Conference Transcript - IRTC 2026-06-16

Rich Newitter, Analyst — Truist Securities

All right. Good afternoon, everyone. Rich Newiter, Truist Securities MedTech Analyst here. And our next fireside, we have iRhythm, and we have Dan Wilson. Dan, welcome. What's that?

Daniel Wilson, Analyst — Other

Pleasure to be here. Thank you.

Rich Newitter, Analyst — Truist Securities

Yeah, doubling up to the other panel, too. So a lot of ground we want to cover, but you guys issued a press release yesterday in the evening, So maybe we would just start there. Is this, I think, your first public opportunity to address the cybersecurity 8K that you guys put out? So I'll just let you maybe explain what happened and kind of what your views are.

Daniel Wilson, Analyst — Other

Yep. Yeah, happy to start there and would refer people to the 8K that we filed yesterday afternoon. Unfortunately, I did have an unfortunate incident of unauthorized access to some of our data assets. We detected this unauthorized access a few days ago, immediately triggered our cybersecurity response plan, working with cybersecurity experts, external advisors to assess and contain the situation. We have confirmed that a threat actor did access certain data, including patient data and other proprietary data, have been moving quickly to continue to assess and contain the situation. It is actively ongoing from an investigation standpoint. Importantly, no impact to products, no impact to operations, no impact from a patient safety standpoint as well. But, you know, really still actively investigating to kind of understand the

Rich Newitter, Analyst — Truist Securities

full scope of it. Okay. And I guess in the AK, I think you, you know, I'm not quoting it exactly, but I think there's a reasonable likelihood that there won't be any material impact to your financial condition or results. Can you elaborate on that a little bit? What you're supposed to be to be talking to, is that a guidance comment? Is that a 2Q comment? And then, you know, well, yeah.

Daniel Wilson, Analyst — Other

Yep, you know, as we sit here today based on what we know, we do not see it having a material financial impact on the business, on our results. You could think of that as, you know, on a go forward basis relative to, you know, relative to guidance. I would note that it's still, you know, actively being investigated. and if there's, you know, any material updates, we'll certainly get those out to investors. I would say, you know, we're taking this matter very seriously and have a task force kind of working, you know, around the clock to make sure we're containing the situation. Most importantly, you know, working with our customers to make sure we're answering any questions they may have, make sure we're communicating, you know, transparently with our customers and, and ensuring that we can continue to win their trust each and every day. And that's where our focus has been. Obviously, this is a fluid situation, but working hard to contain it.

Rich Newitter, Analyst — Truist Securities

Got it. And then we've received some questions from investors on this matter, just as it potentially may or may not pertain to anything with respect to your ability to secure regulatory clearances or make progress on things that are sitting with the FDA like MCT. So I guess is there any impact from this on timelines for MCT or the way the FDA might be evaluating your package?

Daniel Wilson, Analyst — Other

Yep, we don't see an impact there. I believe they're very isolated. I should have also said don't see an impact to – I mentioned product, but that includes clinical and medical systems as well. So those are separate. So don't believe this has an impact on how we're approaching ZOMCT.

Rich Newitter, Analyst — Truist Securities

Okay. And your confidence level, just that the agency is on the same page on that front?

Daniel Wilson, Analyst — Other

Yeah. Again, there was no impact to product, no impact to product safety, no impact to clinical and medical systems.

Rich Newitter, Analyst — Truist Securities

And then what are the next steps within the investigation? when do you think you'll have a more comprehensive view kind of of how contained things are when you'll be able to say, look, we've investigated it and...

Daniel Wilson, Analyst — Other

Yeah, we'll certainly look to provide updates. Certainly if there's any material changes, we'll get those out in a timely manner. Certainly by the time our Q2 earnings call comes around, we'll give an update in terms of where the situation is at that time. But, again, we're moving quickly to contain it and, you know, make sure we're moving past it quickly.

Rich Newitter, Analyst — Truist Securities

So maybe we'll move on past that. And, you know, wanted to talk a little bit about Xero MCT, separate from any cybersecurity implications, which sounds like there aren't any as of right now. You know, this is an important product for you. It's going to give you access to a portion of the market where you've kind of been fighting with one arm tied behind your back. It's a potential share gain market expansion area for you into 27. You reaffirmed your first half 27 MCT timeline on your 1Q call. But you mentioned there were some changes to the FDA on rolling submission versus just everything at once at the end of the year. So maybe just remind us of what those parameters are, why you continue to have confidence in the first half 2027 approval timeline, and was there even a soft delay within first half 2027 with respect to the change from rolling to, you know?

Daniel Wilson, Analyst — Other

Yeah, I can try to level set there. So, you know, submitted to the FDA, received initial questions back. what we submitted to the FDA was with the existing gateway that's part of our AT device today. In responding to the FDA and seeing the feedback that they had, and the commonality here based on with the first part of the discussion is there were cybersecurity questions that we received from the FDA, and the FDA has clear guidelines around cybersecurity protocols that they want to see and in connected medical devices in looking at that we took the view it was best to kind of move to our to a mobile phone gateway and away from the existing gateway that we're using with AT that was a product that was on our roadmap it was our intention to move to the mobile phone gateway over time as we looked at the FDA's kind of feedback and questions recognizing that there was some design work required to meet the FDA's questions, we took the view, better to go ahead and do that on the mobile phone gateway versus the existing gateway. So we're making that change. It will take time to do that design work and then do all the testing, collecting the data from that testing and resubmitting back to the FDA. We could have kind of given it to the FDA on a rolling basis in discussions with the FDA, it was our view. It's best to hold that data back, submit it to them all at once once we have that fully completed. Our guidance remains the same as what we communicated on the Q1 call, running that testing, getting the data, getting it back, submitted to the FDA by the end of this year with that first half 27, you know, launch time frame.

Rich Newitter, Analyst — Truist Securities

And what would you say to someone who asks, you know, does this just mean that if the FDA has some issue or question or follow-up and they're only getting everything all at once, that there's less time for you to respond and you get back-ended and that potentially pushes you further into the first half 27 or later into the first half 27 timeframe or potentially outside of it? Like, why is that a wrong interpretation or is that a fair interpretation?

Daniel Wilson, Analyst — Other

I think, and it was us kind of reading the room, to be honest, I think in fairness to the FDA, their preference is to receive a full package back and be able to efficiently review it versus having to open the file more frequently and review and respond in that manner. So don't believe it impacts overall timing. When we initially set the first half 27 guidance, this was a potential path contemplated when we gave that guidance, which was why we ultimately maintained that guidance.

Rich Newitter, Analyst — Truist Securities

Okay. That's very clear. You also just recently got your third generation algorithm approved. Was that a week ago?

Daniel Wilson, Analyst — Other

It was a couple weeks ago. Two weeks ago?

Rich Newitter, Analyst — Truist Securities

A few weeks ago. Well, congratulations on that. I guess, what should we read into that? Just with respect to your relationship and progress you're making with the FDA, that would seem like a pretty positive sign, certainly, that the FDA is working with you and no agenda, if you will. And I guess, is there anything else we can read into with respect to that and the MCT kind of process and package?

Daniel Wilson, Analyst — Other

I think you said it. but I think it shows we can get things through the FDA. We're incredibly excited about what the next generation algorithm can mean for the business. It will have incredible scaling and efficiency benefits once we launch that algorithm, and we're really excited about it. But yeah, I think it does show things aren't stuck with the FDA in terms of on our side. We are able to get things cleared, And I think that's a positive signal.

Rich Newitter, Analyst — Truist Securities

And then from an actual clinical standpoint, what does this algorithm do for you? I think you've mentioned significant efficiency improvements. Can you just summarize that? And what's the launch plan for this?

Daniel Wilson, Analyst — Other

It's really a resourcing and prioritization decision where we're going to hold it to launch really alongside ZOMCT. Importantly, it is applicable across our entire business. It's separate from Xeo MCT, it's applicable to both Xeomonitor, MCT, and AT for that matter. So we're excited about getting that commercially launched. We want to maintain the resourcing and prioritization on MCT, which is behind the decision to hold it for the time being. In terms of the benefits that it will deliver for the company, we're now serving nearly 3 million patients a year. So we have real scale, and the algorithm essentially allows us to reduce the amount of time, human labor time, that it requires to deliver a report back to the physician. So the AI is doing more of the work, allowing our cardiac technicians to be even more efficient from what they are reviewing that comes out of the AI to ultimately what is delivered back to the physician. We've seen this, you know, kind of every iteration of our algorithm in terms of improving that efficiency. It allows us to, you know, scale very efficiently, and we're excited about getting this out there. We mentioned, you know, over $100 million in savings over a five-year time period, so it's a very valuable driver.

Rich Newitter, Analyst — Truist Securities

Can you go a little deeper on that? What exactly are you referring to there? Savings to who, and how did you come up with that number?

Daniel Wilson, Analyst — Other

Yeah, if you think about our cost of service or our cores, think about that as roughly half device, half service, and that's the qualified technician, the service component, the qualified technician doing the review and then ultimately finalizing that and delivering that to the physician. With the benefits of the algorithm, the amount of time it takes with the next generation algorithm the amount of time it takes a cardiac technician to review what's initially coming out of the AI to finalizing that report we believe will reduce by 50 percent be reduced by 50 percent and this is through testing of the algorithm internally that allows us to you know as we scale rather than having to hire two more cardiac technicians we can hire one you know, one more to meet that same level of volume. So we'll scale into that benefit and really see it over, you know, over the subsequent five years. But it'll be a very valuable driver for the business.

Rich Newitter, Analyst — Truist Securities

And just, you know, over time, right, if you're a 50% reduction from this third next generation algorithm, I mean, is there a fourth, fifth, sixth generation that gets you down to you know no time or barely like where are we headed yeah i i i can confidently

Daniel Wilson, Analyst — Other

say yes there will be you know there's more to do in the future i think we were asking ourselves that same question with first generation second generation so um absolutely i think there's opportunities to continue to develop next generation algorithms um i think there's opportunities to drive deeper insights, broader insights, as well as driving additional efficiency. So, yeah, absolutely, there's opportunities that remain.

Rich Newitter, Analyst — Truist Securities

Got it. And then just as we think about, you know, let's get there first, but of course, then I'm going to already ask you, Link, how's the launch going to go? But, you know, how do we think about if everything goes according to plan? um you know you hit let's say you hit the first half 27 time frame for approval and how quickly can you hit the ground running and commercialize are we going to be looking at a limited launch initially or a full launch and you know how ready to go will you be by that point in time yeah i

Daniel Wilson, Analyst — Other

think we'll we'll certainly give more specifics around that as we get a bit closer to it um we have commented that you know there will be some type of limited release as is typical with any new product introduction. We also have talked about ZOAT and making sure we're transitioning effectively away from ZOAT. With the growth that we've had with AT, we have been building up inventory to meet the demand that we're seeing. We want to be thoughtful in terms of how we transition away from AT, but certainly very excited about the next generation MCT and want to move as quickly as we can once it comes to market.

Rich Newitter, Analyst — Truist Securities

And maybe we switch gears for a minute to the innovative channel partners. You know, this is something I get a lot of questions on. You know, I'd like to spend a little time here, you know, just understanding maybe higher level, taking a step back. Can you just give us a sense for, you know, how many of these partners are there? How many could there potentially be to go after? What's involved in onboarding them? How do you recognize revenue? what's the pace at which that happened can you just give us like a one-on-one

Daniel Wilson, Analyst — Other

on that business there's a bit there but let me let me start and ask you know any follow-up questions so the innovative channel as we describe it is essentially you know value-based care groups and that can be ACOs that can be you know pay vider that has their own you know provider group as well as a call it a Medicare Advantage plan, the common denominator being these groups own the risk of the patient, you know, through some type of value based care, and they have the provider part of it as well. So they control the decisions around how they want to manage the risk of those patients, whether or not they want to proactively monitor patients. And that's how we define innovative channel is you know, these patients aren't necessarily symptomatic, but they have certain risk factors, and these groups want to proactively monitor these patients. I will say this has been kind of a 10-year strategy in the works. We've been, you know, there's been a lot of effort to generate clinical evidence to show if you monitor patient populations with risk factors, you will find undiagnosed arrhythmias. over the last two years I'd say we've found a really good product market fit with these innovative channel partners again because they own the risk and they also own kind of the patient touch point because they have the provider arm as well so as you know we've seen this turn on nicely over the last couple of years we've talked about it being low single digit percentage of our revenue versus you know two years ago when it was zero so it's it's grown nicely we believe it's early innings

Rich Newitter, Analyst — Truist Securities

we can I just ask on that is that has that been a pro rata increase like it was like what was that percentage beginning of 25 what was it exiting 25 and kind of where is it in the first quarter of

Daniel Wilson, Analyst — Other

26 it is certainly kind of stepped up over that longer time period quarter to quarter there can be some variations we have been you know pretty open that there's some can be some lumpiness in this business particularly you know when we have a when we're early and you know smaller number of partners. I think that is starting to smooth out a little bit as we're growing but historically there has been you know has been a bit of lumpiness but again over a longer period of time this has grown nicely and it is our expectation that this will continue to grow as a percentage of our business. We talked about last year it being the fastest growing channel in our business The guidance for this year is that it will remain the fastest channel in our business. And to be honest, we see that sustaining for a period of time. We believe we're early in the effort and believe there's a big opportunity out there for us.

Rich Newitter, Analyst — Truist Securities

Let me just ask on that, because your growth guidance, at least, relative to last year, is lower than it was last year, right? Relative to what you delivered on 2025. So is that to say that the innovative channel partner growth segment growth forecast can sustain at 25 levels, but maybe everything else is what's dragging down the growth incrementally year over year? Or does the channel partner growth curve come down too with everything else?

Daniel Wilson, Analyst — Other

Yeah, we didn't parse it out in that level of detail other than to say, again, you know, last year it was the fastest growing channel, will remain the fastest growing channel, you know, this year we are thoughtful terms and, you know, in terms of how we set guidance, particularly around this part of our business, given some of the lumpiness that I, you know, alluded to earlier, but see a lot of, a lot of momentum. and again believe you know we're early and there's a big opportunity out there for us one thing where we are working on is generating you know economic evidence real world economic evidence from some of the the programs that we've been running with partners for a period of time now we do believe that can be a real catalyst in opening the market up further and expect to see

Rich Newitter, Analyst — Truist Securities

some of that data you know by the end of this year I guess when you say you know you said some lumpiness. I guess that's something that's just inherent in the way that you recognize the revenue and see the revenue come in, right? But that lumpiness doesn't stop you from, if you're that early in this channel adoption, shouldn't that growth still be accelerating? It's just lumpy within an accelerating growth curve. Is that the right way to think of it? Yeah, I think it's more quarter to quarter variation. Okay. But I guess I just want to make sure you're not saying, Is growth accelerating in this channel for you or in this business segment?

Daniel Wilson, Analyst — Other

We're early in 26 in terms of how we set guidance. Again, it will remain fastest growing channel in the business. And again, we'll reiterate, we believe we are early. There is a big opportunity out there. We've talked about 27 million patient opportunity. More recent market research suggests that number is actually even bigger than 27 million. that you know economic evidence that i alluded to earlier we believe that's going to be a nice catalyst to you know further open the market but when do you when are we expecting that by the end

Rich Newitter, Analyst — Truist Securities

of the year okay and um the uh the uh okay so i think i'd ask you just as a percentage of revenue do you think that that will stay at a three-ish percent of revenue because your revenue is growing or should we expect that percentage to kind of keep up that will grow over time as it

Daniel Wilson, Analyst — Other

has you know the last two years naturally if it's the fastest growing channel in the business it's going to grow as a percentage of revenue and that that is our expectation okay and then sorry just

Rich Newitter, Analyst — Truist Securities

one last one is the lumpiness of function of you you have a channel partner that comes on maybe you know trials or does you know start choosing it and then they pause and then before there's like a re-upping or reordering or like just explain why is there lumpiness i think it you

Daniel Wilson, Analyst — Other

know again having um as we're early and having a smaller number of partners you know one kind of partner can you know can sway or impact kind of quarter to quarter variation importantly though So every partner we have turned on to a program continues to monitor today. So we haven't seen any turn or fall off. I think that's a very critical point. Every partner we've gotten to a pilot has continued on to a commercial program, which tells you they are seeing the value proposition play through once they make the decision to initiate a pilot. I'd say the lumpiness is more, You know, we had a partner that was focused on an internal EHR upgrade unrelated to our program, but we're applying resources, you know, to that effort for a period of time called, you know, three, three, four months. And then we saw that partner ramp, you know, ramp back up nicely once they were through that. So it's just those types of things. But, again, as we're turning on more partners, as this builds a bigger base, I think we'll start to see a natural smoothing of that lumpiness.

Rich Newitter, Analyst — Truist Securities

Got it. Very helpful. I wanted to ask a few other questions, a couple of regulatory and then a few on kind of AI. So, on the regulatory front, you know, just remind us where you are in warning letter resolution. Are there any timelines that you can benchmark us towards that you think you should, you know, have updates or engagement with the agency? Yeah.

Daniel Wilson, Analyst — Other

So, you know, we executed on the 12-month remediation plan that we outlined to the FDA, I guess that was back in August 2024. We hit every timeline and commitment that we outlined to the FDA at that time. We went above and beyond that and had an independent third-party audit firm come in over the course of late last year into Q1 this year to do an end-to-end quality management system audit. We came out of that with no material observations, so very good outcome there and believe we've We've done everything we can on our side to position us to ultimately get the warning letter cleared. Ultimately, it's FDA that controls the timing here. Certainly, we will communicate to the FDA in terms of where we are and hopefully see them back sooner rather than later. Ultimately, they control the timing. In terms of milestones, there will be another inspection if they get through that comfortably and don't see any observations, then there would be a period of time where they would ultimately close out the warning letter. Sometimes it does require two inspections. Hopefully, we're in a solid position where we can get through it on the first inspection. But again, FDA ultimately controls the timeline.

Rich Newitter, Analyst — Truist Securities

That's helpful. And then on the CID, anything to report? I know these things can take years before any resolution comes, but I'm just curious.

Daniel Wilson, Analyst — Other

And to be honest, it has been years, right? from the original subpoena back in 2023 we have been responsive to the DOJ in the most recent request have turned over documents have been providing kind of context around those those documents I would say there's more active dialogue now than maybe there has been in the past and we are hopeful that we're working towards you know resolution but similar to the to the FDA don't you know fully control the timing there but we do recognize you know it's been an overhang and one that we would like to get behind us and certainly going to do what we can to when you say more active

Rich Newitter, Analyst — Truist Securities

dialogue than there has been in the past are you referring to since these it was turned into a CID or since some period before that yeah I would say more recently over the last you know weeks months

Daniel Wilson, Analyst — Other

responding to the CID providing context around that making sure we're available to answer any

Rich Newitter, Analyst — Truist Securities

questions that type of dialogue got it helpful um another question we get some somewhat less so now but on on ai and your moats and why isn't you know why aren't you going to get outmoded by either a competitor or or or uh you know one of the ai companies uh can you give us just what's most most understood miss what's most misunderstood about ai as it factors into your competitive advantage and your business model and and your moat yeah i think as we were talking about on the

Daniel Wilson, Analyst — Other

ai panel earlier today i i do think from pure ai standpoint we're in a unique advantage and can compete effectively there given you know the data that we have accumulated over our 20-year history over three billion hours of curated data. That is what has been training our AI, which is delivering the efficiencies and the values of our next generation algorithm that I mentioned earlier. So I do think even from that standpoint alone, we can effectively compete. But then there's everything else around it as well. And we deliver an end-to-end service that is enabled by AI, but it's also enabled by a medical device, a wearable device that we've been innovating you know around for for 20 years as well that's important patient can wear it comfortably for you know 14 hours or 14 days excuse me can go about their daily life you know shower sleep exercise that's an important piece of it how we integrate with our customers whether it's EHR integration other clinical workflows that we integrate with. There's been a lot of effort over, you know, our history there as well that we've been investing in. And then certainly from a, you know, regulatory environment standpoint, our IDTF capabilities, our quality management system that we have been, you know, focused on continuing to evolve and develop. And then payer environment. So, you know, all of the payer contracts that we've secured over a 20-year period as well, all of that is very difficult to replicate overnight. So we do see AI as an enabler, but it is a piece of a much bigger picture.

Rich Newitter, Analyst — Truist Securities

Maybe just to close out with a volume and a price question. We've been asking all companies on the podium today, just we're hearing some noise out there. We see some signs of hospital utilization slow down. Most medtech companies have said nothing is really changing in what they can see. I want to hear what your view is on that, against that backdrop of potential headwinds that could be growing. And specifically on volume?

Daniel Wilson, Analyst — Other

Just on volume, yeah. So we're a growth company. We're growing through that, I would say. So it's hard for me to say there isn't any impact out in the market. We're not observing it and certainly not in a material way um like the momentum in the business you're saying if it's there if it's you don't know if it's there but if it's there got it correct yep and then

Rich Newitter, Analyst — Truist Securities

on pricing just you know uh remind us what your your guidance assumes for pricing in 26 what it was in 25 yeah kind of how do we think of the price algorithm going forward yeah we generally

Daniel Wilson, Analyst — Other

always um try to guide to low single digit pricing you know declines year over year this year a bit unique in some of the medicare rates that were established were set up the years guiding to price being flat for the year q1 was a bit better than that but it's still early in the year so don't want to you know don't want to necessarily get ahead of ourselves but prices potentially you know tailwind and and potential upside as we go through the year but guidance for the year has been you know flat overall and then 27 we should probably just as a placeholder go to low single digit declines again. That's probably right. Okay. This is great. Dan, thank you so much

Rich Newitter, Analyst — Truist Securities

for attending. Really appreciate it. Thanks for having us. Appreciate it.