iRhythm Technologies, Inc. (IRTC) Q2 2025 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today's iRhythm Technologies, Inc. Q2 2025 Earnings Conference Call. My name is Bethany, and I will be the moderator for today's call. [Operator Instructions] I would now like to pass the conference over to our host, Stephanie Zhadkevich, Senior Director of Investor Relations. Please go ahead.

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the second quarter ended June 30, 2025. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. These are based upon our current estimates and various assumptions and reflect management's intentions, beliefs and expectations about future events, strategies, competition, products, operating plans and performance. These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our most recent annual and quarterly reports on Form 10-K and Form 10-Q, respectively, filed with the Securities and Exchange Commission. Also during this call, we will discuss certain financial measures that have not been prepared in accordance with U.S. GAAP with respect to our non-GAAP and cash-based results, including adjusted EBITDA, adjusted operating expenses and adjusted net loss. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation of, as a substitute for or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and 10-Q for a reconciliation of these measures to the most directly comparable GAAP financial measures. Unless otherwise indicated, all references to financial measures in this call other than revenue refer to non-GAAP results. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, July 31, 2025. iRhythm disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Quentin Blackford, iRhythm's President and CEO.

Thank you, Stephanie. Good afternoon, everyone, and thank you for joining us today. Dan Wilson, our Chief Financial Officer, is with me on today's call. My remarks will cover our business performance during the second quarter of 2025 and our outlook for the remainder of the year. I will then turn the call over to Dan to provide a detailed review of our financial results and updated guidance for 2025. We're excited to report strong second quarter results with $186.7 million in revenue, representing more than 26% year-over-year growth, driven by acceleration within our core long-term continuous monitoring business, continued progress with innovative channel partners and sustained strength in our Zio AT product line. We achieved record new account openings in long-term continuous monitoring driven by innovative channel partnerships in combination with continued strong growth from recently launched IDN customers that are adopting both Zio monitor and Zio AT, leading to record revenue quarters for both product lines. We're also encouraged by the momentum we're seeing across our international markets with continued strong demand in the United Kingdom, steady uptake in 4 additional European countries and our broad commercial launch in Japan, all demonstrating the global potential of our platform and our expanding pillars of growth. As we've discussed for several quarters, iRhythm's strategic focus on moving prescribing early in the care journey to primary care physicians has not only resulted in greater capacity for cardiologists and electrophysiologists to see qualified patients, but has also enabled proactive monitoring to be offered upstream to pre-identified patients who may otherwise be asymptomatic. We've realized the benefits of this approach within our core business, where we continue to see strong accelerating volume growth, driven by expanding prescribing patterns within additional channels of our large installed base, further enabled by our EHR integration strategy and the focused execution of our commercial team. Over the past year, they've deepened engagement across existing accounts and expanded our footprint within large health systems, many of which have quickly grown into some of our most significant relationships. These results highlight our differentiated ability to deliver scalable system-wide solutions that resonate with health systems seeking streamlined single vendor approaches. Our Epic Aura solution, which we began offering more broadly earlier this year, is generating strong customer interest and demonstrating early operational impacts. Many early adopters are already expanding Zio usage to new departments and care settings, leading to both volume growth and improved patient access. These integrations are also delivering significant efficiency gains, reducing project implementation times by over 50% on average. With over 40 health systems now actively implementing or preparing Aura integrations, we're excited about the continued expansion of this offering. Building on this solid foundation in our core business, we're seeing accelerating growth from innovative national account openings as we work toward addressing approximately 27 million undiagnosed patients at risk for arrhythmias in the United States alone. This represents a significant market opportunity that we're uniquely positioned to capture. During the second quarter, the contribution from innovative channel partners continued to grow as we added more than 1,000 prescribers at Signify Health, launched with another nationwide partner in CenterWell and renewed the program with the innovative channel partner from the fourth quarter of last year. What gives us confidence in this approach, albeit still in the very early stages of this market expansion, is that all of our innovative channel partners have increased their activity after pilot launches and are contributing in progressively meaningful ways as we continue adding additional partner accounts. We now have 12 partners under contract covering approximately 2 million potential patients with a robust near-term pipeline of 40 active discussions and a long-term target list of approximately 100 potential partners in the U.S. market. We're optimistic this will be a meaningful contributor to our growth for years to come due to the expected repeat monitoring, new members entering the funnel and impacting patient health statuses in the populations we serve. An essential contributor to success in these programs has been a growing body of real-world evidence describing the importance of early arrhythmia detection, especially in adjacent disease states where patients may already have or be at risk of developing arrhythmias. At the American Diabetes Association event in June of this year, retrospective real-world analysis of patients with type 2 diabetes, some of whom also had chronic kidney disease, demonstrated that cardiac arrhythmias present frequently and early, often preceding major cardiovascular events such as heart attack, stroke or heart failure. These results build upon findings presented at American Heart Association in 2024, which demonstrated that patients with diabetes and COPD who developed arrhythmias had twice the hospitalization rate, 35% to 50% higher emergency care cost and hospital stays up to 5 days longer compared to matched patients without arrhythmias, all of which drive up cost within the health care system. Furthermore, real-world data presented at the American College of Cardiology event in May of this year demonstrated that fewer than 1 in 5 patients experienced a symptom coinciding with an arrhythmic episode, reinforcing the need to monitor patients based upon unique health factors instead of symptoms. Zio is ideally positioned to address this growing market need. As published in our CAMELOT data and reinforced in our AVALON data presentation at HRS this year, Zio long-term cardiac monitoring is associated with higher diagnostic yield, lower likelihood of repeat testing and lower likelihood of cardiovascular events compared to other long-term cardiac monitoring products. These are very important distinctive features of our Zio platform that allow us to find and enable the treatment of arrhythmias at lower cost. To further enable this proactive monitoring strategy for more patients, we're particularly excited to highlight our recent partnership with Lucem Health, a leader in AI-driven early disease detection solutions. This partnership represents a significant step forward in our mission to accelerate early detection of undiagnosed arrhythmias and other associated comorbid conditions. As we announced earlier today, this partnership is a first-of-its-kind offering utilizing Lucem's predictive AI to help identify arrhythmias earlier in patient populations with an elevated risk for arrhythmias. Through this comprehensive solution, we're bringing together real-world claims data, EHR integration and predictive AI to enable physicians to identify appropriate patients for proactive monitoring using Zio ECG monitoring services and deliver precision medicine solutions for population health management. This initiative positions us to empower organizations that shift from reactive care to proactive preventative care, delivering data-driven insights for review by physicians to support better outcomes and financial efficiency across populations. We believe this approach will support broader health care system goals to extend value beyond individual patient diagnosis to population health initiatives and value-based care strategies across specialties. By embracing proactive arrhythmia detection, leading to earlier care intervention, we can help patients and members live fuller, more meaningful lives grounded in wellness, not crisis, while at the same time, reducing the cost burdens of our existing health care system. With Zio AT, we delivered another record quarter driven by sustained momentum across both new and existing accounts. Our commercial team has executed exceptionally well on 2 fronts: First, by expanding adoption of Zio AT within our long-standing customer base, more of which are now integrating both Zio monitor and Zio AT into the workflows; and second, by bringing new accounts on board with full system integrations from the outset. This dual-pronged approach is enabling us to deliver more comprehensive solutions to health systems and is accelerating our growth in a market where we still hold low double-digit share compared to the more than 70% market share in our core long-term monitoring segment. The consistent growth over the past 3 quarters reinforces our confidence in the significant opportunity ahead. Our next-generation Zio MCT product for which we expect to file the 510(k) this quarter is designed to significantly enhance our competitive position in this large underpenetrated market. Key improvements we intend to submit to the FDA include moving Zio MCT onto the same form factor as Zio monitor with a smaller footprint, better adhesion and extended battery life, extending wear time from 14 days to 21 days and advanced software for enhanced detection parameters and an improved final wear report. While we're encouraged by the success of our Zio AT service, we believe that our next-generation MCT or Zio MCT could be even better for our customers and their patients. Additionally, our market access and payer relations teams have made significant progress, expanding access to Zio services as an in-network benefit to more than 10 million additional patients throughout the country. These wins have included removing MCT as an investigational benefit and recognizing the clinical value of 14-day monitoring. Turning to markets outside of the United States. We continue to make steady progress in the U.K., 4 additional European markets and in Japan. In Japan, we have launched 8 new commercial accounts since our second quarter commercialization with positive feedback from physicians to date. We're recruiting patients for retrospective and prospective studies to compare Zio with other cardiac monitors in Japan with the goal of demonstrating superiority of Zio over other in-country offerings. In Europe, we were pleased with another quarter of strength in the U.K. private market, and we have seen steady uptake in the 4 additional countries where we launched commercially last fall. Our teams are focused on creating market awareness through KOL engagements and on demonstrating Zio's value proposition through publications and collaborations. Looking forward, we're energized by our expanding innovation pipeline and the multiple growth vectors we're developing. Our teams are making substantial progress on next-generation capabilities, strategic partnerships and platform enhancements that will drive both near-term performance and long-term market expansion. We're confident these investments position us to maintain our innovation leadership while capturing the significant opportunities ahead. Our strong growth trajectory is built on a foundation of operational excellence and financial discipline that positions us for sustainable scaling. We're demonstrating this commitment through our approach to regulatory excellence, submitting comprehensive responses to the FDA's warning letter and 483 observations and implementing measures that go beyond the agency's requirements while planning a third-party audit for the second half of this year as we drive toward best-in-class quality processes. Importantly, we've expanded adjusted EBITDA margins by 500 basis points since Q2 of last year, while investing aggressively in growth initiatives, demonstrating our ability to generate sustainable operating leverage. This performance reflects our disciplined approach to process optimization, strategic automation deployment and focused investment in financially attractive growth opportunities. With that, I'll now turn the call over to Dan to discuss our recent financial performance and updated outlook.

Thank you, Quentin. As a reminder, unless otherwise noted, the financial metrics that I discuss today will be presented on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release and on our IR website. We delivered strong profitable growth in the second quarter of 2025 with revenue of $186.7 million, up 26.1% year-over-year, combined with an adjusted EBITDA margin of 8.4%. This marks our third consecutive quarter of 20% plus year-over-year revenue growth while driving 500 basis points of adjusted EBITDA margin improvement. Volume growth was robust across both product lines, driven by continued strength from our core business, strong Zio AT mix and contributions from innovative channel accounts. New store growth with new stores defined as accounts that have been open for less than 12 months accounted for approximately 68% of our year-over-year volume growth. Home enrollment for Zio Services in the U.S. was approximately 23% of volume in the second quarter. Moving down the P&L. Gross margin for the second quarter was 71.2%, ahead of our expectations. Compared to second quarter 2024, improvement to gross margin was driven by volume leverage and continued benefit from operational efficiencies, offsetting the higher blended cost per unit from increased Zio AT product mix. Second quarter adjusted operating expenses were $145.2 million, a 16% increase year-over-year, primarily driven by our ongoing remediation activities, incremental expenses to support our global volume growth and funding of innovation and commercial growth initiatives. These purposeful investments were enabled by savings generated from operational excellence initiatives, which demonstrate our ability to deliver top line growth while generating meaningful operating leverage. Adjusted net loss in the second quarter of 2025 was $10.2 million or an adjusted net loss of $0.32 per share compared to an adjusted net loss of $18.8 million or an adjusted net loss of $0.61 per share in the second quarter of 2024. Adjusted EBITDA in the second quarter of 2025 was $15.7 million, equating to an adjusted EBITDA margin of 8.4% of revenue compared to an adjusted EBITDA margin of 3.4% in the second quarter of 2024. This 500 basis point improvement in adjusted EBITDA profitability is the direct result of robust top line growth, combined with thoughtful and intentional initiatives that we have implemented to drive sustainable efficiency at scale. Adjusted EBITDA in the second quarter of 2025 included $1.7 million of IP R&D expense. As noted in prior quarters, we continue to incur incremental legal and consulting fees as well as other company expenses related to FDA remediation efforts and DOJ subpoena activities. We continue to expect these incremental remediation expenses will be approximately $15 million in 2025. Turning to guidance. We're raising full year 2025 revenue guidance to $720 million to $730 million due to first half outperformance, continued momentum in our core business, sustained AT strength and contribution from innovative channels. This outlook includes significant U.S. volume growth with pricing now expected to be flat compared to prior year. We expect third quarter 2025 revenue to be slightly down compared to the second quarter, consistent with normal seasonality. For gross margin, we now anticipate full year 2025 gross margin to slightly exceed full year 2024 gross margin as clinical operations and manufacturing efficiencies largely offset proposed tariffs on global imports. We anticipate that third quarter gross margin will decline slightly from second quarter due to hiring within our clinical operations teams ahead of anticipated volume growth. We estimate that the negative impact to gross margins from tariffs will be approximately negative 20 to 40 basis points for the full year, with the impact more weighted in the back half of the year. This impact is slightly below our prior estimates with incremental clarity on tariffs moving forward and as our teams have executed supply chain strategies to mitigate potential impacts from tariffs. As mentioned previously, we're strategically building raw material inventory to mitigate potential supply chain disruptions, creating a slight headwind to free cash flow. We're updating our full year 2025 adjusted EBITDA margin guidance to 8% to 8.5% of revenues. As noted previously, adjusted EBITDA continues to absorb acquired IP R&D expenses, tariff impacts and FDA remediation expense. We are leveraging our increase to revenue guidance as an opportunity to accelerate planned development projects and investments into infrastructure such as clinical software tools and AI to fuel long-term operational efficiencies and margin accretion. We expect adjusted operating expenses to decline in the second half of the year due to front-loaded corporate activities and payroll costs, offset by reinvestments and increased regulatory audit activities. We expect third quarter 2025 adjusted EBITDA margin to range between 9% and 9.5%. Finally, we ended the third quarter in a strong financial position with $545.5 million in unrestricted cash on hand. For full year 2025, we continue to anticipate being slightly free cash flow negative and anticipate becoming free cash flow positive for full year 2026. This expectation has taken into consideration the cash flow impact from inventory buildup of raw materials as well as prioritized investments into infrastructure and next-generation technology platforms. Before closing, I'd like to comment on the recently issued physician fee schedule as proposed by the Centers for Medicare and Medicaid Services, or CMS, for calendar year 2026. While still preliminary at this time, we estimate that the applicable CMS rates in 2026 versus 2025 will be flat to slightly up for Zio monitor and up approximately 2% for Zio AT. As a reminder, CMS represents approximately 24% of total company revenues. We will provide further commentary following the CMS final rule expected in November. In closing, we were very pleased with the financial results from the second quarter of 2025 and the continued momentum in our business. Our teams are focused on delivering profitable growth, and we are strategically investing in the opportunities to grow our business into the future. We see a balanced set of near- and long-term growth drivers and are well positioned to deliver sustainable profitability as we continue to execute on our operational excellence initiatives. I will now turn the call back to Quentin for closing remarks.

Thanks, Dan, and thank you all for your continued support of iRhythm today. The first half of 2025 demonstrated exceptional execution and the accelerating recognition of iRhythm's transformative value proposition across the health care ecosystem. We remain convinced that the ambulatory cardiac monitoring market represents a largely untapped opportunity with substantial growth potential validated by our momentum across our core business, including both Zio monitor and Zio AT, innovative channels and international markets. Zio's clinically validated platform uniquely positions us to lead the transformation of cardiac care through proactive monitoring that enables truly preventative interventions. Our technology empowers health care providers to shift from reactive to preventative care by identifying critical rhythm abnormalities before they manifest as serious cardiac events, while our AI-powered analytics enable precision care pathways that improve outcomes and reduce cost. This approach addresses one of health care's greatest challenges, shifting diagnosis earlier in the care journey to prevent costly emergency interventions while alleviating system capacity constraints. As we expand globally and enhance our platform capabilities, our scalable foundation positions us to drive the clinical insights that will power value-based population health management. We're achieving this while maintaining an unwavering commitment to operational excellence and regulatory compliance. Our financial discipline, evidenced by more than 500 basis points of adjusted EBITDA margin improvement while investing in growth demonstrates sustainable scaling with clear visibility to free cash flow generation. This combination of market opportunity, clinical differentiation and operational excellence creates a compelling foundation for long-term value creation. We're confident in our trajectory toward market leadership and grateful for your continued support as we transform cardiac care globally. Operator, we're now ready for questions.

[Operator Instructions] We will begin with our first question from the line of Allen Gong with JPMorgan.

Congratulations on a really good quarter. So I guess my first question is really going to fall on the guide, right? You clearly saw a lot of upside in the quarter, came in a little over $10 million above consensus for second quarter, and you're raising your full year guide, basically pulling that kind of strength forward in the third quarter and fourth quarter. I know you said on the first quarter call, you wanted to maintain some conservatism around some of the innovative partnerships you are making. And clearly, that's starting to contribute. But when we think about the difference between the bottom of your new guidance of $720 million, the top at $730 million and then the potential for outperformance at the top above that, how should we think about the drivers of that?

Yes. Thanks, Allen. Appreciate the question and being on the call here. Look, clearly, there's a lot of momentum in the business right now that has us very excited. I think the one thing I do want to be really clear about is our approach to how we think about guidance has not changed at all. We continue to set expectations that we feel highly confident in being able to deliver. And this latest revision of that guidance reflects the same philosophy. So we're not thinking about it any differently. To your point, we raised guidance last quarter by roughly $15 million on the year. This quarter, we're raising roughly $30 million on the year. It's not about introducing incremental risk. I think it's more about acknowledging the strength that we see coming across the business really across all sectors of it. In Q2 alone, we beat by our numbers, roughly $12 million. We raised the back half of the year by, call it, $18 million, which is roughly $9 million in Q3 and Q4, which to us is a measured step-up from what we're already seeing. And if you look at Q2, the momentum within the quarter was really strong, particularly towards the back half of it. So just a lot of strength in the quarter itself and really accelerating over the course of the quarter. When you think about the drivers, the core business continues to be the biggest driver that's far and away. Yes, innovative channels did contribute -- contributed nicely, but the core business is where we saw the majority of the outperformance in the quarter itself. And when we think about the full year increase of $30 million, I would say roughly 2/3 of that is coming out of the core business, which is being fueled by both strong execution from our commercial team and our EHR integration teams, but onboarding of new accounts as well that are just meaningful in size and have quickly transitioned into some of our largest accounts. So the core business is performing incredibly well. I would tell you, Zio AT continues to perform exceptionally well. I think the competitive disruption that we saw there late last year initially helped turn attention towards AT. But I think the momentum we see in that business right now is more sustained, especially in accounts where we've built strong integrations. We see our new customers coming on deploying both Zio monitor and Zio AT at the same time to a much greater degree than what we had seen in the past. And so we're highly confident in that business. And then to your point on innovative channels, we certainly saw a bit of outperformance in the second quarter. We've guided a bit of an increase. I'd say about 1/4 of the increase on the full year is coming out of innovative channels. I spoke about the fact that we increased our prescribing physicians with Signify by nearly 1,000 physicians in the quarter itself. We just got launched with CenterWell, and we just re-upped the contract with the partner in the fourth quarter that we had talked about a couple of quarters ago that will begin patching in the back half of the year. So continue to feel really good about the guide overall. I would set it out there that it's not our intent to beat the guide each quarter by, call it, $10 million to $12 million, but it is about setting up a guidance expectation that we feel very good we can execute against and deliver. And if we execute well, outdeliver.

Our next question comes from the line of Joanne Wuensch with Citigroup.

This is actually Anthony on for Joanne. Just a quick follow-up on the previous question. Are you able to share what -- in the quarter, what the volume contribution was from those innovative channel partners? And then the 40 accounts that you're sort of in active discussions with, can you give any maybe timeline on when you expect those to come online?

Yes. We're not going to break out the actual contribution from the innovative channel partners. We gave you a peek into that last quarter. We said it was about 3% of total revenue. I can tell you that stepped up in Q2 and exited the quarter even higher as we continue to bring these folks on and they continue to prescribe more on a daily basis. Relative to the 40 accounts that are out there, I think it will be a nice steady cadence over the remainder of the year and into next year. I'm not going to guide in terms of how quickly and what number we expect within the next quarter itself. I think we want to continue to get some experience here and see how that comes together. I am excited by the Lucem announcement that we made relative to the AI partnership. I think it speaks directly to the innovative channel partners incredibly well, where we can get into those innovative channel partners medical data history sets of their patients, identify through algorithms, which ones are likely to have arrhythmias and then get patches on those folks. Early results coming out of some of these pilots with the Lucem algorithm, it's remarkable where we find yields of 80% to 90% hit rates in terms of patients who had no idea they might have had an arrhythmia do, in fact, have an arrhythmia that needs to be treated. So we're excited by it. We'll update you as we go, but I'm not going to give a specific number this quarter. I'll just tell you it stepped up from where it was at in Q1.

Our next question comes from the line of Brandon Vazquez with William Blair.

Congrats on a nice quarter here. Quentin, I was really intrigued by the comment that you had made about when you're getting into these Epic accounts, you're actually seeing increased volumes as you go and you integrate into the accounts. So maybe can you spend a minute just talking about what does that look like? Where are these incremental patients coming from? Why are you seeing increased volumes? And if possible, I'll stretch and try to ask, are there any numbers you can give us on how big that opportunity is and like what the incremental patients are. But any color around that would be helpful.

Yes. Look, we've been really pleased with the integrations around the Epic opportunity. They've been a terrific partner. We've got a team internally who's dedicated entirely to the Epic integrations, and we're moving as quickly as we can, and that team has done a phenomenal job. As I mentioned, we've got north of 40 accounts actively in integrations in that pipeline and continues to build. And so we're super excited by it. I would tell you the contribution in the second quarter from Epic didn't really lead to outperformance. We're still in the very early stages of getting these accounts onboarded. We really just started to open it up at the beginning of the year. But we see some really promising trends in those accounts that we're integrating. I would tell you, on average, we see north of 20% increase in prescribing patterns post integration, some accounts even as high as 40%. So we'll monitor it as we go. We're super bullish on the opportunity here with Epic. We understand the value of the streamlined workflow. What we like to see is when we get integrated with these accounts, not only are they integrating Zio monitor, but Zio AT quickly comes along and we become a single solution for an entire system, which is nice to see. In terms of the size of the opportunity, I would just tell you, 65% of our accounts that are integrated or using EMRs are roughly Epic related. So there's a tremendous opportunity in the current customer population that are already using Epic to integrate with Aura.

Our next question comes from the line of Marie Thibault with BTIG.

I wanted to ask for a little bit more detail here. You told us a little bit about the drivers of the guidance raise going forward. I think I heard 2/3 from core and new accounts and 1/4 of it from increasing from innovative channels. What was a little bit of difference there? The Zio AT, I'm guessing might have been part of it? And can you give us a similar breakout for what drove the outperformance in Q2? Just very curious about the details there.

Yes. I would tell you the outperformance in Q2 is very similar to how we thought about the raise on the full year. So the core business drove the majority of that outperformance in the quarter. Zio AT and innovative channels sort of contributed in an equal way the remainder of that delta. And that's the way to think about the full year guide. So of the $30 million increase in the full year, call it, roughly $20 million from the core business and the other $10 million was split relatively evenly between Zio AT and innovative channels, which when you look at the outperformance in the second quarter, compare that to the guide for the full year, the amount of incremental or increase in the guidance that we put through in Q3 and Q4 relative to Zio AT and innovative channel partners is actually a bit less than what the beat was in Q2. So continue to hold back there a bit of our optimism. We want to continue to see that play out, but we continue to like the setup relative to those 2 opportunities.

Our next question comes from the line of Nathan Treybeck with Wells Fargo.

Congrats on a pretty strong quarter. Can you say if there are maybe 1 or 2 key innovative partnerships of the 12 that you disclosed that are kind of underpinning this growth outlook? And in terms of reorder rates in these accounts, what are you seeing? How sustainable is it?

Yes. I will tell you, Signify, we've talked quite publicly about. They've been an outstanding partner here. They certainly are contributing very nicely. CenterWell that I just announced in my prepared remarks has very quickly stepped up, is going to be a meaningful contributor in this innovative channel partners. We've talked about Oak Street in the past. They've been our longest partner in this innovative channel partner opportunity, but they continue to prescribe at very healthy rates. I think one of the things that's really encouraging to us as we continue to get closer to these partners of ours is just learning about their prescribing patterns. I think what we're learning is most of these folks expect this to be a repeat monitoring sort of opportunity into the future where whether they're retesting every single year, their patient population to try to stay ahead of the asymptomatic population that is just completely unaware and avoid those catastrophic downstream events or they're signing up new patients who are coming in all the time. There's going to be a continuous repeat sort of prescribing pattern with these innovative channel partners that excites us. And I think, again, just speaks to the optimism about the future here. When we talk about a 27 million patient opportunity, the majority of those are asymptomatic or symptom confused. Many of them are experiencing comorbid disease states, type 2 diabetes, COPD, CKD. A lot of times, they're confusing symptoms with true arrhythmias. We need to find those patients. And the way to find them is through innovative channel partners, which is why we've got a big bolus of targeted accounts that we're in conversations with, and we've got a whole list behind that, that we'll continue to step into as well. But I couldn't be more excited about the innovative channel opportunity as we move into the future.

Our next question comes from the line of David Roman with Goldman Sachs.

I know, Dan, you talked about the physician fee schedule and impact to direct reimbursement. But I was hoping maybe if you had any preliminary thoughts on the ambulatory specialty model proposal that came out that appears to have some incremental incentives associated with early detection. I know that is not expected to go into place until 2027, but maybe any early thoughts on that and how that might be a source of incremental demand on the forward?

Yes. David, good question. It's Dan here. We are aware of that. Our teams are certainly looking into that as we think about what's on our product road map, what those opportunities are for securing additional reimbursement. We'll see what ultimately gets finalized in the final rule. But it is something we're exploring. We're excited about those types of initiatives being brought forward on the fee schedule, and we'll be exploring those into the future.

I think ultimately, David, those create greater awareness in and around disease, disease state and prevalence of it. And the more we create awareness, I think the greater lead opportunity ends up being into our product ultimately.

Our next question comes from the line of David Saxon with Needham & Company.

Congrats on the quarter. I wanted to ask about guidance, and it's a 2-parter. So third quarter, I think, Dan, you said you're expecting it to be down sequentially due to seasonality, and that all makes sense. But I look back and except for last year, you were able to grow through that seasonality and last year, you were flat. Quentin, you talked about growth or strength accelerating into the second half of the quarter. So I guess it sounds like the momentum should continue. So why would third quarter be down sequentially? And if it, in fact, is, can you give us some guardrails around what that sequential growth might be? And then the second part of the question is just around that renewed partnership with the channel partner you saw in fourth quarter. If memory serves, that was a very lumpy partner with their monitoring. So is that how to think about their go-forward cadence? Or should it be smoother or more gradual going forward?

Yes. David, it's Dan. I'll take the first question there, and maybe Quentin will take the second one. So I did say Q3 revenue down slightly. You can think of that as, call it, down 1%. You're right to point out last year, down a little bit less than that 1% and growing through that in prior years. I do -- seasonality is real in our business, right, as physicians and patients do go on vacation and enjoy the summer months. So that is something we're mindful of. It is something we've seen in the business. And then I would also just point out with innovative channel being a bigger growing part of our business, those are kind of new prescribing patterns, new patients. And again, I want to make sure we're being thoughtful in terms of how we're thinking about guide. So I believe that's the right way to think about it, that down 1% for Q3. And then I'll let Quentin address the second question.

Yes. And I would just -- I would add to that. We're bringing that Q3 number up by, call it, roughly $9 million, right? So it's still a meaningful improvement in the Q3 guide and what that implies for Q4 when you think about $30 million on the full year, and you know what we outperformed in Q2. So obviously, we feel good about the momentum in the business. But to your point, I think it demonstrates some of the thoughtfulness around how we continue to think about our guide and set up the guide to make sure that we can ultimately deliver on it. Your question around the lumpiness of the partner in the fourth quarter, I think it's a little bit too early to identify exactly what their prescribing patterns are going to be. What they ran in the fourth quarter was a bit of an isolated program with a targeted population that they got through very quickly. This program is to go beyond that population now and go more broadly across their entire patient set. I suspect it's probably going to be a lot less lumpy than what it was in the fourth quarter. But until we really see prescribing patterns come from that partner, I think we're going to be a bit hesitant to really roll it into expectations. We just -- we want to have a bit of experience behind us before we get ahead of ourselves there.

Our next question comes from the line of Richard Newitter with Truist.

Congrats on the quarter. Maybe just the first, the underlying environment, this was a pretty significant step-up in growth or growth acceleration. Is there -- is this all underlying market growth picking up? And if so, what's behind that? And is there potentially some halo from just the PFA market and electrophysiology pickup there driving that? And to what extent is the share gains as well that might be [ growing ] your growth?

Yes, Rich, thanks for the comments. Look, I think it's a combination of all of it, to be honest with you. There's no question. PFA is having incredible success and those procedures need to be monitored, and I'm sure we're getting a bit of a benefit from that. I don't think it's the vast majority of it. When you look at PFA procedures, there's probably 300,000 to 400,000 being performed. There were ablations being monitored prior to PFA being introduced as well. So there's probably some benefit, but it's hard for us to measure that specifically, to be honest with you. We don't always know when our monitor is being used post PFA procedure or not. But I'm sure there's some contribution to it, and we'll continue to enjoy that benefit, and we want to be there to monitor those patients. I do think our market share position continues to improve even in long-term cardiac monitoring market. We have north of a 70% market share. Our latest data would tell you -- tell us it's probably close to 72%, which is an increase from where it was at coming into the year. So I do think we continue to take share. But importantly, I do think the overall market continues to expand. We have made a very concerted effort to push prescribing up the care pathway into primary care. And the reality is more patients are seen at the primary care physician's office, and they're more likely to get a patch in that setting than having to wait until they get referred on to Cardiology. What I love seeing in a lot of these large IDNs that we're working in is that many times now a cardiologist or an EP won't even want to see their patient unless they have a report in hand that's been prescribed earlier in the care pathway by primary care and then they show up with it or they look at the report before the patient ever gets there and makes a determination that they do or don't need to see the patient. That is -- that's a terrific sort of way for the product and our tool to be used as it becomes sort of a rule in and a rule out opportunity. And when we look at it down through our business, the amount of prescribing happening in primary care continues to grow in a meaningful way, both in the large IDNs that we're in today, where the cards and the EPs are moving prescribing to primary care, but also then in these innovative channel partners where they are predominantly primary care physician offices. So I think it's a combination of all 3 that you hit on. I think that it's overall market expansion. I definitely think we're taking market share in this space, both on the monitor and AT side. And yes, I think PFA is probably contributing a bit as well.

Our next question comes from the line of David Rescott with Baird.

Congrats on the really strong quarter here. I wanted to ask on the new store growth call out that you've been calling out. It's ticked up pretty meaningfully, not only on a quarter-over-quarter basis in the past couple of quarters, but also year-over-year. And first, I'm just wondering if the innovative channel partners are captured in that new store growth call out? And then if at all, is it something on the core business, the AT business, these innovative channel partners that are kind of pulling up the same-store growth broadly overall? And when you think about these, I guess, the same-store, our new store mix going forward as well as the innovative channel partners. Is there anything we should be thinking about from a margin contribution perspective in either of those kind of thought processes as it relates to that original, I think, 15% operating margin or EBITDA margin that you laid out for the 2027 time frame?

Yes. Thanks for the question, David. This is Dan. I can address those questions there. So you're right to point out new store growth ticking up slightly from what we saw in Q1 and really kind of historical patterns. That number does bounce around a little bit. We have been very successful in onboarding new accounts, but not only innovative channel partners, but also within the core business. And we called that out in our prepared remarks. So we've seen a lot of success recently launching large IDN customers across their entire prescriber base with EHR integration with Zio monitor, with Zio AT. So really impressive launches, and that is contributing to that new store growth number as well. And then it's important to point out overall revenue growth has accelerated as well. So there's still really healthy growth from that same-store number, if you were to do the math there as well. Your question in terms of margin related to the innovative channel, still very early, but we do believe that can be a very profitable part of our business. We've talked about this one-to-many selling model many times before. We mentioned 1,000 prescribers at Signify turning on, and we're engaging with these accounts really at the top end of these accounts. So we'll see where it goes over time. We're still in the early innings, but I believe it can be a meaningful contributor to the business.

Our next question comes from the line of Suraj Kalia with Oppenheimer.

Quentin, Dan, can you hear me all right?

Yes.

Yes, Suraj.

Pardon the background noise, Quentin. So I'll be quick. Obviously, a fantastic quarter, Quentin. Maybe you could help us understand. Quentin, you guys are the de facto standard of care on long-term monitoring. For Zio AT in particular, or the MCOT category in particular, I'm curious if you could give us some additional color what all needs to happen because I think so all of us are looking at a straight line to 70% share, but it's not the same as long-term monitoring. Maybe you could help us understand for MCOT, for your velocity of share gains to increase, is it just blocking and tackling? Is it large IDNs? Is it [ form ] factor? Any additional color because that component of the buzz business is obviously picking up pretty rapidly. Any color there would be great.

Thank you, Suraj. We appreciate that. Look, we are very excited about the MCT category as a whole and our opportunity to continue to take share there. We know that we've got a long way to go to sort of get to parity in terms of market share position relative to long-term cardiac monitoring. I think there's a few things going on there. And as I look back over the last 1.5 years or so, I think we've learned a lot about our AT business. You look prior to the warning letter and the 483 observations that we were dealing with, that AT business was growing very healthy for us, 60%, 70% every single quarter. And then post that, it really dropped down to, call it, roughly around 20% there for a period of time. And yes, there was a competitive disruption that sort of opened the opportunity for customers to begin to look elsewhere, and we certainly took advantage of that opportunity and put our foot in that door with AT. But I think folks are beginning to realize very quickly that the AT product is actually a pretty good product. There's still many shortcomings relative to what the ideal product demands in that space. But when you look at Zio AT and the fact that we monitor for 14 continuous days on a single patch, you're going to get 14 good days of monitoring out of that. And you look at competitive MCT products in the market, even though they're indicated up to 30 days, we know from data that the average wear time for competitive MCT devices is only 12.8 days. They're only wearing 2 patches generally to get to the 12.8 days. So we do offer a solution that I think is easy to use. Patients like it. Once we get integrated with systems, it's very easy from a workflow perspective to use both Zio monitor and Zio AT, and that has contributed to our success to date. But I also think that does have some limitation in terms of how far it can go if we ever want to get to the full 70%. And that's why we're excited about Zio MCT, which will get submitted with the FDA this quarter. When we bring that product to market, we're going to have a much longer duration. We're going to be on the same form factor as monitor. We're going to have the ability to really start to close some of the competitive gaps that have been out there relative to other products that Zio AT just hasn't had. And I do like that opportunity to continue to close that gap. But I also think as we learn more about the AT -- or sorry, the MCT market, there's probably 2 markets within MCT. There's what we call sort of the buy and build market where customer accounts are buying the device directly from competitor of ours. They put it in their clinic. They're doing the interpretation, the reading right there in clinic, downloading the data. We don't offer that sort of business model. And Zio MCT is something that we're going to have to continue to evaluate how we address that segment of the market. I think that's probably 20% or so of the entire MCT market that we're still probably going to have to think through the right product market fit for how we get after that segment of the market. But there's still 80% of that MCT market that our MCT product, new MCT product is going to go squarely at and I think going to have tremendous success within it. So a lot that we're still learning there, very bullish on the MCT market overall and clearly incredibly thrilled with the success that the team is having in driving the AT product in that business opportunity today.

Our next question comes from the line of William Plovanic with Canaccord Genuity.

It's a good quarter. Everybody has asked a lot of the great questions. I'd really like to focus on the FDA. It looks like it's in the rearview mirror. I just want to clarify at this point, you've answered -- where are we in the process? It sounds like you've answered all the questions and you're just waiting for that final inspection in terms of the 483 and the warning letters. I want to be clear on that, kind of what's left there? And then secondly, given the commentary that the Zio MCT is going to file this quarter, I assume that, that means they're running in parallel, not sequentially in terms of kind of wrapping one up before you go for the next.

Yes. Let me hit that last one, Bill, first on the MCT filing running in parallel. I presume you mean in parallel with sort of remediation or the FDA coming back to close down the warning letter. And if that is what you're referring to, you're absolutely right. They will run in parallel. There's nothing that's holding up our MCT submission and the FDA reviewing that. So that will get on file here in the third quarter. And yes, it will run in parallel. With respect to the FDA, I think it's important to note, I don't ever view it as it being in the rearview mirror. I think this is a new way of doing business for us. We have revamped our quality management system. We're doing things in a very different way than what we had historically, and that's the new way of doing business for iRhythm. And we've embraced that, and I think it ultimately becomes a competitive differentiator as we think about sort of how these IDTFs get utilized in this marketplace. I think our team has done a phenomenal job of addressing the concerns that were identified in the warning letter and the 483 observations. To your point, we have submitted all of our responses to them, and now we're waiting for them to respond to us up to and including an inspection to close out the warning letter. So everything we've committed to that had dates tied to it, obligations tied to it, we have completed that, and we have handed that back over to the hands of the FDA. Now keep in mind, we obligated ourselves to go above and beyond what the FDA was focused on. We took a holistic view of the entire quality management system and said we're going to revamp the entire thing as we get after this. There's still some work that we're doing there that went above and beyond what the FDA had focused on that will be completed in the back part of this year. Once that is completed, that is when we'll have the third-party firm come in and audit us just as if they were the FDA and frankly, probably with more of a scrutinizing eye than even the FDA would. And we've told the FDA, we'll share the outcome of those results once they're through it. So I feel really good about the progress we've made here. The tone, the communication, it's a 180 from what it was 2 years ago. I do think as we continue to innovate in this space at the pace that we want to, we're always going to be working very closely with the FDA, and that needs to be a very collaborative relationship. And that's what's been established now, and I'm really pleased with how the teams have handled that and the relationships they've been able to build. So I hope that answers your question. We're excited about the future. We still have a little bit of work here to do to close out the formal warning letter, which includes them coming on site. I can't tell you when that's going to happen, but we're ready for them when they're ready to be here.

There are no additional questions waiting at this time. I would like to pass the conference back to the management team for any closing remarks.

Well, thank you. Thank you for your time today, and thank you to our outstanding iRhythm team. It's hard to imagine a time when we've been more optimistic about the future that sits ahead of us. The market opportunity is substantial. Our competitive position is strengthening, and our execution continues to deliver. We look forward to continuing to execute against our strategic plan and unlock the tremendous potential that sits before us. Thanks again for your time today, and we'll see you all soon on the road.

That concludes the iRhythm Technologies, Inc. Q2 2025 Earnings Conference Call. I hope you all enjoy the rest of your day. You may now disconnect your lines.