iRhythm Technologies, Inc. Q3 FY2025 earnings call

• Strong commercial momentum with $192.9M revenue in Q3, 31% y-o-y growth. - Record performance in Zio Monitor and Zio AT. - EHR integration strategy: 76 top 100 customers EHR integrated, 30 Epic Aura systems live, 65 in active implementation. - Clinical evidence validation: Real-world analysis shows proactive monitoring reduces ER visits, hospital stays, and costs. - Partnerships expanding: 18 active partner accounts, collaboration with Lucem Health on clinical AI. - Zio MCT 510(k) filing in September, advancement in sleep apnea development. - International expansion: Progress in Japan and Europe with clinical evidence generation.

For the third quarter, revenue was $192.9 million, representing year-over-year growth of 31%. This was driven by record performance in both Zio Monitor and Zio AT. Zio AT saw year-over-year unit growth more than double the corporate average. The core U.S. business had robust account expansion and system-wide conversions, with EHR integration strategy delivering value as 76 of top 100 customers are EHR integrated, and Epic Aura integrated customers seeing an average 25% increase in monitoring volume within 6 months of going live.

• Raised full-year 2025 revenue guidance to $735M to $740M, 24%-25% y-o-y growth. - Anticipates full-year 2025 gross margin to slightly exceed 2024. - Adjusted EBITDA margin guidance raised to 8.25% to 8.75% of revenues. - Expecting full-year 2025 to be free cash flow positive for the first time.

• Uncertainty around FDA remediation efforts for warning letter and 483s, with remediation put on hold during shutdown. - Variability in innovative channel sales cycles, with some partners taking longer to scale than others. - Uncertainty around MCT approval timeline and its impact on growth cadence.

Q: 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?

A: Yes. 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.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.