iRhythm Holdings, Inc. Q3 FY2025 Earnings Call

Good afternoon. Thank you for joining today's iRhythm Technologies, Inc. Q3 2025 Earnings Conference Call. My name is Jemma, and I will be your moderator. At this moment, I would like to hand 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 has 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 demonstrate 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 the 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 the 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 existing iRhythm customers are already prescribing home sleep testing and that their patients are 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, 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 clinicians with tools that have the potential to allow for a more efficient workflow, better patient experience and a 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 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 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 expenses. 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.

Our first question comes from Nathan Treybeck with 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?

Thank you, Nathan, for your question. It's great to be speaking with you. There are several factors contributing to the growth in our core business. I want to highlight that we achieved a record quarter in our monitor business, similar to what we experienced in the AT business. This growth is largely due to the onboarding of new accounts. Over the past year, we've gained the capacity to effectively scale and manage the influx of new customers from day one, which is attractive to them. Previously, we would need to convert accounts gradually, but now we can tackle this right from the start. Additionally, we're witnessing an increase in new accounts partnering with iRhythm, where they are bringing their complete long-term cardiac monitor operations, including both the monitor and MCT business with AT. This is significantly boosting the strength of our AT portfolio, reflecting the value of our product line. The quality of our new accounts has been improving, and we're optimistic about our ability to gain market share and grow the overall market. The trend toward primary care is expanding, evident in the networks we are part of, and our innovative channel partners continue to achieve growth, as demonstrated from Q2 to Q3. There are numerous drivers at play, but it appears to be a mixture of market share gains and a slight uptick in overall market growth.

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

This is Anthony filling in for Joanne. Building on Nathan's question, you've raised the full year estimate by more than expected, which suggests an increase of about $4 million over consensus for the fourth quarter. Can you break down what is contributing to the outperformance you are anticipating this quarter?

Yes. Thanks for the question. This is Dan. I can start and Quentin can add anything. As Quentin mentioned, the strong performance in Q3 was mainly due to growth in the core business, along with a significant contribution from AT, which saw record growth alongside Monitor. The innovative channel also continued to grow. Looking ahead to the fourth quarter, we expect a similar situation. The increase in guidance for Q4 is mainly linked to Zio Monitor, and we still anticipate solid growth from both AT and the innovative channel. We've decided to exclude from guidance any elements where we lack strong visibility and confidence, particularly regarding the innovative channel. So, we are taking a similar approach for Q4. Most of the guidance increase is due to Monitor, but it’s encouraging to see strong contributions from various business segments.

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, let me address that last point first. We continue to see improvements from Q2. While we won't disclose specific numbers every quarter, it's safe to say that it has continued to increase. The total contribution from our innovative channel partners was definitely higher in Q3 compared to Q2, indicating good progress. As you mentioned, we had 12 customers in Q2, and now we have 18, which we discussed in our prepared remarks. The average size of these customers is similar to what we initially had, and we are excited about the future potential. The sales cycle varies significantly by customer, which contributes to our caution in providing specific guidance. For instance, Signify took over a year to reach scale, while CenterWell was able to achieve it in about 90 days. The sales and scaling processes differ greatly for each customer. Some can advance quickly if we effectively demonstrate the value of identifying arrhythmias, especially in populations that are undiagnosed and unaware, along with the compelling economic benefits of early detection. Progress varies: some customers move quickly, while others take more time. As we gain more experience, we'll be more confident in our ability to provide guidance for the future. For now, as Dan mentioned earlier, we will adopt a cautious approach without rushing ahead.

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?

There hasn't been much communication with the FDA during the shutdown, especially regarding remediation. The FDA has made it clear that they want us to hold off on remediation discussions until after the shutdown is lifted, which I take as a positive indication. We understand that during this time, the FDA is prioritizing more critical issues, and being advised to resume discussions once the shutdown is over is encouraging. As for MCT, there has been no communication since we submitted it. Consequently, we believe it is wise to await further clarity on MCT before integrating it into our expectations for 2026. We will keep you informed if there are any changes in communication or feedback. It's important to emphasize that we are actively working to improve our internal systems. We decided to exceed the FDA's remediation requirements outlined in the warning letter and the 483s, and those efforts will be finalized by the end of the year. Additionally, we have initiated an independent external review of our quality systems, which we informed the FDA about and are open to sharing results with them. This process has begun well, and while it’s still early, it demonstrates the progress we are making, which will continue throughout 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 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 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.

Congratulations on a strong quarter. I would like to ask about margins and profitability. You’re clearly making significant strides and are now anticipating achieving free cash flow profitability this year, which seems likely to extend into 2026. However, considering the factors affecting Zio MCT and its impact on gross margins, there may be some improvement from the downgradable capabilities you have with MCT. I understand that MCT will operate on the same product manufacturing line as Monitor, which has been mentioned before. I'm trying to get clarity on how to view the margin trajectory as you aim for that 15% goal by 2027, especially with the contributions from MCT, the scale benefits, and the growth of your innovative channel partner business.

Yes, David, thank you for the question. You are correct that there are several factors at play. Let's start by discussing gross margin. We remain confident in our previous guidance for 2027, which projected a gross margin of 72% to 73%. We have not yet provided guidance for 2026, but as you noted, the comments regarding 2025 suggest that gross margin will be slightly above that of 2024, which we estimate to be in the low 70s. We feel very positive about reaching the 72% to 73% gross margin target. Additionally, in terms of adjusted EBITDA, we've indicated a margin expansion of approximately 400 basis points each year. We are on track to achieve this growth this year compared to 2024 and believe this trend will continue into next year and beyond. We are still very optimistic about the targets we set 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 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 not going to 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 will 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 wanted to follow up on the earlier point about your development in sleep diagnostics. Just for my understanding, are you suggesting that any new product for sleep will leverage the same or similar form factor as your Zio MCT today?

Thank you for the question, Gene. Yes, you’re thinking about it the right way. Our goal is to identify and diagnose sleep using the same platform we currently have. This would provide significant economic benefits. Imagine a future where someone wears the Zio for cardiac arrhythmia monitoring and potentially suspects a sleep disorder, and then wears a similar patch to also diagnose sleep. In that scenario, our cost profile wouldn’t change much, but the capability to diagnose multiple conditions could be quite valuable. Ultimately, we want to serve patients as effectively as possible and provide them with extensive information. We see substantial overlap between cardiac and sleep, creating natural synergy. If we can utilize the same platform, there will be genuine financial synergy as well. That is our 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 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.