting arrangement.

The Company recorded an immaterial amount of amortization expense during the years ended December 31, 2023, 2022, and 2021.

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets.

4 unchanged sentences

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company reviews long-lived assets, inclusive of internal-use software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparing the carrying amount to the future net cash flows that the assets are expected to generate.

3 unchanged sentences

For ROU assets, such circumstances may include subleases that do not fully recover the costs of the associated leases or commitments to sublease a property.

For the years ended December 31, 2023 and 2022, the Company recorded $ 11.1 million and $ 23.2 million, respectively, of long-lived asset impairment charges in the consolidated statement of operations.

In addition, see Note 7, Restructuring and Impairment Charges , included in the notes to the consolidated financial statements .

In addition, see Note 7, Impairment and Restructuring Charges , included in the notes to the consolidated financial statements .

Comprehensive Loss

2 unchanged sentences

Revenue Recognition

The Company has 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, the Company has received CE-mark and UKCA certification for Zio XT System and ZEUS algorithm.

The Company has developed proprietary systems that combine a 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.

The Company currently offers three Zio System options—the Zio Monitor System, the Zio XT System, and the Zio AT System.

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 algorithm, 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 final step in the Zio Services is the delivery of an electronic Zio report to the prescribing physician with a summary of findings.

The final step in the Zio Services is the delivery of an electronic Zio report to the prescribing physician with a summary of preliminary findings.

The Company’s Zio Monitor services are generally billable when the Zio report is issued to the physician.

23 unchanged sentences

Based on history with these portfolios and the similar nature and characteristics of the patients within each portfolio, the Company has concluded that the financial statement effects are not materially different than if accounting for revenue on a contract-by-contract basis.

For contracted and CMS portfolios, the Company recognizes revenue, net of contractual allowances, and recognizes an allowance for doubtful accounts for uncollectible patient accounts receivable.

For contracted and CMS portfolios, the Company recognizes revenue, net of contractual allowances, and recognizes a provision for credit losses for uncollectible patient accounts receivable.

The transaction price is determined based on negotiated rates, and the Company has historical experience of collecting substantially all of these contracted rates.

28 unchanged sentences

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.

Cost of revenue includes direct labor, material costs, equipment and infrastructure expenses, amortization of internal-use software, allocated overhead, royalties, and shipping and handling.

Direct labor includes payroll-related costs including stock-based compensation involved in manufacturing, clinical data curation, and customer service.

Material costs include both the disposable materials costs of the Zio patches and amortization of the re-usable PCBAs.

Each Zio XT patch and Zio Monitor patch includes a PCBA, and each Zio AT patch includes a PCBA and gateway board.

As PCBAs and gateway boards are used, a portion of the costs is charged to cost of revenue.

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 expected useful life of the board.

Research and Development

The Company’s research and development costs are expensed as incurred.

Research and development costs include, but are not limited to personnel costs, laboratory supplies, consulting costs and overhead charges.

In addition, the Company expenses milestone payments, when probable, for its development agreement with Verily as further discussed below.

Research and development costs include payroll-related costs, including stock-based compensation, consulting services, clinical studies, laboratory supplies, milestone payments, and allocated facility overhead costs.

Acquired In-Process Research and Development Expenses

Acquired in-process research and development (“IPR&D”) assets, as a result of an asset acquisition, for use in research and development activities with no alternative future use are expensed in the consolidated statements of operations on the acquisition date.

Accounting for acquisitions of IPR&D requires the Company to make certain judgements to determine if the transaction should be accounted for as an asset acquisition or a business combination, as well as assess if the IPR&D acquired has alternative future use in research and development activities.

Selling, General and Administrative Expenses

2 unchanged sentences

The Company incurred an immaterial amount of advertising expense during each of the years ended December 31, 2024, 2023, and 2022, which is included in selling, general and administrative expenses.

The Company’s general and administrative expenses consist primarily of personnel costs for executive, finance, legal, and administrative personnel, including stock-based compensation.

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, the Company incurred transformation costs to scale its organization during the year and expects to incur additional transformation costs through mid-2024.

Upon completion, the Company expects to achieve operational efficiencies in its administrative expenses.

The Company’s general and administrative expenses consist primarily of payroll-related costs for executive, finance, legal and administrative personnel, including stock-based compensation.

The Company uses the asset and liability method to account for income taxes.

20 unchanged sentences

Diluted net loss per common share is the same as basic net loss per common share for all periods presented, since the effect of potentially dilutive securities are anti-dilutive.

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Recently adopted accounting pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating this ASU to determine its impact on the Company's consolidated financial statements and related disclosures.

The Company adopted ASU 2023-07 during the year ended December 31, 2024.

See Note 3, Business Segment and Revenue, for disclosure within the notes to the Company's consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In December 2023, the FASB issued ASU No.

4 unchanged sentences

Early adoption is permitted.

The Company is currently evaluating the impact of this accounting standard update on the Company's consolidated financial statements and related disclosures.

The Company is currently evaluating this ASU to determine its impact on the Company's financial statement disclosures.

On March 6, 2024, the SEC adopted SEC Release Nos.

34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors , to require the disclosure of certain climate-related information in registration statements and annual reports, including Scope 1 and 2 emissions and information about climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, a company’s business strategy, results of operations, or financial condition.

In addition, under the final rules, certain disclosures related to severe weather events and other natural conditions will be required in audited financial statements.

The disclosure requirements will begin phasing in for the Company's reports and registration statements including financial information in the fiscal year ending December 31, 2025.

In April 2024, the SEC issued an order staying the final rules until the completion of judicial review.

The Company is currently evaluating the impact of this final rule on the Company's consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures , which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement.

The new disclosure requirements are effective for the Company’s annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures.

BUSINESS SEGMENT AND REVENUE

Reportable Segments

Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker (“CODM”).

The Company has one reportable and one operating segment, its global ambulatory cardiac monitoring business.

The Company’s Chief Executive Officer, who is the Company’s CODM, reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and assessing financial performance.

The key measure of the Company's segment profit or loss is consolidated net loss, which is reported on the Company's consolidated statements of operations.

Consolidated net loss is used to measure actual results versus expectations.

The measure of segment assets is reported on the consolidated balance sheets as total assets.

Significant segment expenses within loss from operations, as well as within net loss, include cost of revenue, research and development, acquired in-process research and development, selling, general and administrative expenses, and impairment and restructuring charges which are each separately presented on the Company’s consolidated statements of operations.

Other segment items within net loss include interest and other income (expense), net, and income tax provision.

Disaggregation of Revenue

3 unchanged sentences

Year Ended December 31,

2023 2022 2021

Amount % of Revenue Amount % of Revenue Amount % of Revenue

6 unchanged sentences

No other country comprised 10% or greater of the Company's revenue during each of the years ended December 31, 2024, 2023, and 2022.

Accounts Receivable, Provision for Credit Losses, and Contractual Allowances

Accounts receivable is reported on the consolidated balance sheets net of an estimated provision for credit losses and contractual allowances.

The Company establishes a provision for credit losses for estimated uncollectible receivables based on its assessment of the collectability of customer accounts and recognizes the provision as a component of selling, general and administrative expenses.

The Company records a provision for contractual allowances based on the estimated differences between contracted amounts and expected collection rates for services performed.

Such provisions are based on the Company's historical experience and are reported as a reduction of revenue.

The following table presents the changes in the provision for credit losses (in thousands):

Year Ended December 31,

2024 2023 2022

Balance, beginning of year $ 20,289 $ 18,475 $ 14,012

Provision for credit losses

22,583 17,105 17,191

( 26,624 ) ( 15,291 ) ( 12,728 )

Balance, end of year $ 16,248 $ 20,289 $ 18,475

The following table presents the changes in the contractual allowance (in thousands):

Year Ended December 31,

2024 2023 2022

Balance, beginning of year $ 52,689 $ 41,389 $ 31,274

provision for contractual adjustments

50,880 52,523 41,158

contractual adjustments ( 52,608 ) ( 41,223 ) ( 31,043 )

Balance, end of year $ 50,961 $ 52,689 $ 41,389

Contract Liabilities

1 unchanged sentence

Certain of the Company’s customers pay the Company directly for the Zio XT service upon shipment of devices.

Such advance payments are contract liabilities and are recorded as revenue when Zio reports are delivered to the healthcare provider.

During the years ended December 31, 2023 and 2022, $ 3.0 million related to the contract liability balance at the beginning of 2023 and 2022, was recognized as revenue.

The advance payments liability was $ 3.3 million and $ 3.1 million as of December 31, 2023 and 2022, respectively.

Such advance payments are recognized as deferred revenue and are recorded as revenue when Zio reports are delivered to the healthcare provider.

During the years ended December 31, 2024 and 2023, $ 3.1 million and $ 3.0 million related to the contract liability balance at the beginning of 2024 and 2023, was recognized as revenue.

The deferred revenue liability was $ 2.9 million and $ 3.3 million as of December 31, 2024 and 2023, respectively.

Contract Costs

1 unchanged sentence

Incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained.

The Company’s current commission programs are considered incremental.

However, as a practical expedient, ASC 340 permits the Company to immediately expense contract acquisition costs, because the asset that would have resulted from capitalizing these costs will be amortized in one year or less.

The Company maintains short-term sales incentive compensation programs.

As a practical expedient, ASC 340 permits the Company to immediately expense contract acquisition costs, because the asset that would have resulted from capitalizing these costs will be amortized in one year or less.

CASH EQUIVALENTS AND MARKETABLE SECURITIES

21 unchanged sentences

Unrealized gains (losses) during the years ended December 31, 2024, 2023, and 2022 were not material.

As of December 31, 2023, the weighted average maturity for the Company's marketable securities were 80 days.

As of December 31, 2024, the weighted average maturity for the Company's marketable securities was 211 days.

FAIR VALUE MEASUREMENTS

10 unchanged sentences

government securities are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

The Company's debt obligation is classified as Level 2 input.

As of December 31, 2023 and 2022, the fair value of the Company’s outstanding interest-bearing obligation approximated the carrying value of $ 35.0 million and $ 34.9 million, respectively.

The Company holds a strategic investment that it does not measure at fair value on a recurring basis.

The carrying value of this investment is $ 3.0 million as of December 31, 2023.

The Company includes this investment in other assets in its consolidated balance sheets.

The Company had no transfers between levels of the fair value hierarchy of its assets measured at fair value.

4 unchanged sentences

government securities — 276,524 — 276,524

Strategic investments

— — 61,902 61,902

Total $ 40,654 $ 276,524 $ 61,902 $ 379,080

Contingent consideration

— — 17,371 17,371

$ — $ — $ 17,371 $ 17,371

December 31, 2023

2 unchanged sentences

government securities — 97,591 — 97,591

Strategic investments

— — 3,000 3,000

Total $ 12,594 $ 97,591 $ 3,000 $ 113,185

Fair Value of Strategic Investments

The Company hold strategic investments upon which it measures the fair value on a recurring basis.

The carrying value of these investments are $ 61.9 million and $ 3.0 million as of December 31, 2024 and December 31, 2023, respectively.

The Company's strategic investments are with privately held companies, and as such, limited information is available.

On a quarterly basis, the Company monitors information that becomes available and adjusts the carrying values of these investments if there are identified events or changes in circumstances that have a significant effect on their fair values.

The strategic investments are categorized as Level 3 investments within the fair value hierarchy due to the uncertainty of the fair value measurement with respect to the use of significant unobservable inputs and included within long-term strategic investments in the Company’s consolidated balance sheets.

During the year ended December 31, 2024, the Company made an aggregate of $ 55.0 million in strategic loan investments in BioIntelliSense, Inc.

(“BioIS”), a privately-held company.

The loan investments have maturity dates ranging from April 2029 through August 2029.

The loan investments can convert into preferred shares of BioIS based upon certain qualifying financing events.

The aggregate fair value of the strategic loan investments is $ 56.4 million as of December 31, 2024.

In accordance with ASC 820, Fair Value Measurement , the Company elected to apply the fair value option to these strategic loan investments, with changes in fair value reported within other income (expense), net in the Company's consolidated statements of operations at each reporting period.

During the year ended December 31, 2024, the Company increased the fair value of the strategic loan investments by $ 1.4 million.

The fair value of the loan investments in BioIS is determined by using a probability-weighted expected return model (“PWERM”) and a discounted cash flow valuation model with scenarios that correspond to the contractual settlement events.

The determination of fair value involves significant assumptions such as discount rates, volatility rates, and expected years.

These unobservable inputs represent a Level 3 measurement, as they are supported by little or no market activity and reflect the Company's own assumptions in measuring fair value.

The recurring Level 3 fair value measurements of the loan investment include the following significant unobservable inputs as of December 31, 2024:

December 31, 2024

Discount rate

Equity volatility

Expected years (range)

In November 2024, the Company made a $ 2.0 million strategic loan investment in a separate privately-held company.

The fair value of the strategic loan investment was $ 2.0 million as of December 31, 2024.

During the year ended December 31, 2023, the Company made a $ 3.0 million strategic equity investment in a separate privately-held company.

During the year ended December 31, 2024, the Company increased the fair value of the strategic equity investment by $ 0.5 million.

The carrying value of the strategic equity investment is $ 3.5 million as of December 31, 2024.

The change in fair value is recorded within other income (expense), net in the Company’s consolidated statements of operations.

The following table sets forth the changes in the estimated fair value of the Company's strategic investments measured on a recurring basis (in thousands):

December 31, 2024 Year Ended

December 31, 2023

Balance, beginning of period

Additions during the period

Changes in estimated fair value

Balance, end of period

$ 61,902 $ 3,000

Contingent Consideration Liabilities

The Company established contingent consideration liabilities in conjunction with the development milestones associated with the acquisition of certain technology from BioIS.

The fair value of contingent consideration liabilities is determined using PWERM, with scenarios that correspond to the contractual settlement events.

There are significant inputs of such model that are not observable in the market, such as probability of achievement of stated milestones and expected term.

The unobservable inputs represent a Level 3 measurement.

Fair value adjustments to contingent consideration liabilities are assessed quarterly and recorded through operating expenses within acquired in-process research and development in the consolidated statements of operations.

Refer to Note 8, Commitments and Contingencies, for further details relating to the BioIS contingent consideration liabilities.

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with the development agreement milestones include the following significant unobservable inputs as of December 31, 2024:

December 31, 2024

Probability of achievement (range)

75.0 % - 90.0 %

Expected years

Contingent consideration liabilities for BioIS at the inception of acquisition of the licensed technology were $ 17.0 million.

Contingent consideration liabilities were $ 17.4 million and nil as of December 31, 2024 and 2023, respectively, with the current portion included within accrued liabilities and the noncurrent portion included within other noncurrent liabilities in the Company’s consolidated balance sheet.

The following table sets forth the changes in the estimated fair value of the Company’s contingent consideration liabilities measured on a recurring basis (Level 3) (in thousands):

December 31, 2024

Balance, beginning of period

Addition during the period

Changes in estimated fair value

Balance at end of period

Fair Value of Senior Convertible Notes and SVB Term Loan

The fair value, based on a quoted market price (Level 1), of the Company’s senior convertible notes due 2029 (the “2029 Notes”) is as follows (in thousands):

December 31, 2024 December 31, 2023

Senior Convertible Notes due 2029

$ 641,214 $ —

The Company's SVB Term Loan debt obligation as of December 31, 2023 is classified as a Level 2 input.

The fair value of the Company's outstanding interest-bearing obligation as of December 31, 2023 approximated the carrying value of $ 35.0 million.

BALANCE SHEET COMPONENTS

4 unchanged sentences

Total $ 14,039 $ 13,973

Long-term Strategic Investments

Long-term strategic investments consisted of the following (in thousands):

Strategic loan investments

Strategic equity investments

$ 61,902 $ 3,000

Other assets consisted of the following (in thousands):

1 unchanged sentence

Cloud computing arrangements 5,230 4,959

Strategic investment

Other 1,924 1,093

2 unchanged sentences

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 .

Charges to cost of revenue were $ 13.7 million, $ 9.0 million, and $ 5.2 million as of December 31, 2024, 2023, and 2022, respectively.

During the year ended December 31, 2023, PCBAs increased by $ 20.4 million primarily related to the expanded launch of the Zio Monitor System, as well as additional needs for the Zio XT patches and Zio AT patches.

During the year ended December 31, 2024, PCBAs decreased by $ 4.3 million primarily driven by accelerated Zio XT PCBA amortization in conjunction with the commercial launch of Zio Monitor.

The Company recorded $ 2.7 million, $ 1.4 million, and $ 0.6 million amortization expense during the years ended December 31, 2024, 2023, and 2022, respectively, related to capitalized implementation costs in a CCA.

Property and Equipment

Property and equipment, net consisted of the following (in thousands):

Laboratory and manufacturing equipment $ 6,007 $ 4,911

Laboratory and manufacturing equipment 2 to 7

$ 9,687 $ 6,007

Computer equipment and software 3

Furniture and fixtures 4,020 4,119

Leasehold improvements 24,885 23,144

Internal-use software 61,980 44,877

Furniture and fixtures 2 to 5

Leasehold improvements 3 to 12

27,121 24,885

Internal-use software in service

79,660 61,980

Internal-use software in development - 60,797 43,701

4 unchanged sentences

Depreciation and amortization expense for the years ended December 31, 2024, 2023 and 2022 was $ 20.7 million, $ 16.3 million and $ 13.4 million, respectively, of which amortization related to internal-use software, was $ 14.9 million, $ 12.2 million, and $ 9.8 million, for the years ended December 31, 2024, 2023 and 2022, respectively.

During the year ended December 31, 2023, internal-use software, both in service and in development, increased by $ 32.7 million compared to the year ended December 31, 2022.

This increase related to enhancements in the Company’s core technology, products and services and artificial intelligence, as well as investment in future technology, such as the Zio Monitor System, the Company's new biosensor technology.

Accrued Liabilities

2 unchanged sentences

Accrued vacation 6,914 8,608

Accrued professional services fees 3,715 7,234

Accrued expenses

16,044 14,891

Claims payable

Accrued state and foreign income and sales taxes 2,877 2,388

Accrued employee share purchase plan contributions

Accrued income and other taxes

Accrued professional services fees 3,345 3,715

Contingent consideration liabilities

Total accrued liabilities $ 84,900 $ 83,362

During the years ended December 31, 2023 and 2022, the Company has incurred expenses in connection with efforts to further globalize its operational footprint.

Included above in accrued payroll and related expenses as of December 31, 2023 were $ 2.4 million of costs related to globalization.

During the years ended December 31, 2024 and 2023, the Company incurred expenses in connection with efforts to streamline and globalize its operations.

As of December 31, 2024 and 2023, globalization costs included within accrued payroll and related expenses were de minimis and $ 2.4 million, respectively.

IMPAIRMENT AND RESTRUCTURING CHARGES

1 unchanged sentence

Year Ended December 31,

2024 2023 2022

Restructuring charges $ — $ — $ 3,444

2 unchanged sentences

Restructuring

In February 2022, the Company's board of directors (the “Board”) approved a restructuring plan ("2022 Restructuring Plan") to allow it 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.

The following table provides a summary of changes in the liability associated with the 2022 Restructuring Plan (in thousands):

The following table provides a summary of changes in the liability associated with the restructuring plan during 2022 (in thousands):

Employee Severance

2 unchanged sentences

Balance as of December 31, 2023

Cash Payments

Balance as of December 31, 2023

In February 2022, the Company's board of directors (the “Board”) approved a restructuring plan (”2022 Restructuring Plan”) to allow it to effectively and efficiently scale its business, which resulted in total severance and other employment related costs of $ 3.4 million during the year ended December 31, 2022.

The Company's impairment charges consisted of the following (in thousands):

2024 2023 2022

ROU asset $ — $ 9,912 $ 20,451

Leasehold improvements — 1,067 2,211

Furniture and fixtures — 99 502

Internal-use software

Total $ 641 $ 11,078 $ 23,164

In February 2022, the Board approved a plan to reduce the Company’s leased space for its headquarters in San Francisco, California.

1 unchanged sentence

As a result, the Company recorded an impairment charge of $ 23.2 million, consisting of its ROU asset and property and equipment (inclusive of leasehold improvements and furniture and fixtures) of $ 20.5 million and $ 2.7 million, respectively.

The impairment was recorded to Restructuring and impairment charges within the consolidated statements of operations for the year ended December 31, 2022.

The impairment was recorded to impairment and restructuring charges within the consolidated statements of operations for the year ended December 31, 2022.

At December 31, 2023, the Company recorded an additional impairment of its ROU asset and related property and equipment (inclusive of leasehold improvements and furniture and fixtures) for its headquarters in San Francisco, California.

1 unchanged sentence

As a result, the Company recorded an additional impairment charge of $ 11.1 million, consisting of its ROU asset and property and equipment (inclusive of leasehold improvements and furniture and fixtures) of $ 9.9 million and $ 1.2 million, respectively.

The impairment was recorded to Restructuring and impairment charges within the consolidated statements of operations for the year ended December 31, 2023.

The impairment was recorded to impairment and restructuring charges within the consolidated statements of operations for the year ended December 31, 2023.

Significant judgment and estimates are required in assessing impairment of ROU assets, including identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows, and determining appropriate discount rates.

5 unchanged sentences

The Company estimated the fair value of the ROU asset related to the vacant office lease by discounting the estimated undiscounted future cash flows using the average lease capitalization rate, plus average inflation rate, for other lease transactions in the local area during the year.

The Company's impairment charges consisted of the following (in thousands):

ROU asset $ 9,912 $ 20,451

Leasehold improvements 1,067 2,211

Furniture and fixtures 99 502

Total $ 11,078 $ 23,164

For further details on the Company's leases, refer to Note 8 .

Commitments and Contingencies .

During the year ended December 31, 2024, the Company recorded an impairment charge of $ 0.6 million within the Company’s consolidated statements of operations related to internal-use software in development not expected to be completed.

No impairment charge related to internal-use software has been recognized for the years ended December 31, 2023 and 2022.

COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of January 1, 2024, the Company's purchase commitments totaled $ 40.5 million, primarily related to inventory and PCBAs.

As of January 1, 2025, the Company's purchase commitments totaled $ 69.1 million, primarily related to inventory and revenue cycle front end service fees and expected to be due within a year.

The Company leases office, manufacturing, and clinical centers under non-cancelable operating leases which expire on various dates through 2033.

4 unchanged sentences

The Company recognizes operating lease expenses, generally on a straight-line basis over the lease period.

In July 2023, the Company entered into an approximately seven-year facility lease in San Diego, California, as corporate office space.

The lease provides an option to extend the term of the lease for one five-year period beyond the initial term, which the Company is not reasonably certain to exercise and therefore was not considered in determining the ROU assets and lease liabilities balance.

Total lease payments approximate $ 4.6 million as of the lease commencement date.

In July 2023, the Company entered into an approximately seven-year facility lease in Solana Beach, California, as corporate office space (the “Solana Beach Lease”).

In February 2024, the Company amended its lease to add additional space.

The amended lease commenced in the fourth quarter of 2024, and extended the term of the entire facility lease by approximately one year .

The amended lease provides an option to extend the term of the lease for one five-year period beyond the amended term, which the Company is not reasonably certain to exercise and therefore was not considered in determining the ROU assets and lease liabilities balance.

The Company recognized $ 4.0 million in additional ROU assets and lease liabilities upon commencement of the amended lease.

Total lease payments for the Solana Beach Lease approximate $ 9.6 million.

In August 2023, the Company entered into a five-year facility lease in Manila, Philippines, in order to further globalize the Company's operational footprint as a business service center.

8 unchanged sentences

Total lease liabilities $ 90,466

Other information related to the operating leases were as follows:

Other information related to the operating leases were as follows (in thousands):

Year Ended December 31,

8 unchanged sentences

These matters are subject to many uncertainties and outcomes that are not predictable.

On February 1, 2021, a putative class action lawsuit was filed in the United States District Court for the Northern District of California (the “Court”) alleging that the Company and its former Chief Executive Officer, Kevin M.

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 the Company and Mr.

King, its former Chief Executive Officer, Michael J.

Coyle, and former Chief Financial Officer and former Chief Operating Officer, Douglas J.

The purported class in the amended complaint includes all persons who purchased or acquired the Company’s common stock between August 4, 2020 and July 13, 2021, and seeks unspecified damages purportedly sustained by the class.

On October 27, 2021, the Company filed a motion to dismiss, which the Court granted on March 31, 2022, entering judgment in favor of the Company and the other defendants.

On April 29, 2022, the original named plaintiff appealed to the Ninth Circuit Court of Appeals.

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.

On February 6, 2024, a second putative class action lawsuit was filed in the Court alleging that the Company's current Chief Executive Officer, Quentin Blackford, the Company's 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.

The Company believes the above securities class action lawsuits to be without merit and plans to continue to defend itself vigorously.

On February 6, 2024, a putative class action lawsuit was filed in the United States District Court for the Northern District of California alleging that the Company and its current Chief Executive Officer, Quentin Blackford, its former Chief Financial Officer, Brice Bobzien, and its former Chief Financial Officer and former Chief Operating Officer, Douglas 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.

On July 19, 2024, an amended complaint was filed, naming the Company, Mr.

Blackford, Mr.

Devine, its Chief Commercial Officer Chad Patterson, its former Chief Technology Officer Mark Day, and its Chief Medical Officer, Chief Scientific Officer, and Executive Vice President of Product Innovation Mintu Turakhia as defendants.

On October 7, 2024, a second amended complaint was filed to include events from the recent FDA inspections, but otherwise included the same claims under the Exchange Act.

On December 10, 2024, defendants filed a motion to dismiss.

The Company's board members and certain of its current and former executives were named as defendants in two complaints filed as stockholder derivative actions in the United States District Court for the District of Delaware and the United States District Court for the Northern District of California, respectively.

iRhythm is named as a nominal defendant in both complaints.

The cases make similar allegations to those in the securities class action complaint described above and both cases have both been stayed pending the resolution of motion to dismiss briefing in the securities class action.

The Company believes the above securities class action and derivative lawsuits to be without merit and plans to continue to defend itself vigorously.

On March 26, 2021, the Company 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 the Company's products and services.

Attorney’s Office for the Northern District of California requesting information related to communications with the FDA and its products and services.

On September 13, 2021, the Company received a second subpoena requesting additional information.

On April 4, 2023, the Company 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 the Company’s products and services.

Department of Justice (the “DOJ”), requesting production of various documents regarding our products and services.

The Company is cooperating fully on these matters.

On July 1, 2024, the DOJ filed with the United States District Court for the Northern District of California a Petition for Order to Show Cause and Application for Enforcement with respect to the production of certain documentary materials which the Company asserts are protected by legal privileges.

The Company defended its privilege assertions over such materials in its response to the DOJ’s petition.

The matter has been briefed, and oral argument is scheduled for March 6, 2025.

On February 20, 2024, Welch Allyn, a subsidiary of Hill-Rom Holdings, Inc.

which was acquired by Baxter International, Inc., filed a lawsuit against the Company in the United States District Court for the District of Delaware, alleging that the Company's Zio patches infringe certain of its patents.

now part of Baxter International, Inc., filed a lawsuit against the Company in the United States District Court for the District of Delaware, alleging that its Zio devices infringe certain of Welch Allyn's patents and that the Company's infringement was willful.

The Company filed a motion to dismiss Welch Allyn’s willful infringement claims on April 11, 2024.

Welch Allyn filed an amended complaint on April 24, 2024 that continued to allege that the Company's devices infringe certain of its patents and that the Company's infringement was willful.

The Company filed a motion to dismiss Welch Allyn’s willful infringement allegations found in the amended complaint on May 22, 2024 and a hearing on the motion to dismiss was held on January 28, 2025.

After hearing arguments, the Court granted the Company's motion and the willful infringement claims in the amended complaint were dismissed without prejudice.

Welch Allyn filed a second amended complaint adding additional patent claims on February 14, 2025.

The Company is preparing to file a response to the allegations found in the second amended complaint no later than March 21, 2025.

Welch Allyn seeks money damages and attorneys’ fees.

The Company believes this lawsuit is without merit and plans to defend itself vigorously.

On December 10, 2024, Bardy Diagnostics, Inc.

(”BardyDx”), a subsidiary of Hill-Rom Holdings, Inc.

now part of Baxter International, Inc., filed a lawsuit against the Company in the United States District Court for the District of Delaware, alleging that our Zio Monitor device infringes one of its patents.

On December 26, 2024, BardyDx filed an amended complaint alleging that the Company's Zio Monitor device infringes two of BardyDx's patents.

The Company is preparing to file a response to the allegations found in the amended complaint no later than March 3, 2025.

BardyDx seeks money damages and attorneys’ fees.

The Company believes this lawsuit is without merit and plans to defend itself vigorously.

Technology License Agreement

On August 30, 2024, the Company entered into a Technology License Agreement (the “License Agreement”) with BioIS, pursuant to which (i) the Company will receive a perpetual fully paid up license to certain of BioIS’ intellectual property, technology and products for research, development and commercialization of potential next generation products and services in certain fields of use, including an exclusive license to develop and commercialize pulse oximetry, accelerometry, and trending non-invasive blood pressure technologies for use within the Company’s ambulatory cardiac monitoring products and services, and (ii) the Company and BioIS agreed to negotiate in good faith a supply agreement for pulse oximetry hardware.

Under the terms of the License Agreement, during the third quarter of 2024 the Company paid BioIS an upfront fee of $ 15.0 million in cash consideration in acceptance of the initial transfer of certain licensed technologies and data following the execution of the License Agreement.

In connection with the License Agreement, the Company also purchased an aggregate of $ 40.0 million of convertible promissory notes from BioIS (the “Convertible Notes”), of which $ 20.0 million of the convertible promissory notes (“Milestone Notes”) were designated for satisfaction of the Company's regulatory milestone payment obligations.

The Milestone Notes, plus accrued and unpaid interest, if any, shall be cancelled, if outstanding, upon the achievement of the regulatory milestones up through December 31, 2026.

The Company has recorded a charge for $ 32.4 million for acquired IPR&D in the Company's consolidated statements of operations for the year ended December 31, 2024, which includes the upfront fee of $ 15.0 million as well as contingent consideration of $ 17.4 million related to the regulatory milestones.

Additionally, BioIS is eligible to receive low single digit royalty payments on annual net sales of certain products in the home sleep testing field, subject to certain adjustments specified in the License Agreement.

Development Agreement

On September 3, 2019, the Company entered into a Development Collaboration Agreement with Verily Life Sciences LLC, an Alphabet company (“VLS”) and Verily Ireland Limited (“VIL” and together with VLS, “Verily”) (such Development Collaboration Agreement, as amended by Amendment No.

1 dated April 26, 2021 and Amendment No.2 dated January 24, 2022, the “Development Agreement”).

The Development Agreement involves joint development and production of intellectual property between the Company and Verily.

1 unchanged sentence

Costs incurred by the Company in connection with the Development Agreement will be expensed as research and development expense in accordance with ASC 730, Research and Development.

The Company and Verily will develop certain next-generation atrial fibrillation (“Afib”) screening, detection, or monitoring products pursuant to the Development Agreement, which products will involve combining Verily's and the Company’s technology platforms and capabilities.

Pursuant to the Development Agreement, the Company and Verily agreed to develop certain next-generation atrial fibrillation (“Afib”) screening, detection, or monitoring products, which products will involve combining Verily's and the Company’s technology platforms and capabilities.

Under the terms of the Development Agreement, the Company paid Verily an upfront fee of $ 5.0 million in 2019.

In addition, the Company 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.

We have achieved milestones tied to payments totaling $ 11.0 million to date and expect to make additional payments over the term of the Development Agreement of $ 1.75 million, subject to the achievement of specified milestones.

The Company and Verily have achieved milestones tied to payments totaling $ 11.0 million to date and the Company is obligated to make additional payments over the term of the Development Agreement of $ 1.75 million, subject to the achievement of specified milestones.

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.

9 unchanged sentences

The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions, and believes that the estimated fair value of these indemnification obligations is not material and it has not accrued any amounts for these obligations.

1.50 % Senior Convertible Notes due 2029

The carrying amounts of the Company’s 2029 Notes were as follows (in thousands):

Principal amount $ 661,250 $ —

Unamortized debt issuance costs ( 14,807 ) —

Carrying amount of senior convertible notes due 2029 $ 646,443 $ —

The following table summarizes the components of interest expense and the effective interest rate for the 2029 Notes for the periods shown (in thousands):

Year Ended December 31,

2024 2023 2022

Contractual coupon interest

$ 8,266 $ — $ —

Amortized debt issuance costs

Total interest expense recognized on senior convertible notes due 2029

$ 10,883 $ — $ —

Effective interest rate

2.0 % — % — %

On March 7, 2024, the Company completed an offering of $ 661.3 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 1.50 % and a maturity date of September 1, 2029.

The proceeds include the full exercise of the option granted by the Company to the initial purchasers of the 2029 Notes to purchase up to an additional $ 86.3 million aggregate principal amount of notes.

Interest on the 2029 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024.

The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $ 643.8 million.

The initial conversion rate of the 2029 Notes is 6.7927 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $ 147.22 per share, subject to adjustments.

The 2029 Notes may be settled in cash, stock, or a combination thereof, solely at the Company's discretion.

The Company used net proceeds from the offering to purchase capped calls, as well as repayment of the Company's outstanding debt which is described below.

In addition, the Company also used net proceeds from the offering to repurchase shares of the Company's common stock.

Refer to Note 11, Stockholders' Equity for further details relating to the Company's shares repurchase.

No principal payments are due on the 2029 Notes prior to maturity.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2029 Notes (the “Indenture”) includes customary terms and covenants, including certain events of default after which the 2029 Notes may be due and payable immediately.

The Company uses the if-converted method for assumed conversion of the 2029 Notes to compute the weighted-average shares of common stock outstanding for diluted earnings per share, when applicable.

Conversion Rights at the Option of the Holders

Holders of the 2029 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the Indenture) or convert their 2029 Notes called (or deemed called) for redemption in connection with any optional redemption are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally, in the event of a fundamental change (as defined in the Indenture), holders of the 2029 Notes may require the Company to repurchase for cash all or a portion of their notes at a price equal to 100 % of the principal amount of notes, plus any accrued and unpaid interest to, but excluding, the repurchase date.

Holders of the 2029 Notes may convert all or a portion of their notes prior to the close of business on the business day immediately preceding June 1, 2029, in multiples of $ 1,000 principal amount, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price of the 2029 Notes on each applicable trading day;

(2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $ 1,000 principal amount of the 2029 Notes for each trading day of that measurement period was less than 98 % of the product of the last reported sale price of the Company's common stock and the conversion rate of the 2029 Notes on such trading day;

(3) if the Company calls any or all 2029 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2029 Notes called (or deemed called) for redemption;

(4) upon the occurrence of specified corporate events as specified in the Indenture.

On or after June 1, 2029, until 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding September 1, 2029, holders of the notes may convert the 2029 Notes, in multiples of $ 1,000 principal amount, at their option regardless of the foregoing circumstances.

Conversion Rights at the Company's Option

The Company may not redeem the 2029 Notes prior to September 5, 2027.

On or after September 5, 2027 and prior to June 1, 2029, the Company may redeem at its option for cash all or any portion of the 2029 Notes, at the redemption price, if the last reported sale price of the Company's common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides the redemption notice.

The redemption price will be equal to 100 % of the principal amount of the 2029 Notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

2029 Capped Call Transactions

On March 4, 2024, in connection with the offering of the 2029 Notes, the Company entered into privately negotiated capped call transactions (the “2029 Capped Calls”) with certain financial institutions.

The 2029 Capped Calls will cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2029 Notes, the number of shares of the Company's common stock that will initially underlie the 2029 Notes.

The 2029 Capped Calls are expected generally to reduce potential dilution to the Company's common stock upon conversion of the 2029 Notes and/or offset any cash payments that the Company could be required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap.

The 2029 Capped Calls have an initial cap price of $ 218.10 per share, subject to adjustments, which represents a premium of 100 % over the closing price of the Company's common stock of $ 109.05 per share on the Nasdaq Global Select Market on March 4, 2024.

The Company completed the purchase of the 2029 Capped Calls on March 7, 2024, for the amount of $ 72.4 million.

The cost to purchase the 2029 Capped Calls was recorded as a reduction to additional paid-in capital in the Company's consolidated balance sheets, as the 2029 Capped Calls met the criteria for classification within stockholders’ equity.

Braidwell Debt

On January 3, 2024 (the “Closing Date”), the Company entered into the Credit, Security and Guaranty Agreement (the “Braidwell Credit Agreement”) with Braidwell Transactions Holdings LLC – Series 5 (“Braidwell”), which provided for a senior secured term loan in an aggregate principal amount of up to $ 150.0 million (the “Braidwell Term Loan Facility”).

An initial tranche of $ 75.0 million (“Initial Loan”) was funded on the Closing Date.

In addition to the Initial Loan, the Braidwell Term Loan Facility included an additional tranche of $ 75.0 million, which was accessible by the Company through the one year anniversary of the Closing Date, so long as the Company satisfied certain customary conditions.

The Braidwell Term Loan Facility had a maturity date of January 3, 2029 (the “Maturity Date”) and provided, at the Company’s election, for the option to have a portion of interest added to principal rather than paid in cash during the term of the loan, with principal and accrued interest due at the Maturity Date.

On March 7, 2024, in connection with the offering of the 2029 Notes, the Company used approximately $ 80.2 million of the net proceeds for the repayment in full of the $ 75.0 million outstanding Initial Loan, as well as interest, fees and expenses associated with terminating the agreement.

Interest expense for the year ended December 31, 2024 was $ 1.8 million.

Interest expense for year ended December 31, 2024 consisted of contractual coupon interest and amortized debt issuance costs of $ 1.6 million and $ 0.2 million, respectively.

The Company incurred $ 5.6 million of fees and expenses relating to the repayment of the Initial Loan and the termination of the Braidwell Credit Agreement, inclusive of unamortized debt origination costs, which has been recorded within loss on extinguishment of debt in the Company’s consolidated statements of operations for the year ended December 31, 2024.

SVB Term Loan

In October 2018, the Company entered into the Third Amended and Restated Loan and Security Agreement (“SVB Loan Agreement”) with Silicon Valley Bank (“SVB”).

14 unchanged sentences

The Company is required to pay an annual fee equal to 0.15 % of the revolving credit line.

As of December 31, 2023, no loans were outstanding under the revolving credit line and the Company had used $ 8.4 million in letters of credit.

The 2022 Amendment also amended the SVB Loan Agreement to require the Company to comply, as of the last day of each fiscal quarter, with a quick ratio of at least 1.0 to 1.15 or minimum adjusted EBITDA trailing 6 months of at least $ 15.0 million.

As of March 27, 2023, in connection with the closure of SVB by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation, First-Citizens Bank & Trust Company assumed all of SVB’s deposits and loans.

The Company continued to have access to the revolving credit line and letters of credit available pursuant to the SVB Loan Agreement and was in compliance with its loan covenants, as of December 31, 2023.

Interest expense recognized during the years ended December 31, 2023, 2022, and 2021 which included amortization of debt issuance costs, was $ 3.4 million, $ 2.1 million, and $ 1.2 million during the years ended December 31, 2023, 2022, and 2021, respectively.

Future minimum payments

Contractual obligations as of December 31, 2023 for the 2022 Term Loans comprise of principal and interest payments as follows (in thousands):

Year Ended December 31,

Amount representing interest ( 7,123 )

Debt issuance costs ( 50 )

Principal payments $ 34,950

On January 3, 2024, the Company entered into a Credit, Security and Guaranty Agreement (the “Braidwell Credit Agreement”) with Braidwell Transaction Holdings LLC – Series 5 (“Braidwell”).

In conjunction with the transaction, the Company repaid and terminated the 2022 Term Loans and the revolving credit line.

As of the date of the termination, the Company continued to maintain the $ 8.4 million in letters of credit with SVB, securing them with cash on deposit.

See Note 16, Subsequent Events to the Consolidated Financial Statements for more information regarding the Braidwell Credit Agreement and SVB repayment and termination.

On January 3, 2024, in connection with the entry into the Braidwell Credit Agreement, the Company used approximately $ 37.8 million of the net proceeds for the repayment in full of the $ 35.0 million outstanding principal balance as well as interest, fees and expenses associated with terminating the agreement.

Upon termination of the SVB Loan Agreement, SVB's security interest in the Company's assets and property was released.

The Company continues to hold $ 8.4 million in letters of credit with SVB, securing them with cash on deposit.

Interest expense for the years ended December 31, 2024, 2023 and 2022 was nil , $ 3.4 million and $ 2.1 million, respectively.

Contractual coupon interest for the years ended December 31, 2024, 2023 and 2022 was nil , $ 3.0 million and $ 1.7 million, respectively.

Amortized debt issuance costs for the years ended December 31, 2024, 2023 and 2022 was nil , $ 0.4 million, and $ 0.4 million, respectively.

The Company incurred $ 2.0 million of fees and expenses relating to the termination of the SVB Loan Agreement, which has been recorded within loss on extinguishment of debt in the Company's consolidated statement of operations during the year ended December 31, 2024.

The components of income (loss) before provision for income taxes are as follows (in thousands):

3 unchanged sentences

$ ( 114,203 ) $ ( 122,974 ) $ ( 116,600 )

Income (Loss) before provision for income taxes

1,479 318 714

Loss before income taxes

$ ( 112,724 ) $ ( 122,656 ) $ ( 115,886 )

The provision for (benefit from) income taxes consists of the following (in thousands):

11 unchanged sentences

Total tax expense $ 565 $ 750 $ 269

Income tax expense differs from the amount computed by applying the statutory federal income tax rate as follows:

(in thousands):

Income tax expense differs from the amount computed by applying the statutory federal income tax rate as follows (in thousands):

Year Ended December 31,

6 unchanged sentences

5,093 5,217 2,498

823 526 ( 347 )

Tax credits ( 2,160 ) ( 2,160 ) ( 2,695 )

17 unchanged sentences

Deferred tax liabilities:

Depreciation and amortization $ — $ ( 9,402 )

ROU assets ( 12,094 ) ( 12,005 )

39 unchanged sentences

STOCKHOLDERS' EQUITY

The Company’s amended and restated certificate of incorporation dated October 25, 2016, as amended, authorizes the Company to issue 100,000,000 shares of common stock with a par value of $ 0.001 per share and 5,000,000 shares of preferred stock with a par value of $ 0.001 per share.

The Company’s amended and restated certificate of incorporation authorizes the Company to issue 100,000,000 shares of common stock with a par value of $ 0.001 per share and 5,000,000 shares of preferred stock with a par value of $ 0.001 per share.

The holders of common stock are entitled to receive dividends whenever funds and assets are legally available and when declared by the Board, subject to the prior rights of holders of all series of convertible preferred stock outstanding.

No dividends were declared through December 31, 2024.

Treasury Shares

On March 7, 2024, the Company used approximately $ 25.0 million of the net proceeds from the 2029 Notes offering to repurchase 229,252 shares of the Company's common stock at a purchase price of $ 109.05 per share via privately negotiated transactions effected through one of the initial purchasers or its affiliate.

Repurchased shares of the Company's common stock are held as treasury shares until they are reissued or retired.

The Company had reserved shares of common stock for issuance as follows (in thousands):

14 unchanged sentences

The 2016 Plan was approved by the Company’s stockholders and became effective on October 19, 2016.

On the first day of each fiscal year starting from the 2017 fiscal year, the 2016 Plan authorizes an annual increase in the number of shares available for issuance equal to the least of (i) 3,865,000 shares, (ii) 5 % of the shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (iii) such number of shares determined by the Board.

As of December 31, 2023, the Company has reserved 6,764,972 shares of common stock for issuance under the 2016 Plan.

On the first day of each fiscal year starting from the 2017 fiscal year through the 2024 fiscal year, the 2016 Plan authorizes an annual increase in the number of shares available for issuance equal to the least of (i) 3,865,000 shares, (ii) 5 % of the shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (iii) such number of shares determined by the Board.

In November 2024, the Board of Directors approved an amendment to the 2016 Plan that removed the provision for annual increases.

As of December 31, 2024, the Company has reserved approximately 6.4 million shares of common stock for issuance under the 2016 Plan.

A summary of awards available for grant under the Company's 2016 Equity Incentive Plan is as follows (in thousands):

1 unchanged sentence

Balance as of December 31, 2022 7,823

Additional awards authorized 1,476

Awards granted 1

17 unchanged sentences

The fair value of RSUs and PRSUs are based on the Company’s closing stock price on the date of grant.

The fair value of market based PRSUs were estimated at the date of grant using the Monte-Carlo option pricing model.

A summary is as follows (in thousands, except weighted average grant date fair value):

20 unchanged sentences

Total grant date fair value of vested PRSUs was $ 4.8 million, $ 2.6 million, and $ 12.1 million during the years ended December 31, 2024, 2023, and 2022, respectively.

PRSUs and Market-based RSUs

Market-based PRSUs

The Company grants PRSUs to its key executives.

PRSUs can be earned in accordance with the performance equity program for each respective grant.

In February 2023, the Company granted PRSUs (“February 2023 awards”) to be earned based on the CAGR calculated between fiscal year 2025's and fiscal year 2022's annual unit volume and measuring a minimum performance threshold of 15 % to earn 50.0 % of target, and a maximum threshold of 25 % achieved to earn 200.0 % of target.

These February 2023 awards are subject to the recipient's continued employment through the vesting date of March 15, 2026.

In addition, in February 2023, the Company granted market-based PRSUs to senior executive officers.

These PRSUs to be earned will be based on the CAGR calculated between fiscal year 2025's and fiscal year 2022's annual unit volume and measuring performance thresholds mentioned above, as well as a comparison of the S&P Healthcare Index to the Company's TSR.

In February 2024, the Company granted market-based PRSUs to senior executive officers.

These PRSUs to be earned will be based on the cumulative annual growth rate (“CAGR”) of annual unit volume calculated between fiscal years 2026's and 2023's annual unit volume growth and measuring a minimum performance threshold of 15 % to earn 50 % of target, and a maximum threshold of 25 % achieved to earn 200 % of target, as well as a relative comparison of the S&P Healthcare Equipment Select Industry Index to the Company's Total Shareholder Return (“TSR”).

The fair value of market-based PRSUs were estimated at the date of grant using a Monte-Carlo simulation method.

The grant date fair value of the TSR was based on the expected term of 2.8 years, interest risk free rate of 4.4 %, implied volatility of 67.95 % and no dividend yield.

These February 2023 awards are subject to the respective senior executive officer's continued employment through the vesting date of March 15, 2026.

These February 2024 awards are subject to the recipient senior executive officer's continued employment through the vesting date of March 16, 2027.

In August 2023, the Company granted market-based retention PRSUs (“August 2023 awards”) to its Chief Executive Officer, other senior executive officers, and other members of the Company’s management team.

2 unchanged sentences

The performance period of the August 2023 awards will be measured between July 1, 2023 and June 30, 2026, with Company results subject to adjustment by the Company’s TSR as compared to the TSR of the S&P Healthcare Index.

The fair value of market-based retention PRSUs were estimated at the date of grant using a Monte-Carlo simulation method.

The grant date fair value of the TSR was based on the expected term of 2.9 years, interest risk free rate of 4.4 %, implied volatility of 80.1 % and no dividend yield.

17 unchanged sentences

As of December 31, 2024, the options were fully vested.

The total estimated grant date fair value of options vested during the period was $ 0.1 million, $ 2.4 million, and $ 2.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The total estimated grant date fair value of options vested during the period was nil , $ 0.1 million, and $ 2.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Employee Stock Purchase Plan

4 unchanged sentences

Year Ended December 31,

2024 2023 2022

Expected Term (years) 0.5 - 1

16 unchanged sentences

Non-Employee Stock-Based Compensation

On January 12, 2021, the Company’s Chief Executive Officer (the “former CEO”) resigned and entered into a Consulting and Professional Services Agreement (“CPSA”) with the Company.

Pursuant to the original terms of the awards, the former CEO continued to vest in outstanding awards as long as services are provided to the Company under the CPSA as a non-employee consultant or a member of the Board.

In accordance with ASC 718, the Company recognized expense related to all awards expected to vest over the duration of the CPSA in the three months ended March 31, 2021, as an equity-based severance cost as the consulting services are not substantive.

The total expense related to the former CEO’s non-employee stock-based compensation recognized for the year ended December 31, 2021 was $ 5.4 million.

In March 2022, the former CEO retired from the Board and as a non-employee consultant.

3 unchanged sentences

Pursuant to the original terms of the awards, the former CCO will continue to vest in her outstanding awards as long as services are provided to the Company under the CA as a non-employee consultant.

In accordance with ASC 718, the Company recognized expense related to all awards expected to vest over the duration of the CA in the current period as an equity-based severance cost because the consulting services are not substantive.

In accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”), the Company recognized expense related to all awards vested over the duration of the CA in the current period as an equity-based severance cost because the consulting services are not substantive.

The total expense related to the former CCO’s non-employee stock-based compensation recognized $ 0.4 million for the year ended December 31, 2022.

1 unchanged sentence

Pursuant to the original terms of the agreement, the former EVP continues to vest in outstanding awards during the period of his CA services.

In accordance with ASC 718, Compensation - Stock Compensation , the Company will continue to record stock-based compensation expense related to the awards expected to vest over the duration of the CA, because the consulting services are substantive.

In accordance with ASC 718, the Company recorded stock-based compensation expense related to the awards expected to vest over the duration of the CA, because the consulting services were substantive.

The total expense related to the former EVP’s non-employee stock-based compensation recognized for each of the years ended December 31, 2023 and 2022 was $ 0.1 million.

On March 10, 2023, the Company’s former Chief Operating Officer (the “former COO”) resigned and entered into a CA with the Company through July 2024.

Pursuant to the terms of the CA, the former COO continues to vest in outstanding awards as long as services are provided to the Company under the CA as a non-employee consultant.

In accordance with ASC 718, Compensation – Stock Compensation , the Company recognized expense related to all awards expected to vest over the duration of the CA in 2023 as an equity-severance cost because the consulting services are not substantive.

Pursuant to the terms of the CA, the former COO vested in outstanding awards as long as services are provided to the Company under the CA as a non-employee consultant.

In accordance with ASC 718, the Company recognized expense related to all awards vested over the duration of the CA in 2023 as an equity-severance cost because the consulting services were not substantive.

The total expense related to the former COO’s non-employee stock-based compensation recognized for the year ended December 31, 2023 was $ 1.1 million.

On August 31, 2024, the Company’s former Chief Financial Officer (the “former CFO”) resigned and entered into a CA with the Company through March 15, 2025.

Pursuant to the terms of the CA, the former CFO continues to vest in outstanding restricted stock unit awards during the period of his CA services.

In accordance with ASC 718, the Company will continue to record stock-based compensation expense related to the awards expected to vest over the duration of the CA, because the consulting services are substantive.

The total expense related to the former CFO’s non-employee stock-based compensation recognized for the year ended December 31, 2024 was $ 0.2 million.

NET LOSS PER COMMON SHARE

10 unchanged sentences

Options to purchase common stock 283 307 328

RSUs and PRSUs 1 unvested

RSUs and PRSUs 1

2,289 2,438 2,026

Senior convertible notes

Total 7,064 2,745 2,354

1 unchanged sentence

The actual number of PRSUs granted will be based on company performance criteria and relative TSR, as discussed in Note 13, Equity Incentive Plan and Stock-Based Compensation.

SUBSEQUENT EVENT

On January 3, 2024 (the “Closing Date”), the Company entered into the Braidwell Credit Agreement with Braidwell, which provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $ 150.0 million (the “Braidwell Term Loan Facility”).

An initial tranche of $ 75.0 million (“Initial Loan”) was funded on the Closing Date.

In addition to the Initial Loan, the Braidwell Term Loan Facility includes an additional tranche of $ 75.0 million (the “Delayed Draw Loan,” and together with the Initial Loan, the “Term Loans”), which will be accessible by the Company through the one year anniversary of the Closing Date, so long as it satisfies certain customary conditions precedent, including compliance with financial covenants and continued accuracy of the representations and warranties provided by the Company in the Credit Agreement.

The Braidwell Term Loan Facility has a maturity date of January 3, 2029 (the “Maturity Date”) and provides, at the Company’s election, for payment of a portion of interest in kind during the term of the loan with principal and accrued interest due at the Maturity Date.

Upon repayment of the Term Loans (whether at the Maturity Date or upon earlier prepayment), the Company is required to pay an exit fee equal to 2.75 % of the principal amount being repaid.

The Braidwell Term Loan Facility will accrue interest at an annual rate equal to the sum of (a) the SOFR Rate and (b)(i) an applicable margin of 6.50 % if paid in cash, or (ii) an applicable margin of 6.95 %, if, at the Company’s election, if a portion of interest is paid in kind.

Accrued interest on the Term Loans is payable quarterly in arrears.

The Company is also required to pay fees on any prepayment of the Term Loans, ranging from zero to 2.0 % depending on the date of prepayment.

In connection with the entry into the Braidwell Credit Agreement, the Company’s SVB Loan Agreement was terminated, effective as of the Closing Date, and SVB’s security interest in the Company’s assets and property was released.

The Company’s net proceeds from the Initial Loan were approximately $ 35 million, after deducting estimated debt issuance costs, fees and expenses, and repayment of the Company’s existing term loan from SVB.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data