iRhythm Holdings, Inc. (IRTC) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the iRhythm Holdings, Inc. Q2 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Lisa Pecora, Senior Vice President, Finance and Investor Relations. Lisa, please go ahead.

Thank you, operator, and thank you all for joining iRhythm's Second Quarter 2026 Earnings Call. With me today are Quentin Blackford, iRhythm's President and Chief Executive Officer; and Dan Wilson, our Chief Financial Officer. Before we begin, please note that management will make forward-looking statements within the meaning of federal securities laws under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding our intentions, beliefs and expectations about future events, strategy, competition, products, operating plans and performance. Forward-looking statements on this call are based on current estimates and assumptions and involve risks and uncertainties, and actual results may differ materially. These statements are made as of today, August 6, 2026, and are time sensitive. We undertake no obligation to update or revise them, except as required by law. Accordingly, you should not place undue reliance on these statements. For a discussion of risks and uncertainties, please refer to our most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the SEC. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. These non-GAAP measures should not be considered in isolation or as a substitute for or superior to GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and the slides accompanying today's call. And with that, I'll turn the call over to Quentin.

Good afternoon, everyone, and thank you for joining us. We had another very strong quarter, and I'm pleased to be here to discuss both our second quarter 2026 performance and the progress we are making against our long-term strategy. I will begin with a brief overview of the quarter, then discuss today's announced agreement to acquire Vital Connect and finish with several key business updates. Dan will then talk about our financial performance and guidance in more detail. Second quarter revenue was $224.2 million, up 20.1% year-over-year. This marks our seventh consecutive quarter of growth above 20%, a meaningful accomplishment and a reflection of the durability of demand for Zio, the strength of our commercial execution, and breadth of our growth drivers. Momentum remains strong across cardiology, primary care, innovative channels and international markets. We are particularly pleased to see that growth translate into exceptional margin expansion, demonstrating both the strength of our platform and the operating leverage inherent in our model. The combination of sustained top-line performance and increasing operating leverage gives us continued confidence in our strategy and the substantial opportunity ahead. Let me turn to our agreement to acquire Vital Connect, which we announced today. We have followed Vital Connect for some time and developed a great deal of respect for its technology, its people, and the platform the team has built. We are enthusiastic about bringing our organizations together because the combination meaningfully expands the ways we serve physicians, health systems and patients while remaining closely aligned with our mission to improve diagnosis, prevent disease and ultimately enhance patient care. Vital Connect brings a complementary and comprehensive platform that supports 4 cardiac monitoring modalities: mobile cardiac telemetry or MCT, event monitoring, long-term continuous monitoring, and short-term Holter. This technology is also FDA-cleared for continuous patient monitoring in the hospital, further expanding our capabilities beyond ambulatory cardiac monitoring and across the continuum of care. The strategic fit is compelling. Vital Connect reinforces our commitment to innovation in ambulatory cardiac monitoring and adds an FDA-cleared platform with a patient monitoring service up to 30 days, 4-in-1 device functionality, flexible service models, live-looking capabilities, and multivital monitoring. These features complement our existing portfolio and give us additional tools to meet different clinical, operational and economic needs of customers and patients. This acquisition also expands our ability to participate in the NCT segment. This is a large market segment and customer needs vary considerably by workflow, site of care, and patient population. Adding Vital Connect's proven platform to our national sales force will give physicians and health systems on a nationwide basis greater choice and flexibility. Together with Zio AT and Zio MCT, the acquisition of Vital Connect creates a complementary set of solutions to serve different MCT customers and patients. Vital Connect is also important to the broader evolution of our platform. Its biosensor can monitor up to 11 physiological parameters, including ECG, heart rate, respiratory rate and body temperature, providing a robust foundation for our multivital strategy. Over time, these capabilities allow us to address a wider range of clinical needs and care settings, including inpatient monitoring and hospital-to-home programs, creating additional avenues for sustainable long-term growth. Financially, we expect the transaction to strengthen our long-term growth profile. We anticipate a positive contribution to revenue growth beginning in 2027 and thereafter. Combining Vital Connect's business with the meaningful progress we continue to make in our base business, we remain confident in the combined company achieving our previously communicated adjusted EBITDA margin target of 15% next year. I also want to be clear about what this means to our current NCT strategy. We remain committed to both Zio AT and Zio MCT. Because the NCT market serves diverse physician workflows, sites of care, and patient preferences, we do not believe a single solution will address every need. Therefore, our objective is to provide a portfolio of complementary options. To that end, we continue to work towards a clearance for Zio MCT in the first half of 2027. In parallel, we will allocate resources towards understanding and accelerating performance with Vital Connect to ensure a rapid and successful integration of Vital Connect's products into our commercial force, as well as evaluate and define a product roadmap that combines the best of both product platforms and brings continued innovation to the market that serves the needs of our customers and patients. Turning to another central element of our strategy, reaching patients earlier in their care journey. We believe that at least 27 million people in the U.S. are at risk for arrhythmias, and many of these individuals first engage with the health care system through primary care, value-based care and population health settings. This creates a significant opportunity to expand access to Zio by embedding long-duration cardiac monitoring more directly into the clinical workflows where patients are first identified, evaluated, and referred. During the quarter, we advanced our predictive arrhythmia solution strategy with the signing of 2 commercial agreements through our partnership with Luum that combine predictive identification workflows with iRhythm monitoring solutions. These partnerships are intended to support earlier diagnosis and intervention, and our pipeline of additional opportunities continues to develop. We are also expanding our predictive arrhythmia solutions work with Desert Oasis Healthcare using AI-driven analytics to identify patients who may benefit from cardiac evaluation and monitoring. We continue to see strong momentum in the innovative channels, which was our fastest-growing channel in the quarter. Demand remains robust across a growing network of value-based care, primary care, and population health partners. As these programs scale, utilization is expanding in both symptomatic and asymptomatic patient populations. Early pilot programs have demonstrated more than 85% accuracy in identifying patients with clinically relevant arrhythmias before they enter the diagnostic process. The early results of these programs are encouraging and support our conviction that earlier identification can improve outcomes and reduce total health care costs. Primary care is an important part of our upstream strategy, with the majority of the 27 million people in the U.S. at risk for arrhythmias entering the health care system through this pathway. To support that care journey, we recently launched our first-ever targeted direct-to-patient initiatives through the patient point network, providing coordinated arrhythmia education for patients, physicians, and office staff. The goal is straightforward: increase awareness of symptoms and risk factors, help patients seek evaluation sooner, and make the connection between primary care and cardiology more efficient. A key enabler of our growth strategy in verticals such as primary care is our strong commitment to technology integration. Approximately 60% of our volume now comes from EHR-integrated accounts and nearly 80 of our top 100 customers are integrated today. By embedding cardiac monitoring more directly within provider workflows, these integrations reduce friction, improve efficiency, and help support earlier identification of patients who may benefit from monitoring. We believe this positions us well as cardiac care increasingly shifts upstream and towards earlier detection. International remains another emerging growth opportunity, supported by continued commercialization progress and clinical evidence generation during the quarter. For example, in the U.K., we are building momentum with the NHS, supported by award-winning Zio integration and expanding interest in primary care cardiac monitoring. In the Netherlands, we are deepening relationships with key opinion leaders as we position the business for future market expansion. And in Japan, the higher reimbursement rate we discussed last quarter became effective on June 1. In each of these markets, we are staying disciplined in how we execute, investing to generate clinical evidence, advance reimbursement and build scalable commercial capabilities. Globally, we also continue to expand the body of evidence supporting the clinical and economic value of our platform. Data presented at the European Heart Rhythm Association, the American Diabetes Association and the International Society for Pharmacoeconomics and Outcomes Research add to our body of clinical evidence on outcomes and economic benefits of early detection and disease management with long-term continuous monitoring. Turning to adjacent markets. Sleep remains a large and underpenetrated opportunity with approximately 40 million sleep apnea patients in the U.S., many of whom overlap with arrhythmia populations. We continue to execute pilot programs and refine our strategy with a focus on simplifying fragmented workflows across the sleep ecosystem through a more integrated approach. Similar to cardiac monitoring, we believe streamlining these workflows can create meaningful value for patients, providers, and the broader health care system. We are encouraged by the potential while remaining measured in how we invest in scale. Before turning it over to Dan, I'd like to address several business and regulatory updates. First, a positive development during the period on reimbursement was the final LCDs issued by Noridian, CGS, and Palmetto, which address key areas of ambiguity in the initial drafts and delivered a constructive outcome. Importantly, these LCDs clarify appropriate modality-specific coverage without introducing additional access restrictions. Overall, the final policy removes a source of uncertainty for the market. Second, we achieved an important milestone this quarter with FDA clearance of our third-generation algorithm, which will be used across our entire platform. Once launched in the first half of 2027, we expect it to reduce clinical technician review time by as much as 50%, driving meaningful productivity gains and approximately $100 million of cumulative cost savings over 5 years while supporting continued margin expansion. We're also excited by the incremental opportunity to leverage this capability on the Vital Connect platform over time. This is a strong example of how our investments in data and AI can improve both the customer experience and the efficiency of our operating model. Third, as you know, we remain subject to an FDA warning letter and continue to work through the agency's review process. We have updated the agency on the completion of our remediation activities and our self-initiated third-party audit and look forward to their return in anticipation of closing out the warning letter. While the timing of any action remains with the agency, we remain focused on supporting the process and responding to any request from the FDA. Fourth, I'd like to acknowledge that on July 31, we agreed to settle our outstanding litigation with Baxter and its subsidiaries, Welch Allyn and Bardy Diagnostics, for a settlement payment of $50 million. With this matter now resolved, we can move forward with greater clarity and focus, directing our attention and resources towards the strategic initiatives, innovation, and execution that drive long-term value creation. Finally, I'd like to provide a brief update on the recent cybersecurity incident we announced in June. On June 8, we identified unauthorized activity in certain third-party hosted business applications. We promptly activated our response plan, engaging external experts and notifying law enforcement. The incident has been contained and the root cause identified. While certain data was exfiltrated, our investigation and remediation actions resulted in no material impacts to our products, patient care, business operations or financial results. Looking forward, our priorities are clear: sustained volume-led growth across cardiology, primary care and innovative channels, continuing to improve profitability through scale, productivity and disciplined execution, advancing key innovation initiatives, including next-generation MCT and predictive AI, thoughtfully expanding into international and adjacent market opportunities and maintaining the strong operational and compliance foundation that supports long-term success in a rapidly evolving landscape. With that, I'll turn the call over to Dan.

Thank you, Quentin. We delivered another quarter of strong financial performance, supported by sustained demand for our ambulatory cardiac monitoring services and continued operational discipline across the business. We generated robust year-over-year revenue growth while delivering record profitability, demonstrating our ability to scale efficiently and translate growth into significant operating leverage. We remain encouraged by the momentum across the business and the consistency of our execution. Revenue for the second quarter was $224.2 million, up 20.1% year-over-year, reflecting healthy demand across our customer base and continued momentum in newer growth channels. Volume remained the primary driver of growth, complemented by modest pricing gains and continued strong execution in collections. Our broad and expanding prescriber base continues to underscore the strength and durability of demand, while new stores contributed approximately 45% of year-over-year volume growth. Moving down the P&L, gross margin in the second quarter was 72.8%, an increase of 160 basis points year-over-year. This sustainable improvement was driven by targeted operational efficiencies, including manufacturing automation and workflow optimization, as well as product mix and scale benefits from higher volumes. Second quarter 2026 adjusted operating expenses were $145 million compared to $145.2 million in the prior year period, a decrease of 0.1%. Our expense performance also reflects a focused approach to investment as we funded key growth initiatives while thoughtfully managing costs across the broader organization. As a result, we kept operating expenses essentially flat while delivering strong revenue growth and operating leverage. On the bottom line, GAAP net loss for the second quarter was $0.4 million or net loss per diluted share of $0.01 compared to a GAAP net loss of $14.2 million or net loss per diluted share of $0.44 in the second quarter of 2025. Adjusted net income for the second quarter was $19.3 million or net income per diluted share of $0.58 compared to an adjusted net loss of $10.2 million or net loss per diluted share of $0.32 in the second quarter of 2025. These results highlight the progress we've made in building a more profitable business as operating leverage across the organization contributed to significant year-over-year improvement in earnings. Adjusted EBITDA for the second quarter was $43.3 million or 19.3% of revenue, representing an improvement of more than 1,000 basis points compared to the prior year. The year-over-year improvement reflects our disciplined spend management, moderating FDA remediation expenses, and timing of innovation and growth-related investments. This performance underscores the operating leverage we are building in our business model and our confidence in delivering against our longer-term target of 15% adjusted EBITDA margin in 2027. Free cash flow during the second quarter was positive $37.5 million, a record for the company and reflective of the inherent operating leverage in the business and disciplined working capital management. We ended the quarter with $591.3 million in cash, cash equivalents, and marketable securities, a strong cash position that provides us with substantial flexibility to fund future growth initiatives. Before turning to our guidance for the remainder of this year, I wanted to give a few comments on the financial aspects of the Vital Connect transaction. We expect the acquisition to positively contribute to revenue growth beginning in 2027 and thereafter, with Vital Connect currently at an approximately $65 million annual revenue run rate. For gross margin, we expect that the combined company will remain above 70% gross margin by leveraging the scale, operational infrastructure and AI capabilities we have built. And finally, as previously noted, we remain confident in the combined company achieving our previously communicated adjusted EBITDA margin of 15% in 2027. We look forward to providing more detailed guidance following the closing of the transaction. Now turning to our updated financial outlook for Q3 and full year 2026, which does not include any contribution related to our pending acquisition of Vital Connect. We are raising full year 2026 revenue guidance to $880 million to $890 million, representing 18% to 19% year-over-year growth. This outlook reflects sustained demand across our core business while maintaining the same disciplined approach to forecasting newer and emerging channels. On a full-year basis, we now expect a modest positive contribution from pricing relative to 2025, attributable to the price benefit we realized in the first half, with revenue growth continuing to be driven primarily by volume growth across Zio Monitor, the innovative channel, Zio AT, and international. In the third quarter of 2026, we anticipate revenue to be in the range of $221 million to $223 million, consistent with typical revenue seasonality. For gross margin, we remain confident in our ability to sustain the strong margin performance we've delivered year-to-date while continuing to drive meaningful improvement relative to 2025. The efficiencies we've created across clinical operations and manufacturing, combined with increasing scale and the adoption of AI-driven workflow tools, support further reductions in our cost to serve over time. With respect to the broader macro and geopolitical environment, we've taken proactive steps to manage potential cost pressures and do not currently expect a material impact on our gross margin outlook. Based on our performance year-to-date and outlook for the remainder of 2026, we are raising our full-year adjusted EBITDA margin guidance to 13% to 14%. This reflects the benefits of continued scale, disciplined expense management, and a balanced investment approach across our key growth initiatives. We anticipate certain investments in growth initiatives, including targeted investments in primary care expansion to ramp in the second half of the year. For the third quarter, we expect an adjusted EBITDA margin of 12% to 13%. Excluding certain unique items such as litigation settlement payments and transaction costs, we continue to expect free cash flow to increase year-over-year in 2026 with stronger cash generation in the back half of the year, driven by the normal operating cadence of the business. Before closing, I'd like to briefly address the preliminary physician fee schedule proposed by the Centers for Medicare and Medicaid Services, or CMS. We view the proposed reimbursement rates up low single digits across both long-term continuous monitoring and mobile cardiac telemetry as further validation of the health care industry's continued focus on earlier disease detection, preventative care and evidence-based clinical decision-making. These trends align closely with Zio's strength in delivering objective diagnostic insights through extended uninterrupted cardiac monitoring. We look forward to reviewing the final rule, which is expected later this year, and we'll provide additional commentary at that time. In closing, our second quarter results reflect the strength of our execution and the increasing profitability of our business model. Moving forward, we remain focused on expanding patient access, operating efficiently, and investing thoughtfully in the opportunities that position us for long-term success. With the addition of Vital Connect, we look forward to delivering profitable growth where we will continue to balance profitability expansion with disciplined investments towards growth. I will now turn the call back to Quentin for closing remarks.

Thank you, Dan. This was an excellent quarter for iRhythm. We are encouraged by the momentum in our business and the opportunities we see to further expand our impact. We delivered our seventh consecutive quarter of revenue growth above 20%, expanded margins significantly, generated strong free cash flow, and raised our full-year outlook. Our results reflect the strength of the Zio platform, the consistency of our execution and, most importantly, the work of our people. At the same time, today's agreement to acquire Vital Connect represents an important next step in the evolution of iRhythm. It adds complementary monitoring capabilities, expands our presence in MCT, and provides a foundation for multivital monitoring and additional care settings that will meaningfully benefit patients and customers over time. We're enthusiastic about the strategic potential of the combination, but we will remain disciplined in how we integrate the business, prioritize investments and pursue the opportunities ahead. Our strategy is clear: expand access, advance innovation and execute with discipline. Before we move to Q&A, I want to thank the entire iRhythm team. Over the past month, Newsweek recognized iRhythm as both one of America's greatest workplaces and one of the world's greenest companies. Those recognitions belong to our employees. Their talent, dedication, and commitment to our mission are what make our performance possible, and our culture remains one of the most important competitive advantages we have. With that, we're now happy to take your questions.

[Operator Instructions] Your first question comes from the line of John Young with Canaccord.

Congratulations on the strong quarter and congratulations on the Vital Connect acquisition. I know it's a high-quality company that we've known for several years. Could you walk through the synergies you expect with the MCT business specifically? How will you position their existing MCT offering versus upcoming Neo MCT? How do you expect this will accelerate the MCT category overall for iRhythm?

Yes. Thanks, John. I appreciate that question. Look, we've followed Vital Connect for quite some time at this point and understand their technology really well. And I think we understand the MCT category really well as well. I think what we've come to realize is that there's going to have to be multiple product offerings in that category to ultimately succeed. And so we remain committed to AT, to MCT, and now the Vital patch. If you look at it, Zio AT for us was a product that could really serve about 50% of that MCT market, just given the short duration, 14 days, not being able to get out to 30 days, not having the live-looking capability, the downgradable 4-in-1 capability. Those were all things that were shortcomings with AT, yet it still served a good part of the market. Vital Patch opens up the remaining 50% of that market. Even our own Zio MCT product would only open up probably another 20% to 30%. So having Vital Patch in there gives us access to the entire market, which is probably a $1 billion market, growing in the high single digits. It's probably an incremental $500 million market opportunity for us. So we're excited about it. We're excited to get this through HSR review. We expect that to close by the end of the year, and our focus is going to be integrating this into the commercial team in the very first part of next year.

Your next question comes from the line of Joanne Wuensch with Citi.

This is Anthony on for Joanne. This was a pretty impressive quarter on EBITDA margins, keeping OpEx essentially flat. Any reason not to maybe raise EBITDA a bit more? And then also just a quick follow-up. Was there any tariff refund benefit this quarter?

Yes. Thanks, Anthony. I appreciate the question. Maybe hitting the second part of your question there first. No, there was not a tariff benefit realized in the quarter. So that was not part of the 19% adjusted EBITDA margin that we delivered in the quarter. You heard in my prepared remarks that there are some investments that we intend to make in the back part of the year. We are raising full-year adjusted EBITDA guidance and are ready to deliver, call it, over 400 basis points of improvement versus 2025. So we're really excited about that leverage that's coming through in the business. At the same time, we see a lot of opportunities ahead of us to continue to grow the business and talked about primary care, continuing to open that up, innovative channel, sleep, other initiatives like that. So we always want to be thoughtful and drive towards profitable growth and really balance those investments in the business to drive growth, but also deliver profitability expansion. So excited about what is showing through in the business, excited about the setup for the rest of the year and really excited about what the investments can mean for future growth of the business.

Your next question comes from the line of Allen Gong with JPMorgan.

Congrats on the good quarter and deal. I guess I want to dive a little bit deeper into a question that was just asked. So I understand that Vital Connect helps expand the remaining 50% of the market, but arguably, it could also handle the 50% of the market that is currently addressed with AT. And with Vital Connect, a big value to the technology is the additional markets that it seems to open. I think we've talked to them; they've valued the transition care, inpatient monitoring, and hospital at home as markets in the billions of dollars as well. So I guess just again on the positioning, should we think of this as more of a new product to target those opportunities and unlock the remaining 20% to 30%? And then when we think about technologies that you've talked about maybe being a stepping stone into other modalities like sleep apnea, is this the deal that we should have been looking for?

Allen, thanks for the question. And I think you go back to my prepared remarks; we certainly hit on those exciting new opportunities that come via the Vital Connect transaction. They are exciting to us. And honestly, they're part of sort of the road map that we've been focused on for some time now. And hospital monitoring is certainly interesting to us. They've done a nice job of entering into that space already and beginning to make inroads there. The hospital-to-home segment is something that we've talked about in the past, particularly as we build out our own multivital product capability. Now Vital Connect accelerates that capability, having multivital capabilities already on their platform. So those are nice synergies in the transaction and very synergistic relative to the overall strategy of our company. I wouldn't leave out RPM as well. Remote patient monitoring is another area of focus that they built out a capability very nicely around. That's something that we've also had on our road map as well. So this certainly goes well beyond just the MCT market. It absolutely opens up incremental opportunity within MCT. And I think we're going to be able to benefit patients and customers meaningfully more as a result of it. But MCT alone is not the only reason that we're interested and excited about Vital Connect. So you hit the nail on the head with respect to those incremental ancillary market opportunities that I do think can be valued in the billions of dollars in terms of market potential. We're in the early stages. We're going to be thoughtful and measured in how we continue to lean into those, but we certainly want to lean into the experience of Vital Connect and what they've learned there and capitalize on the inroads that they've already made.

Your next question comes from the line of Marie Thibault of U.S. Bancorp BTIG.

I just wanted to quick check in on the direct-to-patient marketing that you've started, I think, in some select ZIP codes. Can you give us an early read on what you're learning from those efforts? And should we expect that you'll plan to expand that program here in the quarters to come?

You certainly, Marie, should expect that we're going to continue to lean into and expand it. And that's part of the incremental spend in the back part of the year that Dan was alluding to. We know that direct-to-patient, direct-to-consumer, primary care, these are all areas that have real potential behind them and early indicators are that they are real opportunities. So we will continue to invest in those. They'll be measured as we go to make sure that we're seeing the sort of returns that we expect to around them before we just lean into them even harder. But we're excited by those. We are in the very early stages of the initial DTP efforts and the in-clinic and physician office marketing that we're doing with patients. So it's a little bit early to measure those results, but I will tell you that the confidence is high enough right now that we're going to continue to lean into it and excited about what we're going to see out of it. So we're a little early, but we're excited by it.

Your next question comes from the line of Stephanie Elghazi with BofA.

Congrats on a good quarter and the deal. I just wanted to check on Zio MCT and how that's tracking relative to previous expectations for the launch in the first half of next year? And any progress you would share on the mobile gateway data submission to the FDA?

Yes. Thanks, Stephanie. So we continue to make progress on Zio MCT. It continues to be a priority for us and an area that our teams are focused on. As you'll note in my prepared remarks, I commented on the fact that we remain focused on getting clearance on that product in the first half of next year. I think it's important for you to realize, though, that we expect Vital Connect will close before the end of the year, which means we are going to be focused on integrating that Vital patch into our commercial team's hands right around the turn of the year, the very early part of next year, which requires training and launching across a nationwide platform. So that will be our #1 focus as we enter into this deal and transaction and look to close it here in the near term. At the same time, we're going to continue to focus on the submission of MCT and getting that clearance so that we do have optionality as we go into the future. But I think it's important for folks to realize Vital Connect is the primary focus here in the near term as we look to launch a new product into the MCT space, which will be that Vital patch.

Your next question comes from the line of David Saxon with Needham.

I'll echo the congrats on the quarter and the deal. So yes, I just have a multi-parter on the Vital Connect deal. So you talked in the script $65 million run rate. I think that reflects a slowdown they saw in the first quarter due to a transition. And my understanding is they recovered from that and are ramping and targeting about $100 million next year. So is that a fair way to think about what they could do from a revenue contribution perspective in '27? And then the second part of the question is just, I mean, my math, you're the leader in the extended Holter category, obviously, you'll probably get a couple of points there from their platform. And I mean, I would guess your MCT share is going to have a 2 handle in front of it. So just talk about your confidence in getting it through the regulators and whatnot.

Yes, there's a lot in there, and I'll ask Dan to jump in and help if I miss anything or just remind me of what we've missed because I want to try to hit all of it for you. I'll come back to -- this is a company that we've spent a lot of time getting to know over the years and certainly have really come to appreciate their technology and frankly, the teams behind the company that have been building it. But there have been some structural considerations over the years that made it very difficult to step in and acquire the company. We've had those conversations with the teams over the years, and Peter and that team did a nice job of addressing those right towards the end of last year and into the beginning of this year, which did create a little bit of a hiccup in that business. They've come out of it really nicely. They're growing quite nicely now, and we're excited by what we're seeing in that business. So they have addressed that, and I see that as temporal and the recent business trends would certainly indicate that was the case as well. But having addressed that particular issue now opened up the opportunity together with nice gross margin improvements that we were seeing in that business to step in and acquire the company. And so we're excited to be at the point now to be able to do that. In terms of run rate revenue, what that looks like for next year, we're not going to get out and guide to 2027 at this point in time. Some of that's going to be contingent upon exactly when the deal does close, and we're going to wait until that happens to give you sort of a forward look and a guidance of the combined companies. Again, our idea is that this thing will close by the end of the year. But until it does close, we're going to hold back on providing combined company guidance. The last point on HSR review or getting through the FTC: this is very much about the FTC or MCT product category. It's a very competitive transaction. I mean, there's a tremendous amount of competition that remains in the MCT category. The largest players in this space really focus on MCT between Biotel and Preventice and others. And I think that the combination of our company and Vital Connect doesn't change that competitive dynamic within the MCT category. So we're excited by the opportunity. We feel very good about the ability to get through the FTC and the HSR review, and we'll keep you updated on how we progress through that.

David, I'll just add on the revenue. I can't necessarily speak to what they've quoted historically. The $65 million run rate that I had in my prepared remarks, that does contemplate our revenue accounting, which, as you know, we essentially report a net revenue that follows a contractual allowance. And so that is our revenue recognition. That's how we derived that $65 million. Hopefully, that's helpful.

Your next question comes from the line of Nathan Treybeck with Wells Fargo.

Congrats on a strong quarter and on the deal. Quentin, are you seeing any sign that the very strong growth you've seen in innovative channels is beginning to normalize? Or do you still believe those channels are still in early innings? And then maybe just talk about the cadence of new partner adds in the quarter? And I guess, what's implied in the second half relative to the first half?