iRhythm Technologies, Inc. (IRTC) Q3 2025 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today's iRhythm Technologies, Inc. Q3 2025 Earnings Conference Call. My name is Jemma, and I'll be your moderator for today. [Operator Instructions] At this time, I'd like to turn the conference over to our host, Stephanie Zhadkevich, the Senior Director of Investor Relations. Please proceed.

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the third quarter ended September 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 facts 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 the 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 their most directly comparable GAAP financial measures. Unless otherwise noted, 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, October 30, 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, and good afternoon, everyone. We appreciate you joining us today. Dan Wilson, our Chief Financial Officer, is with me on today's call. My remarks will focus on our business performance during the third 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 the year. We're pleased to report another quarter of strong commercial momentum, reflecting our disciplined execution and differentiated platform technology. For the third quarter, revenue was $192.9 million, representing year-over-year growth of 31%. This result was driven by record performance in both Zio Monitor and Zio AT, continued success moving monitoring upstream through primary care expansion, penetrating further into innovative health channels and a record number of new EHR integrations that continue to deliver measurable impact. Our competitive differentiators, operational scalability, market access advancements, market expanding innovation, EHR investments and clinical evidence are resonating across the health care ecosystem. Together, these capabilities have enabled us to deliver meaningful impact for patients with iRhythm Services having generated nearly 12 million reports worldwide. Within our core U.S. business, account expansion and system-wide conversions remain robust. We continue to see strong adoption in both hospital and ambulatory settings, supported by our EHR integration strategy and a streamlined digital workflow that improves clinician efficiency. Larger integrated delivery networks are increasingly choosing iRhythm for enterprise-wide solutions, recognizing the clinical and operational value of our scalable platform, enabling full network conversions in a way not previously seen in our company history. Our EHR integration strategy continues to deliver meaningful value as 76 of our top 100 customers are now EHR integrated. We now have 30 systems live with Epic Aura with an additional 65 systems in active implementation or advanced discussions. Epic Aura integrated customers typically see an average increase of nearly 25% in monitoring volume within the first 6 months of going live, reflecting how digital connectivity directly enhances utilization and physician efficiency. We continue to make strong progress expanding into primary care, where upstream use of Zio as a rule-in or rule-out tool supports earlier intervention for improved patient outcomes. This approach helps alleviate specialist bottlenecks, improves physician network efficiency and can allow for more proactive and timely care for the benefit of patients. Clinical evidence remains at the core of our differentiation. At major conferences this year, including ADA, ACC and HRS, new real-world analysis underscores the importance of early detection and monitoring. We consistently see that arrhythmias often precede major cardiovascular events and that proactive monitoring strategies to identify patients earlier in their care pathway have demonstrated significant reductions in emergency visits, shorter hospital stays and lower overall cost of care for patients managed with proactive monitoring. Recent published data further validates our approach. For every 1,000 patients with certain comorbid conditions that are diagnosed with arrhythmias earlier in the care pathway, there is potential for over $10 million in downstream cost avoidance by preventing events that increase health care resource utilization, such as ER visits and hospitalizations. Real-world claims analysis indicates that arrhythmia patients are hospitalized more than twice as often as non-arrhythmia patients. With 2 to 5 extra days of length of stay and ER visit rates more than double compared to non-arrhythmia cohorts. These findings reinforce the strategic importance of proactive monitoring and AI-driven risk stratification, not only to reduce catastrophic events, but to lower the total cost of care. Additionally, the AVALON study published in the American Journal of Managed Care in August, once again confirmed the clinical superiority of Zio's long-term continuous monitoring service, this time in a significantly younger population. In a real-world analysis of more than 400,000 commercially insured patients with an average age of 46 years, Zio demonstrated higher diagnostic yield, faster time to diagnosis, fewer cardiovascular events and lower total health care costs compared to other monitoring approaches. These findings were consistent with the results from the earlier CAMELOT study, which analyzed over 300,000 Medicare patients, reinforcing the strength and reproducibility of our clinical evidence across large diverse populations. Despite this evidence, the fact remains that nearly 2 million short duration Holter and event monitors continue to be prescribed in the U.S. each year, representing a market opportunity of nearly $500 million. Our risk-bearing and innovative channel partnerships have continued to expand, reflecting the growing recognition of the value of proactive monitoring. We now have 18 active partner accounts with a healthy pipeline of additional partnerships currently under discussion. These partnerships enable population health programs generally targeting large undiagnosed arrhythmia populations, particularly individuals living with type 2 diabetes, COPD, chronic kidney disease, sleep disorders and heart failure. Through these programs, we have the potential to prove the value of proactive detection and demonstrating meaningful reductions in hospitalization rates and health care costs. As announced this past July, our partnership with Lucem Health continues to advance clinical AI capabilities by enabling the ability to look across the medical records of large patient data sets and identifying undiagnosed patients at highest risk of cardiac arrhythmias. Early results in pilot settings have been encouraging in terms of the ability to proactively identify with high degrees of accuracy where cardiac arrhythmias exist in these unaware populations, reinforcing the strength of our data-driven approach and our ability to deliver population health insights that improve outcomes for the more than 27 million patients in the U.S. that we believe are living with undiagnosed arrhythmias. As we further validate the accuracy of the predictive arrhythmia solution, we are gathering valuable insight into how to best engage and scale across health systems. We have a number of Tier 1 health systems in active discussions and believe this partnership represents an important step in our strategic evolution from a device-enabled service into a comprehensive digital health platform powered by data and artificial intelligence. The third quarter also set another record for Zio AT with year-over-year unit growth more than double our corporate average. We continue to expand within existing accounts but notably are launching more new accounts with both Zio Monitor and Zio AT from the outset with workflow integration through EHR systems acting as a key enabler to accelerate utilization and improve system-wide physician adoption. In September, we submitted our 510(k) filing for Zio MCT, our next-generation mobile cardiac telemetry solution featuring a smaller form factor, extended 21-day wear, advanced detection algorithms and an improved final wear report. We look forward to continuing to partner with the FDA throughout the review process. Also on the innovation front, we're advancing development of AI prediagnostic and diagnostic pathways for sleep apnea, a chronic condition associated with an increased risk of arrhythmia and cardiovascular disease, particularly amongst undiagnosed individuals. Our internal data suggests that many of existing iRhythm customers are already prescribing home sleep testing and their patients being diagnosed with sleep apnea. Clinical literature has suggested that up to half of patients with AFib have sleep apnea and that the prevalence of AFib increases fourfold in patients with severe sleep apnea. Further, the literature shows that sleep apnea adversely affects AFib treatment outcomes and that outcomes can be improved with treatment of both conditions as well as cardiovascular risk factor modification. Given the meaningful clinical overlap, sleep apnea represents a natural and highly complementary adjacency for our cardiac monitoring platform, reinforcing our ability to expand into adjacent markets that share meaningful clinical overlap. Importantly, by providing broader clinical insights, we can provide the tools to clinicians that have the potential to allow for a more efficient workflow, better patient experience and holistic approach to patient care. Outside of the United States, we continue to advance commercially to drive adoption of long-term continuous monitoring. In Japan, we now have 13 systems live, supported by positive physician feedback highlighting Zio's clear and comprehensive reports, rapid turnaround time and Zio's ability to find arrhythmias that might be missed with other solutions. We are also advancing evidence generation to support potentially differentiated reimbursement with retrospective and prospective studies underway that include head-to-head comparison of Zio versus local Japanese cardiac monitoring devices in local patient populations. With the Japanese Heart Rhythm Society recommendation and high medical needs designation, we are hopeful that this additional real-world evidence will strengthen our reimbursement positioning over time. In Europe, growth in the U.K. private market remains strong, and we continue to grow our presence in the 4 EU countries. Our focus on clinical evidence and key opinion leader engagement is building awareness and credibility across these new markets. The Oxford University led a multi-randomized trial of over 5,000 patients presented at this year's ESC Congress and published simultaneously in JAMA, demonstrated that a remote screening strategy with the Zio long-term cardiac monitoring service led to higher AFib detection rates and faster diagnosis versus usual care and in an older population with more comorbidities compared to prior screening trials, including mSToPS. The data show that just as we have proven in the U.S., primary care initiated home-based monitoring with Zio at scale is feasible and effective, reinforcing the potential for growth in primary care channels in the U.K. and beyond. Overall, our third quarter results demonstrate the operational and financial momentum across iRhythm. We are executing well on our strategic priorities with disciplined execution. While our commercial momentum continues to build, our focus on driving productivity gains and improving efficiencies are allowing us to meaningfully advance our profitability profile at the same time. Importantly, we are now generating positive free cash flow earlier than anticipated and expect this year to be free cash flow positive on an annual basis for the first time in our company's history, reflecting both the strength of our commercial model and the progress we've been making in building a scalable, sustainable and profitable business. With that, I'll turn it over to Dan to review our financial performance in more detail.

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 another quarter of strong profitable growth in the third quarter with revenue of $192.9 million, up 30.7% year-over-year, combined with an adjusted EBITDA margin of 11.2%. Volume growth was strong across both product lines, driven by continued execution in our core business, sustained Zio AT volume growth and contributions from innovative channel accounts. Pricing also came in slightly favorable due primarily to higher Zio AT product mix. New store growth with new stores defined as accounts that have been open for less than 12 months accounted for approximately 60% of our year-over-year volume growth. Home enrollment for Zio Services in the U.S. remained steady at approximately 23% of volume in the third quarter. Moving down the P&L. Gross margin for the third quarter was 71.1%, an improvement of 230 basis points compared to the third quarter of 2024. This 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. Third quarter adjusted operating expenses were $141.4 million compared to $143.8 million in the third quarter of 2024. Recall that third quarter 2024 adjusted operating expenses included a $32.1 million charge associated with licensed technology that was recognized as acquired in-process research and development, or IPR&D expense. Excluding that charge, the increase in adjusted operating expenses in third quarter 2025 was primarily driven by volume-related costs to serve and investments to drive future growth. On a normalized basis, adjusted operating expenses as a percentage of revenue improved as a result of thoughtful and intentional initiatives that our teams have implemented to drive sustainable efficiencies while simultaneously investing in growth initiatives and infrastructure investments for future scale. Adjusted net loss in the third quarter of 2025 was $2 million, or an adjusted net loss of $0.06 per share compared to an adjusted net loss of $39.2 million, or an adjusted net loss of $1.26 per share in the third quarter of 2024. Adjusted EBITDA in the third quarter of 2025 was $21.6 million, or an adjusted EBITDA margin of 11.2% of revenue compared to an adjusted EBITDA margin of negative 13.5% in the third quarter of 2024. Excluding IPR&D expenses, adjusted EBITDA margin during the third quarter of 2024 would have been 8.3% versus 11.3% for the third quarter of 2025, an improvement of approximately 300 basis points. Given our strong performance year-to-date and our outlook for sustained growth, we are raising our revenue guidance for full year 2025 to $735 million to $740 million or 24% to 25% year-over-year growth. This outlook contemplates continued strong volume growth as well as a low single-digit pricing tailwind. We continue to anticipate a strong fourth quarter aligned with normal seasonality, but note that our year-over-year growth rate outlook includes a slight deceleration due to the unique strength of our business in the fourth quarter of 2024 as discussed previously. For gross margin, we continue to anticipate full year 2025 gross margin to slightly exceed full year 2024 gross margin as clinical operations and manufacturing efficiencies largely offset impacts from tariffs on global imports. We continue to anticipate approximately 50 basis points of negative impact to gross margin from tariffs for the full year. We are also raising our full year adjusted EBITDA margin guidance to 8.25% to 8.75% of revenues. As discussed in prior quarters, adjusted EBITDA continues to absorb acquired IPR&D expenses, tariff impacts and FDA remediation expense. Finally, we ended the third quarter in a strong financial position with $565.2 million in unrestricted cash and short-term investments. Free cash flow generation during the quarter was $20.0 million, which marks our third consecutive quarter of trailing 12-month positive free cash flow generation. We now expect to be slightly free cash flow positive for full year 2025. This significant company milestone represents our ability to drive sustainable efficiencies while also investing in infrastructure, growth initiatives for future success and next-generation technology platforms. In closing, we were very pleased with our financial results from the third quarter of 2025 and the sustained growth of our business. Our teams are executing at a high level, and we remain focused on delivering durable profitable growth. We see momentum across multiple growth vectors, and we are making appropriate investments in growth initiatives and infrastructure scalability while continuing to improve our profitability profile. We believe this sets us up well for continued profitable growth as we close out 2025 and look towards 2026 and beyond. With that, 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. In closing, the continued progress we've made this quarter is a testament to our accelerating momentum. We're expanding adoption, forging new partnerships and delivering innovative solutions that are transforming cardiac care. Our clinically proven platform, advanced AI analytics and seamless digital integration are driving real impact for patients, providers and shareholders. With each milestone, we're building toward a future where early actionable cardiac insights are the standard, and iRhythm is leading the way. Operator, we're now ready for questions.

[Operator Instructions] Our first question comes from Nathan Treybeck with the company, Wells Fargo.

Congrats on a very strong quarter. Just to kick it off, Q3 growth accelerated versus the first half and guidance implies over 20% in Q4. You didn't see the expected seasonal step down. So your core Zio Monitor business has been accelerating for the past couple of quarters on record new account openings. I was hoping you could go into more detail on what specifically has been driving the new account openings and the volume growth? How much of it is share shift versus overall market growth?

Yes. I think -- Nathan, thanks for the question. It's good to be talking with you. I think there's a few things that are driving the growth in that core business. And I would point out, it was a record quarter for us in the monitor business, just like it was in the AT business, to be quite honest with you. And a lot of that is driven by new accounts onboarding. But one of the things that's unique about iRhythm in the last 12 months is we've developed the ability to scale and really absorb the entire network of these customers who are coming on board on day 1. And that's very appealing to these customers where historically, we might have to go in and convert an account at a time and work to ultimately convert the entire system over a period of time. Now we're able to do that out of the gate. The other thing that I would note in those new accounts is that we're seeing more than ever new accounts come into working with iRhythm, where they're bringing their entire long-term cardiac monitor business, so monitor, but also bringing their MCT business with AT as well, and that's fueling a lot of strength in the AT portfolio for us, which I think is just reflective of the value of that product line and these customers seeing that. So the quality of the new accounts has gotten stronger and stronger over the course of the year. The size of them has gotten stronger, and we're more bullish than ever on our ability to continue to take share, but also grow the overall market. There's no doubt that the move to primary care continues to expand. We're seeing it within the networks that we're already in. And of course, innovative channel partners continues to grow as well as it did from Q2 to Q3 and stepping up there. So quite a few drivers across the business, but I think it's a combination of market share shift as well as the overall market probably picking up a bit.

Our next question comes from Joanne Wuensch with the company, Citigroup.

This is actually [ Anthony ] on for Joanne. Sort of just piggybacking off of Nathan's question. You raised the full year by more than a beat. I think it implies like a $4 million and change over consensus for the fourth quarter. Could you maybe just pick apart what is driving that outperformance you're expecting this quarter?

Yes. Thanks for the question, Anthony. This is Dan. I can start and Quentin can fill in with anything. So as Quentin just spoke to, really the beat in Q3 was primarily attributable to monitor in the core business, but also saw a really healthy contribution from AT, record growth for both AT and Monitor and then growing contribution continued from innovative channel. And as we think about the fourth quarter, it's a very similar setup. I would point out the raise for the guidance for Q4 really primarily tied to Zio Monitor, still expect nice healthy growth from both AT and innovative channel. Those are 2 that we've -- particularly with innovative channel have taken the approach to really leave outside of guidance for everything that we don't have really strong visibility to and high confidence. So very similar approach to Q4. Most of that raise is attributable to Monitor. But encouragingly, seeing really good contribution across the different businesses.

Our next question comes from Richard Newitter with the company, Truist.

Just wondering on AT, momentum seems to be holding strong. As we think about the launch of MCT next year or at least potential approval, I mean, how should we be thinking about growth cadence for MCT?

Yes. Thanks for the question. Look, we continue to be very encouraged by the performance in that AT business line. I think when you start to dissect it, what's really encouraging is that we're seeing it grow very well in our existing core monitor accounts that are now beginning to adopt AT, but also more than ever, the new accounts that are coming on board with us are coming on board using both Monitor and AT out of the gate. And I think that bodes well for our expectations into the future when we're seeing that these new accounts are willing to come on board with us using both product lines. In terms of MCT itself, I think that's a hard one for us to forecast exactly when it's going to ultimately make its way to the market. We're planning for that to be in the back half of next year. However, I think without clear visibility from an FDA perspective on what the timeline is from an approval perspective, you're probably going to see us set up expectations for 2026 that don't include MCT contribution until we have real clear line of sight into when that timeline is going to firm up for us. So I continue to be big believers in the AT business, super bullish on the opportunity to convert market share within that MCT category. I think we're probably around a 13% market share player today. I think there's a real path into 25%, 35%. But in terms of MCT itself, I think we want to see some clear line of sight to exactly when that approval might come before we start to really bake in expectations, at least for '26.

Our next question comes from David Saxon with the company, Needham & Company.

Congrats on the quarter. So I wanted to ask on the innovative partner channel. So I think it was last quarter, you talked about 100 potential partners in the U.S. I think in the script, you said you had 18 today. That's up 6 from last quarter, I believe. So can you just talk about the sales cycle there? Like how long does it typically take to onboard? And then what's a realistic penetration level for that channel over the next, call it, 1 to 2 years? And then can you also size that customer group at this point in terms of percentage of sales?

Yes. Maybe I'll hit that last point first. We continue to see that step up from where it was in Q2. We're not going to disclose it each and every quarter, but you can assume that it did continue to step up. And the overall dollar contribution from innovative channel partners was absolutely higher in Q3 than it was in Q2 as well. So we're seeing good progress there. To your point, we had 12 customers in Q2. We communicated in the prepared remarks, we're up to 18. I would say the size of those customers on average are about similar to what we saw in the initial 12, and we're excited about where that has the potential to go. In terms of the sales cycle, it's so different by customer right now. And I think that's a little bit of the hesitation that we have in putting forward specific expectations in our guidance. I could give you the example of Signify that took well over a year to sort of get to scale. Then I could give you an example of CenterWell that took about 90 days to get to scale. So it's just -- it's a different sales process. It's a different scaling process with each one of them. Some of these move very quickly when you can show the data that is coming together articulating the value of finding these arrhythmias, particularly in undiagnosed unaware populations and some of the economic data that's coming together that is quite compelling around the impact of finding these arrhythmias more proactively. So some move very quick, some take longer. I think as we get more experience here, we'll have more confidence to know exactly how to guide to it into the future. But for the time being, as Dan shared earlier, we're going to take a little bit of a wait-and-see approach on some of these without getting way ahead of ourselves.

Our next question comes from Marie Thibault with the company, BTIG.

This is Sam on for Marie. Maybe I can ask about the latest and any updates with the FDA on the remediation efforts for the warning letter and 483s?

No, it's a good question. There hasn't been a whole lot of communication through the shutdown with the FDA, particularly from a remediation perspective. As a matter of fact, I can share with you that the FDA has been clear with us that they've asked for that to more or less be put on hold and reengage with them on remediation after the shutdown is remediated or lifted, which I think is a good sign. Our understanding is through the shutdown, these folks are focused on the more critical sort of matters and the fact that we've been asked to pick it back up once the shutdown is through is encouraging. There's not been any communication with respect to MCT at this point in time. We are -- as we shared, we've submitted it. They have it, but there's been no communication around it, which is why I think for us, as we think about 2026, it's just prudent to think about that as a year where we'll wait for some more clarity around MCT before we would put it into any expectations out there in the new year. So that's where things sit at this point in time. Obviously, if things change with respect to any communication or feedback, we'll let you know. I think it's important to recognize we're not changing anything from our continued efforts to remediate our internal systems. As you might recall, we agreed and made the decision that we were going to go above and beyond what the FDA had asked us to remediate as part of the warning letter and the 483s. We've been doing that. All of those efforts will be complete here by the end of the year. The other thing we committed to, and this has already started, is we've launched the external review/audit of our quality systems by an independent third party that we were doing on our own. We communicated that to the FDA, and we've also communicated we'd be willing to share those things with the FDA. That's gotten started. It's off to a good start. It's early, but it's demonstrating the good progress we've made, and that will continue on through the remainder of the year.

Our next question comes from Suraj Kalia with the company, Oppenheimer.

Quentin, can you hear me all right?

Yes, yes.

Perfect. Gentlemen, congrats on a fantastic quarter. Quentin, many calls going on. So forgive me if you've already touched on this. The innovative channels, the 100 or so, I thought I heard that, that you cited. Quentin, this question comes up with clients and maybe you can articulate it. What is the incremental patient pool you see in this cohort, the types of patients, symptomatic, asymptomatic, how should we think about it and the durability of this channel so that we can sort of size what is the incremental pull-through? Once again, gentlemen, congrats on a great quarter.

Thanks, Suraj. I appreciate it. One of the most encouraging things in this innovative channel effort has been the realization that these folks are monitoring more and more of the asymptomatic, undiagnosed, unaware population. There are a few partners who have targeted symptomatic patients, but we've even seen a few of those move from symptomatic into asymptomatic after recognizing the success that they're having with it. So that's encouraging, and I think it's a great data point that validates that the asymptomatic population is ultimately going to be monitored here. We believe there's roughly 27 million patients in the U.S. alone who are unaware, certainly undiagnosed, maybe confusing their symptoms with other comorbid disease states like type 2 diabetics, COPD or CKD. One of the things that's interesting that we're discovering in a lot of the data that we're capturing in the research we're doing is that just looking retrospectively over the last 5 to 6 years, nearly 90%, this is an incredible stat. Nearly 90% of patients who are either a type 2 diabetic, have COPD or CKD and ultimately get diagnosed with an arrhythmia. Nearly 90% of them were never monitored prior to that diagnosis, which just speaks to the incredible opportunity to get out there and proactively monitor these unaware, undiagnosed populations, maybe even asymptomatic populations. And what's encouraging is with the innovative channel partners is most of these programs are focused on these comorbid disease states. It also leads into sort of what we're doing around Lucem that we talked about last quarter in terms of developing these algorithmic capabilities to look across large data sets, particularly these comorbid data sets and looking through the medical records, finding these patients who are likely to have an arrhythmia, get a patch on them and then with a high degree of accuracy, certainly diagnose arrhythmias. And some of these early pilots that we've run, we've seen those yields 80% to 90% in terms of who we think has an arrhythmia, get a patch on them and find out that they do, in fact, have the arrhythmia. It's important once we diagnose them that now we help reduce the cost of caring for those patients. But the majority of the cost that these partners are saving is a reduction in ER visits, hospital visits, reduction in length of stay in the hospital. These are all things that these partners understand very, very well, and I think speaks to the durability of the channel itself as they see the benefits that are going to continue to accrue for them.

Our next question comes from David Rescott with the company, Baird.

Congrats on the really good quarter here. I wanted to ask on the margin front, the profitability front. Obviously, you had really great progress on are now expecting to hit free cash flow profitability this year, and my guess is that extends into 2026. But when you think about some of the moving pieces around Zio MCT the drag there on the gross margin line, maybe some pickup with the downgradable capabilities you have with MCT. I believe with MCT, you're going to be running on the same product manufacturing line, I believe, as what Monitor is. I recall that being talked about in the past. So I'm just trying to get a sense for how we should be thinking about this margin trajectory into -- toward that 15% goal that you called out for 2027. When you think about the pieces from MCT coming in and the scale benefits and this innovative channel partner business ramping as a percent of the business?

Yes, David, thanks for the question. So you're right, there are a number of moving pieces there. I think maybe breaking it down first starting with gross margin. We do feel -- continue to feel good about the guidance that we had previously for 2027, where we called out 72% to 73% gross margin in 2027. Obviously, we haven't provided '26 guidance yet. You heard the comments for 2025 being slightly above 2024, so call that low 70%. So feel really good about that path to 72% to 73% with all the different moving pieces, right? There's benefits from manufacturing automation as we scale the business, as we get Zio MCT on the same platform as Zio Monitor and then just continued efficiencies all around the business. So still feel good about that 72% to 73% gross margin. And similarly, with adjusted EBITDA, you've heard us talk about a cadence of, call it, 400 basis points of margin expansion year-to-year. We're set to deliver that this year relative to 2024 and feel good about that cadence continuing into next year and beyond. So absolutely still feel good about those targets that we provided for 2027.

Our next question comes from Stephanie Piazzola with the company, Bank of America.

Congrats on a good quarter. You talked about the early work you're doing in sleep diagnostics. So I just wanted to follow up if there's any more color you can provide about how you're thinking about that opportunity, any potential economics of a multi-sensing platform and some of the next steps that you're taking there?

Yes. Stephanie, thanks for the question. Sleep is something that we certainly have a lot of excitement around. I think the overlap of just cardiac arrhythmia and sleep is a natural one. We see it in our customer channel already. We see it in our patients as well. And it's a great deal of overlap in the customers we're already serving that are ordering these home sleep tests. And so I think there's a natural opportunity for us to step in here and really disrupt that space, but at the same time, really improve the workflow and the efficiency for our physician customers, but also for the patient who many times has a pretty cumbersome experience. So we're excited to be able to do that. I think you're going to see us step into it in a couple of different ways, and I'm not going to get into the real specific efforts that are going underway from a competitive perspective, but I think there's ability to see even within our patient population today and the EKG data that we're capturing where there's a likelihood of sleep disease likely being present. I think that's good information to help our physicians understand and ultimately leads into testing opportunities. And then ultimately, we want to get to where we can have a diagnostic capability right off of the platform on the chest, and that's the multi-sensing effort or opportunity that you mentioned, and that's enabled by some of the BioIntelliSense’s licensed IP that we made last year. So those development efforts are going on as we speak. I think that's a couple of years away in terms of having a diagnostic product, but I think there are a lot of things that we can do ahead of time that can really create some nice opportunity for us within the sleep channel. As a matter of fact, we've got pilots that are beginning to launch in the back part of this year and will run over the course of next year that we'll continue to learn from and help us get even better in this space and excited with where it can take us.

Our next question comes from Max Kruszeski with the company, William Blair.

Max on for Brandon. Congrats on a nice quarter here. Quentin, I think you had mentioned in your prepared remarks that 76 out of your top 100 customers have EHR integration and that these integrated accounts see an average increase in utilization of about 25% within the first 6 months. Can you just give us some color on, a, what's driving this? B, how durable is that 25% beyond the 6 months? And how is this 25% evolved compared to some of the earlier accounts you guys had EHR integration with?

Yes. Well, look, one of the things that's been unique with integrations is our announced relationship with Epic that we communicated a little over a year ago and really started to step into it in the first half of this year and is really hitting its stride now. And I think I mentioned we've got 30 accounts integrated, and there's another 65 that are in the pipeline that are specific to Epic itself. And when I made the comment around an increase of about 25% 6 months post integration, that's really around the Epic integrations. And so I want to be clear about that. But a lot of it comes down to workflow, making it as simple as the click of a button within their EMR system to be able to order a Zio to have the Zio report pushed right into that EMR system without having to manually upload or transfer files to have everything right there is incredibly important to our physician customers. One of the things that we love about the integration is that once it's integrated, the entire network of whether it's primary care, whether it's cardiology, whether it's EP, whether it's hospital, they see within their instance of Epic, Zio right there in the instance of it, right? So the workflow can become very easy across all channels within these IDNs. And it ultimately ends up enabling the push up into primary care to happen in an easy way. Sometimes the pushback we get with trying to move prescribing patterns up into primary care is that the primary care physician isn't comfortable reading the report and diagnosing. Well, within these integrated accounts, the primary care physician can prescribe the device, the device can be worn, the report can be put right into the integrated system. And then the cardiologist or the electrophysiologist can come into the system without ever seeing a patient read the report and diagnose whether they see an arrhythmia there or not. And then they can even make sort of workflow decisions of do I want to see that patient or do I not. That's a huge enabler when it comes to pushing care further up the care pathway. And that's a big part of why we see the EHR integrated accounts grow the way that they do and have the success that they do. And it's also why we spend a lot of time and effort working to integrate our accounts as we go. Very seldom. I'm not sure I could give you one example of where an integrated account once integrated has ever left working with iRhythm. And so this is very important to us and something you're going to see us continue to pour into.

Our next question comes from Zachary Day with the company, Canaccord Genuity.

Congrats on the quarter. On Zio MCT, I know you're not guiding anything financially. But once you have the approval in hand, what is the launch strategy for it? Is it going to be mainly targeted to new accounts and you're going to carry the momentum of AT into those accounts? Maybe just how are you thinking about it?

Yes. Good question, and I appreciate it. As we think about sort of guidance, maybe let me just take a step back relative to that for a second. I'll tell you, we've never been more bullish around the business as we are right now. I think the structural growth drivers in the business are the strongest that we've ever seen. And I think it's demonstrated by the record quarter that we put up with Monitor with AT, innovative channels, even EHR integrated accounts. But when it comes to guidance, when it comes to next year, you're going to see us take an approach that, frankly, is very similar to the approach that we took this year. It's not going to be any different. I think that's one that is very thoughtful. It's going to be prudent. It's going to be calibrated and mindful of the tougher comps that come in, but also being mindful of those things that are really dependent on external timelines like MCT being dependent on the approval from the FDA. In that case, we're not going to put it into our expectations for 2026. And so we'll let that sort of play out as upside. I know where the Street is sitting at right now. I feel good with where the Street is sitting at 17%. I think you're probably going to see us come out and guide to 2026, probably somewhere around that 16% to 18% range that leaves upside with these external factors like MCT being dependent on FDA approval or innovative channels sort of making their decisions when they're going to adapt and when they're going to ultimately step into working together. So we're going to be thoughtful around guidance. We're going to not get ahead of ourselves here. We're going to be responsible and that's how we're going to set up the year. I have not been more excited heading into a new year than what I am right now as we look ahead to 2026. I think there are more drivers in the business, more new features that are going to be introduced into the commercial teams that are going to drive great momentum, but we're not going to get ahead of ourselves either as we head into the new year.

Our next question comes from Daniel Downes with the company, Goldman Sachs.

Just want to add to David's earlier question and how we should think about your reinvestment priorities as you transition to becoming a positive free cash flow business. Just noting your current cash position of almost $600 million. I guess as a follow-up to that, what level of investment do you expect will be required ahead of the Zio MCT launch once approved?

Yes. Thanks, Daniel. This is Dan. I can take that question, and Quentin could fill in anything he'd like. So really very similar to this year, we have been actively reinvesting back into the business. You just heard Quentin remark that next year is setting up really well from kind of an innovation standpoint, and that's through some of the investments that we've been making this year and we'll continue to make next year. Obviously, Zio MCT has been at kind of the forefront of that as we got to submission there with the FDA. We have the multi-vitals platform that we continue to work on and are excited about. And then as Quentin mentioned earlier, some of the initiatives around sleep. That's kind of on the innovation side. And then I'd also say we're making investments operationally as well, right? So AI has been important from a service delivery standpoint that will continue to be, but also starting to embed AI within the organization and really look for those opportunities to scale the business as efficiently as we can. And so that's really how we look at where to invest in the business. As you noted, certainly have the balance sheet to make those investments. And now that we're tipping into free cash flow positive, we have a lot of flexibility there.

Our next question comes from Gene Mannheimer with the company, Freedom Capital Markets.

Great quarter. I just wanted to follow up on the earlier point about your development in the sleep diagnostics. Just for my edification, are you suggesting that any new product for sleep would it be -- would it leverage the same or similar form factor as your Zio MCT today?

I think, Gene, thanks for the question. But I think, yes, you're thinking about that exactly the right way. The intent ultimately is for us to get to where we can identify, diagnose sleep right off of the exact same platform that we have today. And I think that provides with it a lot of economic benefit. You can almost imagine a future, if you will, where somebody might wear the cardiac -- or sorry, might wear the Zio for cardiac arrhythmia monitoring and then maybe we suspect sleep disease and they end up wearing that similar patch to diagnose sleep as well. The cost profile for us really doesn't change in that scenario, but the ability to diagnose multiple things could become quite interesting. And so ultimately, we want to serve the patient as well as we can and provide them with as much information as possible. We think that there's a lot of overlap with cardiac and sleep and that there's just natural synergy there. If we can do it off of the same platform, I think there's real financial synergy in that. And so that is the ultimate goal.

Our next question comes from Nathan Treybeck with the company, Wells Fargo.

I just had one follow-up on something that was mentioned on this call. So I think Zio MCT is going to be downgradable to an event monitor, correct me if I'm wrong. I just want to understand what percentage of your Zio AT scripts today are not reimbursed? And being able to downgrade that to an event monitor eventually, does that improve your mix of reimbursed scripts? And I guess, your outlook for the MCOT ASP going forward?

Yes, it's a great question, Nathan. Again, we're super excited with that MCT category. I think the biggest reason that we see folks choose not to work with iRhythm today is primarily around duration of report being 14 days and getting out to 21 days is going to be important for us, and I think it's going to close a lot of those gaps that the customers who are not working with us yet are requesting. There is the downgradable aspect. We're going to have that option. It's going to be at our option to enact that or not. How we commercialize that, I think, is something we're going to continue to work through. I'm not real certain yet exactly how we'll commercialize it. We don't have a lot of AT business that we're not capturing the revenue on, although we've been pretty intentional about not serving those customers that are looking to really downgrade the capability, but it does happen where MCT might get denied and then you're left with needing the downgrade or you just aren't able to recognize the revenue. So there is a little bit of that with us. We'll figure out how we're going to commercialize the downgrade aspect if we do, but the functionality will absolutely be there in what we submitted to the FDA, and it's going to be left to us in terms of how we decide to commercialize it. We're not certain just yet.

At this time, there are no more questions registered in queue. I'd like to pass the conference back over to the management team for closing remarks.

Well, thanks again for joining us today. We couldn't be more proud of what the iRhythm team continues to accomplish. We're executing with discipline. We're driving innovation. We're delivering profitable growth, all while staying true to our mission of transforming patient care. We're entering the final quarter of the year with strong momentum and a great confidence in the road that sits ahead of us. The future of our company has never been brighter than what it is today. So thank you for your support. Thank you for joining us today, and we'll see you on the road.

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.