iRhythm (IRTC) Q1 2025: ZOAT Share Jumps to 14%, Fueling Guidance Raise and Primary Care Expansion

May 1, 2025 | By EarningsIQ Research

iRhythm’s first quarter saw ZOAT, its mobile cardiac telemetry product, surge to 14% of revenue, driving a guidance lift and cementing momentum in both core and emerging channels. A third of monitoring now flows from primary care, signaling a structural shift in care pathways and future market opportunity. Management’s conservative outlook leaves room for upside if innovative channels and Japan’s ramp materialize faster than modeled.

Summary

• ZOAT Volume Mix Gains: Mobile cardiac telemetry now 14% of revenue, outpacing company growth and driving guidance lift.
• Primary Care Channel Shift: One-third of long-term monitoring volumes now sourced from primary care, broadening market reach.
• Margin, Cash, and Tariff Readiness: Operational leverage and inventory build support resilience, but tariff and Japan reimbursement risks remain.

Performance Analysis

iRhythm delivered robust top-line growth, with revenue up over 20% year-over-year, propelled by strong ZOAT (mobile cardiac telemetry) adoption and expanding core U.S. business penetration. ZOAT’s revenue contribution climbed to 14%, a notable jump from prior quarters, and was the primary driver of the quarter’s outperformance as well as the raised full-year guidance. New account launches remain a key growth engine, with 65% of year-over-year volume growth attributed to accounts opened within the past 12 months.

Gross margin improved to 68.8%, slightly ahead of expectations, as operational efficiencies and volume leverage offset higher costs from product mix. Adjusted operating expenses rose 11.8% year-over-year, reflecting ongoing FDA remediation, innovation, and commercial initiatives, but were contained by operational discipline. Adjusted EBITDA margin improved by 750 basis points, narrowing losses and demonstrating the scalability of iRhythm’s model even as the company invests for future growth.

• ZOAT Momentum: ZOAT revenue growth outpaced the overall company, with sustained share gains and new account additions.
• Primary Care Penetration: Nearly one-third of long-term monitoring prescriptions now originate from primary care channels, up from low 20s percentage just 18 months ago.
• International and Channel Mix: UK and European volumes hit records, Japan launch underway, and innovative value-based care channels contributed low single digits to total volume but are growing rapidly.

Cash on hand remains strong at $520.6 million, providing ample flexibility to weather tariff headwinds and pursue strategic investments. Inventory build is expected to create a modest free cash flow headwind in 2025, but management expects to be free cash flow positive in 2026.

Executive Commentary

Strategic Positioning

1. ZOAT (Mobile Cardiac Telemetry) Share Expansion

ZOAT’s outperformance is reshaping iRhythm’s revenue mix, now at 14% of total revenue, up meaningfully from prior periods. Management attributes this to both competitive share gains and broader adoption within existing accounts, as ZOAT’s 14-day continuous wear differentiates it from rivals. The upcoming ZOMCT (next-gen MCT) filing with the FDA in Q3 is expected to further accelerate this trajectory, leveraging iRhythm’s entrenched presence in long-term monitoring to cross-sell into the MCT market.

2. Primary Care Channel Penetration

Primary care now accounts for over a third of long-term monitoring volumes, reflecting a deliberate “land and expand” strategy into upstream care pathways. This channel shift is underpinned by Epic Aura integration, which is enabling workflow efficiencies and driving a 20–40% increase in prescribing patterns post-integration. iRhythm’s scalable AI-powered platform is well positioned to capture the estimated 27 million U.S. patients at risk of undiagnosed arrhythmia, far beyond the current 6.5 million annual tests.

3. Value-Based and Innovative Channel Growth

Innovative channel partners, focused on value-based care and upstream arrhythmia detection, contributed low single digits to Q1 volume but are growing rapidly. Real-world claims analysis shows that early arrhythmia detection can drive over $10 million in downstream cost avoidance per 1,000 patients. While still nascent, these channels offer a long runway and could materially expand iRhythm’s addressable market as prescribing patterns mature.

4. International Expansion and Japan Launch

International growth continues, with record UK and European volumes and a commercial launch in Japan. However, Japan’s reimbursement landed at the Holter monitor rate, below initial expectations, limiting near-term contribution. Management is pursuing local clinical evidence to support future reimbursement increases, and the market remains strategically critical as the world’s second largest ambulatory cardiac monitoring market.

5. Operational Excellence and Regulatory Remediation

Operational discipline is yielding sustainable margin improvement, even as the company invests in remediation and innovation. FDA warning letter and 483 observation remediation remains on track for completion by year-end, with ongoing investments in quality systems and inventory to mitigate supply chain and tariff risks. The company’s ability to deliver margin leverage while funding required compliance and growth initiatives is a key differentiator versus peers.

Key Considerations

This quarter marks a strategic inflection in iRhythm’s channel mix, product momentum, and operational leverage. Investors should weigh the durability of ZOAT share gains, the pace of primary care adoption, and the timeline for international ramp, especially in Japan.

Key Considerations:

• ZOAT Outperformance Is Structural: Gains are not solely from competitor disruption; new account wins and product differentiation are sustaining momentum.
• Primary Care Channel Expansion Is Early: One-third of volumes now from primary care, with innovative channels still in early innings but showing rapid growth potential.
• Epic Aura Integration Drives Prescribing Uplift: Early integrated accounts see up to 40% higher daily prescribing, though guidance does not yet assume broad uplift.
• Tariff and Supply Chain Mitigation: Inventory build and supply chain flexibility are prioritized to offset up to 75bps of tariff headwind, though pricing action is not the first lever.
• Japan Reimbursement Below Expectations: Launch contribution will be below the original $2 million guide, with upside dependent on generating head-to-head local clinical evidence.

Risks

Key risks include slower-than-expected ramp in innovative channels and Japan, regulatory or remediation setbacks, and ongoing pricing and tariff pressures. The company’s reliance on new account launches and emerging channels introduces variability, while international reimbursement and macro headwinds could limit upside. FDA engagement remains stable at the senior level, but timing of facility reinspections is uncertain.

Forward Outlook

For Q2 2025, iRhythm guided to:

• Revenue consistent with historical averages, targeting approximately 25% of full-year revenue in Q2.
• Adjusted EBITDA margin between 6% and 7% for Q2.

For full-year 2025, management raised guidance:

• Revenue of $690–700 million (up from prior guide), reflecting ZOAT momentum and durable core growth.
• Adjusted EBITDA margin of 7.5–8.5% (raised from prior range), inclusive of remediation and tariff impacts.

Management highlighted:

• Gross margin to remain flat year-over-year, with operational improvements offsetting tariff headwinds.
• Free cash flow expected to be slightly negative in 2025 due to inventory build, turning positive in 2026.

Takeaways

iRhythm’s Q1 confirms a step-change in product mix, channel reach, and operating discipline, positioning the company for sustained growth and eventual cash generation.

• ZOAT Share Gain Is Durable: With 14% of revenue and new accounts still ramping, ZOAT is now a core growth engine, not a transient benefit.
• Primary Care and Innovative Channels Expand TAM: Early innings of primary care and value-based partner adoption suggest a multi-year structural market expansion, with significant latent demand.
• Margin and Cash Trajectory Improving: Operational leverage is real, but tariff and remediation costs will continue to weigh on near-term cash flow.

Conclusion

iRhythm’s execution in Q1 2025 demonstrates sustainable growth levers in ZOAT, primary care, and operational efficiency, while its conservative guidance leaves room for upside if channel and international expansion accelerate. The business is structurally shifting toward broader markets and improved profitability, but vigilance on execution and external risks remains warranted.

Industry Read-Through

iRhythm’s accelerating primary care penetration and multi-channel expansion signal a broadening of the ambulatory cardiac monitoring market, with digital and AI-enabled diagnostics moving upstream in care pathways. The company’s ability to leverage Epic integration and value-based partnerships is a template for other medtech players seeking to expand beyond specialty channels. Tariff and supply chain mitigation strategies will be increasingly relevant for device makers as global cost pressures persist. Finally, Japan’s reimbursement outcome highlights the importance of local clinical evidence for international market access, a lesson for all global medtech entrants.

IRTC Healthcare Medical Devices Digital Health Primary Care Cardiac Monitoring Channel Expansion Tariffs