Kestra Medical Technologies, Ltd. (KMTS) Q1 2026 Earnings Call Transcript
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Overview
The earnings call presented mixed signals. While the company raised guidance and is optimistic about growth, financial metrics reveal increasing losses and operating expenses. The Q&A highlighted positive developments in in-network expansion and prescription growth, but also noted management's lack of detailed guidance on key strategic initiatives. The overall sentiment is balanced by the bullish outlook and ongoing investments, suggesting a neutral stock price movement in the short term.
Key Financial Performance
Revenue $19.4 million in the first quarter, an increase of 52% compared to the prior year period. Revenue growth was driven by a 51% year-over-year increase in prescriptions, reflecting market share gains with existing customers and activation of new accounts.
Gross Margin 45.7% in the first quarter compared to 32.9% in the prior year period. The continued expansion in gross margin was driven by the attractive unit economics inherent in Kestra's rental model, a higher revenue per fit from more in-network patients, and a lower cost per fit, driven by volume leverage and cost improvement projects.
Cost per Fit Decreased approximately 20% compared to the prior year period. This reduction was attributed to volume leverage and cost improvement projects.
Adjusted Revenue per Fit Increased approximately 20% compared to the prior year period. This was due to a higher mix of in-network patients.
Conversion Rate Approximately 47% in the first quarter compared to an adjusted conversion rate of approximately 40% in the prior year period. The higher conversion rate reflected improvements in prescription fill rate, bill rate, and collections performance.
GAAP Operating Expenses $37.7 million in the first quarter, including $2.9 million of nonrecurring new public company costs. This is compared to $22.6 million in the prior year period. The increase was primarily attributable to growth investments in commercial and revenue cycle resources.
GAAP Net Loss $25.8 million in the first quarter compared to a GAAP net loss of $20.3 million in the prior year period. The increase in net loss was due to higher operating expenses.
Adjusted EBITDA Loss $19.4 million in the first quarter compared to an adjusted EBITDA loss of $15.7 million in the prior year period. The increase was due to growth investments in commercial and revenue cycle resources.
Cash and Cash Equivalents $201.2 million as of July 31, 2025. The company expects this balance to be sufficient to reach cash flow breakeven and profitability.
Operating Highlights
ASSURE system: Tracks heart rate trends, allows patients to trigger ECG recordings, and provides critical insights for identifying undiagnosed arrhythmias. It also delivers life-saving therapy during cardiac arrest and ensures rapid emergency support.
Prescription growth: 4,200 prescriptions for the ASSURE system in Q1 FY26, a 51% year-over-year increase.
Revenue growth: Revenue grew 52% year-over-year to $19.4 million in Q1 FY26.
Market expansion: WCD therapy remains underutilized, reaching only 14% of the eligible U.S. patient population. Kestra aims to expand this market.
Gross margin improvement: Gross margin increased to 45.7% in Q1 FY26 from 32.9% in the prior year period, marking the seventh consecutive quarter of gross margin expansion.
Revenue cycle management: In-network fittings increased from 70% to 80%, improving efficiency and key RCM metrics.
Fleet scalability: Kestra's lease business model supports scalability with devices capable of approximately 3 patient wears per year.
Sales organization expansion: Expanded sales territories and introduced a clinical specialist role to penetrate existing accounts and target new prescribers.
Clinical evidence development: Concluded enrollment in FDA post-approval study and achieved a late breaker presentation at the American Heart Association Scientific Sessions.
Risk or Challenges
Market Expansion Challenges: Despite the growing market for wearable cardioverter defibrillators (WCDs), the therapy remains underutilized, reaching only 14% of the eligible U.S. patient population. This indicates a significant challenge in expanding market penetration and adoption.
Revenue Cycle Management (RCM) Complexity: Kestra faces challenges in managing over 3,000 payers in the U.S., which complicates bringing more payers in-network. This impacts efficiency and key RCM metrics, such as prior authorization and collections performance.
Operational Costs and Losses: The company reported a GAAP net loss of $25.8 million in the first quarter, an increase from the prior year's $20.3 million. Operating expenses also rose due to growth investments, which could strain financial resources.
Competitive Pressures: The incumbent competitor in the WCD market is actively investing in studies and market expansion, posing a threat to Kestra's market share and growth.
Regulatory and Clinical Evidence Requirements: Kestra is heavily reliant on clinical studies to validate the safety and efficacy of its ASSURE system. Delays or unfavorable outcomes in these studies could impact market acceptance and regulatory compliance.
Supply Chain and Fleet Management: Kestra's lease business model requires substantial investment in its fleet of devices. While the current asset pool supports near-term objectives, scaling operations could require additional capital and efficient fleet management.
Guidance & Outlook
Gross Margin Expansion: Kestra expects continued gross margin expansion in FY '26 and remains confident in achieving 70%+ gross margins over the next few years.
Revenue Growth: Kestra has updated its fiscal year 2026 revenue guidance to $88 million, reflecting a 47% increase compared to fiscal year 2025. This growth is underpinned by strong growth in prescriptions, market share gains, and activation of new accounts.
Revenue Per Fit: Revenue per fit is expected to continue benefiting from a higher mix of in-network patients and improvements in revenue cycle management capabilities.
Market Expansion: The WCD market is expected to expand into a multibillion-dollar market over the coming years, driven by increased utilization and evidence of higher-than-expected sudden cardiac arrest risk in certain patient populations.
Clinical Evidence and FDA Study: Kestra has concluded enrollment in its FDA post-approval study, which is expected to be the largest study ever published in the WCD category. Results will be presented at the American Heart Association Scientific Sessions in November.
Cash Flow and Profitability: Kestra expects its existing cash balance to be sufficient to reach cash flow breakeven and profitability.
Shareholder Return Plan
The selected topic was not discussed during the call.
Key Q&A
Earnings Word Cloud
KMTS Transcript
The earnings call reveals strong revenue growth, market expansion, and a strategic focus on innovation. Despite increased losses, cash reserves are robust. The Q&A highlights sustainable growth strategies and positive market reaction to clinical data. The company's guidance and strategic plans suggest a positive outlook, with expected gross margin expansion and increased prescription volumes. While there are uncertainties regarding guideline changes, the overall sentiment is positive, driven by strong financial metrics and optimistic guidance, likely leading to a stock price increase in the short term.
The earnings call presented mixed signals. While the company raised guidance and is optimistic about growth, financial metrics reveal increasing losses and operating expenses. The Q&A highlighted positive developments in in-network expansion and prescription growth, but also noted management's lack of detailed guidance on key strategic initiatives. The overall sentiment is balanced by the bullish outlook and ongoing investments, suggesting a neutral stock price movement in the short term.
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