Great. Good morning, everyone. Thanks for joining us. I'm Vijay Kumar, the Life Science Diagnostic and Med Device Analyst at Evercore. Pleasure to have this iRhythm. We have CFO Dan Wilson, and we have Lisa Pecora, SVP of Finance. Dan and Lisa, thanks for the time this morning.
Appreciate it. Thanks for having us.
Fantastic. And iRhythm has been a new one for us. For those maybe not familiar with the company, can you just give a broad overview of the key products: LTCM versus MCT, and your sort of leadership within the space?
Yeah, happy to start there. And thanks for having us. Great to be here. So iRhythm has been public. Next year will be our 10th year as a public company and 20th year since founding. The company was founded on the premise of essentially disrupting traditional cardiac monitoring, traditional technology being Holter monitor, where a patient wears capital equipment, kind of wires everywhere, and can only wear that device for up to 24-48 hours. So the opportunity was to monitor patients for a longer period of time. Our Zio Monitor device monitors patients for 14 days. We're continuously monitoring across those 14 days, collecting every heartbeat. On average, 1.5 million heartbeats collected in those 14 days. And with that data, you are able to deliver deeper insights for the patient.
There's a tremendous amount of clinical evidence showing the higher diagnostic yield for Zio relative to traditional Holter monitors. It requires sophisticated AI tools on the back end to kind of analyze those 14 days of data and really synthesize it and bring forward the relevant clinical insights for physicians. And that's a category that we've pioneered over the last 15 years or so and maintain a very strong market leadership position within that segment of the market. We have a second product, Zio AT, which is a mobile cardiac telemetry product versus Zio Monitor, long-term continuous monitor, where it's monitoring the patient passively for 14 days.
Zio AT is more near real-time, where if a patient is feeling a symptom or the device detects an event, there is a data transmission that comes to our back end for review by our cardiac technicians, and then reviewed and determined whether or not the MD should be notified based on what we're seeing in that patient. That's a product we launched in 2019. We've been growing our market share within that category. Within the MCT category of the market, we estimate we're about 15% share of that segment versus our over 70% share in the long-term continuous monitoring segment. So those are our two products, and happy to go deeper where you'd like.
Fantastic. And how big is the market for your products? And how penetrated is this? Who are your key competitors?
Yeah, yeah. So maybe starting with the overall market. So 6.7 million tests, ambulatory cardiac monitoring tests in the U.S. That's across all modalities. Long-term continuous monitoring, again, which we pioneered 10, 15 years ago, that is now the biggest segment of the market and is growing, call it high teens percentage year-over-year. We believe we're growing the market as we're penetrating into primary care, which I'm sure we'll talk about, and then also shifting share away from, continue to shift share away from these legacy technologies, short-term Holter and event monitor. There's still two million of those tests being prescribed every year. So despite all of our success, there's still a good number of these legacy technologies being utilized in the market, and that remains an opportunity for us. And remind me of the second part of your question there.
Your key competitors, what differentiates iRhythm?
Yeah, yeah. So we like to kind of frame it as being clinically superior and operationally superior as well. And both of those are incredibly important. There's a number of different ways to get there or how you get there. It does start with the form factor. We had Zio XT, was our workhorse device for many years. We transitioned to Zio Monitor three years ago or so. That is a kind of miniaturized version of XT, lighter, smaller, better, more breathable adhesive, and just overall better patient experience. So it starts with the form factor. We have a median wear time of nearly 14 days, 13.8 days. And with that, you get the data that you need for the patient. I mentioned AI tools on the back end. That's something we've invested in from the very beginning of the company.
We're on our second generation deep learning algorithm that's FDA cleared, working on our third. That allows us to, again, kind of pull out the relevant insights from the 14 days of wear. Our cardiac technicians are then reviewing it and finalizing the report. One thing that we're really proud of is we track physician agreement with our report. Essentially, the report that we deliver at the end of the wear time is essentially the product that physicians are consuming. According to our data, 99% of the time they are agreeing with what we are calling in the report. We populate a preliminary finding in the report. They are populating the final finding. 99% of the time there's agreement. That tells you they have a lot of trust and confidence in what we're delivering.
That's incredibly important for clinicians where they can review the report, oftentimes it's just the cover page. We have a lot of supplemental information beyond the cover page, but they can review the cover page, know exactly what's happening with that patient, know what they need to do, and within five minutes can move on to caring for the patient. Whereas competitive reports, if there's not that same level of trust and confidence, they're spending more time with the report, they're second-guessing it, and that just adds time to their workflows and potentially leads to retesting as well. So we deliver that again through not only our AI tools, but also the cardiac technicians that support our back end. And that's a critical kind of competitive differentiator as well.
That's a helpful overview, Dan. Maybe moving on to some of the more near term topics, if you will. I know there was some volatility recently, questions around new LCD being proposed for ACM. At a high level, I thought you guys had an NCD, right? So why does this LCD matter? And why was the street concerned about it?
Yeah, so we do have an NCD. It is 20 years old, and you do see LCDs supplement NCDs when there's been changes from a regulatory standpoint or how the service is delivered. Technologies are different, and I think we believe that's what we're seeing here. There was another couple of MACs a couple of years ago that also put in an LCD. That was a process that we worked through. We commented in the open comment period through that process, provided our views in terms of the different modalities that are utilized in the market, what's appropriate for which patients, and that landed in a good spot, so we're working through that process now. The three MACs that published draft LCD language, I believe it was in September.
We participated in the open comment period, provided our comments, as did industry partners, physician societies. Heart Rhythm Society commented as well. So that's part of the process. We believe it'll land differently than what was proposed. We do believe there was kind of some inadvertent language in there that would essentially have MCT service level requirements for all modalities, which we believe is counter to kind of the clinical and economic evidence that we've generated. So part of the process, we're working through it and expect it to land differently.
Is there a timeline, Dan, on when we might get the final guidance from the three MACs?
There's no set timeline. There was an open comment period that did have a set timeline. That is now closed. So we've submitted comments during that window, but there's no set timelines for when they can come back with an update.
Gotcha. And HRS, when they commented, did they support your position that LTCM is different from MCT and does not warrant a similar level of service?
Yeah, we believe there was kind of consistent feedback across the industry, both our competitors, our industry groups, as well as the physician society support.
Great, and then I think another topic was on pricing because we're on the reimbursement topic. In the past, you said slightly positive for fiscal 2026. Is that still intact?
So we have not given formal 2026 guidance. When we do, we will give a little color around volume versus price. We did have the Medicare final rule come out a little more than a month ago. That landed in a favorable spot. Long-term continuous monitoring rates expected to go up, call it 8% next year. Keep in mind, Medicare is only 25% of our revenue. Commercial, where rates are for the vast majority of those commercial contracts are set independent of Medicare rates, that's 50% of our revenue. So again, we'll give more formal color when we give formal guidance, but certainly a positive and a tailwind for us and believe it recognizes, again, the clinical and economic evidence that we've worked hard to establish.
That's helpful commentary, Dan. In the past, when CMS has updated rates, what's been the commercial response? Do they follow CMS guidance or?
For folks that have been following the story for some time, there was a period of volatility with Medicare rates five years ago or so. Interestingly, commercial rates stayed very stable through that time period. They have a little more flexibility in terms of how they set rates. Again, we've always leaned on the clinical and economic evidence that we've generated and have worked hard to continue to generate really strong evidence there. I'd point investors to the CAMELOR and AVALON data sets that we published over the last year or two. That's always been part of something that we've done historically as a company. That's important as you're engaging with payers, explaining why you believe your technology should be first line for patients and ultimately setting rates.
That's great. You didn't mention reimbursement on LTCM. What about MCT? Is that stable for 2026?
Medicare rates, I think, are coming down slightly for MCT, but otherwise stable.
Gotcha. And then just maybe doing a review of Fiscal 2025, it's been a phenomenal year for you guys. Your revenues have accelerated every single quarter, right? And when I just take a step back, it's 500 basis points of acceleration over Fiscal 2024. What do you attribute this acceleration to, right? It's clearly stepped up from the past two years. Wouldn't we have seen 2023, 2024 perhaps being in the 19% to 20% levels and now we're north of 25%?
Yeah. 2025 has been a phenomenal year for us. We're really excited about what we're seeing in the business and remain really bullish on the momentum and the opportunity ahead of us. I think late last year, we started to see kind of a couple of things start to emerge. We saw AT really pick up strength in that MCT category. There was a competitive disruption in Q4 last year that we were well positioned to step in and serve the market there. And AT has continued to grow well, as you were noting. And AT is a good product. It has competitive advantages. We are working on our next generation device there, which we'll talk about, I'm sure, Zio MCT.
We believe that is the better product that's going to drive additional market share gains for us there. But AT is a good product in itself. And the team has been leaning into that and capturing a lot of business with that product. So that was one component. Another part of our business, innovative channel, which is more proactive monitoring for patients that are deemed at risk of undiagnosed arrhythmias. That part of our business, it's actually been probably a 10-year strategy in the works, but started to really emerge as we were exiting 2024. And that's been a nice contributor in 2025 as well. And then I'd also point to just the core Zio Monitor business. That has seen an acceleration as well. That's through a number of different reasons. EHR Integration has been a big focus for us. That has been a good contributor to the business.
The move into primary care, as I was mentioning earlier, Zio Monitor is becoming a workflow tool for accounts. And we were the beneficiary of a handful of accounts that we launched early part of this year, what we called Big Bang launches, where they launched with Zio Monitor, Zio AT, EHR Integration, and primary care prescribing essentially from day one. Historically, those were accounts that would take three or four years to grow to that level. We were able to essentially reach that near full capacity from day one. That's a good thing and a bad thing potentially as you think about incremental growth from there. But I think very encouragingly, we're able to serve that type of profile of an account.
I think we now have a scale advantage where we can serve that profile of accounts. And there are others out there like that. It is a finite number of accounts given the size and scale of these accounts. But all very encouraging. And again, we're excited about the number of different drivers in the business and kind of the momentum.
That's helpful. And when I look at those different levers that drove your 2025 acceleration rate, certainly feels innovative channel, new products, those kind of momentum should sustain, right? Are we able to parse out what was contribution from, excuse me, the competitive disruption and perhaps the Big Bang launches, right? Those perhaps might be sort of more one-time in nature unless we have more accounts launching in that fashion, Big Bang fashion for 2026.
Yeah, I think maybe a couple of things that can be helpful there. Through that competitive disruption and into this year, and that was again a Q4 event last year, we believed we retained about 85% of that business. And so worked hard to retain that business. And again, we've won business independent of that. We did call that out as a source of the beat in Q4 last year. And we kind of quantified that at, call it $3 million of the beat last year. So that probably helps give a little bit of context to it. But again, seeing really good momentum and adoption with AT, even independent of that.
That's helpful. And the Big Bang launches, I know you said these are sort of unique. Generally takes three years. Any way to quantify what the Big Bang launch contribution was?
Yeah, we haven't quantified that one. It certainly has added to kind of the core acceleration that we've seen this year. And there are opportunities for growth within those accounts. I don't want to leave that impression, but we did kind of the way those launched, kind of the incremental opportunity may be a little bit different from what we would characterize as a historical account where, again, it was over the course of several years working to get EHR Integration, AT into the mix, primary care prescribed as well. And we were fortunate to see that all come together from day one, but there absolutely are still opportunities for growth within those accounts.
Understood. And some of these topics you mentioned, right? These are all sort of they've certainly benefited first half of 2025, right? But when I look at your 3Q, 3Q was a further acceleration versus first half. That doesn't seem like it's Big Bang or some of the comparative disruptions, right? So what changed in a first half versus 3Q?
I think that those Big Bang launches did contribute certainly, and I wouldn't point necessarily to any one thing there on the Q3 performance. I think it just is momentum building across all of those different levers that we mentioned and teams executing at a really high level. I'm sure we'll talk about 2026. We did kind of point to our expectations for how we want to set up 2026, but feel really good about the momentum in the business.
Gotcha. Before we move to 2026, maybe some of the new products that you mentioned, right? One is the next-gen MCT.
Yep.
I think MCT growth was really robust in Fiscal 2025. Just remind us on MCT growth levels and sustainability of those trends because I know you do have the new product coming in. Could that sort of help sustain the momentum you're seeing?
I think that's a good way to think about it. Within the MCT category, as I mentioned, we're 15% share. We've won that share since we launched AT back in 2019. It is a good product, has competitive advantages. MCT is going to go even a further step than that. AT is currently a 14-day device. MCT will go out to 21 days of wear, which is important within that MCT segment. It's on the same form factor as Zio Monitor that I mentioned earlier relative to the older form factor XT, which is the AT platform. So that new form factor going out to 21 days, we believe is going to be important for the market. And there's some other kind of features and benefits within the product as well. We're 15% share of that market versus 70% share long-term continuous monitoring.
Other than primary care, which generally prescribes only long-term continuous, MCT is prescribed across the same prescriber base as long-term continuous monitoring. Then I mentioned the Big Bang launch accounts. There is a desire to have a single vendor for both MCT and long-term continuous monitoring. Given our position in the long-term continuous monitoring segment, which is the biggest segment of the overall market, generally that device is applicable for 90% to 95% of patients out there. I think we're in a unique position to win that business and serve the MCT segment with AT currently and then MCT when that comes to market.
I know you submitted to the FDA recently. Was this a PMA submission or a 510 (k)?
It was a traditional 510 (k). We submitted in early September. We did receive comments back from the FDA, which was encouraging given the shutdown in the middle of that. After we submitted, the process is moving, which is encouraging. Timelines were maintained. We did receive comments back from the FDA kind of consistent with our expectations. Certainly, there's a focus from the FDA on cybersecurity, and that was expected. That is an industry-wide focus for the FDA. Those are comments that we'll be working through. Too early to give guidance on timelines, certainly from a review standpoint. There's our own operational readiness that we need to work through as well post-clearance. We want to be thoughtful around that transition from AT to MCT. With the strength of AT recently, we've been building up inventory to meet that demand of the market.
As we transition to the next generation product, we want to be thoughtful around that inventory and make sure we're testing MCT in the market in terms of selling strategies, positioning, and that sort of thing. So we'll be thoughtful around that. We haven't given kind of specific timeline around that other than to say, don't expect Zio MCT to contribute meaningfully to 2026. The right way to think about that would be more of a 2027 driver.
I understand the framework, right? They don't expect it to be meaningful in 2026, but the thought process behind that is one, because you have the inventory on AT that you need to clear. And second, obviously, it's subject to FDA timeline, right? What is this framework assuming for FDA approval? Is that sort of second half of next year? And then that's why.
Again, we haven't put timeline or guidance around that. It's kind of all of those things together, to be honest. And as we get better clarity moving through the process, we can certainly potentially update timelines around that. But that's how we believe it's best to set expectations today.
Right. If I just did the math, right, with AT, you guys went from 0 to 15% share in about seven years.
Yep, five, six years. Yep.
Six years, right? So that's about two to three points annually. Could that accelerate with MCT just given the better features?
We do believe MCT is the better product. And I mentioned all of the reasons we think we have a right to win within that MCT category. I think you made the comment earlier kind of sustaining the growth that we're seeing with AT currently. I think that's the right way to think about it. MCT is a more competitive segment, certainly. Unlike long-term continuous monitoring, where we were the pioneer of that segment, we're coming into the market after it was established. So that will be the challenge that we have to work through. But again, we believe we have a unique right to win there. We're going to continue to innovate and bring innovation into the market to grow our share of that segment over the long term.
Right. Are there any margin implications with MCT?
Yeah, I think the right way to think about that, initially kind of neutral to Zio AT, at least in the early phases. As we scale being MCT on the same platform as Zio Monitor, and it is the same exact hardware, can be manufactured on the same line, we should see gross margin benefits there over time. We've been executing on manufacturing automation in our manufacturing facility in Orange County. We have phase one executed and subsequent phases of automation that will be coming online. So we do believe we'll see benefits from that as we move to the single platform and scale kind of from here.
And I would say when we set long-term targets at our analyst day back in 2022, we had a gross margin target for 2027 of 72% to 73% that did contemplate MCT coming onto the same platform. So I would point folks there. We do think there's opportunities to continue to potentially expand gross margin from there, but that is the target that we've put out there.
Gotcha. And just since you brought up gross margins, but with the LRP did not contemplate the price increase for LTCM, correct? Within Medicare?
Oh man, 2022 since then, I mean, there has been some ups and downs since then, but would say reasonably consistent with what our expectations were at that time. Then I would maybe add to that, another opportunity for gross margin is the efficiency of our cardiac technicians. Mentioned that we continue to invest in AI. There's other investments we're making around clinical workflow tools to make that part of our business just more and more efficient. Opportunities, and that was really where we were driving efficiencies. There are efficiencies on the device side as well. We're going to continue to execute on both of those.
Understood. Another driver has innovative channels, right? Just talk about how are these channels different from your traditional core markets? And I think you've given some numbers about the number of accounts that you have signed on. How many of those accounts have ramped up? How should we be thinking of ramp into 2026?
Yeah. Yeah, that is an exciting part of our business. I mentioned a 10-year kind of strategy around that. We've always had the view, and this is fairly well documented, that there are silent or asymptomatic cardiac arrhythmias where a patient has an underlying arrhythmia, but either not having symptoms or not aware of symptoms. And left unmonitored, untreated, that patient's going to have some type of cardiac event, potentially a stroke even, and get diagnosed for the first time in the hospital. So the opportunity that we saw is identifying those patients earlier through a test at home versus having to go into the hospital or emergency room and be diagnosed in that way. So this has been a strategy in the works for some time.
The innovative channel where we have found a very strong product market fit is these are groups that own the risk of the patient. So they're capitated in some way. They have their own Medicare Advantage plan or some other type of value based arrangement. But they also have the touchpoint with the patient. So they're either going into the patient's home or seeing patients in the clinic, can communicate to them, understand the risk factors each patient has, identify which patients they believe have the highest chance of an undiagnosed arrhythmia. And then importantly, because they own the risk of the patient, they can make the determination to proactively monitor these patients. So we're seeing that. It's really encouraging. It's a different kind of selling cycle than our core business, different kind of prescribing patterns. These are different patient populations.
And we're early. We're kind of 18 partners at this point and so it's an emerging part of our business. We're really excited about it. We're going to be thoughtful around how we guide to it, given we're early and don't really have the same history as our core business but really excited about that opportunity. We believe there's top-down 27 million patient opportunity that are at risk of undiagnosed arrhythmias against what I said earlier, 6.7 million tests in our core market today, so a big opportunity. We're going after it aggressively and excited about what it can mean for us.
Sorry, of these 18 partners, how many of them are fully ramped versus initial phase of?
I'd say each of them are still ramping. We have not reached full capacity with those partners. There is some variance with the partners. We did have one partner in Q4 last year that, and we talked about this at that time, ramped aggressively, monitored a good amount of their population in Q4, and then stepped back this year. These are proactive programs too, and we did see a partner in Q3 due to other corporate priorities not related to our program step down volume-wise in Q3 and expecting to ramp back up as we exit this year into next year, so there is a little bit of lumpiness that we want to be thoughtful around. Encouragingly, though, every partner we've gotten to a pilot, they've continued on to a full commercial program.
We lead with data here, and we do this in our core business as well, where we monitor 100 patients, 1,000 patients, whatever the pilot size is, and we come back with data to show, okay, here's how many patients you monitored. Here was the average wear time, the demographics of the patients, and then here are all the different arrhythmia types that you found. What we're seeing is there's a lot of undiagnosed arrhythmias out there. Oftentimes, either patients not having a symptom or the symptom is masked by something else that they're dealing with, whether it's COPD, CKD, diabetes. It could be a number of different things. We are generating the evidence here to show you catch these arrhythmias earlier, you're going to avoid those downstream costs that I mentioned earlier, visits or hospitalizations.
Are there some metrics then on what percent? I know this is a high-risk population that innovative channels are focused on. What percent of them end up showing with an arrhythmia with your device?
We had a stat that we shared previously. It was across five of innovative channel partners. 80% of patients monitored, and I want to say it was 30,000 patients across these five partners came back with some type of an arrhythmia, so very high yields. One thing we're doing as well, we have a partnership with a company called Lucem Health. This is an exciting thing where we can design an AI tool, an algorithm essentially, that allows these partners to kind of tune the algorithm to identify which patients will have the highest likelihood of an undiagnosed arrhythmia and if a partner wants to monitor patients and make sure that they're coming back with at least 50% of patients monitored with an arrhythmia, we can tune the algorithm that way.
If they want it higher and be a little more selective at 80%, you can tune the algorithm that way, and this is a dynamic algorithm as well, whereas as risk factors change across their patient population, someone gets diagnosed with something else as the patient population ages. All of that feeds into this algorithm, and it's dynamic to identify which patients are most at risk. That is something we've developed. We're in a pilot with that tool. The 18 partners that we've been innovative channel partners to this point have not utilized a tool like that, but we believe as we get deeper into the market, that could be a tool that partners look to adopt.
And so this essentially tells your partner what type of patient should be monitored. Is it right?
It specifies the exact patients that would be candidates for monitoring.
Have you tried to quantify based on this AI tool? I know you mentioned a number, right? 30,000. What that number could look like if they used a Lucem tool?
Maybe not exactly the Lucem tool, but I would point back to that 27 million patient opportunity. That is a combination of patients that are showing up in primary care with symptoms, as well as patients that have risk factors suggestive of undiagnosed arrhythmias. And that's that 27 million number that I pointed to earlier. As we're getting into these programs with partners, our confidence that that is a real number has gone up. And we'll look to validate that more through some more market research, but feel good that that is the opportunity out there for us. Where our focus is now is understanding from a market standpoint, okay, that's the top-down opportunity.
Who owns the risk of those patients and who can make these decisions to proactively monitor? We have 18 partners today, as I mentioned. We have a pipeline of 40 where we're actively in conversations with an identified pipeline of 100 others. But combining that 27 million in terms of how many lives each of those partners manage and get more targeted in that way, that's work that we're undergoing now.
Great. Of these 40 accounts in your firm, have you launched pilots with any of them, or are you in the process of?
That's the 18, so 18 are either actively contracting to run a pilot or have initiated a pilot or a full program.
Right. Great. Have you tried to size the market opportunity for what those 100 accounts could mean?
That is the work that we need to do. We have that top-down number, the 27 million. We believe it shows up eventually in those 100 accounts that we've identified, but need to confirm that with some market research, and we'll look to share some of what we learned there with investors as well.
Gotcha. And another topic you brought up was EHR Integration. And you've seen a volume uplift of 25% in these accounts, right? And I think you highlighted 30 accounts with Epic Aura integration. What drives this integration? And is Epic different from other EHR Integration, or do we see these kind of volume uplift in all accounts that have an EHR Integration?
Yeah. Epic is the market leader out there, but we do EHR Integration across all vendors. And we do see consistent kind of performance across all vendors. And the benefits for the account are you are embedding Zio within their clinical workflow, right? So as they're seeing a patient, as they're in the EHR, if they want to order Zio, they can do it right there on the back end. If they're with the patient, want to review the report, it's right there within the EHR as well. They don't have to exit to go into our digital platform, Zio Suite. And it sounds simple, but that does save time. And minutes matter in clinician workflows, and that is critically important. We've been driving hard at this for several years. Now over 50% of our volume is running through EHR Integrations. And we're not stopping there.
We're going to continue to push that, both traditional EHR Integrations as well as Epic Aura, which we're excited about. The other benefit for accounts is that it also enables prescribers across the account in a more efficient way than it does with Zio Suite, where, again, I mentioned primary care several times. That is an enabler for primary care adoption as well, where primary care within that account, if we're EHR integrated, it's showing up right there in their workflow as well.
What's been the average sort of ink step up and percentage of your orders coming from EHRs, right? What I'm trying to figure out is what was this number two, three years ago? You mentioned 50% of orders via EHR.
Yeah, that's been steadily increasing. I would call it mid-40s% or low- 40s% last year, stepping up to over 50%. And again, believe that can continue to grow. As you mentioned, the 25% uplift, we've looked at that kind of along the way, and that's always been a pretty consistent number pre and post EHR Integration. So it is a key enabler for us. Again, something we've invested in for several years and will continue to invest in.
That low 40s% to north of 50%, and was that an acceleration versus recent trends last two, three years, or was it steady?
I would say it's pretty steady. And we have a team built to support these integrations. It generally requires IT resources on the account side, and that's often the limiting factor. They have other stack of priorities that they have to work through, but we're there and ready to support it. I do think Epic Aura, one of the benefits of Epic Aura versus a traditional EHR Integration is it lowers the timelines and the amount of resources to integrate for an account. So really cutting that in half. So as we get deeper into it, there's potential that that lowers the threshold a bit and we're able to accelerate, but it has been kind of a steady increase over the years.
Gotcha. And then maybe switching to Q4 and Fiscal 26 kind of assumptions. Q4, I think the guide implies low 20s, almost 1,000 basis points step down from 3Q. I know comps get harder. It still feels like maybe there's a little bit of cushion in that Q4 assumption. Maybe walk us through on your Q4 thought process.
Yeah. We're again excited about what we're seeing in the business, the momentum we're seeing. Q4, as you noted, does face difficult comps. There were two factors. Last year, I mentioned innovative channel partner that monitored aggressively in Q4 last year. And then that was the time of the competitive disruption for AT as well. So we'll be facing that comp in Q4. We'll be facing similar difficult comps all of 2026. And no change in overall philosophy in terms of how we set guidance. We want to be thoughtful around how we set guidance, put something out there we have confidence in, high confidence in, leave things out that are a little less predictable, like innovative channel. And mentioned some lumpiness in that part of our business and want to be thoughtful that we're not getting ahead of ourselves.
Understood. Then when I look at Fiscal 2026, I don't think you've historically commented about the forward year on a 3Q call. This year was an exception. What was the thought process in guiding, or I guess not a formal guidance, but prelim outlook of 16% to 18%? And that 16% to 18%, that's a further step down from the 21% implied for Q4. Sort of walk us through that bridge from 21% to high teens.
Yeah. Yeah. Yeah. We don't normally comment that far in advance, certainly. We thought it was important as we were putting up Q3 numbers that had 31% growth to make sure we were managing expectations the right way. So wanted to proactively comment on that. And I'd say we'll give more color around this when we give formal guidance, but no change in approach for 2026 as well. We want to be thoughtful and make sure we have high confidence in what we've put out there. We believe there's a lot of momentum in the business across the core market, across AT innovative channel as well. We'll be facing difficult comps all of next year. That's a good problem to have, certainly, but want to make sure that we're putting something out there we can deliver and leave some of the potential upside drivers outside the guide.
The reason they're left outside the guide is there isn't a guarantee that they play through, right? So hopefully we're able to execute on those and that's how it plays through, but want to make sure we're setting up the year in a thoughtful way.
Gotcha. And maybe last question here. As you look at 2026, what are the positives, pluses, and minuses? You have new products, there's comps. I think in margins also, LRP implies almost 600 basis points of expansion from current levels. Should we straight line that margin expansion from where we're exiting in 2025?
Yeah. I think we talked about a lot of the kind of top line drivers. So maybe just real quick on the bottom line. We've been really pleased with the progress we've made. We have a focus on profitable growth. So continuing to grow the top line while expanding profitability. We've been on this cadence, call it 300 to 400 basis points of EBITDA expansion. That puts us on pace to delivering that long-term target in 2027 of 15% adjusted EBITDA. Free cash flow positive for the first time this year in 2025, which we're really excited about. That's a significant milestone for the company.
And we believe that's a balanced plan where we're delivering profitability, but also reinvesting back into innovation and a number of opportunities that we're excited about there. You'll hear us talk about sleep more and more. That's a big opportunity for us. We're excited about that and something that we'll invest in.
Great. With that, we're out of time. Dan, thank you for your time this morning.
Appreciate it. Thanks for having us.