Kestra Medical Technologies Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 15, 2025

Key Takeaways

  • Positive Sentiment: Kestra delivered 43% year-over-year growth in prescriptions (3,900 in Q4) and 71% revenue growth in Q4 to $17.2 million.
  • Positive Sentiment: Gross margin expanded to 44.3% in Q4 (13.9% prior year) and 40.5% for FY 2025, with a path toward >70% in the coming years.
  • Positive Sentiment: Commercial coverage grew to 80 sales territories (+67% YoY) and in-network lives reached 285 million, including a sole-source deal with a risk-bearing provider network.
  • Positive Sentiment: Clinical registry exceeds 20,000 patients, showing 96% first-shock conversion efficacy, a 6% false alarm rate (vs. 46% competitor), and 23.2 hours/day average wear time.
  • Positive Sentiment: FY 2026 revenue is guided to $85 million (+42% YoY), driven by prescription growth, better conversion rates, and continued operating leverage.
AI Generated. May Contain Errors.
Earnings Conference Call
Kestra Medical Technologies Q4 2025
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Operator

Good afternoon, and welcome to Kestra Medical Technologies Fourth 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, participants are in listen only mode. I would now like to turn the call over to Neil Baloka, Vice President of Investor Relations. Please go ahead.

Neil Bhalodkar
Neil Bhalodkar
VP - IR at Kestra Medical Technologies, Ltd

Thank you for joining Kestrel's fourth 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. 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.

Neil Bhalodkar
Neil Bhalodkar
VP - IR at Kestra Medical Technologies, Ltd

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 and the annual report we will file later this week 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 will turn the call over to Brian.

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

Thanks, Neil. Good afternoon, everyone, and thank you for joining us for today's conference call. We're calling in from Kirkland, Washington up in the Great Pacific Northwest where we're enjoying about 86 degrees and summer, beautiful summer day. We're excited to discuss the details of our strong performance in the fourth quarter and significant progress Kestrel made in 2025. Before we jump in, I'd like to share a patient story with you that demonstrates why the Kestrel team is so passionate about our mission and the incredible impact our products and people have on the lives of patients.

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

Recently, a 70 year old woman from Missouri was discharged with our Assure system after being hospitalized for a myocardial infarction or heart attack. She was diagnosed with a low ejection fraction of about 25%. Ejection fraction is a measurement of cardiac output and anything below 40% is considered to be elevated risk. This patient wore the Assure system for over twenty three hours per day for more than two months. This highlights the effectiveness of patient education at the time of fitting and the comfort of the Assure system.

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

On day 66 of her wear, she experienced ventricular fibrillation or cardiac arrest and received a life saving shock from the Assure WCD. Within seconds, the shock activated our proprietary Assure Assist service, which facilitated immediate connection to emergency care, enabling her to arrive at the emergency department within minutes. Following the shock, rapid transmission of her clinical data enabled timely medical intervention demonstrating how the cardiac recovery system and care teams work seamlessly together to improve patient outcomes. She subsequently received an implantable cardioverter defibrillator or ICD to provide long term protection against cardiac arrest. Her provider said it best.

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

She's alive today because everyone played their part, the team, the technology, and the patient herself. This is just one patient's story. In fiscal year twenty twenty five, our cardiac recovery system was used to protect thousands of patients at risk of sudden cardiac arrest. We remain thankful and humbled by this responsibility entrusted to us by the prescribers, their patients, and their families. With that, I would now like to turn to our recent performance.

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

In the fourth quarter we continued to reach more patients at risk of cardiac arrest generating over 3,900 prescriptions for the Assure system, an increase of 43% year over year. Our revenue accelerated in the fourth quarter with Kestrel generating revenue of $17,200,000 an increase of 71% compared to the prior year period. Our reported revenue continues to track ahead of our prescription growth, reflecting the tailwind of higher in network patient mix. Continued improvements in revenue per fitting and reductions in cost per fit from volume leverage drove the sixth quarter in a row of gross margin expansion. Fourth quarter fiscal twenty five gross margin was 44.3% compared to 13.9% in the prior year.

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

In fiscal year twenty five gross margin was 40.5% compared to just 1.3% in fiscal year twenty four. We expect continued improvement in fiscal year twenty twenty six and remain confident that Kester is on the path to 70% plus gross margin over the next few years. With the strong revenue growth that Kester is generating, we are seeing nice operating leverage in our business. This growing leverage supports the investments we are making in the company's key growth drivers to take advantage of the large and attractive market opportunity that we see. The investments that we believe will drive significant near and long term value for Kestra include expanding our commercial team, enhancing our revenue cycle management capabilities, growing our fleet of devices, innovating to extend our product advantages, and growing the body of clinical evidence supporting the Assure system.

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

First, we continue to expand our sales organization with the goal of further penetrating existing accounts and also calling on new potential Asure prescribers. 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. At the end of fiscal year twenty five, we had approximately 80 sales territories, up about 67% from the prior year period. This was consistent with our plan. As we have previously discussed, we expect to nearly double the sales coverage over the next few years.

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

Second, continue to make progress in improving our RCM capabilities while also bringing more payers in network. Covered lives for the Assure system now totals more than two eighty five million health plan members in The United States. Of note, we recently signed an important sole source contract with a risk bearing provider network, which is evidence that both payers and prescribers recognize the differentiated benefit of the Assure system. We are pleased to see the steady convergence of covered lives nationally and actual sales territory in network patient mix, which positively impacts all the revenue cycle management metrics. Third, as you know, we utilize the lease business model.

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

When a patient's wear time is concluded, the Assure devices return for reprocessing and reintroduction into Acastra'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 our attractive unit economic profile. While our current asset pool can support our near term business objectives, we will keep adding to the fleet at a measured pace as we scale the business. Fourth, the operating leverage that we are generating continues to support our goal of continuous innovation. Our invention engine remains robust and we now own over three sixty five patent assets.

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

On the product development front, our team has some exciting projects in flight to further extend our clinical advantage with the performance of the Asure system and also bring first in category new therapeutic capabilities to the market. Finally, we are continuing to build the body of clinical evidence supporting the safety, efficacy, and benefits of the Assure system. As of April 30, we have enrolled over 20,000 patients and real world findings are providing further validation of the results of our pivotal trials. Our most recent FDA submission from the study reported first shock conversion efficacy of approximately ninety six percent and a false alarm rate of only six percent. This extremely low false alarm rate compares very favorably to the forty six percent rate reported by the competitor's device.

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

This has contributed to a median daily use of twenty three point two hours per day for patients, clearly demonstrating high patient compliance. Our post approval study is expected to be completed this summer. We will share those results in the fall and expect that our registry study will generate a steady cadence of clinical publications over the following quarters. All of these initiatives further our mission of protecting even more patients that are at risk of cardiac arrest. Despite the overwhelming evidence that a defibrillation shock is effective at terminating dangerous cardiac rhythms, WCD therapy remains underutilized, reaching just fourteen percent of the eligible U.

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

S. Patient population of eight hundred and 50,000 patients annually. That means six out of seven patients that are indicated for WCD are not being protected by lung. We believe that the low prescription rate for WCD therapy is due in part to the limitations of the incumbent commercially available device. The Assure system was purpose built to enhance patient comfort and compliance and directly address the key barriers to adoption associated with the incumbent's device.

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

What the science shows about WCDs is that if a patient wears the device and they experience a serious cardiac event, like a ventricular event, clinical outcomes are compelling and many lives are saved. With that in mind, the feedback from physicians and their patients on the Assure system continues to be overwhelmingly positive. Importantly, as more physicians have positive experiences with our system and our people, we are seeing examples of the market expanding at accounts that have converted to Kestrel. I would like to highlight one such market expansion study. At the start of fiscal year twenty twenty four, two regional hospitals within a large integrated health system in the Midwest had little to no adoption of WCDs.

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

Most clinicians discharged elevated risk patients without protection. Across most sites awareness of WCD benefits and guideline directed use was limited, and WCDs were not embedded in the care pathways. One hospital within the network had no Assure patients in fiscal year twenty twenty four. Providers were largely unaware of updated clinical evidence and existing guidelines and therefore continued to rely on outdated methods of protecting their patients. Through focused education, in service support, and streamlined coordination with case management and EMR teams, Kestrel helped shift clinical behavior.

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

Within a year that hospital had placed seventy four patients on Assure and we now hold approximately 90% market share in that account. At a nearby hospital in the same network we applied the same strategy. Patient volume rose from just six WCDs prescribed in fiscal year twenty twenty four to fifty two in fiscal twenty twenty five. As you can see, within twelve months both hospitals transitioned from under utilization to establishing a WCD protocol with the Asure system as the preferred solution. It's important to know that these weren't just simple market share conversions.

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

These were patients who in prior years would have gone home without protection. Today we are extending their care into the home. This is how market expansion is happening. Our teams are changing mindsets, embedding best practices, and enhancing the standard of care across systems and regions. This is just one example, but one that gives us a glimpse of the market expansion potential.

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

There are multiple other health systems across the country where we are seeing a similar pattern. In conclusion, we are well positioned to take the next steps towards our goal of making the ASSURE system the standard of care for patients at risk of sudden cardiac arrest. We are seeing strong execution across all elements of our business and the foundation we have built has positioned Kestra for strong growth in fiscal year twenty twenty six and beyond. I would like to thank our incredible team out in the field and here at our home office in Kirkland for their passion and commitment to the Kestra mission. I will now turn it over to my partner Vaseem who will discuss fourth quarter financial results in more detail and also provide our fiscal year twenty twenty six revenue outlook. Vaseem?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Thank you, Brian, and good afternoon, everyone. As Brian noted, total revenue was $17,200,000 in the fourth quarter, an increase of 71% compared to the prior year period. Revenue growth was driven by a 43 year over year increase in prescriptions, reflecting market share gains with existing customers and activation of new accounts. For fiscal year twenty twenty five, total revenue was $59,800,000 an increase of 115% compared to fiscal year twenty twenty four. In both the fourth quarter and in fiscal year twenty twenty five, revenue growth continued to benefit from a higher mix of in network patients and improvements in our rev cycle management capabilities.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Gross margin was 44.3% in the fourth quarter compared to 13.9% in the prior year period. For fiscal year twenty twenty five, gross margins improved to 40.5% from 1.3% in fiscal year twenty twenty four. The significant expansion in gross margin was driven by a higher revenue per fit from more in network patients, and a lower cost per fit from volume leverage and cost improvement programs. In the fourth quarter, our revenue conversion rate of 44.8% reflected improvements in all three key drivers of our conversion rate: our prescription fill rate, our bill rate, and our collections performance. For fiscal year twenty twenty five, our revenue conversion rate was 46.8%, and adjusted for one time items, it was 44.1%.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

This compares to 38.4% in fiscal year twenty twenty four. We know competitive bidding has been a topic of conversation in MedTech due to a recent Medicare proposal. We would like to remind you that the Assure system is a class III medical device, and as such, is not subject to competitive bidding. Moving on, GAAP operating expenses were $55,800,000 in the fourth quarter, and included $22,300,000 of stock based compensation expense, and $3,800,000 of professional services expenses related to the company's IPO. Stock based compensation expense of $22,300,000 in the fourth quarter included the nonrecurring impact of two organizational items at the time of our IPO in March.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

First, we recognized the impact of accelerated vesting of incentive units as Kessler transitioned from a privately held company to being a public company. And second, the issuance of stock options to company team members. Excluding stock based compensation and professional services expenses related to the IPO, operating expenses were $29,700,000 in the fourth quarter compared to $21,400,000 in the prior year period. The increase was primarily attributable to growth in commercial and revenue cycle resources. For fiscal year twenty twenty five, we reported GAAP operating expense of $130,600,000 which included $24,300,000 of stock based compensation expense.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Excluding stock based compensation and professional services expenses related to the IPO, operating expenses were $100,600,000 in fiscal year twenty twenty five compared to $83,900,000 in fiscal year twenty twenty four. With Kessler's transition to operating as a public company and in line with standard public company compensation frameworks, we expect stock based compensation to contribute approximately $40,000,000 to GAAP operating expenses in fiscal year twenty twenty six. GAAP net loss was $51,100,000 in the fourth quarter compared to GAAP net loss of $22,300,000 in the prior year period. Adjusted EBITDA loss was $20,300,000 in the fourth quarter compared to an adjusted EBITDA loss of $16,500,000 in the prior year period. For fiscal year twenty twenty five, GAAP net loss was $113,800,000 compared to GAAP net loss of $94,100,000 in fiscal year twenty twenty four.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Adjusted EBITDA loss was $68,400,000 in fiscal year twenty twenty five compared to an adjusted EBITDA loss of $72,000,000 in fiscal year twenty twenty four. Cash and cash equivalents totaled $237,600,000 as of 04/30/2025. I will now provide our fiscal year twenty twenty six guidance. We expect revenue of $85,000,000 an increase of 42% compared to fiscal year twenty twenty five. We expect prescription growth to be driven by higher share of wallet with existing customers and activation of new accounts.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

We expect revenue to also benefit from continued improvements in our revenue cycle management capabilities, driven by higher mix of in network patients. As Brian discussed, we expect Kestrel to generate significant operating leverage over the next several years, even as we continue to invest in our business to capitalize on the large and under penetrated WCD market opportunity. With that, operator, we have concluded our prepared remarks and are ready to proceed to the Q and A portion of the call.

Operator

Thank you. If you would like to ask a question, please press 11 on your telephone. You will then hear an automated message, 5 when your hand is raised. If you would like to remove yourself from the queue, please press 11 again. Please go ahead.

Stephanie Piazzola
Stephanie Piazzola
VP - Equity Research at Bank of America

Hi. This is Stephanie Piazzola on for Travis. Thanks for taking the question, and congrats on a good quarter and strong end to the year. I wanted to ask about the guidance for this year and if you could talk a little bit more about some of the underlying assumptions in the $85,000,000 revenue guide and how we should think about some of those key assumptions like market growth and market share capture and commercial organization expansion and the conversion rate?

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

Thanks, Stephanie. This is Brian. I in response to that, I would say that the key drivers that build our revenue model include our sales territory productivity improvements, our sales territory expansion plans, as well as further penetration of existing accounts and getting into additional new accounts on the market, as well as also the further expansion of our in network payer metrics. So I'll turn it over to Vaseem who can talk in more specifics about some of the details of that.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, thanks, Brian. So Stephanie, our revenue growth, as Brian said, it's historically been driven by the prescription volume growth and our mix of in network patients, as we have talked about, and the improvements in the rev cycle capability. And we remain focused on those, and all of those KPIs, as we have mentioned in the past and today, are all tracking in the right direction. We will start the year with 80 sales territories, as Brian talked about in the prepared remarks, and then our conversion rates are going to gradually improve as we go through the year, and so will our out of network versus in network mix.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

As you know, we are the only public company in the public domain, so we're not talking about the specifics on the individual assumptions, but those are the underpinnings for our revenue guidance.

Stephanie Piazzola
Stephanie Piazzola
VP - Equity Research at Bank of America

Thank you. That's helpful. And then maybe just one follow-up on the margin side. I know you're not guiding to gross margin, but maybe any color you could provide to help us think about the margin expansion potential this year as the existing vests get rented out more, and I guess just generally how you view the path for gross margin expansion and the visibility you have to it. Thanks again.

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

Yeah, I would say we continue to benefit from increasing volumes because the business model is certainly volume sensitive, and the further in network status of our patients as we expand our payer contracts continues to help us on the revenue per fit side of gross margin. On the cost side, it's largely around volume related things and then various cost improvement projects that we have executed over time. And now we're seeing the benefit of those as we flow through the P and L.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Michael Pollock of Wolfe Research. Your line is open.

Mike Polark
Medical Supply & Devices Analyst at Wolfe Research, LLC

Hey, good afternoon. Thank you for taking the question. Brian, I want to follow-up on one of the things you mentioned in your script. You said sole source you want a sole source contract with a risk bearing provider network. Can you talk more about, is this special?

Mike Polark
Medical Supply & Devices Analyst at Wolfe Research, LLC

If so, customer made this decision? Why the customer didn't want a dual source? And to what extent this could be emblematic of emerging trends in the market?

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

Yeah. Thanks, Mike, for the question. And by the way, congratulations there, Daddy.

Mike Polark
Medical Supply & Devices Analyst at Wolfe Research, LLC

Thank you.

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

Yeah, I think the, you know, I think it's too early to say that it is emblematic of what we can expect in the future, but it certainly is a good sign. This particular provider network, because they are integrated, you know, they want to leverage the solution that we have that gives them the ability to manage patients more effectively, specifically around timelines for how effectively they can clear the beds up once the care has been switched over to Kestra. So we can get the patient out of the hospital, we can get them home where we're monitoring that patient on the benefit of that provider. Also, they're very interested in understanding what the rate of patients coming back into the hospital are for these kind of situations and so the fact that we're monitoring them gives them a better handle on that. On the flow side for us, having an agreement like that gives us the ability to have revenue cycle management, really high efficiency there because things like the prior authorization processes and things like that just go a lot smoother when you have that kind of an arrangement.

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

So it's a good sign for sure. It's a sign that that provider voted on the Kestra side and is going to try and work with us to develop a really exciting program for how they manage these kinds of patients.

Mike Polark
Medical Supply & Devices Analyst at Wolfe Research, LLC

I ask one for the same on the guidance, just obviously have an unusual quarter in fiscal year end and we're all getting to know one another like you're investing for growth, you're adding a bunch of territories that will kind of in theory power through seasonality. But what's the base case for underlying seasonality as we roll through your fiscal year? Any phasing considerations on revenue or performance that we should keep in mind as we look at the models again tonight? Thank you.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, and thanks, Mike. I think, you know, from our perspective, think the prescriptions, you know, in terms of our growth rate, you know, we're saying we're going to grow our prescriptions on average 40% for every quarter as we head into fiscal year twenty twenty six. And then in terms of the phasing, there's always the timing component to, you know, when we actually do the fittings and when we actually convert that into cash. And you know, as we have said, the conversion rate is the best indicator for, you know, how that will convert to revenue, and we'll see higher conversion rates in the first half of the year and lower conversion rates in the second half of the year. That's how the business is built from a seasonality perspective.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Matthew O'Brien of Piper Sandler. Your line is open.

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

Great. Thanks for taking the questions. I guess there's two things that kind of stand out, I think, from this, Frank, that'll probably get attention tomorrow. The first one being on the guide side. And I know earlier stage IPO company, you want to be conservative with things.

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

But if I look at the absolute growth in dollars year over year 'twenty five was about $32,000,000 and you're guiding to about $25,000,000 in 'twenty six fiscal. And that's with improved conversion rates, bigger sales force, etcetera. So that absolute deceleration probably is going to get some attention. Is there anything competitive response wise, etcetera, to really call out as far as why on an absolute basis it would be even better in fiscal 'twenty six versus 'twenty five? And then I have a follow-up.

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

Yeah, thanks for the question, Matt. I think when it comes to the competitive response, there's nothing unusual going on there. I think what you're seeing is a company getting its footing a little bit in the new environment. And I think from the competitive response perspective they're doing the things that you would expect them to do as they try and defend what you know was previously a long term monopoly. But nothing out of the ordinary.

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

I think we're doing some blocking and tackling now. We're trying to execute to our business plan. We're trying to lay the foundation for a strong and consistent execution as we move forward. That's really at the heart of it. Vasim, any other comments?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, and I think, Matt, if you remember, we talked extensively about this, you know, as part of the IPO and in conversations since then with investors. The fact that, you know, we were at those 48 territory managers that we talked about at the end of fiscal year twenty twenty four, and the fact that we were in cash conservation mode, we have added reps in the second half of last year. And if you remember, we actually very clearly talked about the you know, as those reps are scaling up, and this is the timeframe in the first half of the year when they really ramp up and start contributing, they already are contributing in a very nice manner. So it's just the normal scaling up and the territory ramp up that we have talked about in the past. That's really driving the guidance.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

There's absolutely no change in the model, if you will, or the assumptions in the model that will lead you to believe that there's a slowdown or any issues. So we feel really excited about, you know, the quality of the talent they're bringing in, and the fact that we're actually able to fill them so quickly is a testament to, again, the sale of the company from the past.

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

Got it. Thanks for that. And then, Vasant, this question is for you. You know, you beat by model anyway by about 10% here in fiscal Q4. Nice to see gross margin lift here a little bit.

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

Would have expected, I think, little higher improvement in the gross margin side. I don't know if there was extra expediting cost you encountered here in Q4. But can you talk a little bit about why that metric wasn't better? And then the EBITDA number as well on an adjusted basis wasn't what I was modeling as a little bit worse on a loss basis. So anything else just one time there to call out?

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

Anything changing in terms of cost structure of the business to think about in fiscal 'twenty six? Thanks.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah. No, so on the top line, first of all, you know, starting the cost side, no, I mean, there's no fundamental change. We did come in slightly higher on the OpEx side, and I think that's a combination of two things. One, we are making the transition to a public company, so we did see slightly higher professional fees related to accounting, legal, and just general public company costs. And then the second one is we have brought in a new chief commercial officer, and he's making some investments and some enhancements to the leadership within the commercial organization that's going to drive a little bit higher run rate on OpEx.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So Matt, there's you know, those are investments that you want us to see. You know, we oversized an IPO and raised an extra bit of cash, and we are just starting to deploy that in a very intentional and deliberate manner. On the gross margin side, remember, this is something that we have said, and we try to do as much messaging as possible. The revenue side of the business is driven by all of the conversion rate dynamics, the fill rate, the bill rate, and obviously the revenue cycle management performance. But the cost is really driven by fittings.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So there's always going to be a timing delta, Matt, between when you see the revenue and when you start to see the fittings. So it's just purely a timing element of on how the costs are running through the P and L.

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

Got it. Very helpful. Thank you.

Operator

Thank you. And one moment for the next question. Our next question will be coming from the line of David Roman of Goldman Sachs. Your line is open.

David Roman
David Roman
Managing Director at Goldman Sachs

Thank you and good evening. I appreciate you taking the question here. Maybe we can start on the 44.8 percent conversion rate. You talked about some of the drivers there that lead from prescriptions to revenue, but maybe you could just unpack in a little bit more detail, which are the factors you're seeing the most progress on here during the quarter? And as you look forward, which are the metrics you think you can influence the most, either through Salesforce expansion to getting the message out, clinical data that might drive greater adoption?

David Roman
David Roman
Managing Director at Goldman Sachs

Is it payer coverage? Maybe I'll just think about the bridge to what drives that 44.8% higher, and which are the metrics you can most readily influence.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, so David, thanks for the question. And again, we have talked about the three elements of the conversion rate being one, the fill rate, which is the ability to convert that prescription into a fitting. And we have said that we are slightly better than our competitor, and there's not a big remarkable difference today, but I think over the long term with a more wearable solution, with a more comfortable solution, with less pulse alarms, we think we can make more progress than our competitor has. On the second bucket, which is really the ability to convert that fitting into a claim for payment, is really the single biggest driver of the conversion rate dynamic, and we have made great progress year over year, you know, on getting more patients in network. And as we have said, you know, being in network totally unlocks the rental business model.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So that's really in our mind the single biggest area where we are focused on. And as we have said, even at your conference, we are very deliberate and intentional about where we are deploying these new territories. Not only are we looking at the prescription density, but we are also looking at insurance coverage within those territories, and making sure that the reps are going into places where there's a high in network payer coverage, and that will really help us bridge that gap between, you know, the numbers that we've seen in the past, and we have not shared what that number is going to be. And then on the revenue side piece, we're making the right investments. We're investing in the team and investing in the capability, and we have it's just process.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So we're to be able to close that gap soon. So overall, like I said, all three elements of our conversion rate are trending in the right and we really feel confident about where we're going in fiscal year twenty twenty six and beyond.

David Roman
David Roman
Managing Director at Goldman Sachs

And maybe just as a related follow-up, and then one further question. Is there a benchmark that you're willing to offer people on what best in class conversion rate would look like, whether that's the competitors or what you ultimately are aiming for? And then I know you talked about brought up competitive bidding as a topic, but would you be able at this point to offer any perspective on the ambulatory specialty model announcements from last night that look to provide increased focus on upstream diagnosis and early prevention and detection and whether that could be ultimately a reimbursement tailwind for Kestrel that may not be fully contemplated in the outlook today or on a longer term basis?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So let me take the Zol or the incumbent, you know, what we have and the best information. We know that, you know, like I said, the fill rates on the prescription are not dramatically different than ours, so in that kind of 85% range, we have said this publicly. Zol's been in the market for a very long time, and as we have said, there's about 3,600 payers out there, so even they're not at 100%, because there's always going be some flux on the payer landscape, so we think that they're in that 95% range. And then on collections, you know, DME best in class is 95%. So when you do the math on that, David, you come out with a potential best in class conversion rate of 76.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

And let me just remind you, fiscal year twenty twenty six we are expecting to be at 46.6%. So not only have we made good progress from where we were back in fiscal year twenty twenty four at 38.4%, you know, we think it's the single biggest opportunity in front of us outside of all of the other commercial executions we've got to do. Brian, you want to comment on

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

Yeah, I think, David, on your second question, it's a little early to sort of unpack that, what the real meaning of that announcement's going to be. But I will say that, you know, we believe that we're in a space and positioned really well for ambulatory patients. Know, mentioned our post approval registry where we've got 20,000 patients worth of data now, well, that's gonna help us to do a better job of predicting and hopefully preventing some of these cardiac events that are out there now. And the fact that we're able to, you know, put our system on the patient, they go home, they wear it because they can tolerate it and they are willing to wear it, And then we can monitor them in concert with the hospital and be an extended part of the care team. I think that puts us in a really nice category and a really nice position, but it's really hard to say how you might think about that in terms of, you know, actual tailwind at this stage.

David Roman
David Roman
Managing Director at Goldman Sachs

Understood. I appreciate all the perspective.

Operator

Thank you. One moment for the next question. And the next question is coming from the line of Rick Wise of Stifel. Your line is open.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Hey, Rick.

Rick Wise
Rick Wise
Managing Director at Stifel Financial

Hi, did you call me? The line broke up. Do you hear me okay?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, we can hear you.

Rick Wise
Rick Wise
Managing Director at Stifel Financial

Okay, great. Just to start off, I was hoping, the theme you or Brian, you could expand further on your comments. I think you said it several times about considerable operating leverage ahead. Obviously, Brian, I heard your commitment or recommitment to the 70% plus over the next few years. And but you spent a little more on the OpEx side this quarter, the theme, maybe help us better understand the key drivers of the operating leverage that when you say that language, what you're thinking about, what you would have us think about, but maybe help us better understand when we're gonna see more of that clearly compelling operating leverage visibility.

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

Yeah, I'll start that and then Cassini can jump in. Think at the macro level, Rick, we've got a business model that is very volume sensitive and as we increase volumes we believe that those gross margins are going expand. We think that gross margin expansion will occur at rate along with revenue generation that allows us to, you know, be growing that top line at much faster rate than we're growing the OpEx line. Even though we're clearly making investments in OpEx, investments in the commercial team as we've said consistently, as well as continuing investments in R and D and the rev cycle management capabilities. So, you know, we think there's a really exciting opportunity to see the operating leverage of the business model.

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

But, you know, the trick for us is going to be to how to feather that right so that we're making the investments in the future while also delivering, you know, the leverage that we want to that P and L. Don't know, Vaseem, any other comments?

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

You know, think Brian, I think we talk about the concept of leverage all the way down the P and L, and I think the prescriptions are going to be up 40%. Revenue is going be up 42%. So that's kind of really the revenue cycle management improvements that we talked about going to drive at least to the top line. And then, you know, the gross margin numbers that you guys have already put in your models and the consensus number, which we are, you know, at this point blessing and saying, you know, we've very clear line of sight to those numbers and long term 70%. To Brian's point, operating expenses are still growing a fraction of that top line number.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So you know, our OpEx for the year will be, you know, up in the 20% plus range. So when you're driving revenue at 40 plus, and you're driving OpEx at 20% plus, we think that's pretty significant operating leverage.

Rick Wise
Rick Wise
Managing Director at Stifel Financial

Gotcha. And Brian, you highlighted innovation, continued innovation, and exciting products on TAP, I think you said. And new products. Again, you said it several of those. Feel like you're being a little more emphatic.

Rick Wise
Rick Wise
Managing Director at Stifel Financial

Maybe I'm reading hopefully too much into it, but can you give us any incremental color on what we might see, when we might see it and how we might, I mean, are these adjacent products or new generations or new generation of existing products? How should we think about that innovation and the timing and the impact? Thank you.

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

Yeah, appreciate that question as well, Rick. You know, we're being a little careful just for competitive reasons about the level of detail in this and the granularity that we're providing there. But I think from our perspective we're thinking about the innovation engine in number one, job number one is to continue to extend the advantage that we have, the differentiation that we have today. So we have, I think, a really exciting work being done to do that. Job number two is we have additional patient situations that we believe we can bring therapy to help and we can add more features and capability to the cardiac recovery system.

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

And then job number three is really, you know, how do you make sure that you're gonna go and you're going to make yourself obsolete, right? And that's by coming out with next generation product and continuing that innovation cycle. So I think my message is really simple. It's that we're working on all those things and we're excited about what we have in the pipeline. And from our perspective, if we can drive more operating leverage, it gives us the ability to invest more.

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

We'd be happy to do that because we have a great team of clinical people and engineers that really know how to innovate.

Rick Wise
Rick Wise
Managing Director at Stifel Financial

That's great feedback. Thank you.

Operator

Thank you. And one moment for the next question. And our next question is coming from the line of Larry Biegelsen of Wells Fargo. Your line is open.

Analyst

Hi, this is Nick on for Larry. Just can you provide us with an update on your plans for running a randomized trial either in post MI or heart failure?

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

Yeah, Nathan, thanks for the question. I don't think we've announced any plans for doing that at this point. What we've been pretty laser focused on is executing to the post approval study. And, you know, when you I'm sure you can appreciate that, you know, 20,000 plus patients in the registry is a very significant amount of patients. And what we will do once we complete that study, which we intend to do over the next few months is start to publish first and foremost the results out of that registry.

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

And then those results will lead us to the publication strategy that we undertake beyond that. We have a really strong group of medical and clinical advisors that we're working very, very closely with and who are very anxious to advance, you know, advance the evidence for WCDs. I would say that we're also very interested in making sure that the folks that are looking at the guidelines, whether they be heart failure guidelines or the existing heart rhythm guidelines, that we are able to add our body of evidence to the existing body of evidence that's out there today and really put a compelling case forward for how we can improve the guidelines recommendations for this category. So we have a lot of work there. It's exciting work.

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

We've got a lot of incredible data that we'll be leveraging to do that. And we think that's going to be an exciting area for us in the future.

Analyst

Great.

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

And just for my follow-up, I know you talked about cadence for fiscal 'twenty six, but any finer point you could put on fiscal Q1, whether consensus numbers are kind of in line with your expectations for the quarter?

Analyst

Thanks.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

Yeah, and I think Nathan, unfortunately, we don't provide quarterly guidance, but at this point I'd say is, you know, that, again, I think Matt asked that question earlier. I go back to the messaging went back to the time of the IPO. We are working to ramp up the teams. There are reps that are scaling the territories that we have activated in the second half of last year. They're already starting to contribute, but at the same time, we had said that the first half was going be slower than the second half, because we're just giving those TMs and those territories time to start to deliver and put points on the board.

Vaseem Mahboob
Vaseem Mahboob
CFO at Kestra Medical Technologies, Ltd

So, but you know, we're very comfortable with the numbers that are out there, and I think this guy just supplements that commentary.

Analyst

Thanks.

Operator

Thank you. And there are no more questions in the queue. I would like to go ahead and turn the call back over to Brian Webster for closing remarks. Please go ahead.

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

Okay. Well, you everyone for joining our fourth quarter fiscal year twenty five earnings call. As we've as you've heard on the call, we're excited about the strong close we have. It's a big year for Kestra. You know, executing an ITO is a heck of a way to distract an organization from executing on their business plan.

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

And I'm really proud of the fact that our team was able to really do both to execute the IPO and also execute the business plan. 115% year over year growth is pretty fantastic and we're looking forward to some exciting years ahead. So we'll look forward to getting everybody back up to speed on the next call. Thank you very much.

Operator

This does conclude today's conference call. You may all disconnect.

Executives
    • Neil Bhalodkar
      Neil Bhalodkar
      VP - IR
    • Brian Webster
      Brian Webster
      President, CEO & Director
    • Vaseem Mahboob
      Vaseem Mahboob
      CFO
Analysts
    • Stephanie Piazzola
      VP - Equity Research at Bank of America
    • Mike Polark
      Medical Supply & Devices Analyst at Wolfe Research, LLC
    • Matt O'Brien
      Senior Research Analyst at Piper Sandler Companies
    • David Roman
      Managing Director at Goldman Sachs
    • Rick Wise
      Managing Director at Stifel Financial
    • Analyst
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