Kestra Medical Technologies, Ltd. (KMTS) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong revenue growth, market expansion, and a strategic focus on innovation. Despite increased losses, cash reserves are robust. The Q&A highlights sustainable growth strategies and positive market reaction to clinical data. The company's guidance and strategic plans suggest a positive outlook, with expected gross margin expansion and increased prescription volumes. While there are uncertainties regarding guideline changes, the overall sentiment is positive, driven by strong financial metrics and optimistic guidance, likely leading to a stock price increase in the short term.
Key Financial Performance
Revenue $22.6 million, a 53% increase year-over-year. The growth was driven by a 54% year-over-year increase in prescriptions, reflecting market share gains with existing customers and activation of new accounts. Excluding the impact of a one-time revenue pickup in the prior year, revenue growth was 60%.
Gross Margin 50.6%, up 11 percentage points year-over-year. This was driven by attractive unit economics, higher revenue per fit from more in-network patients, and a 20% decline in cost per fit due to volume leverage and cost improvement projects.
Operating Expenses $43.2 million, up from $25 million in the prior year period. Excluding nonrecurring costs and stock-based compensation, operating expenses were $33.5 million compared to $23.8 million in the prior year. The increase was primarily due to investments in commercial expansion and public company costs.
Net Loss $32.8 million, compared to $20.6 million in the prior year period. The increase in net loss was attributed to higher operating expenses.
Adjusted EBITDA Loss $19.7 million, compared to $16.1 million in the prior year period. The increase was due to higher operating expenses.
Cash and Cash Equivalents $175.4 million as of October 31, 2025, not including $148 million of net proceeds from a recent public equity offering.
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Operating Highlights
ASSURE system: The ASSURE system demonstrated improved comfort and care coordination for patients, as well as high wearability and effectiveness in detecting cardiac events. It also has the lowest false alarm rate among WCDs and is specifically designed for women.
WCD market growth: The WCD market is underutilized, with only 14% of eligible patients using the devices. However, market growth has accelerated to low double digits, with potential to expand into a multibillion-dollar market.
Sales expansion: Kestra expanded its sales organization to approximately 100 active sales territories, up from 80 in fiscal year 2025, targeting high-volume prescription geographies with strong in-network payer coverage.
Revenue growth: Revenue for Q2 was $22.6 million, a 53% increase year-over-year, driven by a 54% increase in prescriptions and market share gains.
Gross margin improvement: Gross margin reached 50.6%, up 11 points year-over-year, marking the eighth consecutive quarter of sequential expansion. Kestra aims for 70%+ gross margins in the coming years.
Revenue cycle management: In-network patient mix increased to the low 80s, improving efficiency and positively impacting revenue growth, gross margins, and profitability.
Clinical evidence and guidelines: The ACE-PAS study, the largest WCD study to date, demonstrated the ASSURE system's safety and effectiveness, potentially influencing future clinical guidelines and accelerating market penetration.
Fleet investment: Kestra continues to invest in its fleet of devices to support growth, with a long-term goal of 90% of annual patient fittings achieved through device reuse.
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Risk or Challenges
Market Penetration Challenges: Despite evidence supporting the effectiveness of wearable cardioverter defibrillators (WCDs), the therapy remains underutilized, reaching only 14% of the eligible U.S. addressable market. This indicates a significant gap in market penetration and adoption.
Regulatory and Clinical Guidelines: Existing WCD guidelines were last updated in 2017, and there is uncertainty about when or if they will be updated to reflect new clinical evidence. This could delay broader adoption and clinical acceptance of the ASSURE system.
Revenue Cycle Management (RCM): While progress has been made in bringing more payers in-network, there are still over 3,000 payers in the U.S., and a long tail of regional and local payers remains out-of-network. This could impact revenue growth and operational efficiency.
Cost Management: Although gross margins have improved, the company is still incurring high operating expenses, including investments in commercial expansion and public company costs, which contribute to ongoing net losses.
Competitive Pressures: The WCD market is competitive, and Kestra faces challenges in differentiating its ASSURE system from other commercially available WCDs, despite its clinical advantages.
Economic and Operational Risks: The company operates a lease business model requiring substantial investment in its fleet of devices. While this supports scalability, it also exposes the company to risks related to asset utilization and depreciation.
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Guidance & Outlook
Gross Margin Expansion: Kestra expects continued gross margin expansion in the back half of FY '26 and remains confident in achieving 70%+ gross margins over the next few years.
Revenue Growth: Revenue guidance for fiscal year 2026 has been increased to $91 million, representing a growth of 52% compared to fiscal year 2025. This growth is driven by strong prescription growth, market share gains, and WCD market expansion.
WCD Market Growth: The WCD market is expected to grow into a multibillion-dollar market over the coming years, with current growth accelerating to low double digits.
Sales Expansion: Kestra is expanding its sales organization, increasing active sales territories from 80 to approximately 100, and targeting geographies with high WCD prescription volumes and strong in-network payer coverage.
Revenue Cycle Management (RCM) Improvements: Kestra is improving RCM capabilities and increasing the percentage of in-network patients, which is currently in the low 80s. This is expected to enhance revenue growth, gross margins, and profitability.
Device Fleet Expansion: Kestra is continuing to add to its fleet of devices to support near-term business objectives, with a long-term expectation that 90% of annual patient fittings will be accomplished with reused devices.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you discuss the guidance for the year, especially the cadence for Q3 and factors considered for the full year?
A:Vaseem Mahboob explained that the company tracks performance daily, weekly, and monthly. Revenue growth is driven by prescription volume growth, in-network mix, and revenue cycle management initiatives. The company aims to deliver consistent quarterly results to build investor trust and confidence, with a growth profile of 45%-50% through 2028.
Q:How will the additional capital be used to accelerate growth initiatives?
A:Brian Webster stated that the capital will fortify the balance sheet and provide optionality for growth strategies. The company is in the annual planning process and will outline the impact of the capital on growth strategies for the next couple of years.
Q:Are you seeing an impact from the AHA data on the WCD market?
A:Brian Webster noted that market growth is now low double digits, up from single digits. While it's too early to see the impact in numbers, anecdotal evidence shows clinicians are making different decisions based on the data. The company is conducting more medical education events to promote the data.
Q:Can you provide details on rep productivity and sales force hiring plans?
A:Brian Webster mentioned that the company has grown its sales force from 70 reps at IPO to about 100 reps now, with plans to double the original number in the next 6-8 months. The company is evaluating an accelerated hiring plan for fiscal year '27.
Q:What is the timeline and impact of potential guideline changes based on clinical evidence?
A:Brian Webster clarified that the company’s growth plan does not rely on guideline changes. The arrhythmia committee of AHA and HRS reviews guidelines on an ad hoc basis when new evidence emerges. The company will present its data to encourage a review, but there is no set timeline.
Q:Is the WCD market growth driven by market expansion or share capture?
A:Brian Webster explained that the company is growing at 53% with a 13% market share, while the competitor is growing at 5% with an 87% market share. This indicates both market expansion and share capture.
Q:What factors are contributing to the acceleration in category growth and key metrics like conversion rates?
A:Brian Webster highlighted that clinical data showing high risk in the first 90 days is influencing clinician decisions. Vaseem Mahboob added that conversion rates have improved from 38% in FY 2024 to 49% this quarter, driven by prescription fill rates and in-network mix.
Q:Do you expect prescription volume growth above 50% to be sustainable?
A:Brian Webster stated that the growth is sustainable due to further penetration in existing accounts and adding new hospitals. The company is also targeting a broader range of prescribers, including physician assistants and nurse practitioners.
Q:What are the plans for OpEx spending and its impact on growth?
A:Vaseem Mahboob explained that investments are focused on team expansion and revenue cycle management capabilities. The current run rate supports guidance and accelerates growth into 2027.
Q:How is the expanded clinical specialist role impacting business and account penetration?
A:Brian Webster reported positive feedback on the clinical specialist program, which helps manage high-performing accounts and allows territory reps to focus on opening new accounts.
Q:What is the path to achieving 70% gross margins?
A:Vaseem Mahboob stated that gross margins have expanded for 8 consecutive quarters, driven by unit economics, volume leverage, and in-network mix improvements. The company has a clear path to 70% margins in the next few years.
Q:What kind of innovation is Kestra working on for new products or technology?
A:Brian Webster mentioned that the company is innovating across its WCD, wearable, and digital platforms. The focus is on extending current capabilities and addressing unmet needs based on clinical data. New products will be introduced over the next 2-3 years.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines for guideline changes, stating that the arrhythmia committee meets on an ad hoc basis. They also did not disclose details about the product pipeline for competitive reasons, only mentioning general innovation plans.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACE PAS
Annual Meeting
Association Annual
Florida tachycardia
Guideline treatment
ICD case
ICD trial
ICU round
Instructions participant
Kestra WCD
Kestra margin
Kestra practice
Kestra thesis
Kestra today
Meeting New
New Orleans
Orleans ACE
PAS FDA
PAS WCD
PAS conjunction
PAS patient
PAS question
PAS reinforces
PAS world
PROTECT patient
Patients
care coordination
clinician
design
device ACE
discussion
emergency department
incidence rate
patient device
study result
woman
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The earnings call presents a mixed sentiment. While there is optimism with increased revenue guidance, gross margin expansion, and market growth, there are also concerns. The widening net loss and adjusted EBITDA loss, along with management's reluctance to provide specific guidance, could dampen investor sentiment. Additionally, the stock's reaction to strong gross margins and prescription growth suggests possible market skepticism. The Q&A insights highlight the company's strategic initiatives and market opportunities, but the financial uncertainties and competitive landscape may balance the positive aspects, resulting in a neutral outlook for the stock price.
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Kestra Medical Technologies, Ltd. (KMTS) Q2 2026 Earnings Call Transcript
Positive12-11
The earnings call reveals strong revenue growth, market expansion, and a strategic focus on innovation. Despite increased losses, cash reserves are robust. The Q&A highlights sustainable growth strategies and positive market reaction to clinical data. The company's guidance and strategic plans suggest a positive outlook, with expected gross margin expansion and increased prescription volumes. While there are uncertainties regarding guideline changes, the overall sentiment is positive, driven by strong financial metrics and optimistic guidance, likely leading to a stock price increase in the short term.
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