Strong Zio AT Business Growth Propels iRhythm's Q2 Revenue Surge, Analysts Say Warning Letter Manageable

iRhythm Technologies Inc's IRTC revenue of $124.1 million increased 21.6% Y/Y, beating the consensus of $120.34 million.

The increase was driven by volume growth of Zio services, partially offset by a decline in net average selling price.

The company reported adjusted EPS loss $(0.43), beating the consensus estimate of $(0.78)

The gross margin of 69.5% is a 70-basis point improvement compared to the second quarter of 2022.

Cash, cash equivalents, and marketable securities of $164.7 million as of June 30, 2023

Guidance: iRhythm projects FY23 revenue to grow approximately 18%-19% Y/Y, ranging from approximately $485 million to $490 million compared to previous guidance of $480 million-$490 million and the consensus of $483.78 million.

Gross margin is expected to be 69%-70%, with adjusted EBITDA margin of approximately 0%-0.5%.

William Blair analysts Margaret Kaczor and Macauley Kilbane say the Q2 updates were encouraging, but there is no clarity on the Zio AT warning letter yet. The analysts expect it to be manageable, and the risk profile is likely lower today than just a few weeks ago.

The company saw a high-30% growth in the Zio AT business despite the warning letter and ongoing FDA review of the label changes, noting it has not lost any accounts and is continuing to add new accounts.

Price Action: IRTC shares are up 19.30% at $116.32 on the last check Friday.