Q3 2026 Kestra Medical Technologies Inc Earnings Call

March 17, 2026

Neil Bhalodkar: Considered forward-looking statements. These statements are based on Kestra's current expectations, forecasts, and assumptions, which are subject to inherent uncertainties, risks, and assumptions that are difficult to predict. Actual outcomes and results could differ materially from any results, performance, or achievements expressed or implied by the forward-looking statements due to various factors. Please review Kestra's most recent filings with the SEC, particularly the risk factors described in our Form 10-K for additional information. Any forward-looking statements provided during this call, including projections of future performance, are based on management's expectations as of today. Kestra undertakes no obligation to update these statements except as required by applicable law. With that, I'll now turn the call over to Brian.

Speaker #1: Considered forward-looking statements. These statements are based on Kestra's current expectations, forecasts, and assumptions, which are subject to inherent uncertainties, risks, and assumptions that are difficult to predict.

Speaker #1: Actual outcomes and results could differ materially from any results, performance, or achievements expressed or implied by the forward-looking statements due to various factors. Please review Kestra's most recent filings with the SEC, particularly the risk factors described in our Form 10-K.

Speaker #1: For additional information, any forward-looking statements provided future performance, are based on management's expectations as of today. KESTRA undertakes no obligation to update these statements except as required by applicable law.

Speaker #1: With that, I'll now turn the call over to Brian.

Speaker #2: Thanks, Neil. Good afternoon, and thank you for joining us on today's conference call. Happy St. Patrick's Day to all of our friends in Ireland.

Brian Webster: Thanks, Neil. Good afternoon, and thank you for joining us on today's conference call. Happy St. Patrick's Day to all of our friends in Ireland. We are a Irish-domiciled company, so we're happy to celebrate along with them. We're excited to discuss the strong financial performance we had in Q3 and the continued progress we are making on our key operational objectives. I'd like to begin, though, by grounding us again in the Kestra mission, the lives we help protect each day, and the patients, families, and clinicians we serve. The reality in cardiac care is that risk doesn't always resolve when a patient leaves a hospital. For many patients, vulnerability persists and care needs evolve. During periods when risk remains elevated, our Cardiac Recovery System provides critical protection, supported by clinical insight and patient support.

Speaker #2: We are a Irish domiciled company, so we're happy to celebrate along with them. We're excited to discuss the strong financial performance we had in the third quarter and the continued progress we are making on our key operational objectives.

Speaker #2: I'd like to begin, though, by grounding us again in the KESTRA mission. The lives we help protect each day, and the patients, families, and clinicians we serve.

Speaker #2: The reality in cardiac care is that risk doesn't always resolve when a patient leaves the hospital. For many patients, vulnerability persists. And care needs evolve.

Speaker #2: During periods when risk remains elevated, our cardiac recovery system provides critical protection, supported by clinical insight and patient support. We saw the value of this approach in a recent patient case.

Brian Webster: We saw the value of this approach in a recent patient case. In this case, a 64-year-old man with severe heart failure and a cardiac output measurement of only 10 to 15% was prescribed the ASSURE System. In the weeks that followed, a pattern of escalating clinical risk began to emerge. Over the course of about 20 days, the ASSURE System detected many episodes of SVT, which is a heart condition characterized by a rapid resting heart rate stemming from issues in the upper chambers of the heart. Automated Kestra CareStation alerts were generated for each episode, and the Kestra team stayed closely engaged with both the patient and the clinic. The physician responded to the alerts by promptly adjusting the patient's medications. Despite this, the arrhythmias persisted. During the Christmas holidays, the ASSURE System detected a severe ventricular arrhythmia and delivered a life-saving shock.

Speaker #2: In this case, a 64-year-old man with severe heart failure and a cardiac output measurement of only 10 to 15 percent was prescribed the Assure system.

Speaker #2: In the weeks that followed, a pattern of escalating clinical risk began to emerge. Over the course of about 20 days, the Assure system detected many episodes of SVT, which is a heart condition characterized by a rapid resting heart rate stemming from issues in the upper chambers of the heart.

Speaker #2: Automated KESTRA care station alerts were generated for each episode, and the KESTRA team stayed closely engaged with both the patient and the clinic. The physician responded to the alerts by promptly adjusting the patient's medications.

Speaker #2: Despite this, the arrhythmias persisted. During the Christmas holidays, the Assure system detected a severe ventricular arrhythmia, and delivered a life-saving shock. Immediately, the KESTRA team coordinated with the emergency department, spoke directly with the on-call physician, and transmitted rhythm strips to facilitate informed clinical decision-making.

Brian Webster: Immediately, the Kestra team coordinated with the emergency department, spoke directly with the on-call physician, and transmitted rhythm strips to facilitate informed clinical decision-making. After stabilization, this patient's situation required transfer to a higher acuity hospital. During helicopter transport, the ASSURE System detected another life-threatening, excuse me, arrhythmia and delivered a second shock, protecting the patient at a critical moment while en route to advanced care. Because early detection was matched with clinician engagement and because protection traveled with them across every transition of care, this vulnerable patient survived a rapidly declining clinical episode. This story represents more than a single intervention. It illustrates how the Cardiac Recovery System supports patients across the recovery journey. What differentiates Kestra is not just the therapy we deliver, but the system we surround it with. Intelligent detection and protection, clinical insight, and human engagement working together.

Speaker #2: After stabilization, this patient's situation required transfer to a higher-acuity hospital. During helicopter transport, the Assure system detected another life-threatening arrhythmia and delivered a second shock, protecting the patient at a critical moment while en route to advanced care.

Speaker #2: Because early detection was matched with clinician engagement and because protection traveled with them, across every transition of care, this vulnerable patient survived a rapidly declining clinical episode.

Speaker #2: This story represents more than a single intervention. It illustrates how the cardiac recovery system supports patients across the recovery journey. What differentiates KESTRA is not just the therapy we deliver, but the system we surround it with: intelligent detection and protection, clinical insight, and human engagement working together.

Speaker #2: In the third quarter of fiscal 2026, our team and technology supported many similar moments of intervention. As always, we remain mindful of the trust placed in us by clinicians, patients, and their families every day.

Brian Webster: In Q3 of fiscal 2026, our team and technology supported many similar moments of intervention. As always, we remain mindful of the trust placed in us by clinicians, patients, and their families every day. I would now like to turn to our recent financial performance. In Q3, we continued to reach more patients at risk of cardiac arrest, accepting over 5,400 prescriptions written for the ASSURE System. Revenue was $24.6 million, with growth of 63% compared to the prior year period. Gross margin of 52.6% was up 9 points year-over-year and 200 basis points sequentially, reflecting the attractive unit economics of our business model. This was the ninth quarter in a row of sequential gross margin expansion.

Speaker #2: I would now like to turn our recent financial performance. In the third quarter, we continued to reach more patients at risk of cardiac arrest, accepting over 5,400 prescriptions written for the Assure system.

Speaker #2: Revenue was $24.6 million, with growth of 63 percent compared to the prior year period. Gross margin of 52.6 percent was up 9 points year over year, and 200 basis points sequentially.

Speaker #2: Reflecting the attractive unit economics of our business model. This was the ninth quarter in a row of sequential gross margin expansion. We remain confident that KESTRA is on the path to 70 percent plus gross margins over the next few years.

Brian Webster: We remain confident that Kestra is on a path to 70%+ gross margins over the next few years. With the strong revenue growth and margin expansion that Kestra is generating, we are seeing nice operating leverage in our business. This leverage supports the investments we are making in the company's key growth drivers that we believe will yield significant long-term value for Kestra and its stakeholders. Turning to the WCD market, we have previously noted that despite the overwhelming evidence that an external defibrillation shock is effective at terminating dangerous cardiac rhythms, WCD therapy remains underutilized. Six out of seven patients that are indicated for a WCD are not being protected by one. We believe the innovation and clinical evidence we have brought to the category is beginning to change this.

Speaker #2: With the strong revenue growth and margin expansion that KESTRA is generating, we are seeing nice operating leverage in our business. This leverage supports the investments we are making in the company's key growth drivers that we believe will yield significant long-term value for KESTRA and its stakeholders.

Speaker #2: Turning to the WCD market, we have previously noted that despite the overwhelming evidence that an external defibrillation shock is effective at terminating dangerous cardiac rhythms, WCD therapy remains underutilized.

Speaker #2: Six out of seven patients that are indicated for a WCD are not being protected by one. We believe the innovation and clinical evidence we have brought to the category is beginning to change this.

Speaker #2: Based on our recent financials and those of the incumbent, we estimate that the WCD market grew in the low- to mid-teens on a dollar basis in calendar year 2025.

Brian Webster: Based on our recent financials and that of the incumbent, we estimate the WCD market grew in the low mid-teens on a dollar basis in calendar year 2025. We are still in the early innings of market expansion, and we see this category growing into a multi-billion dollar market in the years ahead. On last quarter's earnings call, we discussed the results from ACE-PAS, our FDA post-approval study, which was presented at AHA in November. As a reminder, ACE-PAS was the largest real-world perspective WCD study to date, with over 21,000 patients enrolled and protected. The study's findings corroborated what patients experience every day with the ASSURE system. Low false alarm rates, comfort that drives higher wear time compliance, and 100% successful conversion of dangerous arrhythmias.

Speaker #2: We are still in the early innings of market expansion, and we see this category growing into a multi-billion dollar market in the years ahead.

Speaker #2: On last quarter's earnings call, we discussed the results from ACE-PASS, our FDA post-approval study, which was presented at AHA in November. As a reminder, ACE-PASS was the largest real-world prospective WCD study to date, with over 21,000 patients enrolled and protected.

Speaker #2: The study's findings corroborated what patients experience every day with the Assure system: low false alarm rates, comfort that drives higher wear time compliance, and 100 percent successful conversion of dangerous arrhythmias.

Speaker #2: ACE-PASS continues to be a major topic of conversation with clinicians, particularly the study's finding that patients were at elevated risk during the first 90 days post-hospitalization.

Brian Webster: ACE-PAS continues to be a major topic of conversation with clinicians, particularly the study's finding that patients were at elevated risk during the first 90 days post-hospitalization. Clinicians now have robust clinical data that shows the risk level of their patients is higher than they understood it to be, particularly early in the recovery and treatment journey. We have also continued to learn from the body of data generated from the ACE-PAS study, and we're pleased to announce today the FDA approval of our latest innovation, a new ASSURE algorithm update. This update further strengthens the performance of the ASSURE system. With this new update, we expect to see an even lower rate of false alarms and inappropriate shocks, which are critical measures of both patient experience and clinical performance.

Speaker #2: Clinicians now have robust clinical data that shows the risk level of their patients is higher than they understood it to be, particularly early in the recovery and treatment journey.

Speaker #2: We have also continued to learn from the body of data generated from the ACE-PASS study. And we're pleased to announce today the FDA approval of our latest innovation, a new Assure algorithm update.

Speaker #2: This update further strengthens the performance of the Assure system. With this new update, we expect to see an even lower rate of false alarms and inappropriate shocks, which are critical measures of both patient experience and clinical performance.

Speaker #2: Enhancements like this are an important part of how we continue to improve the system and further differentiate Kestra's technology in the wearable defibrillator market.

Brian Webster: Enhancements like this are an important part of how we continue to improve the system and further differentiate Kestra's technology in the wearable defibrillator market. In mid-January, we announced another innovation, a strategic collaboration with Biobeat Technologies to expand diagnostic insight for patients prescribed the ASSURE WCD. The agreement is anchored by an exclusive license and co-development arrangement and included a $5 million equity investment in Biobeat Technologies. By way of background, Biobeat Technologies has developed the only clinically validated FDA-cleared cuffless patch-worn ambulatory blood pressure monitoring device. It delivers continuous non-invasive blood pressure measurement over a 24-hour period for hypertension diagnosis and management in the outpatient cardiac recovery setting. Kestra intends to integrate Biobeat Technologies' technology into our product portfolio to make ABPM data available for patients prescribed the ASSURE WCD.

Speaker #2: In mid-January, we announced another innovation, a strategic collaboration with BioBeat Technologies. To expand diagnostic insight for patients prescribe the Assure WCD. The agreement is anchored by an exclusive license and co-development arrangement and included a $5 million equity investment in BioBeat.

Speaker #2: By way of background, BioBeat has developed the only clinically validated, FDA-cleared, cuffless, patch-worn, ambulatory blood pressure monitoring device for non-invasive blood pressure measurement over a 24-hour period for hypertension diagnosis and management in the outpatient cardiac recovery setting.

Speaker #2: KESTRA intends to integrate BioBeat's technology into our product portfolio to make ABPM data available for patients prescribed the Assure WCD. Hypertension affects approximately 120 million Americans, and results from ACE-PASS underscore the clinical relevance of the collaboration with BioBeat.

Brian Webster: Hypertension affects approximately 120 million Americans, and results from ACE-PAS underscore the clinical relevance of the collaboration with Biobeat. As you may recall, 72% of the 21,000 patients studied in ACE-PAS were hypertensive, highlighting the complexity of managing blood pressure during cardiac recovery, particularly during guideline-directed medical therapy optimization. Over time, we believe this collaboration will help us win additional market share by further differentiating our product from the incumbent. More importantly, by providing additional clinical value and diagnostic insights to physicians, we believe it will result in them prescribing WCDs to more of their patients that heretofore have gone unprotected. Moving on to other updates. We continue to expand our sales organization with the goal of further penetrating existing accounts as well as calling on new potential ASSURE prescribers.

Speaker #2: As you may recall, 72 percent of the 21,000 patients studied in ACE-PASS were hypertensive. Highlighting the complexity of managing blood pressure during cardiac recovery particularly during guideline-directed medical therapy optimization.

Speaker #2: Over time, we believe this collaboration will help us win additional market share by further differentiating our product from the incumbent. And more importantly, by providing additional clinical value and diagnostic insights to physicians, we believe it will result in them prescribing WCDs to more of their patients that heretofore have gone unprotected.

Speaker #2: Moving on to other updates, we continue to expand our sales organization with the goal of further penetrating existing accounts, as well as calling on new potential Assure prescribers.

Speaker #2: As we have discussed previously, we are targeting geographies in which a high volume of WCD prescriptions are being written, and where we also have strong in-network payer coverage.

Brian Webster: As we have discussed previously, we are targeting geographies in which a high volume of WCD prescriptions are being written and where we also have strong in-network payer coverage. We ended calendar year 2025 with about 100 active sales territories and are tracking towards our goal of having about 130 sales territories by the end of our fiscal year in April. I'd also like to share a few updates on market access and reimbursement. First of all, as you may know, Florida is one of our largest states by patient fittings and also one of the states in which we have our highest market share. We have accomplished this despite not having a managed Medicaid provider number to utilize with Florida's managed Medicaid payers. Managed Medicaid plans cover nearly 90% of Florida's Medicaid enrollees.

Speaker #2: We ended calendar year 2025 with about 100 active sales territories in our tracking towards our goal of having about 130 sales territories by the end of our fiscal year in April.

Speaker #2: I'd also like to share a few updates on market access and reimbursement. First of all, as you may know, Florida is one of our largest states by patient fittings, and also one of the states in which we have our highest market share.

Speaker #2: We have accomplished this despite not having a managed Medicaid provider number to utilize with Florida's managed Medicaid payers. Managed Medicaid plans cover nearly 90% of Florida's Medicaid enrollees.

Speaker #2: I am very pleased to share that we recently became an approved Florida managed Medicaid provider, and have subsequently signed contracts with two of the state's four largest managed Medicaid plans.

Brian Webster: I am very pleased to share that we recently became an approved Florida Managed Medicaid provider and have subsequently signed contracts with two of the state's four largest managed Medicaid plans. We are pursuing contracts with all the remaining managed Medicaid plans in Florida. Second, Kestra was recently added to the Federal Supply Schedule for the U.S. Department of Veterans Affairs. The VA is the largest integrated healthcare network in the US and covers 9 million members, nearly 50% of whom are over the age of 65. We are honored to have the opportunity to protect veterans that are at risk of sudden cardiac arrest. Third, the monthly Medicare reimbursement rate for WCDs increased 2% up to $3,589 a month on 1 January.

Speaker #2: We are pursuing contracts with all the remaining managed Medicaid plans in Florida. Second, KESTRA was recently added to the Federal Supply Schedule for the U.S.

Speaker #2: Department of Veterans Affairs. The VA is the largest integrated healthcare network in the U.S. and covers 9 million members, nearly 50 percent of whom are over the age of 65.

Speaker #2: We're honored to have the opportunity to protect veterans that are at risk of sudden cardiac arrest. And third, the monthly Medicare reimbursement rate for WCDs increased 2 percent, up to $3,589 a month on January 1st.

Speaker #2: As you can see, we continue to bring more payers in-network while also making progress on improving our RCM capabilities. At the time of our IPO, 12 months ago, approximately 70 percent of our fittings were for patients with in-network benefits.

Brian Webster: As you can see, we continue to bring more payers in-network while also making progress on improving our RCM capabilities. At the time of our IPO 12 months ago, approximately 70% of our billings were for patients with in-network benefits. This figure is now in the low 80s. The higher in-network mix meaningfully increases our team's efficiency and positively impacts all of our revenue cycle management metrics. It is important to note that there are over 3,000 payers in the US, so there will still be a long tail of regional and local payers we are working to bring under contract. In conclusion, the fundamentals of Kestra's story and business remain strong. The WCD market is expanding. Kestra's revenue growth accelerated to over 60%. Gross margin has increased meaningfully, and we have fortified our balance sheet.

Speaker #2: This figure is now in the low 80s. The higher in-network makes meaningful increases to our team's efficiency and positively impacts all of our revenue cycle management metrics.

Speaker #2: It is important to note that there are over 3,000 payers in the U.S., so there will still be a long tail of regional and local payers we are working to bring under contract.

Speaker #2: In conclusion, the fundamentals of Kestra's story and business remain strong. The WCD market is expanding. Kestra's revenue growth accelerated to over 60 percent. Gross margin has increased meaningfully.

Speaker #2: And we have fortified our balance sheet. In the 12 months since our IPO, our execution has been strong across all elements of the business.

Brian Webster: In the 12 months since our IPO, our execution has been strong across all elements of the business. The foundation we have built positions Kestra for strong and durable growth for years to come. I'd like to thank our incredible team in the field and here at the home office in Kirkland for their passion and commitment to the Kestra mission. With that, I will now turn it over to Vaseem, who will discuss Q3 financial results in more detail and provide our updated fiscal year 2026 revenue guidance.

Speaker #2: The foundation we have built positions KESTRA for strong and durable growth for years to come. I'd like to thank our incredible team in the field and here at the home office in Kirkland for their passion and commitment to the KESTRA mission.

Speaker #2: With that, I will now turn it over to Vaseem, who will discuss third-quarter financial results in more detail and provide our updated fiscal year 2026 revenue guidance.

Speaker #2: Thank you, Brian, and good afternoon, everyone. Total revenue was $24.6 million in the third quarter, an increase of 63 percent compared to the prior year period.

Vaseem Mahboob: Thank you, Brian, and good afternoon, everyone. Total revenue was $24.6 million in Q3, an increase of 63% compared to the prior year period. Revenue growth was driven by a 58% year-over-year increase in prescriptions, reflecting market share gains with existing customers, activation of new accounts, expansion of our field team, and higher revenue per fit. Gross margin was 32.6% in Q3 compared to 43.4% in the prior year period. As Brian mentioned, we have now expanded our gross margin sequentially nine quarters in a row. The continued expansion in gross margin was driven by the attractive unit economics inherent in Kestra's rental model, an increase in revenue per fit from more in-network patients, and a decline in cost per fit, driven by volume leverage and cost improvement projects.

Speaker #2: Revenue growth was driven by a 58% year-over-year increase in prescriptions, reflecting market share gains with existing customers, activation of new accounts, expansion of our field team, and higher revenue per fit.

Speaker #2: Gross margin was 32.6 percent in the third quarter compared to 43.4 percent in the prior year period. As Brian mentioned, we have now expanded our gross margin sequentially nine quarters in a row.

Speaker #2: The continued expansion in gross margin was driven by the attractive unit economics inherent in Kestra’s rental model and an increase in revenue per fit from more in-network patients, as well as a decline in cost per fit driven by volume leverage and cost improvement projects.

Speaker #2: In the quarters ahead, you should expect to see steady and consistent increases in our gross margin, as our rental model benefits significantly from volume and depreciation leverage.

Vaseem Mahboob: In the quarters ahead, you should expect to see steady and consistent increases in our gross margin as our rental model benefits significantly from volume and appreciation leverage. We remain confident in our ability to achieve 70%+ gross margins in the next few years. We are also continuing to see improvements in all three key drivers of our conversion rate, our prescription fill rate, our bill rate, and our collections performance. Our conversion rate in Q3 was approximately 46%, up from an adjusted conversion rate of 43% in the prior year period. As we continue to bring more payers in-network and enhance our revenue cycle management capabilities, we expect to see benefits in revenue growth, gross margin, and our profitability profile.

Speaker #2: We remain confident in our ability to achieve 70% plus gross margins in the next few years. We are also continuing to see improvements in all three key drivers of our conversion rate.

Speaker #2: Our prescription fill rate, our bill rate, and our collections performance. Our conversion rate in the third quarter was approximately 46 percent, up from an adjusted conversion rate of 43 percent in the prior year period.

Speaker #2: As we continue to bring more our revenue cycle management capabilities, we expect to see benefits in revenue growth, gross margin, and our profitability profile.

Speaker #2: We are investing in revenue cycle AI tools and other automation projects that will continue to help improve all three elements of our conversion rate and drive operating leverage as we scale the business.

Vaseem Mahboob: We are investing in revenue cycle, AI tools, and other automation projects that will continue to help improve all three elements of our conversion rate and drive operating leverage as we scale the business. GAAP operating expenses were $47.7 million in Q3 and included $1.5 million of non-recurring costs from professional fees and expenses primarily related to the BioV transaction and our recent equity offering. GAAP operating expenses were $27.1 million in the prior year period. Excluding non-recurring costs and stock-based compensation, operating expenses were $36.1 million in Q3 of fiscal year 2026, compared to $24.8 million in the prior year period. The increase was primarily attributable to investments in commercial expansion and public company costs.

Speaker #2: GAAP operating expenses were $47.7 million in the third quarter, and included $1.5 million of non-recurring costs from professional fees, and expenses primarily related to the BioBee transaction and our recent equity offering.

Speaker #2: GAAP operating expenses were $27.1 million in the prior year period. Excluding non-recurring costs and stock-based compensation, operating expenses were $36.1 million in the third quarter of fiscal year 2026, compared to $24.8 million in the prior year period.

Speaker #2: The increase was primarily attributable to investments in commercial expansion and public company costs. GAAP net loss was $34.2 million in the third quarter, compared to a GAAP net loss of $21.8 million in the prior year period.

Vaseem Mahboob: GAAP net loss was $34.2 million in Q3, compared to a GAAP net loss of $21.8 million in the prior-year period. Adjusted EBITDA loss was $21.2 million in Q3 compared to an Adjusted EBITDA loss of $16.3 million in the prior-year period. Cash and cash equivalents totaled $291 million as of 31 January, which includes the net proceeds from our public equity offering in December. Before I turn to guidance, one housekeeping item. At the end of March, it'll be 12 full months since we completed our IPO. As such, we will be eligible to file a shelf registration statement.

Speaker #2: Adjusted EBITDA loss was $21.2 million in the third quarter, compared to an adjusted EBITDA loss of $16.3 million in the prior year period. Cash and cash returns totaled $291 million as of January 31, which includes the net proceeds from our public equity offering in December.

Speaker #2: Before I turn to guidance, one housekeeping item. At the end of March, it will be 12 full months since we completed our IPO. As such, we will be eligible to file a shelf registration statement.

Speaker #2: While we have no need for additional capital at this time, corporate governance best practice is to file the shelf once eligible and we plan on doing so in early April.

Vaseem Mahboob: While we have no need for additional capital at this time, corporate governance best practice is to file the shelf once eligible, and we plan on doing so in early April. I will now provide our updated fiscal year 2026 guidance. We are increasing revenue guidance to $93 million, representing growth of 55% compared to fiscal year 2025. This compares to prior guidance of $91 million and our initial fiscal year 2026 guidance of $85 million. Underpinning this guidance is our expectation that we'll continue to see strong growth in prescriptions as we increase market share with existing customers and activate new accounts. We expect revenue per fit to continue to benefit from a higher mix of in-network patients and improvements in our revenue cycle management capabilities.

Speaker #2: I will now provide our updated fiscal year 2026 guidance. We are increasing revenue guidance to $93 million representing growth of 55 percent compared to fiscal year 2025.

Speaker #2: This compares to prior guidance of $91 million and our initial fiscal year 2026 guidance of $85 million. Underpinning this guidance is our expectation that we'll continue to see strong growth in prescriptions, as we increase market share with existing customers and activate new accounts.

Speaker #2: We expect revenue per fit to continue to benefit from a higher mix of in-network patients and improvements in our revenue cycle management capabilities. With that, operator, we have concluded our prepared remarks and are ready to proceed to the Q&A portion of the call.

Vaseem Mahboob: With that, operator, we have concluded our prepared remarks and are ready to proceed to the Q&A portion of the call.

Speaker #1: Thank you. Thank you. To ask a question, you will need to press star one-one (*)1-1 on your telephone and wait for a name to be announced.

Brian Webster: Thanks.

Operator: Thanks.

Vaseem Mahboob: Operator?

Operator: Thank you. To ask a question, you will need to press star one one on your telephone and wait for a name to be announced. To withdraw your question, please press star one one again. Please limit yourself to one question and one follow-up in the interest of time. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Travis Steed from Bank of America Securities. Your line is open.

Speaker #1: To address your question, please press star 11 again. Please limit yourself to one question and one follow-up. In the interest of time, please stand by while we compile the Q&A roster.

Speaker #1: One moment for our first question. Our first question will come from the line of Travis Steed from Bank of America Securities. Your line is open.

Speaker #3: Hey, congrats on the good quarter. I guess, first of all, just kind of curious, did you look into next year and think about early 2027 thoughts, and any kind of puts and takes that you'd kind of talk about on the model from a high level?

Travis Steed: Hey, congrats on the good quarter. I guess, first off, just kind of curious as you look into next year and think about, you know, early 2027 thoughts, any kind of puts and takes that you'd talk about on the model from a high level, and if you're comfortable with $133 million at the Street's modeling for consensus today. Then a follow-up.

Speaker #3: And if you're comfortable with $133 million at the Street's modeling, sort of in consensus today. And that'll follow up.

Speaker #2: No, thanks for the question, Travis. We had a fantastic quarter, so thank you for that. As you know, our policy is only to comment about the full-year guidance for 2027 at the end of the Q4 call, but we can tell you that today, with our initial planning and process, we feel very confident that we can deliver top-tier MedTech growth in '27 and beyond.

Vaseem Mahboob: Thanks for the question, Travis. You know, we had a fantastic quarter, so thank you for that. As you know, our policy is only to comment about, you know, the full year guidance for 2027 at the end of the Q4 call. We can tell you that, today with our initial planning and process, we feel very confident that we can deliver top-tier med tech growth in 2027 and beyond. We'll be happy to provide more color at the next earnings call.

Speaker #2: And we'll be happy to provide more color at the next earnings call.

Speaker #3: All right, great. That makes sense. And I did want to ask about the WCD market accelerating that you said low to mid-teens. This year, last quarter, I think it was closer to 11 percent.

Travis Steed: All right, great. That makes sense. I did wanna ask about the WCD market accelerating. I think you said low to mid-teens this year. Last quarter, I think it was, like, close to 11%. You're seeing a real acceleration and, you know, any kind of color you can kinda give on the ground, you know, what you're seeing that drives this acceleration and kind of the durability of this higher market growth rate going forward.

Speaker #3: So you're seeing a real acceleration. And any kind of color you can kind of give on the ground, what you're seeing that drives this acceleration and kind of the durability of this higher market growth rate going forward?

Speaker #2: Yeah, thanks for that question, Travis. So, at the time of the IPO, 12 months ago, we had the market growth on a dollar basis at about 8 percent.

Brian Webster: Yeah. Thanks for that question, Travis. At the time of the IPO 12 months ago, we had the market growth at, on a dollar basis, at about 8%. As you just indicated on our last call, we had it somewhere closer to 11%. Now we're seeing it accelerate there. I think what we're seeing is a couple of dynamics that are driving that. First of all, you have Kestra increasing the size of our commercial team, so we just have a bigger footprint. We have more voices out there in the market telling our story.

Speaker #2: Then, as you just indicated, on our last call, we had it somewhere closer to 11%. Now we're seeing an acceleration there. I think what we're seeing is a couple of dynamics that are driving that.

Speaker #2: First of all, you have Kestra increasing the size of our commercial team. So we just have a bigger footprint. We have more voices out there in the market telling our story.

Brian Webster: You have clinical results that are driving the discussion both from our competitor who released a big clinical study, you know, six months ago or so that pointed to elevated risk in this patient population. That was corroborated by our even bigger study that we released at AHA, which also pointed to higher risk in this patient population than many thought. I think what we're seeing is a couple of clinical studies that are really identifying risks in the population. You're seeing the expansion of the Kestra commercial team really driving that voice.

Speaker #2: And then you have clinical results that are driving the discussion. Both from our competitor, who released a big clinical study six months ago or so that pointed to elevated risk in this patient population, but then that was corroborated by our even bigger study that we released at AHA.

Speaker #2: Which also pointed to higher risk in this patient population than many thought. So I think what we're seeing is a couple of clinical studies that are really identifying risks in the population that you're seeing the expansion of the KESTRA commercial team really driving that voice.

Speaker #2: And we're seeing our competitor coming to the realization that if they want to grow their business, they're going to have to expand the market, because we're going to be taking a bunch of their share.

Brian Webster: We're seeing our competitor coming to the realization that if they wanna grow their business, they're gonna have to expand the market because we're gonna be taking a bunch of their share. I think it's the combination of all those things that is leading to that market growth. We believe that we will continue to see the market growth as we continue to grow our commercial footprint and drive the clinical messages out into the market.

Speaker #2: So I think it's a combination of all those things. That is leading to that market growth. And we believe that we will continue to see the market growth as we continue to grow our commercial footprint and drive the clinical messages out into the market.

Speaker #3: Great. Thanks a lot.

Travis Steed: Great. Thanks a lot.

Vaseem Mahboob: Okay.

Brian Webster: Okay.

Speaker #1: One moment for our next question. Our next question will come from the line of Matthew O'Brien from Piper Sandler. Your line is open.

Operator: One moment for our next question. Our next question will come from the line of Matthew O'Brien from Piper Sandler. Your line is open.

Speaker #4: Good afternoon. Thanks so much for taking the question. First one is on the sequential bump that we saw in prescriptions. That's the best that you guys have done, I think, over the last couple of years in terms of the data that we've had.

Matthew O'Brien: Afternoon. Thanks so much for taking the questions. First one is on the sequential bump that we saw in prescriptions. That's the best that you guys have done, I think, over the last couple of years in terms of the data that we've had. I know, Brian, you've talked a little bit about these different areas that are contributing from the new sales force to market expansion. Can you deconstruct where that improvement came from? Are you guys really accelerating the market, or is it really more share shift right now versus market? You know, hey, with everything that's going on, the market benefits maybe come over the next couple of years.

Speaker #4: And I know, Brian, you talked a little bit about these different areas that are contributing from the new sales force to market expansion. Can you deconstruct where that improvement came from?

Speaker #4: Was it, are you guys really accelerating the market, or is it really more share shift right now versus market? And hey, with everything that's going on, the market benefits maybe come over the next couple of years.

Speaker #2: Yeah, thanks, man. I think the when we deconstruct where the prescription growth is coming from, the good news for us is that we're seeing it come not just from productivity improvements in our base territory managers, but we're also seeing the new territory managers that we've been bringing on come up our productivity curve very consistently with our model.

Brian Webster: Yeah. Thanks, Matt. I think when we deconstruct where the prescription growth is coming from, the good news for us is that we're seeing it come not just from productivity improvements in our base territory managers, but we're also seeing the new territory managers that we've been bringing on come up our productivity curve very consistently with our model. We're glad to see both of those two dynamics. I think as we look at where that prescription growth is coming from, our math sort of points to about 70%, 75% of that coming from installed base or current market share shift as we win market share, and about 25% of it coming from actual new prescribers.

Speaker #2: So we're glad to see both of those two dynamics, and I think as we look at where that prescription growth is coming from, our math sort of points to about 70 percent, 75 percent of that coming from installed base or current market share shift as we win market share.

Speaker #2: And about 25 percent of it coming from actual new prescribers. So we are seeing the early days of the benefit of the market expansion, but very clearly, Matt, with a market this big and an incumbent this large, most of the opportunity in the early days here are coming from winning current customers that are prescribing WCDs.

Brian Webster: We are seeing the early days of the benefit of the market expansion. Very clearly, Matt, you know, with a market this big and an incumbent this large, most of the opportunity in the early days here are coming from winning current customers that are prescribing WCDs.

Speaker #1: Okay, makes sense. And this is a follow-up. I would love to ask about gross margin, because that was really good in the quarter. But I'm looking at the stock down a little bit in the aftermarket, and it might just be MedTech-related specifically.

Matthew O'Brien: Okay. Makes sense. This is a follow-up. I would love to ask about gross margin because that was really good in the quarter. I'm looking at the stock down a little bit in the aftermarket, and it might just be med tech related specifically. I think it might just have to do with the guide for the full year. Just given all the momentum, you know, given the conversion rates is lifting a little bit and the prescriptions are so strong, I think maybe some had been expecting maybe a little bit more here for the full year.

Speaker #1: But I think it might just have to do with the guide for the full year, and just given all the momentum, given the conversion rates is lifting a little bit, and the prescriptions are so strong.

Speaker #1: I think maybe some had been expecting maybe a little bit more here for the full year. Can you just talk about anything that's going on?

Matthew O'Brien: Can you just talk about anything that's going on, I don't know, competitively or pricing wise or anything like that you know, could be a headwind here in fiscal Q4 versus just traditional conservatism on your part? Thanks.

Speaker #1: I don't know, competitively, or pricing-wise, or anything like that that could be a headwind here in fiscal Q4 versus just traditional conservativeism on your part?

Speaker #1: Thanks.

Speaker #2: Yeah, thank you. I think we addressed the pricing—it is predictable. There are no headwinds in pricing. The competitive environment is one we know extremely well.

Brian Webster: Yeah. Thank you. I think, you know, I addressed the pricing is predictable. There's no headwinds in pricing. The competitive environment is one we know extremely well. From our perspective, you know, we've grown the business, you know, mid-50% over the first few quarters of the year. We think, as a starting point for the Q4, that's a reasonable place to be. You know, we're excited about growing our business by a mid-50% year-over-year. That's a significant achievement. We're, you know, we feel really good about that, and we feel really good about the trajectory we're on. I don't think there's any tailwinds other than we're just out there competing every day.

Speaker #2: And from our perspective, we've grown the business in the mid-50 percent over the first few quarters of the year. We think as a starting point for the fourth quarter, that's a reasonable place to be.

Speaker #2: And we're excited about growing our business by a mid-50 percent year over year. That's a significant achievement, and we feel really good about that.

Speaker #2: And we feel really good about the trajectory we're on. And I don't think there's any tailwinds other than we're just out there competing every day.

Speaker #2: It's a daily run-rate business, and we're out there focused on winning every day out in the market.

Brian Webster: It's a daily run rate business, and we're out there focused on winning every day, out in the market.

Speaker #1: Understood. Thanks so much.

Matthew O'Brien: Understood. Thanks so much.

Speaker #5: Thank you. One moment for our next question. Our next question will come from the line of Larry Beagleson from Wells Fargo. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from line of Larry Biegelsen from Wells Fargo. Your line is open.

Speaker #4: Hi, this is Nathan Tray back home for Larry. Thanks for taking the question. Can you talk about what you were seeing from competition in the market?

Nathan Treybeck: Hi, this is Nathan Treybeck on for Larry Biegelsen. Thanks for taking the question. Can you talk about what you were seeing from competition in the market? You know, just to follow up to that, are your reps seeing any greater difficulty in taking share after ZOLL's recent upgrade to their WCD?

Speaker #4: Just a follow-up to that: Are your reps seeing any greater difficulty in taking share after Resolve's recent upgrade to their WCD?

Brian Webster: Thanks, Nathan. We're not hearing anything related to ZOLL's new larger WCD that they launched. I think they're in a slow launch of that product. It's not, you know, they're not gonna replace that massive fleet they have overnight. My guess is that only a fraction of the patients out there are even being offered that product at this point. We're not really hearing that as an obstacle or an issue. The competitive landscape remains the same in that you have an entrenched competitor who is trying to leverage, you know, their time in the seat.

Speaker #2: Thanks, Nathan. We're not hearing anything related to Resolve's new, larger WCD that they launched. I think they're in a slow launch of that product.

Speaker #2: They're not going to replace that massive fleet that they have overnight. And so my guess is that only a fraction of the patients out there are even being offered that product at this point.

Speaker #2: And so we're not really hearing that as an obstacle or an issue. The competitive landscape remains the same, in that you have an entrenched competitor who is trying to leverage their time in the seat and they're doing that by trying to focus on being easy to do business with in terms of order processing, in terms of insurance coverage, in terms of just service level.

Brian Webster: They're doing that by trying to focus on being easy to do business with in terms of order processing, in terms of insurance coverage, in terms of just service level. Those are really the things that they can compete on because they know that from a product perspective, we have really clear differentiation from their product. That's what we're seeing right now. We haven't really seen any impact of their new rollout of their new product.

Speaker #2: And those are really the on because they know that from a product perspective, we have really clear differentiation from their product. So that's what we're seeing right now.

Speaker #2: But we haven't really seen any impact of their new rollout of their new product.

Speaker #4: Okay, great. And just at a high level, I mean, you're approaching about 20,000 scripts by our math in fiscal ’26, and the market is approaching 140,000.

Nathan Treybeck: Okay, great. Just at a high level, I mean, you're approaching about 20,000 scripts by our math in fiscal 2026, and the market is approaching 140,000. There's still a good number of physicians that don't prescribe WCD. In your view, what is it gonna take to get physicians kind of off the sidelines and, you know, show more interest in WCD?

Speaker #4: There's still a good number of physicians that don't prescribe WCD. So, in your view, what is it going to take to get physicians kind of off the sidelines and show more interest in WCD?

Speaker #2: Well, I think the market growth will continue. If we're in the mid-teens, low to mid-teens today, then I think it's reasonable to think that over the next couple of years, as we expand our footprint, we're going to see that market growth continue to accelerate.

Brian Webster: Well, I think the market growth will continue. You know, if we're in the mid-teens, low to mid-teens today, then I think it's reasonable to think that over the next couple of years, as we expand our footprint, we're gonna see that market growth continue to accelerate. When it comes to, you know, really growing the market, doubling the market or tripling the market, it's gonna require updates to the clinical guidelines. You know, what we talked about with our ACE-PAS study at the last call was that, you know, we felt like that was an important next step in the development of WCD clinical data and hopefully would allow us to come to the table and start to engage the societies around guidelines.

Speaker #2: But when it comes to really growing the market, doubling the market or tripling the market, it's going to require updates to the clinical guidelines.

Speaker #2: And what we talked about with our ACE Pass study at the last call was that we felt like that was an important next step in the development of WCD clinical data.

Speaker #2: And hopefully, it would allow us to come to the table and start to engage the societies around guidelines, and also just help to clarify what are the remaining steps to get guidelines changed, if any, so that we can be focused on that.

Brian Webster: Also just help to clarify what are the remaining steps to get guidelines changed, if any, so that we can be focused on that. We're in the process now of working to get our ACE-PAS study published, and that's the immediate next step for us. I think to really double and triple the market, which we think is really, we're capable of doing, I think that it's gonna take some guidelines changes.

Speaker #2: And we're in the process now of working to get our ACE pass study published. And that's the immediate next step for us. But I think to really double and triple the market, which we think is really a highly we're capable of doing, I think that it's going to take some guidelines changes.

Speaker #5: Thank you. One moment for our next question. Our next question will come from the line of Michael Pollard from Wolfe Research. Your line is open.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Mike Polark from Wolfe Research. Your line is open.

Speaker #4: Hi, good afternoon. Question on your vision for the Salesforce, the size of it. At the end of your fiscal 25, you said territories were 80 and the vision was to double that over the next couple of years.

Mike Polark: Hi, good afternoon. Question on your vision for the sales force, the size of it. At the end of your fiscal 2025, you said territories were 80 and the vision was to double that over the next couple of years. I heard 130 targeted by April. If 80 doubles, it's 160 in, call it fiscal 2027 by the end of the year. That would mean you're adding 30 territories in fiscal 2027 versus adding close to 50 or adding 50 in fiscal 2026. You just raised a bunch of fresh financing. Are you interested in going faster than that vision or is that still the vision?

Michael Polark: Hi, good afternoon. Question on your vision for the sales force, the size of it. At the end of your fiscal 2025, you said territories were 80 and the vision was to double that over the next couple of years. I heard 130 targeted by April. If 80 doubles, it's 160 in, call it fiscal 2027 by the end of the year. That would mean you're adding 30 territories in fiscal 2027 versus adding close to 50 or adding 50 in fiscal 2026. You just raised a bunch of fresh financing. Are you interested in going faster than that vision or is that still the vision?

Speaker #4: I heard 130 targeted by April. And if 80 doubles, it's 160 in college fiscal '27 by the end of the year. That would mean you're adding 30 territories in fiscal '27 versus adding close to 50 or adding 50 in fiscal '26.

Speaker #4: You just raised a bunch of fresh financing. Are you interested in going faster than that vision, or is that still the vision?

Brian Webster: Mike, thanks for the question. You know, I think that we're in our FY 2027 planning process right now. In fact, we were at our board meeting last week, and our board got their first look at our FY 2027 planning assumptions. We will be refining that over the next 60 days or so. That will be one of the key questions. You're directionally right in your math in terms of what we've said before. I think one of the questions will be, can we go faster and should we go faster?

Speaker #2: Mike, thanks for the question. I think that we're in our FY27 planning process right now. In fact, we were at our board meeting last week, and our board got their first look at our FY27 planning assumptions.

Speaker #2: And so we will be refining that over the next 60 days or so. And that will be one of the key questions your directionally writing in your math in terms of what we've said before and I think one of the questions will be can we go faster and should we go faster?

Brian Webster: Capital is not our constraint right now, so being able to execute our business model, keep promises to, you know, our, the clinicians, those are the things that we're gonna try and balance as we work our way through our planning process. That's definitely a topic on the table right now. You know, we're excited about the progress we're making. I think there's certainly a contingent that are driving towards that outcome.

Speaker #2: Capital is not our constraint right now. So being able to execute our business model keep promises to our clinicians those are the things that we're going to try and balance as we work our way through our planning process.

Speaker #2: But we're—that's definitely a topic on the table right now, and we're excited about the progress we're making. So, I think there's certainly a contingent that are driving towards that outcome.

Speaker #4: Helpful, Brian. For my follow-up, I want to ask about the conversion rate. It's definitely a squint—I see it up year-on-year, clearly.

Mike Polark: Helpful, Brian. For my follow-up, I wanna ask on the conversion rate. It's definitely sequential. I see it up year-over-year, clearly. But versus the prior 2 quarters of the fiscal year, it's a little bit of a dip back down. Can you just remind us, Vaseem or Brian, the dynamic there? Is that simply the quarter that was just reported as January and deductibles reset so patient collections are lower, that bad debt is higher? Or any other influence you'd have us think about kind of quarter to quarter to quarter. Thank you.

Michael Polark: Helpful, Brian. For my follow-up, I wanna ask on the conversion rate. It's definitely sequential. I see it up year-over-year, clearly. But versus the prior 2 quarters of the fiscal year, it's a little bit of a dip back down. Can you just remind us, Vaseem or Brian, the dynamic there? Is that simply the quarter that was just reported as January and deductibles reset so patient collections are lower, that bad debt is higher? Or any other influence you'd have us think about kind of quarter to quarter to quarter. Thank you.

Speaker #4: But versus the prior two quarters of the fiscal year, it's a little bit of a dip back down. Can you just remind us the same or Brian, the dynamic there?

Speaker #4: Is that simply the quarter that was just reported has January and deductibles reset? So patient collections are lower. That is higher, or any other influence you have to think about kind of quarter to quarter to quarter?

Speaker #4: Thank you.

Speaker #2: Yeah, great. Thanks, Mike. I think we're really excited, quite frankly, about all of the progress that we are making on RevCycle. And just a reminder, we have really made a significant improvement in that conversion rate fiscal year 24.

Vaseem Mahboob: Yeah. Great. Thanks, Mike. I think we're really excited, quite frankly, about all of the progress that we are making on rev cycle. Just a reminder, you know, we have really made a significant improvement in that conversion rate. Fiscal year 2024, we were at 38%. 2025, we finished at 44%. In this most recent quarter, we are at 46%. We were up 3 points, you know, on an adjusted basis. At the same time, all KPIs that we talk about on our conversion rate are all trending in the right direction. We feel really good about where it's going.

Speaker #2: We were at 38%, 25. We finished at 44. And then this most recent quarter, we had a 46%. So we were up three points on an adjusted basis.

Speaker #2: But at the same time, all KPIs that we talked about on our conversion rate are all trending in the right direction. So we feel really good about where it's going.

Vaseem Mahboob: Now, you're right, and when we had said that, you know, second half conversion rates usually tend to be lower than the first half, that is because of the points that you cited, which is really the deductibles that reset in January and some of the claims that we normally hold back to make sure that we get a fair share of the claims that we submit. You know, again, great progress on conversion rate and all of the KPIs related to that, and we'll continue to show progress.

Speaker #2: Now, you're right. And when we had said that second half conversion rates usually tend to be lower than the first half, that is because of the points that you cited, which are really the deductibles that we set in January and some of the claims that we normally hold back to make sure that we get a fair share of the claims that we submit.

Speaker #2: So again, great progress on conversion rate and all of the KPIs. Related to that, we'll continue to show progress.

Speaker #4: Thank you.

Mike Polark: Thank you.

Michael Polark: Thank you.

Speaker #5: Thank you. One moment for our next question. Our next question will come from the line of Rick Wise from Stifel. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Rick Wise from Stifel. Your line is open.

Rick Wise: Good afternoon. Hi, Brian. Hi, Vaseem. I was hoping you could expand on your comments on the sort of get more in the weeds on a couple of topics. The first, Florida, Brian, that sounds like really important and major news. You're the market share leader. You signed, you know, two of the, you know, the largest managed Medicare managers. It sounds like two others could be relatively imminent or soon or not far away, whatever language. Help us understand better, you know, how big a deal it is. I know it's a big deal. How big a deal is it? How do we think about it? Does it sort of overnight accelerate growth in Florida? Obviously, a huge market. Yeah. Thanks, Rick. Appreciate the question. We're excited about that.

Speaker #4: Good afternoon. Hi, Brian. Hi with team. I was hoping you could expand on your comments on sort of get more in the weeds on a couple of topics.

Speaker #4: The first, Florida Brian, that sounds like a really important and major news. You're the market share leader. You've signed two of the largest managed Medicare managers, and it sounds like two others could be relatively imminent or soon, or not far away—whatever language.

Speaker #4: Help us understand better how big it is. I know it's a big deal. How big a deal is it? How do we think about it?

Speaker #4: Does it sort of overnight accelerate growth in Florida? Obviously, a huge market.

Speaker #2: Yeah, thanks, Rick. Appreciate the question. We're excited about that. I think if you were to ask any of our Florida territory managers down there what their biggest challenge has been in the last year, they would say the lack of a Medicaid license.

Brian Webster: I think if you were to ask any of our Florida territory managers down there what their biggest challenge has been in the last year, they would say the lack of a Medicaid license. Removing that barrier is, as our chief commercial officer likes to say, like removing a big pebble from your shoe for the reps. What happens in the actual account is, you know, when our rep is trying to convert a prescriber completely over to Kestra, it's very difficult to do that, impossible to do it, in fact, when you don't have that Medicaid number and the ability to serve that part of the population. It's a big population in Florida.

Speaker #2: And so, removing that barrier is, as our Chief Commercial Officer likes to say, it's like removing a big pebble from your shoe—for the reps.

Speaker #2: And what happens in the actual account is, when our rep is trying to convert a prescriber completely over to Kestra, it's very difficult to do that—impossible to do it, in fact—when you don't have that Medicaid number and the ability to serve that part of the population.

Speaker #2: And that's a big population in Florida. So that is a limiter, if you will, on your—basically taps you out on how high you can go on market share capture.

Brian Webster: It's a limiter, if you will, on your basically taps you out on how high you can go on market share capture. This will definitely be a benefit to the Florida team, and it will take a little bit of time to roll through as we get the actual agreements in place and we're able to, you know, get those rolled out to our team and everything. It won't be an overnight thing. It'll be something that we'll see progress kind of quarter-over-quarter. We're very excited about that.

Speaker #2: And so this will definitely be a benefit to the Florida team. And it will take a little bit of time to roll through as we get the actual agreements in place and we're able to get those rolled out to our team and everything.

Speaker #2: So it won't be an overnight thing. It'll be something that we'll see progress kind of quarter over quarter. But we're very excited about that.

Speaker #3: And Rick, I'll add to that. And Rick, just on the gross margin side, remember, in selectively in some of the accounts, which we had already converted, and when we were taking all of those patients, we were actually basically getting a goose egg for those fittings.

Vaseem Mahboob: Rick, I'll add to that just on.

Vaseem Mahboob: Can-

Rick Wise: Yeah.

Vaseem Mahboob: Rick, just on the gross margin side, remember, in some of the accounts which we had already converted, and when we were taking all of those patients, you know, we were actually basically getting a goose egg for those items. Now, not only do you see, you know, faster acceleration or adoption to get more market share, you'll also see a nice impact on our gross margins. Because for that business, which is where we have the highest market share in the state of Florida, you'll see a nice, you know, tailwind on gross margin in that business as well.

Speaker #3: So now not only do you see faster acceleration or adoption to get more market share, you'll also see a nice impact on our gross margins because for that business, which is where we have the highest market share in the state of Florida, you'll see a nice tailwind on gross margin in that business as well.

Speaker #4: Well, the thing is I wasn't going to I wasn't going to ask you about gross margin this quarter because you did so well this period.

Rick Wise: Well.

Vaseem Mahboob: Because we get paid.

Rick Wise: I wasn't gonna ask you that. I wasn't going to ask you about gross margin this quarter because you did so well in this period, but you brought it up. Cost per fit came in at, I think I'm saying it right, 14% this quarter. It just. How big a factor is that in the gross margin improvement? It's, you know, it's you keep doing outstandingly well. Can it trend? How much lower can it trend over time? How big a factor is that in the mix of the multiple factors driving gross margin higher?

Speaker #4: But you brought it up. So cost per fit. Came in at, I think, I'm saying it right, 14% this quarter. Just how big a factor is that in the gross margin improvement?

Speaker #4: It's you keep doing outstandingly well. Can it trend? How much lower can it trend over time? And how big a factor is that in the mix of the multiple factors driving gross margin higher?

Speaker #3: Yeah, well, thank you for that comment, Rick. I mean, we continue to make tremendous progress on gross margins. And as Brian mentioned, it has prepared remarks.

Vaseem Mahboob: Yeah. No, thank you for that comment, Ricky. We continue to make tremendous progress on gross margins. As Brian mentioned in his prepared remarks, you know, this will be the ninth quarter now where we have shown sequential improvement. I was looking at it earlier. This is from massively, you know, north of, like, 200% negative gross margins to where we have come. Incredible job by the team to get us there.

Speaker #3: This will be the ninth quarter now where we have shown sequential improvement. And I was looking at it earlier. This is from massively north of 200% negative gross margins to where we have come.

Speaker #3: So, incredible job by the team to get us there. In terms of the mechanics, as we have said in the past, other than the unit economics that we talk about—which is just inherent to the rental model, where you get that depreciation leverage and you get the volume leverage—we think that on some of the cost improvement programs, by the way, not on the hardware, because remember, we have to protect that fleet and the fleet investment.

Vaseem Mahboob: In terms of the mechanics, as we have said in the past, other than the unit economics that we talk about, which is just inherent to the rental model, where you get that depreciation leverage and you get the volume leverage, we think that on some of the cost improvement programs, by the way, not on the hardware, because remember, we have to protect that fleet and the fleet investment. On the disposable side, we have had some really nice cost improvement projects that completed last year that are now starting to really pay benefits in full because we are burning through the old inventory, and the new inventory is coming at a lower cost. We'll continue to see the team make really good unit cost reduction progress, you know, in the next few years.

Speaker #3: On the disposable side, we have had some really nice cost improvement projects that completed last year that are now starting to really pay benefits in full, because we are burning through the old inventory and the new inventory is coming at a lower cost.

Speaker #3: So we'll continue to see the team make really, really good unit cost reduction progress in the next few years. But the good news is we've got good line of sight to 70%-plus gross margins that we aspired for.

Vaseem Mahboob: The good news is we got good line of sight to 70%+ gross margins that we aspire for. This quarter is just another proof point that we can get there.

Speaker #3: And this quarter, just in another proof point that we can get there.

Rick Wise: Gotcha.

Speaker #4: Gotcha. Yeah. And just I'm going to slip in one more if you don't mind. The FDA approval for your new algorithm, you talked about a little bit, Brian, and just my question is just expand on your comments and how important and just as a prescriber or patient, what am I going to what am I going to experience?

Vaseem Mahboob: Yeah.

Rick Wise: Just, I'm gonna slip in one more if you don't mind. The FDA approval for your new algorithm, you talked about it a little bit, Brian. Just my question is just, expand on your comments and how important and it, just as a prescriber or patient, what am I gonna experience? Is that gonna do you think it's an important big step or meaningful step? How meaningful is it, to once you get that all rolled out?

Speaker #4: And is that going to do you think it's important big step or meaningful step? How meaningful is it to once you get that all rolled out?

Speaker #2: Yeah. Thanks, Rick. We're very excited about that change. It's a change we've been working on since we for well over a year since we started to see some of our clinical data and we saw opportunities in the algorithm as we started to get past 10, 15 thousand patients in.

Brian Webster: Yeah. Thanks, Rick. We're very excited about that change. It's a change we've been working on for well over a year since we started to see some of our clinical data. We saw opportunities in the algorithm as we started to get past 10, 15,000 patients in. We saw opportunities where we could reduce, further reduce the already market-leading false alarm rate. We saw an opportunity to do that and also reduce the inappropriate shock rate. The inappropriate shock rate is very low. We met all the FDA targets for that, but we saw an opportunity to get even better and create an even better clinical product.

Speaker #2: And we saw opportunities where we could further reduce the already market-leading false alarm rate, and we saw an opportunity to do that.

Speaker #2: And also reduce the inappropriate shock rate. The inappropriate shock rate is very, very low. We met all of the the FDA targets for that, but we saw an opportunity to get even better and create an even better clinical product.

Brian Webster: You know, the false alarm rate, as you were aware, is related to patient compliance, and the inappropriate shock rate is related to patient safety. We did what we believe was the right thing. We looked at our data, we learned from it, and then we went and made adjustments to the algorithm to make it even better than it already is. I'm proud of the team because we made choices when we, you know, when we made that decision to invest in that algorithm, and now we're gonna be rolling that out coming up at HRS. I think our team is gonna be very excited. It will absolutely put us clearly differentiated on both of those metrics from anybody, any competitor, and it's just gonna help to validate our product one step further.

Speaker #2: So the false alarm rate as you were aware is related to patient compliance. And the inappropriate shock rate is related to patient safety. So we did what we believe was the right thing.

Speaker #2: We looked at our data. We learned from it. And then we went and made adjustments to the algorithm to make it even better than it already is.

Speaker #2: And I'm proud of the team because we made choices when we when we made that decision to invest in that algorithm. And now we're going to be rolling that out coming up at HRS.

Speaker #2: And I think our team is going to be very excited. It will absolutely put us clearly differentiated on both of those metrics from anybody—any competitor.

Speaker #2: And it's just going to help to validate our product one step further.

Speaker #4: Thank you so much.

Rick Wise: Thank you so much.

Speaker #1: Thank you. One moment for our next question. The next question will come from the line of Marie Siebold from BTIG. Your line is open.

Operator: Thank you. One moment for our next question. Next question will come from line of Marie Thibault from BTIG. Your line is open.

Speaker #5: Hey, good evening. Happy St. Patrick's Day. And thanks for taking the questions. Wanted to follow up here on the Veterans Affairs, when now being on schedule there.

Marie Thibault: Hey, good evening. Happy St. Patrick's Day, and thanks for taking the questions. Wanted to follow up here on the Veterans Affairs win now being on schedule there. Can you tell us a little bit more about Kestra's plans on how to approach the network? You know, sort of any expectations for the ramp there, any other sort of hurdles before you can start to deploy into some of those VA hospitals?

Speaker #5: Can you tell us a little bit more about Kestra's plans on how to approach the network? Sort of any expectations for the ramp there?

Speaker #5: Any other sort of hurdles before you can start to deploy into some of those VA hospitals?

Speaker #2: Oh, yeah. Thanks, Marie. Appreciate the question. It's another big win in the market access for KESTRA. As you're probably aware, if you are trying to market your product in a VA hospital and you don't have a federal supply schedule number, then you're just handicapped and you're kind of spinning your wheels.

Brian Webster: Yeah. Thanks, Marie. Appreciate the question. It's another big win in the market access for Kestra. As you're probably aware, if you are trying to market your product in a VA hospital and you don't have a Federal Supply Schedule number, then you're just handicapped, and you're kinda spinning your wheels. Getting that number is essentially a license to go in and serve those institutions. What we would do is, and what we are doing already is, you know, we're rolling that out territory by territory because almost every territory in our commercial footprint has some kind of VA institutions in it.

Speaker #2: And so getting that number is essentially a license to go in and serve those institutions. And so what we would do is, and what we are doing already, is we're rolling that out territory by territory because almost every territory in our commercial footprint has some kind of VA institutions in it.

Speaker #2: And so we're now giving our reps the ability to go out and go in, knock on those doors when they haven't really had that ability before.

Brian Webster: We're now giving our reps the ability to go out and go in, knock on those doors when they haven't really had that ability before. It's really a great opportunity. For us, it's a great opportunity. We've already seen, you know, just in the last 4 to 6 weeks, we've already seen some really terrific wins at some of these VA hospitals. It's a strategy. We're gonna continue to roll that out, and we're gonna get the Kestra team really fired up about protecting these veterans who have protected us. We're excited about that opportunity.

Speaker #2: So it's really for us, it's a great opportunity. We've already seen just in the last four to six weeks, we've already seen some really terrific wins at some of these VA hospitals.

Speaker #2: So it's a strategy. We're going to continue to roll that out. And we're going to we're going to get the KESTRA team really fired up about protecting these veterans who have protected us.

Speaker #2: And so we're excited about that opportunity.

Speaker #5: Yeah, I appreciate that. Okay. And then I guess I wanted to ask a follow-up that's a little more high level. It was referenced earlier that your sequential uptick in prescriptions this quarter was the highest we've seen in your history here.

Marie Thibault: Yeah. I appreciate that. Okay. I guess I wanted to ask a follow-up that's a little more high level. It was referenced earlier that, you know, your sequential uptick in prescriptions this quarter was the highest we've seen in your history here. I know one quarter may not be enough to call a trend, but it certainly looks like a nice acceleration. You have a lot of wind at your back, right? You've got new reps on board. You've got the ACE data. You've done a lot of medical education. You've had an expanded role for the clinical specialists as well. So you've made a lot of, you know, changes that I think are beneficial as well. Any reason to think this isn't acceleration or that this momentum can't continue just as we look ahead?

Speaker #5: And I know one quarter may not be enough to call a trend, but it certainly looks like a nice acceleration. You have a lot of wind at your back, right?

Speaker #5: You've got new reps on board. You've got the ACE pass data. You've done a lot of medical education. You've had an expanded role for the clinical specialists as well.

Speaker #5: So, you've made a lot of changes that I think are beneficial as well. Any reason to think this isn't acceleration, or that this momentum can't continue as we look ahead?

Speaker #5: Not asking for anything formal, but just from your own viewpoint.

Marie Thibault: Not asking for anything formal, but just, from your own viewpoint.

Speaker #2: Well, if you want a really high-level answer, the answer is no. There is no reason. I mean, I think all the things that you said are right on.

Brian Webster: Well, if you want a really high-level answer, the answer is no. There is no reason. I mean, I think all of the things that you said are right on. We're investing. You know, this is FY 26 is a year of investment in the commercial footprint. We've been very clear about that as being part of our strategy from the onset, and we've executed really well against that investment. You know, as you know, it's no easy task to go out and recruit, hire, onboard, retain, train, and get them up the curve, you know, hiring 50 new territories, which is essentially what we're gonna end up doing this fiscal year. We're doing that.

Speaker #2: We're investing. FY26 is a year of investment in the commercial footprint. We've been very clear about that as being part of our strategy from the onset.

Speaker #2: And we've executed really, really well against that investment. And as you know, it's and recruit higher onboard retain train and get them up the curve.

Speaker #2: Hiring 50 new territories, which is essentially what we're going to be end up doing this fiscal year. And so we're doing that. We're adding the clinical folks to anchor down some of those territories as we've talked about.

Brian Webster: We're adding the clinical folks to anchor down some of those territories as we've talked about, and we're investing in the future. Our real goal here, just to be really clear, is our intention to build a long-term, durable commercial engine at Kestra. We're gonna feed that engine with continuous innovation. That engine is gonna have great innovation. It's gonna have great product differentiation and great support because at the end of the day, this is still a service business. We feel really good about the investments we're making and the foundation that we're building.

Speaker #2: And we're investing in the future. And our real goal here, just to be really clear, is our intention to build a long-term, durable commercial engine at Kestra.

Speaker #2: And we're going to feed that engine with continuous innovation. And that engine is going to have great innovation. It's going to have great product differentiation.

Speaker #2: And great support, because at the end of the day, this is still a service business. And so we feel really good about the investments we're making in the foundation that we're building.

Speaker #5: Very good. Thank you.

Marie Thibault: Very good. Thank you.

Speaker #1: Thank you. One moment for our next question. Our next question will come from the line of David Roman from Goldman Sachs. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from the line of David Roman from Goldman Sachs. Your line is open.

David Roman: Thank you. Good afternoon, everyone. Appreciate you taking the questions here. Maybe I could just start with the territory expansion, Brian, that you discussed. Can you maybe help connect the territory expansion, the accelerated territory expansion to your revenue outperformance this year and the extent to which sustaining this revenue growth requires territory adds versus same-store sales growth?

Speaker #4: Thank you. Good afternoon, everyone. Appreciate you taking the questions here. Maybe I could just start with the territory expansion, Brian, that you discussed. And could you maybe help connect the territory expansion—the accelerated territory expansion—to your revenue outperformance this year, and the extent to which sustaining this revenue growth requires territory adds versus same-store sales growth?

Speaker #2: Yeah, David, thank you for the question. I think that, as you can appreciate, when you're growing a sales force, you're dealing with different dynamics.

Brian Webster: Yeah, David, thank you for the question. I think that. As you can appreciate, when you're growing a sales force, you're dealing with different dynamics. One dynamic is, you know, you add new territories, and the other dynamic, you know, so you have the question about how quickly you can get them on board, how quickly you can get them up the productivity curve, and that's a big question. Then the other question is, with all your base reps, can you continue to see productivity with them? What we do not want to have is a situation where the only way we can grow is by expanding sales territories. That's where we focus on productivity improvements in our team. We've invested heavily in training.

Speaker #2: One dynamic is you add new territories. And the other dynamic so you have the question about how quickly you can get them on board, how quickly you can get them up the productivity curve.

Speaker #2: And that's a big question. And then the other question is, with all your base reps, can you continue to see productivity with them? What we do not want to have is a situation where the only way we can grow is by expanding sales territories.

Speaker #2: And so that's where we focus on productivity improvements in our team. And we've invested heavily in training. We've invested heavily, obviously, in innovation. Which we'll continue to help productivity.

Brian Webster: We've invested heavily obviously in innovation, which will continue to help productivity. I think what we're gonna see, you know, over the course of the next year is you're gonna see just a bunch of new territory managers who have a little time in the saddle, so to speak. We're gonna see them really do some great things. I don't think that our model requires us to continually add new reps. I think we've got lots of opportunity to gain market share, to grow the productivity levels on a territory level. As you combine and roll all those up, that equals growth without having to continue that really aggressive sales force expansion.

Speaker #2: And I think what we're going to see over the course of the next year is, you're going to see just a bunch of new territory managers who have a little time in the saddle, so to speak.

Speaker #2: And we're going to see them really do some great things. And so I don't think that our model requires us to continually add new reps.

Speaker #2: I think we've got lots of opportunity to gain market share, to grow the productivity levels at the territory level. And as you combine and roll all those up, that equals growth without having to continue that really aggressive sales force expansion.

David Roman: That's very helpful. Maybe just a follow-up. The theme in the past you've talked about CapEx spending as one of the best leading indicators of your confidence in forward revenue growth. Can you maybe just sort of talk about where you are in that cycle and maybe how you're thinking about forward use of cash and how we should translate the increased investments here into the forward outlook? It certainly looks like, you know, you are performing on revenue. I know you're not gonna make FY 2027 comments here, but if I take your past comments on CapEx and try to tie it to the forward outlook, maybe you could help just connect the dots there for us a little bit.

Speaker #4: That's very helpful. And then maybe just a follow-up. The theme in the past you've talked about, CapEx spending is one of the best leading indicators of your confidence in forward revenue growth.

Speaker #4: Can you maybe just sort of talk about where you are in that cycle? And maybe how you're thinking about forward use of cash and how we should just how we should translate the increased investments here into the forward outlook?

Speaker #4: Because it certainly looks like you are performing on revenue. I know you're not going to make FY27 comments here, but if I take your past comments on CapEx and try to tie it to the forward outlook, maybe you could help just connect the dots there for us a little bit.

Speaker #2: Sure. Thanks, David. I think we've talked about this in the past. The leading indicator for us going down this path of building out the distribution team, we said, would be to hire the CapEx, because when you deploy those reps into the field, you want to make sure they have the right level of inventory and they can maintain that service level, which is so critical in our business.

Vaseem Mahboob: Sure. Thanks, David. I think, you know, we've talked about this in the past. The leading indicator for us going down this path of building out the distribution team, we said, would be higher CapEx because when you deploy those reps into the field, you wanna make sure they have the right level of inventory and they can maintain that service level, which is so critical in our business. As we have said, the planning assumption or at least what we're guiding everyone is long-term, 10% of our fittings are gonna come from new units, 90% of them gonna come from reconditioned units, which means we are our largest supplier ourselves. I think the team has done a fantastic job to drive that returns engine.

Speaker #2: So, as we have said, the planning assumption—or at least what we are guiding everyone—is, long-term, 10% of our fittings are going to come from new units.

Speaker #2: 90% of them are going to come from reconditioned units. Which means we are our largest supplier ourselves. And I think the team has done a fantastic job to drive the returns engine but at the same time, when you do that math, David, on the 10% coming from the units, that gets you to the CapEx numbers, including some of the replacement CapEx investments, to about 30 million a year for the next couple of years, at least.

Vaseem Mahboob: At the same time, when you do that math, David, on the 10% coming from new units, that gets you to the CapEx numbers, including some of the replacement CapEx investments to about $30 million, you know, a year for the next couple of years at least. When the Q comes out, you'll see that we had a $9 million investment in CapEx in this quarter. That again should give you a lot of comfort that that $9 million investment is ahead of us going from the previously publicized number of 400 reps in November to 130 by the end of the year.

Speaker #2: So, but we are a few—when the queue comes out, you'll see that we had a $9 million investment in CapEx in this quarter that, again, should give you a lot of comfort.

Speaker #2: That $9 million investment is ahead of us going from the previously publicized number for 100 reps in November to 130 by the end of the year.

Speaker #4: Okay. And then maybe just a quick follow-up to that. If I look at your Ashburn and the quarter, excluding the Biobead investment, it looks like mid-20s.

David Roman: Okay. Then maybe just a quick follow-up to that. If I look at your cash burn in the quarter, excluding the Biobeat investment, looks like mid-$20 million. Is that isolated to the quarter or how should we think about that number on a go-forward basis?

Speaker #4: Million. Is that isolated to the quarter? How should we think about that number on a go-forward basis?

Speaker #2: Yeah, I think we're very happy with where we ended up on the cash burn. Again, like I said, $9 million of that $28 million burn was CapEx.

Vaseem Mahboob: Yeah, I think, you know, we're very happy with where we ended up on the cash burn. You know, again, like I said, $9 million of that $28 million burn was CapEx. $18 or 19 million of that was the operating burn. We feel that we're gonna be in that range at least for this next year.

Speaker #2: 18 or 19 of that was the operating burn. And we feel that we're going to be in that range at least for this next year.

Speaker #4: Okay. Thank you very much.

David Roman: Okay. Thank you very much.

Brian Webster: Thank you. That will conclude our Q&A for today. I would now like to turn it back over to Brian for any closing remarks. Thank you. Thank you everyone for the questions and for your attendance this afternoon. You know, I just wanna reiterate that we're very excited about the results that we saw in Q3. We are seeing the business model come together. We're seeing, you know, terrific performance out in the field as we scale up new reps. I'm very excited about the caliber of the new territory managers that we're hiring and the potential that we have there.

Operator: Thank you. That will conclude our Q&A for today. I would now like to turn it back over to Brian for any closing remarks.

Speaker #1: Thank you. And that will conclude our Q&A for today. I want to turn it back over to Brian for any closing remarks.

Brian Webster: Thank you. Thank you everyone for the questions and for your attendance this afternoon. You know, I just wanna reiterate that we're very excited about the results that we saw in Q3. We are seeing the business model come together. We're seeing, you know, terrific performance out in the field as we scale up new reps. I'm very excited about the caliber of the new territory managers that we're hiring and the potential that we have there.

Speaker #2: Thank you. And thank you, everyone, for the questions and for your attendance this afternoon. I just want to reiterate that we're very excited about the results that we saw in Q3.

Speaker #2: We are seeing the business model come together. We're seeing terrific performance out in the field as we scale up new reps. And I'm very excited about the caliber of the new territory managers that we're hiring and the potential that we have there.

Speaker #2: Q3 is a little bit of a challenging quarter for us because, as a daily run-rate business—which KESTRA very much is—when you get into the holidays, the November, December holidays, and then you get into the January new plan year for insurance, there are a lot of variables in Q3 that, quite frankly, make us nervous every year.

Brian Webster: Q3 is a little bit of a challenging quarter for us because as a daily run rate business, which Kestra very much is, when you get into the holidays of the November, December holidays, and then you get into the January new plan year for insurance, there's a lot of variables in Q3 that quite frankly make us nervous every year. Our team executed right directly through those and delivered a fantastic quarter. Most importantly, continued to invest and build the infrastructure and the foundation that we need to create that long-term durable growth engine that we're talking about. We're very pleased with the quarter and appreciate everybody calling in and participating in the call. Thank you very much. Thank you for your participation in today's conference. This does conclude the program.

Speaker #2: But our team executed right directly through those. And delivered a fantastic quarter. And most importantly, continued to invest and build the infrastructure and the foundation that we need to create that long-term durable growth engine that we're talking about.

Speaker #2: So, we're very pleased with the quarter and appreciate everybody calling in and participating in the call. Thank you very much.

Operator: You may now disconnect. Everyone, have a great day.

Q3 2026 Kestra Medical Technologies Inc Earnings Call

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