Kestra Medical Technologies Q3 2025 Earnings Call Transcript

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Operator

Good afternoon and welcome to the Kestra Medical Technologies Third Quarter Fiscal twenty twenty five Earnings Conference Call. This conference call is being recorded for replay purposes. We will be facilitating a question and answer session following prepared remarks from management. At this time, all participants are in a listen only mode. I would now like to turn the call over to Neil Baladkar, Vice President of Investor Relations.

Operator

Please go ahead.

Neil Bhalodkar
Neil Bhalodkar
VP - Investor Relations at Kestra Medical Technologies, Ltd

Thanks, Latif. Thank you all for joining Kestra's third quarter fiscal twenty twenty five earnings call. With me today are Brian Webster, President and Chief Executive Officer and Vaseem Mehboob, Chief Financial Officer. This call includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made on this call that do not relate to matters of historical fact should be considered forward looking statements.

Neil Bhalodkar
Neil Bhalodkar
VP - Investor Relations at Kestra Medical Technologies, Ltd

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 registration statement on Form S-one for additional information. Any forward looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Kestra undertakes no obligations to update these statements except as required by applicable law.

Neil Bhalodkar
Neil Bhalodkar
VP - Investor Relations at Kestra Medical Technologies, Ltd

With that, I'll turn the call over to Brian.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Thanks, Neil. Good afternoon, everyone, and welcome to KESTRA's first earnings call as a public company. I'd like to take a moment to thank the entire KESTRA team, our board of directors and the investors that have supported Kestra throughout our journey, including and up through last month's initial public offering. With their support, we are well positioned to take the next steps forward towards our goal of making the ASURE system the standard of care for patients at risk of sudden cardiac arrest. We're excited to share with you the details of our strong performance in the third quarter fiscal year twenty five.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

But first I would like to provide a brief overview of KESTRA for those who may be new to our story. KESTRA is a commercial stage wearable medical device and digital healthcare company focused on transforming patient outcomes in cardiovascular disease using monitoring and therapeutic intervention technologies that are intuitive, intelligent, and connected. We have developed in our commercializing our cardiac recovery system platform, a comprehensive and advanced system that integrates monitoring, therapeutic treatment, digital health, and patient support services into a single unified solution. The cornerstone of our platform is the Asure Next Generation Wearable Cardioverter Defibrillator or WCD, which is used to protect patients at an elevated risk of sudden cardiac arrest known as SCA. Sudden cardiac arrest or SCA is a life threatening emergency characterized by the abrupt cessation of the heartbeat caused by an electrical malfunction in the heart.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

This is typically triggered by a ventricular arrhythmia and leads to a loss of consciousness and potentially death within minutes if not promptly treated. In fact, the American Heart Association estimates that SCA causes four hundred and thirty six thousand deaths per year, making it the third leading cause of death in The United States. Defibrillation or the delivery of an electrical shock to the heart is the only way to restore a fibrillating heart to a normal rhythm. Time essence as each minute of delay in restoring the heart to a normal rhythm reduces a patient's chance of survival by seven percent to ten percent. The average time for EMS arrival is about seven minutes from the time of a 911 call in The US.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

The most common location of an SCA in adults is at home or their residence. That represents about seventy three percent of all sudden cardiac arrests with approximately fifty percent of SCAs going unwitnessed. For over twenty years, WCDs have been used to protect patients at elevated risk of SCA. However, until the Assure WCD began its full US commercial launch in August of twenty twenty two, physicians and their patients were limited to a single incumbent's device. Despite the overwhelming evidence that an external defibrillation shock is effective at terminating dangerous ventricular cardiac rhythms, WCD therapy remains underutilized, reaching just fourteen percent of the eligible US patient population.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

We believe that the low penetration of the WCD therapy is due to the limitations of the incumbent commercially available device. Commonly cited reasons for patients or providers failing to use the incumbent's device include high false alarm rate frequency, poor wearability, patient discomfort, a unisex only garment, low utility data, and limited connectivity with patients. The ASSURE WCD was purpose built to enhance patient comfort compliance, and directly address the key barriers to adoption associated with the incumbents device. The Assure WCD drives greater patient compliance as a result of a major reduction in false alarms and enhanced comfort and wearability. In addition to the Assure WCD, our cardiac recovery system platform includes digital solutions such as the Assure patient application, the Kestra care station remote patient data platform, heart alert services, and Asure assist services.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

The Asure patient application engages patients with real time mobile updates to promote compliance, while the Kestra CareStation remote patient data platform equips healthcare providers with actionable insights to support timely and informed care decisions for their patients. Heart Alert Services and the Assure Assist Services work together to enhance safety and are designed to provide critical alerts to healthcare providers for significant arrhythmias and notify emergency services when therapy is administered. In The US, we estimate that there are approximately eight hundred and fifty thousand cardiac patients each year that are eligible for WCD prescription, representing an annual addressable market opportunity of approximately $10,000,000,000 In 2023, approximately 120,000 patients in The US utilized a WCD generating sales of over $1,000,000,000 Unfortunately, the other 730,000 eligible patients went unprotected. Our mission is to protect and support this large and growing population of at risk patients by driving increased adoption of the Asure WCD. We continue to make significant investments in infrastructure to support rapid growth and scalability, specifically in our commercial organization, our supply chain, our distribution capabilities, as well as our revenue cycle management processes.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

We utilize a lease business model. When a patient's wear time has concluded, the Asure device is returned for reprocessing and reintroduction into Kestra's distribution system. Our substantial investment in our fleet of devices, each with a capacity for approximately three patient wears per year, enables the business to scale with an attractive unit economic profile. Now turning to our recent performance in the third quarter, Kester generated $15,100,000 of revenue, which represented growth of 82% as compared to the prior year period. We note that this result was in line with the preliminary estimated financial results that were previously disclosed in our IPO prospectus.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

In the third quarter, we continued to reach more patients at risk of SCA generating over 3,400 prescriptions written for the Assure system. These prescriptions help protect families from the devastating impact of cardiac arrest. As of January thirty first of twenty twenty five, which is the close of our fiscal third quarter, the Assure WCD is being actively prescribed by more than five fifty hospitals, representing approximately twenty percent of WCD prescribing hospitals in The US. Clearly, we are still in the very early innings of activating new accounts and growing our market share. To give you a sense of our potential in our top 50 hospitals, we estimate our market share to be approximately 45%.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

We are expanding our sales force in targeted geographies where a high volume of WCD prescriptions are being written and we now have strong in network payer coverage. As of January 31, we had approximately 70 sales territories with plans for continued commercial team headcount growth over the next twelve months. Our direct sales team is supported by a contracted team of over two fifty Asure patient specialists who assist patients with fitting and training of their WCD. In March, Mr. Al Ford joined Kestra as our new Chief Commercial Officer.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Al most recently served as Chief Commercial Officer at Axonics, where he led the development and execution of their commercialization strategy. Prior to that, was the Chief Commercial Officer at Cardiac Science Corporation, a leader in automated external defibrillation products. With significant experience managing strategic sales and commercial operations, Mr. Ford brings valuable knowledge, perspective, and leadership to our organization. We're confident that he will be an impactful addition as we continue to drive adoption of the Asure system.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

We're also continuing to build the body of clinical evidence supporting the safety, efficacy, and benefits of the Assure WCD. All patients prescribed the Assure WCD in The United States since August of twenty twenty two have been included in our post approval study and patient registry. As of January thirty first of twenty twenty five, our registry has enrolled over 17,000 patients. The real world findings are providing further validation of the results in our pivotal trials. Our most recent FDA submission from the study reported first shock conversion efficacy of approximately ninety six percent, a median daily use of twenty three point two hours, and a low false alarm rate of only six percent compared to forty six percent for the competitor's device.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

In late March, data from our patient registry was presented at the annual scientific sessions of the American College of Cardiology, ACC, highlighting critical insights from over four thousand seven hundred patients with newly diagnosed dilated cardiomyopathy heart failure. We used who were prescribed the WCD system. The data revealed a substantial risk of SCA within a median of just thirty eight days, underscoring the need for early protection and also patient compliance. These results underscore the ASSURE WCD's competitive advantages in wearability, usability, and patient compliance, providing strong support for continuing adoption. On the market access front, we continue to secure in network contracts with additional health plans with the recent addition of Kaiser Permanente, covered lives for the Asure system now total more than two eighty five million health plan members in The US.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

In summary, I'm proud of the hard work the KESTRA team has done to protect thousands of at risk patients from cardiac arrest and even more excited about the opportunity ahead. The foundation we have built has positioned Kestra for a strong growth for years to come. We are addressing a market that is large, growing, and highly underpenetrated. Our Assure system is a truly differentiated technology that clinicians are enthusiastically prescribing to their patients who are at risk of SCA. We are making targeted investments in our commercial infrastructure and rev cycle management capabilities to capitalize on the attractive market opportunity in front of us.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Following our initial public offering, we are well capitalized and focused on executing on our commitments to patients and their prescribers. Before I wrap up, I would like to just give one more shout out to the incredible Kestra team. In our recent all team member survey, our team scored 92% on the very important engagement question. I have to say I am humbled by the commitment and passion this team has for the Kestra mission. I will now turn it over to my partner, Vaseem, who will discuss third quarter financial results in more detail and provide our fiscal year twenty twenty five revenue outlook.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Vaseem?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, thank you, Brian, and good afternoon, everyone. As Brian noted, total revenue was $15,100,000 for the third quarter of fiscal year twenty twenty five, an increase of 82% compared to the prior year period. Revenue growth was driven by a 51% increase in prescriptions in the third quarter, reflecting continued market share gains and activation of new accounts. As Brian mentioned, we benefited from a higher mix of in network patients and improvements in our revenue cycle management capabilities. Gross profit was $6,500,000 for the third quarter of fiscal year twenty twenty five, compared to $900,000 in the prior year period.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Gross margin was 43.4% compared to 10.6% in the prior year period. The significant expansion in gross margin was driven by volume leverage and a higher mix of in network patients. We also began to realize a higher reimbursement rate for our HCPCS code KO-six 0 6, which increased to $3,519 on 01/01/2025, due to a 2.4% increase in the consumer price index. We know there is significant focus on assessing the impact of the newly enacted tariffs. Kestra is mostly insulated from the currently announced tariffs.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Our two tier one contract manufacturing partners supply products to Kestra from their US based manufacturing locations. That and the overall asset rental and the reuse business model that Brian talked about provide us protection from the tariffs as currently announced. As such, we don't expect any changes to our gross margin profile as a result of these new tariffs. Operating expenses were $27,100,000 for the third quarter of fiscal year twenty twenty five compared to $20,800,000 in the prior year period. The increase was attributable to growth in commercial and revenue cycle headcount.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

We also recorded $1,900,000 of IPO related expenses in the quarter. Net loss was $21,800,000 for the third quarter of fiscal year twenty twenty five, compared to a net loss of $21,600,000 in the prior year period. Adjusted EBITDA loss was $16,300,000 for the third quarter of fiscal year twenty twenty five, compared to an adjusted EBITDA loss of $16,200,000 for the prior year period. Cash and cash equivalents totaled $54,400,000 as of 01/31/2025. This does not include the $2.00 $5,000,000 in net proceeds that we received from our successful IPO in March.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

I will now provide our revenue outlook for fiscal year twenty twenty five, which ends on April 30. We expect total revenue for fiscal year twenty twenty five in the range of $58,000,000 to $58,500,000 representing a growth of approximately 109% to 110% compared to fiscal year twenty twenty four. With that, operator, we are ready to take questions.

Operator

Thank you. Our first question comes from the line of Travis Steed of Bank of America Securities. Please go ahead, Travis.

Travis Steed
Travis Steed
Managing Director - Equity Research at Bank of America

Hey, thanks for taking the question and congrats on the first earnings call. I guess I wanted to ask really about kind of the Salesforce and you got a new Chief Commercial Officer and just trying to think about the investments there on the Salesforce and where you're going to be, how are you going to kind of be going after this market a little bit differently, I guess, with some of the IPO proceeds? If you think you can take more share and how long these new reps can get up to speed?

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah, thanks, Travis. Appreciate the question. I think we're excited to have Al Ford join the company. He's been here, I guess, about six weeks now. So he spent a significant amount of time out in the field, writing with reps, really understanding the business model, really understanding the point of sale.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

And he's in the process of sort of going through that evaluation process. I think when it comes to the next twelve months, we are going to remain focused on our business plan, notwithstanding the additional funds that we receive. We are very cognizant in this business model of the need to protect the service level requirements. And we have to make sure that when we're putting a sales rep in the field, that we're also putting all the support around that rep that's required to be able to deliver on our prescription fulfillment according to the wishes of the prescribers. So we're going to be very measured, but aggressive when it comes to that.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

And I think as Al spends more time assessing what our needs are, I think we will continue to look for ways that we're going to continue to grow our market share, but we're very excited about him being on board. And we're very excited about the framework that we have with regards to in network patients now with our insurance coverage and a fleet of devices and now this growing sales team.

Travis Steed
Travis Steed
Managing Director - Equity Research at Bank of America

Great, thank you. And maybe just a follow-up on guidance and this is kind of one quarter left in the year, but I'm not sure if there's any kind of color you'd like to give on how you kind of give guidance since you're a new company. Trying to think through like some of the key drivers to now that you've gotten your payer mix better and kind of closing the gap into that potential revenue versus realized revenue over time? Thank you.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Sure. When it comes to guidance, we will be issuing our fiscal year '20 '20 '6 guidance at our July quarterly call. We're in the process of going through budgeting with our board and getting everybody on the same page with regards to the fiscal year plan for next year. We will be issuing that guidance in July. I think the drivers remain essentially the same.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Are going to focus on driving more in network patients because they pay better. We are going to focus on selectively expanding our sales force and with a particular focus on expanding into areas where we do have favorable insurance coverage. And then we'll continue to make a month over month, quarter over quarter, year over year improvements in our revenue cycle management capability. And it's the focus on those three things really that we believe are going to drive our revenue acceleration.

Travis Steed
Travis Steed
Managing Director - Equity Research at Bank of America

Great, thanks a lot and congrats.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Thank you.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Thanks Travis.

Operator

Thank you. Our next question comes from Matthew O'Brien of Piper Sandler. Please go ahead, Matthew.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Great. Thanks so much, and I appreciate you taking the questions. Brian, maybe on the account side of things, I know a big focus has really been, you know, going deeper within existing accounts. What can you do now with, this broadening resource base of yours to go deeper in accounts, maybe even a little bit faster than initially expected? And it's like you mentioned kind of that those top 50 accounts and how quickly you've gotten to 45% market share.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

How quickly can you bring the next 50 up to that 45% market share? And I guess, where can that those top 50 kind of top out at?

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Well, think it's a little first of all, Matt, for the question. It's a little too early to tell where the top out is. Think there's a ceiling is pretty high on capability as we get more and more really positive feedback from prescribers and our reps continue to penetrate sort of position by position in any given account. I do think that our strategy will remain that we want to continue to go deeper. I think one of the things that our new Chief Commercial Officer, Al Ford, will be assessing will be the right mix between sales resources and clinical resources to best penetrate accounts.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

So I think there will be a balance between getting that right mix for this business model and also getting ourselves into some new big opportunity markets that we just haven't been in the past. So it'll be a combination of those things, but we feel like we've got really good evidence that when we apply resources in a given territory or even a state level view that we can achieve really exciting market share capture.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Got it. And then as the follow-up, just on the to kind of follow-up on Travis's question revenue cycle management. In fiscal twenty twenty four, you saw a really good improvement in the conversion rate. 2025 is trending nicely. For fiscal twenty twenty six, we're not expecting much and even 2027 not expecting a lot in our model anyway.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Is there anything you can do to accelerate the process of or the improvements that we're seeing in revenue cycle management? Again, I'm not sure if some of the IPO proceeds can help with that or not, but just curious if that's a lever that you could pull on now to get a little bit more resource. Thanks so much.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

You bet. Thanks for the follow-up. I think the additional capital resources only have a limited amount of impact on that simply because most of the issue is not necessarily resources when it comes to rev cycle. It really comes down to what your in network versus out of network patient mix is. And so what we're going to see, we believe is, as we continue to add a territory and regional level, we continue to add additional payers, we will just continue to see that in network mix improve and then the corresponding improvement will happen with rev cycle.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

We definitely will continue to invest in the processes, the people, etcetera, when it comes to revenue cycle management, but we're pretty happy with some of the progress we're seeing on that front. We would expect to continue to just see nice steady improvement. It's sort of process oriented and so you're not going to have a of a big jump, you're going to have steady increases and that's what we're looking for as we continue to grow.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Understood. Thank you.

Operator

Thank

Operator

you. Our next question comes from Larry Biegelsen of Wells Fargo. Please go ahead, Larry.

Lawrence Biegelsen
Lawrence Biegelsen
Senior Medical Device Equity Research Analyst at Wells Fargo

Good afternoon. Thanks for taking the question. Brian, we recently did a survey that pointed to double digit prescription growth for the USWCD market in 2025 and 2026. How are you thinking about just market growth? And I had one follow-up.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah. Hey, Larry. Thanks for the question. I think that as we look backwards over the last two to three years, we've seen unit market growth has been somewhere around six percent. And then when you put the cost of living adjustment on code, that adds another 2% to 2.5%.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

So that puts you at somewhere in the 8% to 8.5% kind of market growth that we've seen from 2021 through 2023. So I think when we think about our model, we're using sort of that parameter is how we're thinking about market growth. I'm not surprised that your survey has given you that kind of feedback because we definitely are seeing increased excitement about the use of this product, specifically with the non ischemic cardiomyopathy patients. And so I'm not surprised that you're getting that kind of feedback.

Lawrence Biegelsen
Lawrence Biegelsen
Senior Medical Device Equity Research Analyst at Wells Fargo

That's helpful. And the other thing we saw that was interesting in the survey was that electrophysiologists were generally more familiar with your positive attributes compared to general cardiologists. Would you agree that there's just more familiarity among EPs? And if so, what's your plan to educate general cardiologists more? Thank you.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah, it's an interesting call point because the cardiologists generally are writing more of the prescriptions and so we will certainly have a focus on that, including a focus in this coming year with a lot of speaker bureaus and educational programs and things like that. That's definitely going to be a focus of ours, but we don't want to take our eye off the electrophysiology bowl because electrophysiologists are often consulted when it comes to a patient, and so they are going to have an opinion and a view about these ventricular rhythms and so we have to sort of straddle that a little bit, but you'll see a pretty good focus on educational programs and things like that here in the coming year for us.

Lawrence Biegelsen
Lawrence Biegelsen
Senior Medical Device Equity Research Analyst at Wells Fargo

Thanks so much.

Operator

Thank

Operator

you. Our next question comes from David Roman of Goldman Sachs. Please go ahead, David.

David Roman
David Roman
Managing Director at Goldman Sachs

Thank you and good afternoon, everybody. Maybe we could start with just looking at prescription volume growth and revenue performance. And maybe just talk us through how we should think about the 51% growth in prescriptions during the quarter translating into revenue. So I believe you saw a pickup in the growth rate here exiting Q3 and into your Q4. And maybe just remind us how to think about the correlation between prescriptions and revenue and if that should converge over time or how we should think about that metric as a leading indicator.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah, maybe I'll start that and then Vaseem, maybe you can jump in here as well. But I would say that first and foremost, want to remember that there's a timing difference between an actual prescription and the revenue that comes in for that prescription. So that's an important factor when you're evaluating prescription volume versus revenue volume. It is a monthly billing when it comes to how the actual billing occurs and then each payer has its own payment cycle over time. Vasim, you want to talk a little bit more about the relationship between those two?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Sure, Brian. And David, it's a great question. I think one of the things that we want to always highlight here is that we want to see our revenue cycle capability really drive the conversion of those prescriptions into fittings and then fitting into revenue. So, time you see the revenue growth that's better than your prescription growth tells you two things. One, that we are taking market share.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

And two, we are actually converting that into revenue with some good bit of leverage, and that's actually progress. So, to Brian's point, a lot of it is timing, a lot of it is the fact that you have a different velocity of the mix of patients, and that's why when we talk about, deploying new reps, try to deploy them into areas with high prescription density that are in network. So really, it's a function of those three things. It's the revenue cycle management capability. It's the mix of the type of patients.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

And then obviously, leads to a better leverage, if you will, on the revenue side. So the simple way to put it is that you would always want to see your revenue go faster than your prescriptions, but your prescriptions are a leading indicator of the growth to come.

David Roman
David Roman
Managing Director at Goldman Sachs

That's a super helpful perspective. And maybe just a follow-up, and I think a couple others have asked this question around the incremental IPO proceeds that you've generated. But maybe if you're seeing more specific on one topic, which is if just following Kestra on various social channels, you really have picked up hiring significantly here across multiple parts of the company. You've seen hires in sales and marketing, R and D, clinical development, etcetera. Maybe you could just sort of talk about what are some of the most significant areas of headcount expansion that you are undertaking right now and how we should think about the derivative impact on either pace of product development, clinical trial enrollment, pick up in sales, etcetera.

David Roman
David Roman
Managing Director at Goldman Sachs

Maybe I'll just tie that together.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yes, I appreciate that follow-up. Think that in our general philosophy about the additional proceeds are we're not going to be in a mad rush to go spend those proceeds. If there's ever an economic environment where having a little extra cash in the bank is a good idea, this would be probably one of them. So, we have had a plan along to really to invest in our commercial footprint. We know that for us to be able to achieve the market leadership that we are seeking to achieve in this market, we know that we need a bigger commercial footprint.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

That's job number one. Job number two is there are with the higher volume that we expect to be generated by that commercial team, there are volume related rev cycle management and other functions that we need to make sure that we're growing as well. And so you'll see us posting plenty of positions for those kinds of rules, which are directly in sync with volume. I think you'll continue to see us make reasonable investments in our CapEx pool to make sure that we again can get a product to the patient when we need to meet service level requirements. And we are very excited about, I think I mentioned in my opening comments that we have a significant number of patients already enrolled in our post approval study with the FDA.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

And we expect to wrap that study up here this year. And I think coming out of that study, you're going to see some very interesting and exciting results from a very large cohort coming. When you're talking about 17,000 to 20,000 patients in a post approval study, that's a significant number of patients and we're excited about the clinical evidence that we're going to start to see coming out of there. So I think those are the areas, it's commercial, it's revenue cycle management and other volume related, it's CapEx. These are the areas that you're going to see us invest in.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

We have a by the way, we have a fantastic recruiting team that we do all that recruiting internally And we love the way our team is able to really talk about the mission and the culture at Kestrel.

David Roman
David Roman
Managing Director at Goldman Sachs

Excellent. Thanks for all the color.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yep.

Operator

Thank you. Our next question comes from Rick Weiss of Stifel. Please go ahead, Rick.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Thank you and good afternoon, Brian and Vaseem. I thought maybe you could give us a little more color on gross margin performance. Your third quarter gross margins were obviously just exactly as expected. But I was hoping you'd talk a little bit more about the outlook for the fourth quarter and beyond. My impression is that, supported by your steady sequential meaningful step up in gross margin.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

I felt that with more turnover of the Asure rentals, we were going to see that sequential improvement continue to happen. And yet, I find myself looking at my model and I'm sort of having gross margins sequentially just up a touch in the fourth quarter and I see that's where consensus is as well. Remind us both the short term and the long term potential and is this an area of potential conservatism as we look ahead to the fourth quarter?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Sure. So, yeah, Rick. Thanks for the question here. I think, it's a good observation. While our rental model and the operating leverage, drives the gross margin, you know, as you can appreciate, it takes time to materialize.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

We'll continue to drive the two big things that actually help drive the margin expansion as we have talked about. One is driving that in network patient mix over time, because that actually gets us to better revenue per fit. And then, obviously, you know, all of the great work that the teams have done on reducing the cost per fit, which is really working the CIP programs and and just making sure that we drive the right cost controls within the business. We are really excited about the progress that we made in the last six quarters on gross margin. We've done exactly what we said we were gonna do.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

And I think, you know, we should expect to see some real nice steady increase in our gross margins as that revenue line continues to expand because really the the depreciation and the volume leverage that you get as you drive more, you know, fittings through the business really helps drive the gross margin expansion. And at the same time, as we have communicated earlier, we continue to stay focused on the price, which we think is trying to get to those high growth medtech margins, which are north of 70%, and we continue to stay focused on that.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Great. And one more macro question. Thanks for the impeccable clarity on the tariff, your relative insulation from the tariff issue. But I'm just curious, Brian, are you getting detecting any change in mindsets and attitudes on part of hospitals or technology officers or doctors to try new technology, openness to making these kind of conversions because of the potential for constricted budgets or funding pressures. Anything worrisome you've been through a lot over the last thirty years, you've seen a lot.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Anything worry you as you look ahead on that front? Thank you both.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah, Rick. I think that we don't see feedback from hospitals around this product category because the hospitals are really we're not releasing the product to the hospital as you know, we're releasing it to the patient. So the hospitals really, they're not thinking about it like they would a capital equipment kind of an asset or something like that. So we're not seeing anything on that front. I do think the physicians remain really excited about having a choice.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

They haven't had a choice in this category for twenty years. And so I think that's a big deal, especially when you can not only deliver a second option, but an option that's very clearly superior, that's a recipe for success. So I think we're in pretty good shape on that front. And I think the other, in addition the fact that our Tier one manufacturing partners and in fact, most of the high cost elements of our product cost are US based companies. That gives us a lot of protection.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

You have the fact that it is a rental model. We've already invested in a big pool that really can help us in the near term to be able to achieve our revenue objectives. I think those things are great mitigations. And then, as you think about longer term for us, it's really about the opportunity for us to continue to be really efficient with how we turn those devices, how we manage the rental fleet. I think there's a lot of protections and then the final protection that you have with this category is it's a life saving device.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

This isn't sort of a device that people should have a, hey, I might want to use it or might want to not use it. These are patients who are indicated to be at high risk of cardiac arrest and a life saving Class III device like this is generally going to have more protections than some other product categories. So I think we're in pretty decent shape when it comes to the overall question around the tariffs and consequential economic elements around that.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

That's a really helpful answer. Thank you so much, Brian.

Operator

Thank you. Our next question comes from Michael Blarke of Wolfe Research. Please go ahead, Michael.

Mike Polark
Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC

Good afternoon. I have a follow-up on the measured but aggressive rollout on the commercial front. Brian, I heard 70, seven-zero sales territories at Jan thirty one. Please correct me if I heard that wrong. But my question is, as you look out over the next year or two, what's the right number for a quarterly territory creation, five, ten, 15?

Mike Polark
Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC

How might you frame that as you look to put these IPO proceeds to work?

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah, Mike, thanks for the question. We're not going to get into the quarterly cadence reporting how many more reps did we do last quarter, that kind of thing. It's just when you're developing sales territories and you're in this constant cycle of recruiting and everything, that's kind of a difficult game to play because it ebbs and flows. I will say that I will reiterate that we have a really good recruiting engine. We've got no problem in attracting really attractive and capable sales people.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

I think the IPO has only helped that. And I will say, Mike, your question, right now, you're correct. We did have about 70 sales territories at the January. And I would expect that we will double that over the next couple of years. And that's sort of the framework that you can think about that in.

Mike Polark
Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC

Helpful. For my follow-up on tariffs, I appreciate all the comments to this point. I'm just curious if you peel it a layer back, your CMO partners, their supply chains, have you been able to identify any risk that might exist for them? And if so, what contractually exists for you to protect? I'm thinking specifically about your garment supply chain, but if there's anything else that you might call out as a mitigant, we'd appreciate it.

Mike Polark
Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC

Thank you.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Yeah, I appreciate that follow-up. It's obviously it's a layered problem that any company is trying to look at and we certainly have a really good understanding of it multi layers down. When you think about the garment production, for example, have that dual sourced because that is a high volume part of our system. We took the risk mitigation a couple of years ago to not only have a single source, so we have that dual source and actually dual sourced in two countries one country each. And then with the ECG electrodes that are a part of that garment assembly, we have a contract manufacturing partner that's in The US that we again have that dual source between a US plant and an OUS plant down in Mexico.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

And so part of our strategy there has been to give ourselves some redundancy, give ourselves the ability to react. If one environment becomes untenable because of the tariff or some of those kind of effects, then we would pull it over to the other territory to be manufactured. So I'm not certainly going to say there's zero risk because that would be silly, but I do think we've got a pretty significant level of risk mitigation that we've built into our supply chain because our supply chain is critical to our success and being able to, you know, these patients who diagnosed, it's urgent and they need to protected right away. So you have to have product and that's paramount to us. We've done a lot of that mitigation as a result.

Operator

Thank you. I would now like to turn the conference back to Brian Webster for closing remarks. Sir?

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

Okay, well, thank you again everyone for joining the call today. It's a little bit of a no news because we just did execute the IPO. So there's not a lot of new news actual Q3 revenue. We did as we said we were going to do and as we had in our perspectives. We remain really excited about the place that we're at and the great team we're building.

Brian Webster
Brian Webster
President & CEO at Kestra Medical Technologies, Ltd

And most importantly, we remain incredibly excited about the lives we save. Every week on Monday afternoon, I get to share the previous week's lives saved with the Kestrel team and that's the best moment of the week, every week for our team. And we're excited to continue to expand that and make a big difference in many, many more families' lives. So thank you very much and we'll look forward to seeing you at the next quarterly call. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Neil Bhalodkar
      Neil Bhalodkar
      VP - Investor Relations
    • Brian Webster
      Brian Webster
      President & CEO
    • Vaseem Mahboob
      Vaseem Mahboob
      CFO
Analysts
Earnings Conference Call
Kestra Medical Technologies Q3 2025
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