Kestra Medical Technologies, Ltd. (KMTS) Q2 2026 Earnings Call Transcript
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Overview
The earnings call reveals strong revenue growth, market expansion, and a strategic focus on innovation. Despite increased losses, cash reserves are robust. The Q&A highlights sustainable growth strategies and positive market reaction to clinical data. The company's guidance and strategic plans suggest a positive outlook, with expected gross margin expansion and increased prescription volumes. While there are uncertainties regarding guideline changes, the overall sentiment is positive, driven by strong financial metrics and optimistic guidance, likely leading to a stock price increase in the short term.
Key Financial Performance
Revenue $22.6 million, a 53% increase year-over-year. The growth was driven by a 54% year-over-year increase in prescriptions, reflecting market share gains with existing customers and activation of new accounts. Excluding the impact of a one-time revenue pickup in the prior year, revenue growth was 60%.
Gross Margin 50.6%, up 11 percentage points year-over-year. This was driven by attractive unit economics, higher revenue per fit from more in-network patients, and a 20% decline in cost per fit due to volume leverage and cost improvement projects.
Operating Expenses $43.2 million, up from $25 million in the prior year period. Excluding nonrecurring costs and stock-based compensation, operating expenses were $33.5 million compared to $23.8 million in the prior year. The increase was primarily due to investments in commercial expansion and public company costs.
Net Loss $32.8 million, compared to $20.6 million in the prior year period. The increase in net loss was attributed to higher operating expenses.
Adjusted EBITDA Loss $19.7 million, compared to $16.1 million in the prior year period. The increase was due to higher operating expenses.
Cash and Cash Equivalents $175.4 million as of October 31, 2025, not including $148 million of net proceeds from a recent public equity offering.
Operating Highlights
ASSURE system: The ASSURE system demonstrated improved comfort and care coordination for patients, as well as high wearability and effectiveness in detecting cardiac events. It also has the lowest false alarm rate among WCDs and is specifically designed for women.
WCD market growth: The WCD market is underutilized, with only 14% of eligible patients using the devices. However, market growth has accelerated to low double digits, with potential to expand into a multibillion-dollar market.
Sales expansion: Kestra expanded its sales organization to approximately 100 active sales territories, up from 80 in fiscal year 2025, targeting high-volume prescription geographies with strong in-network payer coverage.
Revenue growth: Revenue for Q2 was $22.6 million, a 53% increase year-over-year, driven by a 54% increase in prescriptions and market share gains.
Gross margin improvement: Gross margin reached 50.6%, up 11 points year-over-year, marking the eighth consecutive quarter of sequential expansion. Kestra aims for 70%+ gross margins in the coming years.
Revenue cycle management: In-network patient mix increased to the low 80s, improving efficiency and positively impacting revenue growth, gross margins, and profitability.
Clinical evidence and guidelines: The ACE-PAS study, the largest WCD study to date, demonstrated the ASSURE system's safety and effectiveness, potentially influencing future clinical guidelines and accelerating market penetration.
Fleet investment: Kestra continues to invest in its fleet of devices to support growth, with a long-term goal of 90% of annual patient fittings achieved through device reuse.
Risk or Challenges
Market Penetration Challenges: Despite evidence supporting the effectiveness of wearable cardioverter defibrillators (WCDs), the therapy remains underutilized, reaching only 14% of the eligible U.S. addressable market. This indicates a significant gap in market penetration and adoption.
Regulatory and Clinical Guidelines: Existing WCD guidelines were last updated in 2017, and there is uncertainty about when or if they will be updated to reflect new clinical evidence. This could delay broader adoption and clinical acceptance of the ASSURE system.
Revenue Cycle Management (RCM): While progress has been made in bringing more payers in-network, there are still over 3,000 payers in the U.S., and a long tail of regional and local payers remains out-of-network. This could impact revenue growth and operational efficiency.
Cost Management: Although gross margins have improved, the company is still incurring high operating expenses, including investments in commercial expansion and public company costs, which contribute to ongoing net losses.
Competitive Pressures: The WCD market is competitive, and Kestra faces challenges in differentiating its ASSURE system from other commercially available WCDs, despite its clinical advantages.
Economic and Operational Risks: The company operates a lease business model requiring substantial investment in its fleet of devices. While this supports scalability, it also exposes the company to risks related to asset utilization and depreciation.
Guidance & Outlook
Gross Margin Expansion: Kestra expects continued gross margin expansion in the back half of FY '26 and remains confident in achieving 70%+ gross margins over the next few years.
Revenue Growth: Revenue guidance for fiscal year 2026 has been increased to $91 million, representing a growth of 52% compared to fiscal year 2025. This growth is driven by strong prescription growth, market share gains, and WCD market expansion.
WCD Market Growth: The WCD market is expected to grow into a multibillion-dollar market over the coming years, with current growth accelerating to low double digits.
Sales Expansion: Kestra is expanding its sales organization, increasing active sales territories from 80 to approximately 100, and targeting geographies with high WCD prescription volumes and strong in-network payer coverage.
Revenue Cycle Management (RCM) Improvements: Kestra is improving RCM capabilities and increasing the percentage of in-network patients, which is currently in the low 80s. This is expected to enhance revenue growth, gross margins, and profitability.
Device Fleet Expansion: Kestra is continuing to add to its fleet of devices to support near-term business objectives, with a long-term expectation that 90% of annual patient fittings will be accomplished with reused devices.
Shareholder Return Plan
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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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