Kestra Medical Technologies Aktie

Good afternoon, everybody. Next up, we have Kestra Medical. We have Brian Webster, President and CEO; and Vaseem Mahboob, Chief Financial Officer. Welcome.

Thanks.

Thank you. Thank you for having us.

So I guess maybe to start out, 2026, since your IPO, you've seen very consistent execution, which has been really nice. You got a good beats and guidance raises on the top line and gross margin. Can you talk about the momentum in the business and some of the progress you've made in '26?

Yes. I think our fiscal year 2026, which we just ended in April, I think, the start of the year was really about getting some of the momentum from the benefit of all of our payer contracts being in place. So we had worked for a couple of years to get all those contracts in place. Once those -- once we got to that sort of 70%-plus payer mix under contract, it really unlock the rest of the business model. So that was sort of the way we started the fiscal year.

And then we saw great momentum coming from that. We built out our commercial team substantially. We've added about 60 reps in the last, I guess, 13 months. So that's quite an expansion of the sales team. We now have about 130 reps. And so getting all those reps in place, getting them trained up, out of the field, starting to see productivity is a big driver. So that, plus the insurance coverage has really gotten the engine going, and we're starting to see terrific momentum.

That's helpful. You're going to be giving guidance in the next earnings call. It's kind of Q4, fiscal Q4, given your fiscal year. How should we think about some of the kind of the key drivers in '27? Any kind of puts and takes you'd call out?

Yes. Well, I think we're mid-July is our earnings call. So we're giving official guidance then. I think the drivers for FY '27 will look a lot like '26 in that we've got continuing sales force expansion. What you'll see is as we build out the revenue pathway in FY '27, you'll start to see the benefit of all these hires that we did in FY '26 as they get on the productivity curve. So I think that will be a big part of the story.

We'll continue to see revenue cycle management improvements as we get closer to accrual-based accounting on some of the -- with some of the payers, and we'll see a combination of those things will -- are going to deliver, we think, top-tier medtech growth here in the coming year.

We saw your competitor just reported this week actually, and their 12-month growth was like 8% for their LifeVest business over the last 12 months. And so the market is clearly growing. If you're taking share, they're growing high single digits. How should I think about just the underlying market growth rate and kind of the acceleration there?

Yes. It's -- so they just reported on Monday, and they reported 8% growth in their business. We're at about 60% growth in our last quarter. So the math there is the market's growing at 14%. And I think we would all agree that a big existing market growing at 14% is something to behold, and we're pretty happy about that.

The real impetus behind that growth is the fact that our competitor figured out that we were going to take a bunch of their market share, and the only way that they were going to be able to grow their business was to grow the market. And that's exactly where we want them. We want them to be out pounding the pavement, using clinical data to push the narrative around WCD use. And so we're seeing the benefit of that.

So you have ZOLL doing that and Kestra doing that. And so these physicians are hearing it in stereo now, and we're seeing the market grow. I would not be surprised at all is -- as we get into the next year, if we see that market growth continue to accelerate because we're adding a lot of sales territories.

How sustainable is those market acceleration?

Well, the math on the TAM, if you will, is 850,000 patients are eligible for a WCD. And only this past year, only about 1 in 7 that were eligible actually were prescribed one. So I think that it's very reasonable with continued good clinical data and execution that we can turn that 1 in 7 to 2 in 7, 3 in 7, maybe even 4 in 7. So I think we've got a good runway for extended market growth for the next 5 years, certainly.

On market share, 12%, 13% right now, but only on half of the accounts, can you just kind of help us understand like the market share in some of the key accounts that you're in and what -- how that's indicative of where share is going for you?

Yes, that rep count, so about 130 reps, right, as we ended our fiscal year, that gets us to maybe 60% market coverage in the U.S. market. So I think in the markets that we're actually in, we're certainly more than double that kind of share. So we're definitely seeing where we put a rep and we resource it with clinical resource and things like that, we're definitely seeing -- we're getting 25%, 30% and beyond market share.

I would remind you, it's a 1 doc at a time model. So it's not a -- there's no hospital contract. There's no buying committees, clinical committees. You have to go get 1 doc at a time. So what happens is the rep gets in there, they convert that first physician and then they go right next door and they work on the next one and the next one. And so you see gradual penetration in those accounts kind of quarter-over-quarter. And we'll see that some of our more tenured reps, we're seeing 70% plus kind of market share in those accounts. So I think we'll see continued penetration, which will convert into a really good sales productivity metrics.

And obviously, the low-hanging fruit is just taking share, right, share conversion. Can you talk about the process and kind of the strategy of getting into account and opening an account and taking share? And then how can you take the share kind of post being in an account?

Well, yes, I think the first thing we do is when we're putting a new territory in, we're looking at the intersection between previous prescribing history because we have all the data. We know who the high prescribers are. So we're looking at the intersection between that and where we have payer contracts. And when we see those two things, that's where we want to put a rep.

And then a rep comes in, first thing they do when they open up their sales force instances, they see all their prescribers Pareto, and they know who exactly to go after. And then once the rep starts to get some productivity, start to see that they can really develop that territory, then we'll drop in a clinical specialist who will help them to manage the accounts as they're bringing them up. So that's how we're seeing really good acceleration even with our top-tier reps who are really, really nailing the numbers, but we're adding clinical people to help them and now they're growing even faster.

On your sales force expanded to 130 from 80 end of last year, how are these territories kind of ramping in productivity at this stage?

I think we have a model that maybe, Vaseem, maybe you want to answer the model on that.

Yes, sure. So I think the financial model that we had put out there, Travis, was based on a rep starting doing about 40 fittings in the first 6 months as they ramp up. And when we define ramp-up, we are talking about like they come in, getting trained, getting the product, activating their 1099 fitters and then kind of building out those initial accounts that Brian talked about.

They get to 10 fittings at month 6, means they're scaled up, then they stay there for 10 for that first year. They go to 12 the following year and 15 in year 3.

So what we are seeing is the returns are like absolutely fantastic. So we -- all of our reps are averaging better than kind of the model. And our top reps are starting to put points that are north of 50 fittings per month. So plenty of room to go. But in our business, it's not that reps are not performing. They're just scaling from the left-hand side of the curve over to the right.

And when you think about kind of the doubling of reps, how much of this is like putting -- getting reps in the right place ahead of reimbursement wins and potential guideline updates ahead of the expansion there?

I think we're being very thoughtful about where we add reps. We tend to want to go deeper where we have really good account concentration. And we have -- I can think of several different territories where we had a high-producing rep. We went in, we split the territory, added another rep in there, and now we have 2 really high-producing reps.

We've got -- we've seen that in at least a handful that I know of recently. I've looked at that data. And that's really exciting because that means we can do that effectively without running off the rep because the reps are -- they go out there and they earn that business, you don't want to take that business away from them, but there's so much business out there that they can go rebuild it. And that's been a great strategy so far.

You've had your ACE data in hand for a couple of quarters now. What's been the receptivity to docs and kind of feedback are you seeing and help with share gains or market expansion in any way?

I think the ACE-PAS, which is our post-approval study data, 21,000 patients, the largest ever WCD study, by the way, I think it's been really well received. Number one, it gives the rep something to go talk to the talk about. Number two, the data is rock solid supporting the product. So it allows the rep to defeat any myth that the competitor has been telling the physicians. And then it's also really focused on something very important, which is identifying that the percentage of risk in these patients is higher than the physicians generally thought it was.

And so that's why you're going to see market growth is because the docs are going to start saying, "hey, maybe this patient that yesterday I didn't prescribe the WCD for, maybe tomorrow, I'm going to because I understand that they have more risk than I thought they did." And I think that's probably one of the most powerful things in that data set that we're seeing a benefit of.

On the guidelines, can you remind us kind of what guidelines are today and the time line to change those and how you think they're going to change and the impact on the market as those do change potentially?

Yes. So the guidelines today, a WCD and these are AHA and HRS rhythm guideline basically. The WCD today has a combination of II-A and II-B guidelines recommendations. II-A for the implant -- awaiting implant patients or somebody who's an ICD patient that's getting their lead extracted or their generator change. Those are super high risk, so those are II-A indication. The standard post-MI patient is a II-B indication.

We think that with some work and all this data that we're putting on the table, we think we can get the wheels turning to get the guidelines updated. We've got to start with new scientific statements around it from KOLs, and then that hopefully will open the doors to the guidelines committee starting to talk about it. We think there's a lot of data there.

We probably will add some outcome data that will help solidify the data set. And then if we can get even from a II-B for that big population moved up to a II-A, then I think the market goes from 1 in 7, it goes to 2, 3 or 4 in 7. So it would be a dramatic impact because it takes the risk assessment out of this sort of solely in the hands of the doc into now they've got more of a protocol program, and that's where we wanted to get to, and we think it should get to. We think the patient should have a vote in whether they are protected by a device like this, and we think that would lead to more of that.

How quickly can we see it in prescribing patterns?

I think it's reasonable, I think, within a couple of years. It's not going to happen next month. You don't get these committees to act very quickly, but as you should, right? It's clinical evidence and they need to be thoughtful about it. But I think it's reasonable within a couple of years.

And then on the competitive side, just curious what the kind of the latest you're seeing from your competitor there, and they've upgraded their WCD as well. Are you seeing any impact on that? Obviously, the market is expanding. So it's one of the impacts, but anything?

Yes. So our competitor, ZOLL, they brought out -- they launched their gen 5, so fifth generation WCD in December. I think they were a little embarrassed about it because it wasn't a really a launch. So we certainly wouldn't have launched a product that way.

It -- I think it's an iterative product change for them as they continue to manage their fleet of assets. What they didn't do is bring any innovation in this new platform that was going to change our competitiveness. There's still no feature that they have in their product that is better than any one feature in our product. And so the product came out. It's bigger. It's heavier. We love it. And so we're excited to compete against it.

And the other competitor that's got the larger patch-like product, anything from them?

Yes. There's another company called Element Science that's trying to do a stick on AED basically. And we haven't seen them in the market much. We've seen them in a couple of accounts that were their clinical trial accounts, but we haven't seen much activity out of them yet.

I didn't think so, just making sure. On the algorithm side, you launched the new algorithm, HRS, what's been the receptivity to that? And how does it kind of strengthen your pitch to doctors and physician?

Yes. We're really excited about that. So we -- at HRS, we launched a new upgrade to the algorithm. What I love about it is med tech -- this is exactly the way med tech is supposed to work, right? You go out, you launch a product, you do a post-approval study, you look at your own data, and you improve your product based on what you learn, and you improve the opportunity to take care of these patients.

So we did that. We looked at our data, we saw we could further reduce the already low false alarm rate. And we also saw we could further reduce the inappropriate shock rates. So we're going to cut our false alarm rate by 50%. The inappropriate shock rate will be reduced by over 60%. And both of those were already leading the category, but we're just making -- we're extending the lead, if you will. And we're doing that because we saw an opportunity to do a better job of taking care of these patients.

Helpful. And Vaseem, to bring it out a little bit your, I guess, kind of target gross margin. If you look at kind of your peer mid-80% gross margins, 85% gross margins, what's the path for you to get to that and your progress so far on the gross margin side?

Yes. I mean a big shout out to the team. I mean we have now expanded gross margins 9 quarters in a row. So really, really, it's been quite a journey to get there. But I think what's true is what we've been saying about the model and how we get there, right?

As you run more volume through the P&L, you're going to get that leverage that you get from the volume. But there's 2 big parts to it. One, we have already completed all of the kind of unit cost reduction projects that we had to do. We're not touching the hardware because we want to preserve the CapEx investment. So you won't see that but most of our cost-out programs have been focused on the disposable itself. And I think that's pretty well understood.

I think really for us, the big driver of gross margins going forward is going to be continuing that journey from being out of network to being in-network. And as we move those patients in we're going to get paid for those fittings and as a result, get higher revenue per fit, which will just translate into price and coming down into the P&L. So we feel really, really good about the progress that we have made and where we are on that journey.

I think the unit economics, Travis, is really the silver lining here, which is a $10,000 asset acquisition cost over 10 years is going to generate $300,000 revenue and $250,000 of cash margin. So the investment in CapEx if you believe the market exists is we should be doing all day long. And I think that's really where the focus is to make sure that we have the product available for the team so that we can meet that service level and give our sales team the comfort that they have product, then they can never say no. And then at the same time, go out and drive more volume through the P&L, and we got good line of sight to those 70% plus gross margins.

On the macro side, just you are seeing some inflation or resin shipping costs and computer, anything that you can kind of call out where we should think about you have some exposure to?

No, I think the numbers that we see, and I think now we've been in this kind of environment for a little bit is de minimis. Freight cost as it is not a big deal for us, but the chips and everything else, we have done advanced purchases and things like that. So we feel pretty good about. And I think we tell, I mean, the fact that we have made a $75 million investment in our CapEx, we have a supply hedge and we have an inflation hedge because we are our biggest supplier.

Yes. It's an interesting model when you're -- when the hardware, you're depreciating it over so long and you're using the product over and over again. So things like the memory chip set are in the headlines today, we did advance buys of that, seeing some of that price uplift coming. And so we have a bunch of stock. But even at a little bit higher price, the per unit price increases is less than $0.20. So it's just -- it doesn't matter in this model.

Because it's being used so many times.

Right. Right. Right.

And over a long period of time.

The -- on the OpEx side, just maybe help us understand how much OpEx is needed to support kind of the top line at this stage and why not go faster?

Yes. Fiscal '26 has been like a really foundational year for. We talked about that we've been investing in the right places. When you look at the way the dollars have been going really focused on building out their direct to cardiology sales force that Brian talked about, making sure that the team has the resources, I think one of the great advantages that we have is we know where the fittings are at a ZIP code level. So we look for two things, where are the fittings and whether they have insurance coverage, and that's where we are deploying the reps.

But then what we are doing now is, as Brian talked about some of those platinum reps going out doing business, now we are supporting those resources with clinical specialists, a very proven model where they're now farming the account, whereas the hunters are going out and doing more -- bringing on accounts online.

So I think the dollars are going to be focused mostly on the distribution side. We have a very exciting pipeline, which is really a call option for the business. There's nothing baked into the numbers for some really exciting stuff that we have coming into the pipeline. So we'll continue to invest in R&D. And I think 2027 will be all about confirming what we have said ahead of that investment, which is that there's a lot of exciting revenue growth to come.

What are some of the things in the pipeline that are coming?

New exciting innovation. We developed the system to be platforms, right? So we have a WCD platform, which is the electronics. We have the wearable platform, and then we have the digital platform. And we have new, pretty exciting innovation happening on all three of those platforms. And so you'll see over the next several years, you'll see sort of an annual cadence of new innovation coming on to the market.

So likely some sort of innovation this year?

Yes.

On the Biobeat collaboration, maybe just help us understand like why and kind of what you're thinking about that collaboration investment?

Well, the why comes back to what I was saying earlier about looking at your own data and what we looked at our post-approval data, and 72% of the patients had hypertension. And the physicians who are putting them on the guidelines drugs, one of the most important things that they needed to know was what's going on with their blood pressure while they're going through their drug treatment. They want to know blood pressure and they want to know weight fluctuation. Those are the 2 biggest things.

And so we said we met through our Board member, Ray Cohen, we met this Biobeat team, and they had a really innovative first FDA-approved wireless patch-based blood pressure monitoring. And we look at that and spend a bunch of time with them and figured out that, gee, if we integrated that into our system, then we could provide that kind of blood pressure monitoring to the physician, we'll couple that data with our ECG data to present 1 set of data to the physician who can get a better look at what's going on with those patients and allow them to manage the titration of those drugs as effectively as they can.

We also -- as part of that structure, we'll have the ability to do Bluetooth weight scale data, we'll be able to collect as well and complete that whole picture. So we're excited about it. We've got an ongoing R&D partnership with Biobeat today and doing some different commercial collaborations with them, but we're super excited about where that's going to go.

And I think for the platform, it's a signal that we are going to drive that platform towards a vital signs monitoring capability in the home environment. So we've already got the defibrillation capability, and that's for the most severe patients. But all these heart failure patients that are wearing our system for the long haul, we can put various vital signs monitoring signals in there and put -- give the physicians a really full view on what's going on with those patients while they're getting better. And we're excited about being able to add additional clinical utility to the product but also being able to monetize that.

So it basically adds revenue per patient as well?

Yes. Yes.

When you're thinking about collaboration with Biobeat, what all is involved in kind of getting the products to work together? Where are we in that process? And I don't think they're on the market yet, so kind of timing.

Well, they're -- Biobeat is on the market as a stand-alone with their patch-based device. And there -- they're making good commercial progress, ramping up a sales team and really doing a lot of kind of, I would say, market development activities right now. And so they've got that work going on. They're continuing to do some clinical work.

We're focused right now on the R&D project with them, where we're working on integration of the actual hardware into our wearable and also the integration of the data platform so that we can -- as I mentioned, we can present that data uniformly to the physicians. So a lot of work going on between the companies. That's going great. And I don't think this is a long-term project. It's something that I would expect within the next 18 months or something like that, we'd be able to see that come to market.

Are there other opportunities to partner with other people, other companies in a similar way?

Yes. I think there's opportunities to extend the partnership with Biobeat even beyond that first measurement, which is the blood pressure. But then there's also -- because we built it as a platform, there's also the opportunity to bring in other technologies into that. And we're spending a good amount of time kind of vetting some of those opportunities. As you know, there's a lot of companies out there that have a particular area of focus. And so we're evaluating that.

But the vision is when these patients go home, we want them to have this ability to have diagnosis of all the vital signs measurements that we can that can help to manage them as they're getting better. And so with that in mind, we're going to continue to add more capability.

And do you think that helps? Is the kind of the, I guess, the incentive for you more giving more value for your products so you get more share? Or is there other things that we're not thinking about?

Well, we want to monetize these for obvious reasons. And we will approach every one of them with that goal in mind. If the worst thing that happens though is we just gained more share in a really big market, then that will be a bad outcome. So that's the nice thing about the strategy is you got the two-prong, you can go get more revenue per fit because you're already spending all the money to get that patient, right? So you can go get more revenue per fit. But if you can -- if that can help you to get 5% more share in the WCD market, then that has dramatic impacts on the business.

When you think about revenue per fit, is it like single-digit uplift or double-digit uplift, 50% -- any way to kind of quantify revenue per fit uplift?

It will depend on the model. But I think it's reasonable to think that it's double-digit uplift percent-wise for sure.

And then if you think about potential for utilization, is it something like -- would it just be the heart failure patients? Or would everybody maybe use it?

I think we will likely segment the way we bring the technology to market. If you have a short-term patient who's maybe that explant patient or something like that, I'm not sure there's a big benefit to putting that kind of technology in there. But if you do have that longer-term heart failure patient, then that's where you really get to see the benefit.

Okay. And then internationally, is that even part of the strategy at this point?

Yes. We're working on our CE Mark. We want to make sure we have that optionality. The reality is we have so much to do here in the U.S. and so much opportunity. We're not going to take our eye off that ball, but we do want to advance the international far enough where we can pull that trigger when we want to.

And there are some nice developments. We've heard just last week that some of the market development that's going on over there has led to new and expanded reimbursement in France. So that's great because that's one of the -- probably the second largest country for the category in Europe.

There's been some expansion in Florida Medicaid and the VA as well. Can you just help us understand how important that is as that rolls out?

Well, the VA is important because once you get on the federal supply schedule, now you have a license to hunt within the VA hospitals, and many of the high-producing territories in the U.S. have VA hospitals in them. So our team is putting concentrated effort going into those hospitals. And we've seen some really nice wins, including a few that I've heard of already where the VA has said -- in that particular hospital has said, we're exclusively going to use the customer device in this hospital.

Then the Florida Medicaid, it helps us in a couple of ways. It helps us to get more business. So it was still a barrier that we had to overcome ZOLL would be able to say, "well, we cover Florida Medicaid, so you should give your patients to us and that." So it helps us to knock down that barrier, but it also just helps us with some of the patients where we did take a Medicaid patient. We weren't getting paid a nickel for it. And so now we'll get paid at least the Medicaid rate. So that's a revenue per fit increase that will be a benefit to us.

Great. Thanks a lot. I think we're out of time.

Okay. Thank you.

Awesome. Thanks for having us.

Thanks, everybody.

Good afternoon, and welcome to Kestra Medical Technologies 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 listen-only mode.

I would now like to turn the call over to Neil Bhalodkar, Vice President of Investor Relations for introductory comments.

Thank you, Victor. Good afternoon. Thank you for joining Kestra's Third Quarter Fiscal 2026 Earnings Call. With me today are Brian Webster, President and Chief Executive Officer; and Vaseem Mahboob, 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.

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

Any forward-looking statements provided during this call, including projections of future performance, are based on management's expectations as of today. Kestra undertakes no obligation to update these statements, except as required by applicable law.

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

Thanks, Neil. Good afternoon, and thank you for joining us on today's conference call. happy St. Patrick's Day to all of our friends in Ireland. We are an Irish alcohol company. So we're happy to celebrate along with them. We're excited to discuss the strong financial performance we had in the third quarter and the continued progress we are making on our key operational objectives.

I'd like to begin, though, by grounding us up again in the Kestra's mission, the lives we help protect each day in the patients, families and clinicians we serve. The reality in cardiac care is that risk doesn't always resolve when a patient leaves a hospital. For many patients, vulnerability persists and care needs evolve.

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

In this case, a 64-year-old man with severe heart failure and a cardiac output measurement of only 10% to 15% was prescribed the ASSURE system. In the weeks that followed, a pattern of escalating clinical risk began to emerge.

Over the course of 20 days, ASSURE system detected many episodes of SBT which is a heart condition characterized by a rapid resting heart rate stemming from issues in the upper chambers of the heart. Automated Kestra care station alerts were generated for each episode, and the Kestra team stayed closely engaged with both the patient and the clinic. The physician responded to the alerts by promptly adjusting the patient's medications.

Despite this, the arrhythmia has persisted. During the Christmas holidays, the ASSURE system detected a severe ventricular arrhythmia and deliver a life-saving shock. Immediately, the Kestra team coordinated with the emergency department, spoke directly with the on-call position and transmitted rhythm strips to facilitate informed clinical decision-making.

After stabilization of this patient's situation required transferred to a higher acuity hospital. During helicopter transport, the ASSURE system detected another life-saving -- life-threatening, excuse me, arrhythmia and delivered a second shock, protecting the patient at a critical lament while in route to advanced care.

Because early detection was matched with clinician engagement and because protection travel with them across every transition of care, this vulnerable patient survived a rapidly declining clinical episode. This story represents more than a single intervention. It illustrates how the cardiac recovery system supports patients across the recovery journey.

What differentiates Kestra is not just the therapy we deliver, but the system we surrounded with, intelligent detection and protection, clinical insight and human engagement working together. In the third quarter of fiscal 2026, our team and technology supported many similar moments of intervention. As always, we remain mindful of the trust placed in us by clinicians, patients and their families every day.

I would now like to turn our recent financial performance. In the third quarter, we continue to reach more patients at risk of cardiac arrest, accepting over 5,400 prescriptions written for the ASSURE system. Revenue was $24.6 million with growth of 63% compared to the prior-year period.

Gross margin of 52.6% was up 9 points year-over-year and 200 basis points sequentially, reflecting the attractive unit economics of our business model. This was the ninth quarter in a row of sequential gross margin expansion. We remain confident that Kestra on a path to 70%-plus gross margins over the next few years.

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

Turning to the WCD market, we have previously noted that despite the overwhelming evidence that an external defibrillation shock is effective in terminating dangerous cardiac rhythms, WCD therapy remains underutilized. 6 out of 7 patients that are indicated for WCD are not being protected by one. We believe the innovation and clinical evidence we have brought to the category is beginning to change this.

Based on our recent financials and that of the incumbent, we estimate that WCD market grew in the low mid-teens on a dollar basis in calendar year 2025. We are still in the early innings of market expansion, and we see this category growing into a multibillion-dollar market in the years ahead.

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

The study's findings corroborated with patients experience every day with the ASSURE system. Low false alarm rates, comfort that drives higher wear time compliance and 100% successful conversion of dangerous arhythmias. ACE-PAS continues to be a major topic of conversation with clinicians, particulate the study's finding that patients were at elevated risk during the first 90 days post hospitalization.

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

We have also continued to learn from the body of data generated from the ACE-PAS study, and we're pleased to announce today the FDA approval of our latest innovation a new ASSURE algorithm update. This update further strengthens the performance of the ASSURE system. With this new update, we expect to see an even lower rate of false alarms and inappropriate shocks, which are critical measures of both patient experience and clinical performance.

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

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

By way of background, Biobeat has developed the only clinically validated FDA-cleared cuffless, patch-worn ambulatory blood pressure monitoring device. This delivers continuous noninvasive blood pressure measurement over a 24-hour period for hypertension diagnosis and management in the outpatient cardiac recovery setting. Kestra intends to integrate Biobeat's technology into our product portfolio to make ABPM data available for patients prescribed the ASSURE WCD.

Hypertension affects approximately 120 million Americans, and results from ACE-PAS underscore the clinical relevance of the collaboration with Biobeat. As you may recall, 72% of the 21,000 patients studied in ACE-PAS were hypertensive, highlighting the complexity of managing blood pressure during cardiac recovery particularly during guideline-directed medical therapy optimization.

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

Moving on to other updates, we continue to expand our sales organization with the goal of further penetrating existing accounts as well as calling on new potential ASSURE prescribers. As we have discussed previously, we are targeting geographies in which a high volume of WCD prescriptions are being written and where we also have strong in-network payer coverage.

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

I'd also like to share a few updates on market access and reimbursement. First of all, as you may know, Florida is one of our largest states by patient fittings and also one of the states in which we have our highest market share. We have accomplished this despite not having a managed Medicaid provider number to utilize with Florida's managed Medicaid payers. Managed Medicaid plans cover nearly 90% of Florida's Medicaid enrollees.

I am very pleased to share that we recently became an approved Florida managed Medicaid provider and have subsequently signed contracts with 2 of the state's 4 largest managed Medicaid plans. We are pursuing contracts with all the remaining managed Medicaid plans in Florida.

Second, Kestra has recently added to the federal supply schedule for the U.S. Department of Veterans Affairs. The VA is the largest integrated health care network in the U.S. and covers 9 million members, nearly 50% of whom are over the age of 65. We are honored to have the opportunity to protect veterans that are at risk of sudden cardiac arrest.

And third, the monthly Medicare reimbursement rate for WCDs increased 2% and up to $3,589 a month on January 1. As you can see, we continue to bring more payers in network while also making progress on improving our RCM capabilities. At the time of our IPO 12 months ago, approximately 70% of our findings were for patients with in-network benefits. This figure is now in the low 80s.

The higher in-network meaningfully increases our team's efficiency and positively impacts all of our revenue cycle management metrics. It is important to note that there are over 3,000 payers in the U.S. So there will still be a long tail of retail and local payers we are working to bring under contract.

In conclusion, the fundamentals of Kestra's story and business remains strong. The WCD market is expanding. Kestra revenue growth accelerated to over 60%. Gross margin has increased meaningfully, and we have fortified our balance sheet. In the 12 months since our IPO, our execution has been strong across all elements of the business.

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

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

Thank you, Brian, and good afternoon, everyone. Total revenue was $24.6 million in the third quarter, an increase of 63% compared to the prior-year period. Revenue growth was driven by a 58% year-over-year increase in prescriptions, reflecting market share gains with existing customers, activation of new accounts, expansion of our field team and higher revenue per fit.

Gross margin was 52.6% in the third quarter compared to 43.4% in the prior-year period. As Brian mentioned, we have now expanded our gross margin sequentially 9 quarters in a row. The continued expansion in gross margin was driven by the attractive unit economics inherent in Kestra's rental model, an increase in revenue per fit for more in-network patients and a decline in cost per fit, driven by volume leverage and cost improvement projects.

In the quarter ahead, you should expect to see steady and concrete increases in our gross margin. as our rental model benefits significantly from volume and depreciation leverage. We remain confident in our ability to achieve 70% plus gross margins in the next few years.

We are also continuing to see improvements in all three key drivers of our conversion rate. Our prescription fill rate, our bill rate and our collections performance. Our conversion rate in the third quarter was approximately 46%, up from an adjusted conversion rate of 43% in the prior-year period.

And as we continue to bring more payers in network and enhance our revenue cycle management capabilities, we expect to see benefits in revenue growth, gross margin and our profitability profile. We are investing in revenue cycle, AI tools and other automation projects that will continue to help improve all three elements of our conversion rate and growing operating leverage as we scale the business.

GAAP operating expenses were $47.7 million in the third quarter and included $1.5 million of nonrecurring costs from professional fees and expenses primarily related to the Biobeat transaction and our recent equity offering. GAAP operating expenses were $27.1 million in the prior-year period.

Excluding nonrecurring costs and stock-based compensation, operating expenses were $36.1 million in the third quarter of fiscal year 2026 compared to $24.8 million in the prior-year period. The increase was primarily attributable to investments in commercial expansion and public company costs.

GAAP net loss was $34.2 million in the third quarter compared to a GAAP net loss of $21.8 million in the prior-year period. Adjusted EBITDA loss was $21.2 million in the third quarter compared to an adjusted EBITDA of $16.3 million in the prior-year period. Cash, cash returns totaled $291 million as of January 31, which includes the net proceeds from our public equity offering in December.

Before I turn the guidance, one housekeeping item. At the end of March, it will be 12 full months since we completed our IPO. As such, we will be eligible to file a shelf registration statement. While we have no need for additional capital at this time, corporate governance best practice is to file the shelf once eligible, and we plan on doing so in early April.

I will now provide an updated fiscal year 2026 guidance. We are increasing revenue guidance to $93 million, representing growth of 55% compared to fiscal year 2025. This compares to prior guidance of $91 million and our initial fiscal year 2026 guidance of $85 million.

Underpinning this guidance is our expectation that we'll continue to see strong growth in prescriptions as we increase market share with existing customers and activate new accounts. We expect revenue per to continue to benefit from a higher mix of in-network patients and improvements in our revenue cycle management capabilities.

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

[Operator Instructions] Our first question will come from the line of Travis Steed from Bank of America Securities.

Congrats on the quarter. I guess first off, just kind of curious as you look into next year and think about early '27 thoughts, any kind of puts and takes that you talk about on the model from a high level. And if you're comfortable with the $133 million the Street's modeling for -- and consensus today. And I have a follow-up.

So thanks for the question, Travis. We had a fantastic quarter, so thank you for that. As you know, our policy is only to comment about the full year guidance for 2027 at the end of the Q4 call. But we can tell you that today with our initial planning and process, we feel very confident that we can deliver top-tier med tech growth in '27 and beyond, and we'll be happy to provide more color in the next earnings call.

All right. Great. That makes sense. And I did want to ask about the WCD market accelerating. I think you said low to mid-teens this year. Last quarter, I think it was like closer to 11%. So you're seeing a real acceleration.

Any kind of color you can kind of give on the ground, what you're seeing that drives this acceleration and kind of the durability of the higher market growth rate going forward?

Yes. Thanks for that question, Travis. So at the timing here 12 months ago, we had the market growth on a dollar basis at about 8%. And then as you just indicated on our last call, we had it somewhere closer to 11%. Now we're seeing it accelerate there.

I think what we're seeing is a couple of dynamics that are driving that. First of all, you have Kestra increasing the size of our commercial team. So we just have a bigger footprint. We have more voices out there in the market, telling our story.

And then you have clinical results that are driving the discussion, both from our competitor who released a big clinical study 6 months ago or so that pointed to elevated risk in this patient population. But then that was corroborated by our even bigger study that we released at AHA, which also pointed to higher risk in this patient population than many thought.

So I think what we're seeing is a couple of clinical studies that are really identifying risks in the population, then you're seeing the expansion of the Kestra commercial team really driving that voice. And we're seeing our competitor with -- coming to the realization that if they want to grow their business, they're going to have to expand the market because we're going to be taking a bunch of their share.

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

Our next question will come from the line of Matthew O'Brien from Piper Sandler.

First one is on the sequential bump that we saw in prescriptions. That's the best that you guys have done, I think, over the last couple of years in terms of the data that we've had. And I know, Brian, you talked a little bit about these different areas that are contributing from the new sales force to market expansion.

Can you deconstruct where that improvement came from? Was it -- are you guys really accelerating the market? Or is there really more share shift right now versus market and hey, with everything that's going on in the market benefits maybe come over the next couple of years?

Yes. Thanks, Matt. I think the -- when we deconstruct where the prescription growth is coming from. The good news for us is that we're seeing it come not just from productivity improvements in our base territory managers, but we're also seeing the new territory managers that we've been bringing on come up our productivity curve very consistently with our model. So we're glad to see both of those two dynamics.

And I think as we look at where does that prescription growth coming from, our math sort of points to about 70%, 75% of that coming from installed base or current market share ship as we win market share and about 25% of it coming from actual new prescribers.

So we are seeing the early days of the benefit of the market expansion. But very clearly, Matt, with a market this big an incumbent, this large most of the opportunity in the early days here are coming from winning current customers that are prescribing WCDs.

Okay. Makes sense. And as a follow-up, I would love to ask about gross margin because that was really good in the quarter. But I'm looking at the stock down a little bit in the aftermarket and it might just be medtech-related specifically, but I think it might just have to do with the guide for the full year. And just given all the momentum, given the conversion rate is lifting a little bit, and the prescriptions are so strong, I think maybe some had been expecting maybe a little bit more here for the full year.

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

Yes. Thank you. I think we I addressed -- the pricing is predictable. There's no headwinds in pricing. The competitive environment is one we know extremely well. And from our perspective, we've grown the business mid-50% over the first few quarters of the year. We think as a starting point for the fourth quarter, that's a reasonable place to be.

And we're excited about growing our business by mid-50% year-over-year. That's a significant achievement, and we're -- we feel really good about that, and we feel really good about the trajectory we're on. And I don't think there's any tailwinds other than we're just out there competing every day. It's a daily run rate business, and we're out there focused on winning every day out of the market.

Our next question will come from the line of Larry Biegelsen from Wells Fargo.

This is Nathan Treybeck on for Larry. Can you talk about what you were seeing from competition in the market? Just a follow-up to that, are your reps seeing any greater difficulty in taking share after results, recent upgrades to their WCD?

Thanks, Nathan. We're not hearing anything related to [ Zol's ] new, larger WCDs that they launched, I think there is a slow launch of that product. It's not -- they're not going to replace that massive fleet they have overnight. And so my guess is that only a fraction of the patients out there are even being offered that product at this point. And so we're not really hearing that as an obstacle or an issue.

The competitive landscape remains the same, in that you have an entrenched competitor who is trying to leverage their time in the seat. And they're doing that by trying to focus on being easy to do business with in terms of order processing, in terms of insurance coverage, in terms of just service level.

And those are really the things that they can compete on because they know that from a product perspective, we have really clear differentiation from their product. So that's what we're seeing right now. But we haven't really seen any impact of their new rollout of their new product.

Okay. Great. And just at a high level, I mean, you're approaching about 20,000 scripts by our math in fiscal '26, and the market is approaching 140,000. There's still a good number of physicians that don't prescribe WCD. So in your view, what is it going to take to get physicians kind of off the sidelines and show more interest in WCD?

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

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

And what we talked about whether our ACE-PAS study at the last call was that we felt like that was an important next step in the development of WCD clinical data and hopefully, would allow us to come to the table and start to engage the societies around guidelines and also just help to clarify what are the remaining steps to get guidelines changed, if any, so that we can be focused on that.

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

Our next question comes from the line of Michael Polark from Wolfe Research.

Question on your vision for the sales force, the size of it. At the end of your fiscal '25, you said territories were 80. And the vision was to double that over the next couple of years. I heard 130 targeted by April. And if 80 doubles, it's 160 in, call it, fiscal '27 by the end of the year. That would mean you're adding 30 territories in fiscal '27 versus adding close to 50 or adding 50 in fiscal '26. You just raised a bunch of fresh financing.

Are you interested in going faster than that vision? Or is that still the vision?

Mike, thanks for the question. I think that we're in our FY '27 planning process right now. In fact, we were at our Board meeting last week, and our Board got their first look at our FY '27 planning assumptions. And so we will be refining that over the next 60 days or so. And that will be one of the key questions.

You're directionally right in your math in terms of what we've said before. And I think one of the questions will be, can we go faster and should we go faster? Capital is not our constraint right now. So being able to execute our business model, keep promises to our -- the clinicians, those are the things that we're going to try and balance as we work our way through our planning process.

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

Helpful. Brian. For my follow-up, I want to ask on the conversion rate. It's definitely a squint. I see it up year-on-year, clearly. But versus the prior 2 quarters of the fiscal year, it's a little bit of a dip back down.

Can you just remind us the same, Brian, the dynamic there? Is that simply the quarter that was just reported as January and deductibles reset, so patient collections are lower, that debt is higher? Or any other influence you'd have to think about kind of quarter-to-quarter?

Yes. Great. Thanks, Mike. I think we really excited quite friendly about all of the progress that we are making on recycle. And just a reminder, we have really made a significant improvement in the conversion rate in fiscal year '24, we were at 38%. '25, we finished. And in this most recent quarter, we had at 46%.

So we were up 3 points on an adjusted basis. But at the same time, all KPIs that we talk about at our conversion rates are all trending in the right direction. So we feel really good about where it's going.

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

Our next question will come from the line of Rick Wise from Stifel.

I was hoping you could expand on your comments on sort of get more in the weeds on a couple of topics. The first Florida, Brian, that sounds like really important and major news. You're the market early, you've signed 2 of the largest Medicare managers. And it sounds like 2 others could be relatively imminent or soon or not far away, whatever language.

Help us understand better the -- how big -- I know it's a big deal. How big a deal is it? How do we think about it? Is this sort of overnight accelerate growth in Florida, obviously, a huge market?

Yes. Thanks, Rick. I appreciate the question. We're excited about that. I think if you were to ask any of our Florida territory managers down there, what their biggest challenge has been in the last year, they would say the lack of a Medicaid license. And so removing that barrier is, as our Chief Commercial Officer likes to say, it's like removing a big pebble from your shoe for the reps.

And what happens in the actual account is when our rep is trying to convert a prescriber completely over to Kestra, it's very difficult to do that, impossible to do it, in fact, when you don't have that Medicaid number and the ability to serve that part of the population. And it's a big population in Florida. So that is a limiter if you will, on your basically taps you out on how high you can go on market share capture.

And so this will definitely be a benefit to the Florida team. And it will take a little bit of time to roll through as we get the actual agreements in place and we're able to get those rolled out to our team and everything. But so it will be an overnight thing. It will be something that we'll see progress kind of quarter-over-quarter. But we're very excited about that.

And Rick, just on the gross margin side, remember, and selectively in some of the accounts which we had already converted and when we were taking all of those patients, we were actually basically getting a goose head for those writing.

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

Well, I wasn't going to ask you about gross margin this quarter because you did so well in this period. But you brought it up, so cost per fit came in I think I'm saying it right, 14% this quarter.

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

Yes. Thank you for that, Rick. We continue to make tremendous progress on gross margins. And as Brian mentioned, in his prepared remarks, this will be the ninth quarter now where we have shown sequential improvement. And I was looking at it earlier. This is from massively north of 200% negative gross margins to where we have come. So incredible job by the team to get us there.

In terms of the mechanics, as we have said in the past, other than the unit economics that we talk about, which is just inherent to the rental model, where you get that depreciation leverage and you get the volume leverage; we think that on some of the cost improvement programs, by the way, not on the hardware because remember, we have to protect that latent investment.

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

So we'll continue to see the team make a really, really good unit cost reduction progress in the next few years. But the good news is we got good line of sight to 70%-plus gross margins than we aspire for. And this quarter is just another proof point that we can get there.

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

Yes. Thanks, Rick. We're very excited in that change. It's a change we've been working on since we -- for well over a year since we started to see some of our clinical data. And we saw opportunities in the algorithm as we started to get past 10,000, 15,000 patients in, and we saw opportunities where we could reduce -- further reduce the already market-leading false alarm rate.

And we saw an opportunity to do that and also reduce the inappropriate shock rates. The inappropriate shock rates is very, very low. We met all the FDA targets for that, but we saw an opportunity to get even better and create an even better clinical products.

So the false alarm rate as you are aware, is related to patient compliance. And the inappropriate shock rate is related to patient safety. So we did what we believe was the right thing. We looked at our data, we learned from it. and then we went and made adjustments to the algorithm to make it even better than it already is.

And I'm proud of the team because we made choices when we made that decision to invest in that algorithm. And now we're going to be rolling that out coming up at HRS. And I think our team is going to be very excited. It will absolutely put us clearly differentiated on both of those metrics from anybody, any competitor. And it's just going to help validate our product one step further.

Next question will come from the line of Marie Thibault from BTIG.

Happy St. Patrick Day. I wanted to follow up here on the Veterans Affairs when now being on schedule there. Can you tell us a little bit more about Kestra's plans on how to approach the network sort of any expectations for the ramp there? Any other sort of hurdles before you can start to deploy into some of those VA hospitals?

Yes. Thanks, Marie. I appreciate the question. It's another big win in the market access for Kestra. As you're probably aware, if you are trying to market your product in a VA hospital and you don't have a federal supply schedule number, then you're just handicapped and you're kind of spinning your wheels. And so getting that number is essentially a license to go in and serve those institutions.

And so what we would do is and what we are doing already is we're rolling that out territory by territory because almost every territory in our commercial footprint has some kind of VA institutions in it. And so we're now giving our reps the ability to go out and go and knock on those doors when they haven't really had that ability before.

So it's really -- for us, it's a great opportunity. We've already seen -- just in the last 4 to 6 weeks, we've already seen some really terrific wins at some of these VA hospitals. So it's a strategy. We're going to continue to roll that out, and we're going to get the Kestra team really fired up about protecting these veterans who have protected us. And so we're excited about that opportunity.

Yes. I appreciate that. Okay. And then I guess I wanted to ask a follow-up that's a little more high level. It was referenced earlier that your sequential uptick in prescriptions this quarter was the highest we've seen in your history here. And I know one quarter may not be enough to call a trend, but it certainly looks like a nice acceleration.

You have a lot of wind at your back, right? You've got new reps onboard. You've got the ACE-PAS data. You've done a lot of medical education. You've had an expanded role for the clinical specialists as well. So you've made a lot of changes that I think are beneficial as well.

Any reason to think this isn't acceleration or that this momentum can't continue just as we look ahead? Not asking for anything formal, but just from your own viewpoint.

Well, if you want a really high-level answer, the answer is no. There is no reason. I mean, I think all the things that you said are right on. We're investing. This is -- FY '26 is a year of investment in the commercial footprint. We've been very clear about that as being part of our strategy from the onset. And we've executed really, really well against that investment.

And as you know, it's no easy task to go out and recruit higher onboard, retain, train and get them up the curve, hiring 50 new territories, which is essentially what we're going to end up doing this fiscal year.

And so we're doing that. We're adding the clinical folks to anchor get out some of those territories, as we've talked about. And we're investing in the future.

And our real goal here, just to be really clear, is -- our intention is to build a long-term durable commercial engine at Kestra, We're going to feed that engine with continuous innovation. And that engine is going to have great innovation. It's going to have great product differentiation and great support because at the end of the day, this is a service business. And so we feel really good about the investments we're making and the foundation that we're building.

Our next question will come from the line of David Roman from Goldman Sachs.

Thank you, everyone. Appreciate your intestine. Maybe I could just start with the territory expansion, Brian, that you discussed. And can you maybe help connect the territory expansion -- the accelerated territory expansion to your revenue outperformance this year and the extent to which sustaining this revenue growth requires territory adds versus same-store sales growth?

Yes. David, thank you for the question. I think that as you can appreciate, you -- when you're growing a sales force, you're dealing with different dynamics. One dynamic is you add new territories. And the other dynamic -- so you have the question about how quickly you can get them onboard, how quickly you can get them on the productivity curve. And that's a big question.

And then the other question is with all your base reps, can you continue to see productivity with them. What we do not want to have is a situation where the only way we can grow is by expanding sales territories. And so that's where we focus on productivity improvements in our team.

And we've invested heavily in training. We've invested heavily, obviously, in innovation, which will continue to help productivity. And I think what we're going to see over the course of the next year is you're going to see just a bunch of new territory managers who have a little time in the saddle, so to speak, and we're going to see them really do some great things.

And so I don't think that our model requires us to continually add new reps. I think we've got lots of opportunity to gain market share, to grow the productivity levels territory level. And as you combine and roll all those up, that equals growth without having to continue that really aggressive sales force expansion.

That's very helpful. And then maybe just a follow-up. The theme in the past, you've talked about CapEx spending as one of the best leading indicators of your confidence in forward revenue growth. Can you maybe just sort of talk about where you are in that cycle and maybe how you're thinking about forward use of cash? And how we should translate the increased investments here into the forward outlook?

It certainly looks like you are performing on revenue I know you're not going to make FY '27 comments here, but if I take your past comments on CapEx and try to tie it to the forward outlook, maybe you could help just connect the dots there for us a little bit.

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

So as we have said, the planning assumption or at least what we are guiding everyone is for long term, 10% of our filings are going to come from new units, 90% of them are going to come from reconditioning business, which means we are our largest supplier ourselves. And I think the team has done a fantastic job to drive the items engine.

But at the same time, when you do that math, David, on the 10% coming from the units that gets you to the CapEx numbers, including some of the replacement CapEx investments to about 30 million a year for the next couple of years, at least.

Well, we are -- when the Q comes out, you'll see that we had a $9 million investment in CapEx in this quarter. that, again, should give you a lot of comfort. That $9 million investment is ahead of us going from the previously publicized number for 100 reps in November to 230 by the end of the year.

Okay. And then maybe just a quick follow-up to that. If I look at your cash burn in the quarter, excluding the Biobeat investment, it looks like mid-20s million. Is that isolated to the quarter? How should we think about that number on a go-forward basis?

Yes. I think we're very happy with where we ended up on the cash burn. Again, like I said, $9 million of that $28 million burn was CapEx, $18 million or $19 million of that was the operating burn, and we feel that we will be in that range at least for this next year.

Thank you. And that will conclude our Q&A for today. I would now like to turn the back over to Brian for any closing remarks.

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

Q3 is a little bit of a challenging quarter for us because as a daily run rate business, which Kestra very much is, when you get into the holidays, of the November, December holidays and then you get into the January new plan year for insurance; there's a lot of variables in Q3 that, quite frankly, make us nervous every year.

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

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

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good afternoon, everyone. I'm Robbie Marcus, the Med Tech analyst at JPMorgan. Happy to bring up CEO of Kestra, Brian Webster. He's going to do a presentation, and then we'll do some Q&A after.

Okay. Thanks, Robbie. Hello, everyone. Good afternoon. As we're coming up on the midpoint of the conference, I guess, at this point. So Congratulations. Well, I'm happy to talk a little bit about Kestra today. We've got a really fun story. The opportunity is really based on a few key fundamentals. We're in a very underserved market, we believe that has an urgent need for the clinical benefit that our product brings.

We believe we have a differentiated now really well clinically proven solution. The market, the TAM in our business is about $10 billion in the U.S., a little bit larger outside the U.S. And in that TAM, we think there's about $1 billion of current market penetration that's a go-get for us as a second into the market.

We are entering what was until we entered the market, what was a monopoly market. Our business is scalable. I'll talk a little bit about that as we get into it and has really attractive unit economic profile. And then we have a proven leadership team that's been there and done this before, and we're excited to be doing that again today. We're a wearable medical device company and digital health care company.

The first product that we brought to market is the cardiac recovery platform, and that features the ASSURE Wearable Cardioverter Defibrillator -- if you're not familiar with a WCD, the use model for that is typically about 35% or 40% of the patients are post-MI patients, so post-heart attack patients.

Many of those patients are going to go on to get an implantable device. And a big -- another big chunk, maybe another 40%, 45% of the patient population are heart failure patients. So early stage, newly diagnosed heart failure. Many of those will be diagnosed with heart failure put on guidelines directed medical treatment, which are the pharmaceuticals.

And our job in both instances with both of those patient populations is to protect the patient when they're at an elevated risk of cardiac arrest. So cardiac arrest, as you know, is a serious issue in our country, and that's really the role of the WCD. Our leadership team has well-grounded Med Tech background. We have folks who are in the external defibrillation space like myself.

We have implantable experience. We've recently added a few new executives to the team to round out our executive team, Neil Bhalodkar, who's our IR leader comes from Inari and Exonics. So recent public company experience. We -- at the time of our IPO back in March, we brought in a new Chief Commercial Officer, which is Al Ford. He came out of the Exonics experience. And most recently, we brought in Tim Moran, who was -- came out of the Covidien ecosystem and most recently was the CEO of Avertix, which is in the heart failure space.

So rounding out the executive team with some good commercial operators and public company operators. And we've got a really well experienced team when it comes to the medical device space. Our milestones along the path have been many. We've had some exciting milestones since our inception in 2014. We were originally financially sponsored by Bain Capital, private equity side of Bain Capital, by the way, which is a little bit different.

Along the way, the life sciences side of Bain Capital came in as well alongside the PE company. We executed a long and challenging R&D program, which is -- this is a difficult category because you have -- you have life-saving therapy being delivered in an ambulatory patient environment and the patients wearing this externally and -- that's -- there's a lot of technical challenges to solve there. So we executed that R&D project, did a couple of clinical trials, got our PMA approved in late 2021, started our full commercial launch in about August of '22.

So we're 3.5 years into that launch. We did -- as I mentioned, we did take the company public in March at a successful IPO, recently did a follow-on offering on the heels of some strong clinical results. So we're excited about that. And we published those results. That's our post-approval study, which was a large 21,000 patient study that we did as part of our FDA post-approval which we recently got accepted and approved by the FDA as well.

So a lot of exciting milestones along the way. We have some new exciting milestones coming up as well. The problem we're trying to solve is cardiac arrest. And the problem with cardiac arrest in the U.S. is over 400,000 people suffer from cardiac arrest every year in the U.S. The issue you have with that is it's time-based. Every minute that goes by from the onset of cardiac arrest, your chance of survival goes down by about 10%.

So start your clock right now and pretend for a minute that you just had an event and you're down on the ground and start thinking about how quickly that you can get EMS to you. And even in the best EMS systems in the world, if you can get them there within 7 minutes, then you've really accomplished something. So that means 70% of your chance of survival has already gone by. So if you're lucky enough to have been diagnosed with cardiac risk and prescribed a wearable defibrillator like the Assure System, we're going to diagnose that cardiac arrest and treat it within about 45 seconds.

And your chance of survival in that instance is extremely high. In fact, in our clinical readout of our post-approval study, we had 100% conversion rate of those lethal ventricular arrhythmias. So chance of survival goes up really dramatically. One of the other really important parts of the clinical trial readout that we had in November was the assessment of patient risk in this population. I think that one of the underappreciated parts of the WCD space is the fact that there is a patient population, they are at risk, unacceptable risk, in our view, and you see on the left here, in the goal, that's the rate of arrhythmia for those patients, the annualized rate of arrhythmia for those patients in our study -- the one just to the left of that was another recent study from one of our competitors in a German registry where they measured roughly the same amount of risk.

And so we always say that -- there's really 3 things about the WCD space that you have to really think through. One is, is there a risky patient population? Are there patients who have measurable risk. And we think that the studies like these have answered that question unequivocally. The second question you have to ask is, is there a therapy that is effective at treating that condition.

That's a definitive guess from our data from any external defibrillator. And then the third question and the most difficult one in the WCD space is can you get the patients to wear the device, because this is a device that you can take on, you can take off and patient compliance has always been the biggest challenge for this category. So we answered that also definitively in our data with median wear time over 23 hours a day.

So we feel like we've really set the stage with some great clinical data for growing this category. The overall market, we believe, is about 850,000 patients a year are diagnosed with low cardiac output that typically is measured by ejection fraction. So if you have an ejection fraction of 35% or below, you are typically eligible for a WCD. Today, of that amounts to about a $10 billion market in the U.S. Of that 850,000 patients, we believe right now there's about 120,000 a year that are being served. So it's underpenetrated, only about 1 in 7 who are eligible for a WCD or getting a WCD. And we think that has to change.

And there's a lot of market development activity that needs to happen. There's some guideline changes that need to happen -- and we believe all of those are within reach as we look to expand our footprint. The cardiac recovery system platform that we've developed, it starts with a wearable, patients wear this 24/7. They take it off only to bath. And the device was designed for both the male and female version because it turns out that females have cardiac arrest as well.

They're about 40% of the patient population for cardiac patients. Once we put a wearable on the patient, we download our application on the patient's phone. So now we are connected to that patient. We're transmitting that data from the wearable to the smartphone that and gets pushed up to the cloud, where we present that to the physician via the physician portal.

We also set up the physicians for notifications when there's significant events going on with their patients. We have the benefit because we are connected to our patients, we have the benefit of being able to monitor our patients. This is not like the stick on patch business where you're doing a post wear time evaluation with an IDTF and you're trying to find rhythms.

This is real time. We see when something is happening with our patients, and we can take action on that. We can contact the patient, we can contact a provider and we can help to advance the care for that patient. So that's an important part, our -- we call that our heart alert services. The other real differentiating part of our solution is in the event that a patient actually has to be treated with therapy, then within about 3 seconds of that shock being delivered, a notification is automatically sent to a 911 call center.

They pick up the phone, they call the patient. And if they can't reach the patient or the patient's caregiver, then they automatically dispatch a local EMS to the patient's location. And that's -- that's a recognition of the fact that if you've been delivered a defibrillation shock to treat your VF or VT, you're kind of in a world of hurt right now. And even if you've converted that rhythm, you're disoriented, you may have fallen, you may have other issues going on, and we're trying to get you emergency care, which is what you need. So that whole system makes up the ASSURE cardiac recovery system.

The post-approval study results that I talked about, covered a lot of ground when you're talking about 21,000 patients. That's an enormous amount of patient data -- and we certainly met our primary endpoints around safety and efficacy, and that's a big deal and a study that large and in an environment like we're in, in an ambulatory at-home environment.

But we also had secondary endpoints like around the false alarm rate -- and one of the, I think, most important outputs of that was our extremely low false alarm rate. False alarms are an issue and a wearable platform because if the alarms are frequent enough, then what patients will do is they'll take it off.

And if they take the system off, then guess what, it can't treat them when they do have their very serious event. So we believe that we've essentially solved the false alarm issue in these patients with our -- with our design. And it's a really multilayered design approach for how we did that. The other thing about the clinical results that are really important is we also saw additional clinical utility for the platform, and that was in the form of diagnosis of AF and other arrhythmias. It was also in understanding some of the other comorbidities that happen with this patient population, things like coronary artery disease, hypertension. These are some of the other comorbidities that we saw in that patient population.

So the foundation that we built with our platform right now, it's a really inclusive platform in terms of our ability to collect patient data, act on that data, treat the patient when we need to and overall provide the care that the patient needs. We've also designed the platform to be extensible and the idea being that we've built all the framework to put this product on a patient, get patients to be willing to wear it for extended periods of time, and now we want to be able to add additional capability to that device, so we can provide more value to the clinicians.

We have around 380 pending and currently published patent assets, actually more patent assets than we have people in the company. And we intend to act on that intellectual property as we extend the platform. We had an announcement this morning. Maybe some of you saw that around an example of what we're going to do with this platform. We announced this morning a strategic partnership with a company called Biobeat Technologies, which is the first FDA-approved, clinically proven blood pressure monitoring that's in a cuffless wireless format.

And this particular one is in a stick on format -- and you might ask, well, why is that important? Why would you want that in WCD. Well, I'll go back to the clinical results, 72% of our patients were hypertensive. And -- and so when we saw that, we said we've got to help provide better tools for those type of patients. And so we entered into a partnership, exclusive agreement with Biobeat.

We are intending to integrate that technology into our platform. And that's a key technology, especially for monitoring the guidelines directed medical treatment. The drug treatment that a lot of these patients are put on, clinicians need to know how aggressively to move with how they titrate these drugs.

And -- there's really -- the single most important thing they want to know as they're learning that is what's the blood pressure for my patient. And how is that trending over time? And so our intention is to be able to integrate that into our system and present that to them so they can better care for those patients and ultimately, make the GDMT treatment even more effective. We're really excited about the Biobeat relationship. We did an investment into that equity round that they just did a financing round with some top-tier VCs that we know well.

And so we're happy to come in. And as part of that syndicate. We are in the early stages of a co-development agreement with them to do that integration that I talked about. And there will be more to come on this topic. It's one that we're pretty excited about.

So with those clinical results, with that product, it's pretty clearly differentiated. We also have to solve the insurance issues. And so we've been working really hard on insurance contracting. We're now over 290 million covered lives, 90% coverage in the U.S. Anybody who's been in this space knows that -- it's a big challenge to do that, and it's where companies go to die during that phase.

So we're happy to be on the other side of that and have a really good framework. It really unlocks the business model in our business model. The reimbursement rate for this -- this WCD category has been very stable over time, continues to be stable. We expect that to continue. And so we've been building out our commercial footprint. And now it's about getting the commercial team out there and taking advantage of all the attributes that we have as a company.

And so we've more than doubled our sales force. We're up around 100 sales territories now -- we intend to continue to build that out over the next year. And once you get to 100 sales territories, at least in my experience, then you're talking about a legitimate real Med Tech sales force and we're putting one right on the cardiology space, and we've got a really great team, and we're excited about the build-out of that commercial team.

We do operate a rental model. That's the business model that we operate. So the device goes out to the patient, we fit the patient, train them. It -- they wear it on average for around 3 months. Although in our clinical data, about 30% of our patients actually wear the system longer than 3 months.

Once the device is done that comes back to us, we recondition it and send it back out for the next patient. And this goes on for a number of years, and that really leads to very attractive unit economics as you leverage the build cost and the operating cost of that device over many years in many patients. That's led to -- as we've gotten some volume, that's led to the gross margin expansion that you see here. We've had about 8 quarters in a row of gross margin expansion, we believe we'll continue to see that into the future.

We think that the business model at scale is very clearly a north of 70% type of gross margin. And we're seeing that in action as we move along the volume curve now. On the revenue side, we're in the growth trajectory right now as we build out the commercial team as we improve the insurance in-network coverage -- and so you can see year-over-year on the left-hand side of the chart, a really nice growth.

We're experiencing again in the quarterly growth on the right-hand side of the chart, north of 50% growth quarters, the last couple of quarters, and we believe that we'll see that through the balance of this fiscal year. So we're starting to see all the levers that we've put into place are delivering pretty exciting growth when it comes to the Med Tech environment.

So all of that has really set the foundation for what we believe will be long-term durable, exciting growth. And we have a large market, a big TAM to go chase -- we have a lot of really good clinical results that we believe have a reasonable shot at impacting the guidelines for use of WCD in a positive way. And I think when we see that happen, I think you're going to see this market growth expand even more rapidly.

The market growth right now, we believe, is in the low double digits, somewhere around 11% or 12%. So on a $1 billion current market, growing that every year, that continues to be a very, very attractive market. We have that clinical data that I talked about, that's really compelling the commercial scale that I talked about, we're going to continue to build that capability out.

We have a robust R&D engine with all that intellectual property that I mentioned and we have a really nice pipeline of products in that pipeline that we're going to see consistently come out over the next 2 or 3 years to feed that commercial engine now that we're in there.

And all those we'll take advantage of that attractive unit economics to deliver really exciting results. So it's a really exciting time to be here at Kestra. We've done a lot of heavy lifting, and there's plenty more to go. But all the foundational pieces that are required for a fast-growing, high-margin, exciting Med Tech company are all coming together in the form of Kestra Medical Technologies right now. So we're excited about the future and excited to answer some questions now. We'll go ahead and open it up to Q&A. So thank you very much.

Great. Maybe we could kick it off. Starting with commercial topics. Maybe you could spend a minute on historical market growth where we are today? And do you think Kestra's entry into the market has driven acceleration in the category growth.

Yes. I think the market growth has been a little bit of a journey in the sort of, let's say, 2010 to 2016 or '17, we saw really rapid growth in the WCD. There was only one player. It was ZOLL. They were a monopoly, and they were really building the category out. They had a randomized trial in 2017 that, that missed by a little bit, and that slowed the growth down.

And now we're seeing the growth pick up. I think we -- our assumption -- last year was we thought growth -- unit growth was about 6%. And then you -- on top of that, you have about 2% average price growth, so about 8% growth. Now as I mentioned, we think it's in the low double digits and continuing to expand. So we think -- certainly, we've had an impact on that. I think we're revitalizing this category.

We're changing the discussion around the category. And I think most recently, we've seen our largest competitor. They've really shifted their focus because they're losing a lot of market share. They're shifting their focus towards market development. And that only helps the whole category.

Maybe to follow up on that, I think in Kestra specifically how much is coming from market expansion and how much is coming from market share capture?

I think that it's hard to put a specific number on it. I think it's certainly something like 80-20. 80% is definitely market share capture and the balance being market share expansion. Clearly, if you put a new sales rep in a territory, and you tell them, here's where the prescribers have been in the past.

The first thing you're going to do is go try and convert those prescribers. And so that's where you get the market share shift. But then along the way, the prescriber down the whole who hasn't been prescribing WCD then starts to do it. And so that's how we see really the market growth.

In the presentation, you noted you had 100 reps today. Where do you think we'll end up at the end of the fiscal year in April. And for each rep, how long does it take for them to become productive and fully ramped?

I think we've said that we're going to target for probably getting to somewhere around 130 reps by the end of April. So that's the end of our fiscal year, and we'll continue to expand that again in the following fiscal year. Typically, what we've seen is it's about a 6-month time frame for them to go from date of hire to what we would consider to be that first level of productivity, where we know they've got the story, where we know that they're starting to deliver results. And so when we model that, that's the way we think about it.

You talked about Kestra's post-approval study that was published as a late-breaker at AHA with only 1 in 7 patients who are eligible for a WCD actually being prescribed and fit. How impactful can this clinical study being influencing physician behavior and getting more patients on therapy?

Well, I think that the study validated a couple of those things that I mentioned, it validated that defibrillation shock is incredibly effective, if you can get it delivered within a timely period of time. So that it validated that. We already knew that. We answered the wearability question as I mentioned. But I think the biggest part of the study that will impact market growth is this assessment of risk.

And the fact that now as we're out talking about the study with physicians. That's the biggest aha that we're hearing is them saying, I didn't fully appreciate that the risk level was that high for these patients. And so maybe I should rethink my risk spectrum that I'm using mentally about when I prescribe the device. And so ultimately, we hope that will influence guidelines. And if you influence guidelines, then this becomes more of a protocol which will certainly lead to exciting market growth.

We've already seen you bring innovation to this market. Where are you focusing your R&D spend? And what product innovation should we look forward to?

We're focusing on our R&D spend on solving the biggest clinical issues, right, in this patient population. So -- if you look at the comorbidities of these patients, if you look at the other arrhythmia types that these patients have, then that leads you to where we want to innovate. And we think that -- we think that there's opportunities to influence those.

You will see us continue to build out the diagnostic monitoring capability of the device, because patients are wearing this for a long period of time. And so you have an ability to collect an incredible amount of data about that patient, including trending that data, so that you know whether that patient is getting better or getting worse, and you can take some clinical action there. So I think those are going to be the themes that we chase in R&D. And the Biobeat is a perfect example of that strategy in play.

Maybe since you bring it up, maybe expand on Biobeat and what motivated the deal and what value does it bring to Kestra.

Well, the architecture for the Assure System was by design was intended to allow us to extend the platform and take other monitoring devices, other sensors and their data into our platform and be able to then present that to the physician. Because you have to remember, the WCD is an urgently clinical needed product. And so it's the anchor in that for our reps. And then once you have that patient, now you can help that patient in other ways. So the Biobeat, it's the number of patients that are hypertensive. It's the constant feedback from physicians, especially the heart failure physicians that, that they have challenges with the GDMT titration.

They have patient compliance challenges. They have -- today, they send them home with a cuff and they expect them to do the cuff measurements themselves and record those and send them in. That's a challenge in the living room in America, right? And so what we're going to do is we're going to we're going to take that challenge away and make that an inherent part of the system.

And that's really the impetus behind that so we can provide better care for those patients, help them in the GDMT titration, which ultimately will lead to their heart getting better, quicker.

Let's talk about gross margin. You got up to 50% in the last quarter, you've guided to 70% over time? How do you get from point A to point B? What's the line of sight.

I think it's going to be [ steady ] along the way. It's going to be volume dependent. We will see -- on the revenue side of gross margin, we will see continuing revenue per fit growth as we see even higher percentage of our actual patients be in network will get some benefit of the annual cola for the reimbursement code that will help that revenue per fit.

And then on the cost side, it's the continuing amortization and use of these devices in the rental model and turning them more rapidly and using them longer. One of the things that we did that we implemented about 18 months ago or so was a really robust preventative maintenance program for our devices. So every time they come back, so we -- by definition, we see them every 3 or 4 months. Every time they come back, we retest them, check them out, repair them if needed and they go back out as new.

And so that's going to allow us to really leverage those devices for a long time. And so the impacts of volume will be substantial in this business. And so we think we're going to ride that volume curve right up to that kind of gross margin range.

Volumes are important and amortizing the depreciation also important. So what do you think the capacity of your existing fleet is today? And will you need to invest in the near to midterm on more vests?

The fleet we have today gives us the capacity to certainly to execute our revenue plan for this year. And we will continue to, to add to sort of top off the fleet -- the CapEx fleet every year as we continue to grow. And what we're striving to do is ensure that about 90% of the patient fittings that we do in any period are done with a device that's been reconditioned. It's a huge device. It's already out in the fleet. And so if we do that, that means we're turning these devices really effectively. So we will always have some CapEx as we build out the fleet, but it's really to keep it topped off to be able to help us manage growth.

It's coming up on a year as a public company. How do you feel today versus when you became public about the future of Kestra?

Well, the journey to a public company is a long and arduous one, and I'm happy that now the conversations we have with investors are thematic -- they're not trying to go 8 levels deep into the due diligence that we experienced during the VC stages. But I do think that -- look, I think the more we're out in the market with this product, the more we see it in action, the more we hear feedback from clinicians, the more excited we are about it. I think we have broader opportunities with the platform and the underlying technology than we ever fully appreciated before we got up to some scale.

And that really is exciting for us because we're, we're going to build a really strong commercial engine. And then we're going to couple that commercial engine with a whole bunch of really exciting innovation. And in my experience in Med Tech, those 2 things coming together is what makes the magic. And so we're excited about the future of the company and where we're going.

Let me just check any questions in the room? All right. Maybe one final question here. Are there any parts of the Kestra story you feel that are underappreciated by investors?

Well, I think we've been -- I think we've been talking about maybe what I consider to be the biggest one, which is that this market is growing at a rate that I don't think people fully appreciate it and that there's potential of a real pivotal change in the market growth with guidelines expansion. And I think if that happens, I think you have to change the whole view of this WCD market.

So I don't think people have been too focused on that. They've been focused on, hey, go out and get that existing market. And that's a clear place to go at the start. But I think the market expansion is really exciting. And so we're doing market development activities. I think we did more medical education events in the month of December than we did in the previous 7 months combined.

So we're really taking the clinical data and really trying to get into what I consider to be classic Med Tech market development.

Well, great. We could end it there. Thanks for a great discussion. Thanks all of you for joining today.

Okay.

Good afternoon, and welcome to Kestra Medical Technologies' Second Quarter Fiscal 2026 Earnings Call. This conference call is being recorded for replay purposes. [Operator Instructions] At this time, all participants are in a listen-only mode. I would now like to turn the call over to Neil Bhalodkar, Vice President of Investor Relations for introductory comments.

Thank you, Victor. Thank you for joining Kestra's Second Quarter Fiscal 2026 Earnings Call. With me today are Brian Webster, President and Chief Executive Officer; and Vaseem Mahboob, 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 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 in the forward-looking statements due to various factors. Please review Kestra's most recent filings with the SEC particularly the risk factors described in our Form 10-K for additional information.

Any forward-looking statements provided during this call, including projections of future performance, are based on management's expectations as of today. Kestra undertakes no obligation to update these statements, except as required by applicable law. With that, I will now turn the call over to Brian.

Thanks, Neil. Good afternoon, everyone, and thank you for joining us on today's conference call. We're excited to discuss the strong financial performance we had in the second quarter and the continued progress we are making on our key operational objectives.

Before we jump in, I want to begin by grounding us in the patient focus that makes Kestra a special company at the summer of everything we do are the lines we protect each day and the impact we have on patients, their families and the providers who care for them. Recently, a patient in Florida collapsed from ventricular tachycardia and require urgent intervention. After stabilization of the patient was discharged with the competitive wearable defibrillator and refer to electrophysiology for follow-up.

At his outpatient visit, the patient reported tolerance of that device. Due to discomfort and adherence risk, the physician transitioned the patient to the ASSURE system, citing improved comfort and care coordination for the switch. While patients with the ASSURE as to the patient expressed a clear improvement in wearability compared to the previous device, the patient and family also noted greater confidence due to the system's ability to connect them quickly to emergency care.

Weeks later, the patient collapsed again at home. The ASSURE system detected the event and announced it was preparing to deliver therapy. Before therapy was delivered in patient regained consciousness and successfully diverted the shock, reflecting the ASSURE systems ease of use and patient first design. Following the cardiac event, the patient was transported safely to the emergency department, while there, our team delivered episode data directly to the emergency department. The following morning, care station reports, guided discussion during cardiac ICU rounds, the care team described the data as detailed and clinically useful.

Two days later, the patient received an ICD. This case reflects how the cardiac recovery system brings together protection clinical insight and care coordination to change outcomes when time it matters most. While this is just one patient's experience in the second quarter of fiscal 2026 our team and technology help facilitate many similar life-saving events. We remain mindful of the trust placed in us by clinicians, patients and their families every day. I would like now to turn over to our recent financial performance.

In the second quarter, we continue to reach more patients who are at risk of cardiac rings accepting approximately 4,700 prescriptions written for the ASSURE system. Revenue was $22.6 million with growth of 53% over the prior year period. Our gross margin climbed over the 50% line for the first time in the company's history, an important milestone for Kestra.

Actual gross margin of 15.6% and was up 11 points year-over-year and reflects the attractive unit economics of our business model. This was the eighth quarter in a row of sequential gross margin expansion. We expect continued gross margin expansion in the back half of FY '26 and remain confident that Kestra is on the path to 70%-plus gross margins over the next few years. With the strong revenue growth that customer is generating, we are seeing nice operating leverage in our business. This leverage supports the investments we are making in the company's key growth drivers that we believe will yield significant long-term value for Kestra and its stakeholders.

Turning to the overall WCD market. We have previously noted that despite the overwhelming evidence that an external defibrillation shock is highly effective in terminating dangerous cardiac, WCD therapy remains underutilized, reaching just 14% of the eligible U.S. addressable market. That means 6 out of 7 patients that are indicated for WCD are not being protected by one.

The best way for Kestra can positively influence clinical practice and have more patients protected by WCD is by generating highly impactful clinical evidence. So 1 month ago, we did just that. With the presentation of the primary results of ACE-PAS, which is our FDA post-approval study at the American Association Annual Meeting in New Orleans. ACE-PAS is the largest real-world prospective WCD study to date with over 21,000 patients enrolled and protected. The study design includes prespecified performance criteria with objective performance measurements.

The key takeaways from the study results were as follows: First, the ASSURE system met both of its primary endpoints, demonstrating a safe and highly effective device. It's worth noting that not only was ACE-PAS the largest WCD study ever, but it also enrolled the largest percentage of female patients at 34%. As a reminder, 40% of indicated patients are women, and the Assure system is the only WCD specifically designed for women.

Next, sudden cardiac arrest doesn't wait. Patients were at high risk during the first 90 days of the study for all indicated populations. ACE-PAS data showed patients had a 90-day incidence rate of 1.8% and an annualized incidence rate of 7.5%, which is actually slightly higher that landmark ICD trials. Guideline-directed medical treatment is effective in improving cardiac function, but it requires time. and patients need to be protected from significant SCA risk during their cardiac recovery.

Third, at 23.1 hours, ASSURE had the highest wear time of any U.S. WCD trial. In fact, 30% of our patients were the device for more than 90 days demonstrating the effective protection for extended therapy optimization. And finally, ACE-PAS reinforces that ASSURE has the lowest false alarm rate with 94% of patients free from false alarms dramatically lower than other commercially available ECDs.

In our discussions with clinicians after the study results were presented -- the most common theme is that the risk level of their patients is higher than they understood it to be, particularly early in the recovery and treatment journey. The existing WCD guidelines were published in 2017 and have not been updated sense. We believe ACE-PAS in conjunction with other recent studies, such as SCD PROTECT, provide compelling data on over 40,000 patients that significantly strengthens the existing body of evidence and may help enforce future updates to clinical guidelines.

You've heard me say before, there are 3 critical questions about the WCD category. The first one is there a patient population that has significant health risk. The second question is our effective therapy to treat those patients. And the third question is, will the patients wear the device. ACE-PAS definitively answers all 3 of these questions in a very large real-world population. A strengthened recommendation to guidelines would have a positive impact on clinical decision-making and potentially accelerate TAM penetration.

Based on our estimates and data from the incumbent, we believe the WCB market growth has already accelerated to the low double digits, and we'll continue to expand into a multibillion-dollar market over the coming years. Moving on to other updates. We continue to expand our sales organization with the goal of further penetrating existing accounts as well as client on new potential issue prescribers. As we have discussed previously, we are targeting geographies in which we have a high volume of WCD prescriptions and where we also have strong in-network payer coverage.

We currently have approximately 100 active sales territories, up from about 80 sales territories at the end of fiscal year 2025 in April. While this will not be a data point that we will be updating on a quarterly basis, our territory additions in the second quarter were in line with our hiring plan, and we continue to aggressively expand our sales coverage. In recent months, we have seen the addition of clinical specialists in select markets, complementing our sales territory coverage and supporting further penetration of accounts.

We also continue to make progress on improving our RCM capabilities, that's revenue cycle management, while also bringing bringing more payers in network. At the time of our IPO 9 months ago, approximately 70% of our findings were for patients with in-network benefits. This figure is now in the low 80s. The higher in-network mix meaningfully increases our team's efficiency and positively impacts all RCM metrics. It's important to note there are over 3,000 payers in the United States. So there's still a long tail of regional and local payers we are working to bring on their contract.

As you all know, we utilized a lease business model, our substantial investment in our fleet of devices, each with the capacity to protect approximately 3 patients per year enables the business to scale with our attractive unit economic profile. While our current business asset pool can support our near-term business objectives we are continuing to add to our fleet as we grow our field team. Over the long term, we expect about 90% of our annual patient fits to be accomplished with reuse of existing devices.

So in conclusion, the fundamentals of the Kestra Thesis remain intact and were, in fact, fortified in Q2. WCD market growth is accelerating Kestra revenue was growing north of 50% and gross margin has expanded beyond 50% for the first time. We have an underserved medical indication where we offer a clearly effective in superior solution, we have rapidly closed the gap on payer endorsement of our product, and we are implementing a commercial expansion plan to significantly grow the business.

Our commercial plan is now supported by a large body of clinical evidence that has some potential to influence the prescription guidelines. Our execution has been strong across all elements of the business and the foundation we have built has positioned Kestra for strong growth this fiscal year and beyond.

I'd like to thank our incredible team in the field and here at the home office in Kirkland for their passion and commitment to the Kestra mission. I'll now turn it over to Vaseem who will discuss second quarter financial results in more detail and provide our updated fiscal year 2026 revenue guidance. Vaseem?

Thank you, Brian, and good afternoon, everyone. Total revenue for the quarter was $22.6 million and an increase of 53% compared to prior year period. Revenue growth was driven by a 54% year-over-year increase in prescriptions reflecting market share gains with existing customers and activation of new accounts. Excluding the impact of onetime revenue pickup in the prior year from a payer converting to accrual accounting, our revenue growth for this quarter was 16%.

Gross margin was 5.6% in the second quarter compared to 39.6% in the prior year period. As Brian mentioned, we have now expanded our gross margin sequentially 8 quarters in a row. The continued expansion in gross margin was driven by the attractive unit economics in tenant casters rental model a higher revenue per fit from more in-network patients and a 20% decline in cost per fit driven by volume leverage and cost improvement projects.

In the quarters ahead, you should expect to see steady and consistent increases in our gross margins as our rental model benefits significantly from the volume and depreciation leverage. We remain confident in our ability to achieve 70% plus margins in the next few years. As we have discussed previously, higher in-network mix unlocks the power of Kestra's business model. We ended the quarter with our in-network mix percentage in the low 80s and are seeing improvements in all 3 key drivers of our conversion rate, our prescription fill rate, our build rate and our collections performance.

Our conversion rate in the second quarter was 48.8%, up from an adjusted conversion rate of 48.2% in the prior year period. as we continue to bring more payers in network and enhance our revenue cycle management capabilities, we will see benefits in our revenue growth, our gross margins and our profitability profile. GAAP operating expenses were $43.2 million in the second quarter and included a $1 million of nonrecurring costs associated with professional fees and costs related to our recent equity offering. GAAP operating expenses were $25 million in the prior year period. Excluding nonrecurring costs and stock-based compensation, operating expenses were $33.5 million in the second quarter of fiscal year 2026 compared to $23.8 million in the prior year period. The increase was primarily attributable to investments in commercial expansion and public company costs.

GAAP net loss was $32.8 million in the second quarter compared to a GAAP net loss of $20.6 million in the prior year period. And adjusted EBITDA loss was $19.7 million in the second quarter compared to an adjusted EBITDA loss of $16.1 million in the prior year period. Cash and cash equivalent $175.4 million as of October 31, 2025. This does not include the $148 million of net proceeds we received from our public equity offering last week.

I will now provide our updated fiscal year 2026 guidance. We are increasing revenue guidance to $91 million, representing a growth of 52% compared to fiscal year 2025. This compares to prior guidance of $88 million and our initial fiscal year 2026 guidance of $85 million. Underpinning this guidance is our expectation that we will continue to see strong growth in prescriptions as the market share increases and the WCD market continues to expand. We expect revenue per feet continue to benefit from a higher mix of in-network patients and improvements in our revenue cycle management capabilities.

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

[Operator Instructions]

Our first question will come from the line of Matthew O'Brien from Piper Sandler.

For starters, maybe them more, Brian, just talk a little bit about the guide for the year. It's nice to see it above what -- how do you beat here in fiscal Q2. But maybe just talk a little bit about the cadence of the guidance, especially Q3, which I think has some seasonality to it. And just given that you're a newer public company, maybe just talk about that. And then -- and then just other factors you're considering as you think about the full year? And then again, I do have a follow-up.

Yes. Thanks for the question, Matt. As we have said in the past, we are a run rate business, and we track our performance on the daily, weekly and a monthly basis. Our revenue growth has historically been driven by prescription volume growth, our in-network mix and the revenue cycle management initiatives that we've been driving. We remain focused on these drivers and our track all of the KPIs in the right direction.

Our strategy to expand our sales force responsibility so that we continue to deliver the service level to the patients, and we've talked about top critical and important that is. And we are still early in our public companies early. So our guidance philosophy is based on delivering consistent quarterly results that established trust and confidence with investors. And again, just a reminder, we have one of the fastest growth profiles in all of med tech and consensus has us growing at 45% to 50% through 2028.

And then as a follow-up, and there's a million places I could go here. But maybe just, Brian, you said proceeds now, and again, I don't want us to get over our skis too much as far as the impact of some of these investments. But just how do we think about this additional capital in terms of accelerating some of the growth initiatives that you have at Kestra?

Yes. Thanks for the question, Matt. What we're trying to do is we're trying to build a durable top-tier medtech growth profile for years to come. And as you know, in the first half of the year, we've gone faster than our plan. And so we wanted to de-risk any future capital needs and really fortify our balance sheet as we continue to invest in those key growth drivers. We decided to take advantage of the timing of the strong ACE-PAS clinical results and also our strong Q2 performance, and I think from our perspective, we're going to do -- with that capital in hand, we're going to go through our planning process on our fiscal calendar.

We are just kicking into our annual planning process. We'll be doing that in conjunction with our Board over the next few months, and we'll be outlining what the impact of that capital may be our growth strategies for the next couple of years. So it's a strong move for us. We feel good about having the balance sheet in good place. And it gives us optionality, frankly, especially with the potential of the clinical results impacting the guidelines in the future. So we're happy to get that done.

Our next question will come from the line of Larry Biegelsen from Wells Fargo.

Congrats on a nice quarter here. Brian, I wanted to ask about the AHA data. I heard your comment about the WCD market growing low single digits. Are you already seeing an impact from the data -- any color on is this more share capture, more market expansion or both? Then I had a follow-up.

Larry, thanks for the question. And just to clarify, the market growth is low double digit is our calculation, which is up at least several points from the time of the IPO. So we are seeing the market expansion absolutely accelerate now. When it comes to the post clinical results presentation. We are -- it's a little too early to see it in the numbers, but anecdotally, we're absolutely seeing some really exciting cases of where our reps have been in front of clinicians telling our story, telling the stories of our clinical data and clinicians making different decisions than they had before.

I've heard directly from a handful of reps who said when I presented the data to our -- my position, they said I didn't realize the risk level was this high. I'm going to start thinking about this device for a broader speculate of my cases. So that's really good there for us. I think another really interesting data point. Obviously, with our data in [ NAND ], we're hitting the street and really working on the clinical education. And so our medical education team actually, in the month of December, this is sort of a fun fact. The month of December, we will be conducting more medical education events with providers than we have in Q1 and Q2 of FY '26 combined.

So we're getting after it. And so far, the feedback has been terrific, and the team is really excited to be out there talking about it.

That's great to hear. And Brian, could you talk a little bit about the rep productivity among the base reps and the new reps and your sales force hiring plans? I heard the 100 number, but the hiring plans following the recent secondary are you planning to accelerate your commercial plans? And are you willing to kind of tell us where you expect to end the year?

Yes. Thanks, Larry. If you recall, at the time of the IPO, we said we were -- we had about 70 reps at that time. We said over the next couple of years, we were going to double that. As I reported, we were up to about 100 reps now. I think we'll probably, in the next 6 to 8 months get close to having that doubling of that original number. So we definitely are right on plan with our hiring plan.

As I mentioned to Matt's question, we are going to be going through a planning process here over the next few months to kind of figure out what we want that rate to look like as we move into our next fiscal year 27. So we'll be taking that question up. And the nice thing is we have -- as I mentioned, we have the optionality now to look and say, okay, where might we want to evaluate an even accelerated plan.

Our next question will come from the line of Michael Polark from Wolfe Research.

Good afternoon. Maybe a question on the guidelines. Is there a vent path to identify for us, Brian, timing in a lot of these fields guidelines can take a really long time. And it sounds like you're in front of doctors with the message from all this data anyways. But are the guidelines nice to have down the road? Or do you view it as a needle mover? And if so, when might something like that be up for adjustment?

Yes. Thanks, Mike, for the question. First, let me just be extremely clear in saying that our exciting growth profile that we have planned for the next 5 years does not rely on the guidelines changing. There's no -- there's no reliance on that in our business plan. So having said that, we do believe that the clinical evidence warrants a review of that. Now the committee that is responsible for this is the Arrhythmia Committee that is a part of HA and HRS, they will meet on an ad-hoc basis when there's sufficient new evidence or a new product comes to market. So there's not a scheduled time for them to do that.

We will obviously be seeking to get the newly established evidence by both Kestra and our competitor in front of them, so they understand that maybe this is the time to start to reevaluate those guidelines. And we think there's a real reason -- there's a real recent real strong clinical reason for them to do that. So I don't know a firm guy meeting schedule, but I do think there's going to be some strong momentum for getting that ball rolling.

Helpful. And for the follow-up, the comment on the double-digit WCD category growth, just doing some napkin math here, you're growing 50%, you're maybe 10 points of the market. it kind of implies your competitor hasn't slowed down versus where they were. So you're not purely taking from them that is market expansive. And I'm curious just to confirm the math that the way you see your competitor, they're growing like they used to and you're adding on top of that?

Yes. I think the math is roughly -- first of all, Zoll, they released their their earnings results a month ago or so now. And they did call out this part of their business. So they reported a little over 5% growth in that business. So if we have -- we think we're probably at about 13% share now. So if we grow at 53% at 13% of the market, and they're growing at 5% or 87% of the market, you can do the math, and that's something we get there.

And I think it's just good data as we've ever had because in the past, they haven't really called out that specific part of their business separately. So we feel like that's a really supportable data point. We, of course, will buttress that data with our claims data that allows us to come at that from the other direction. But we feel pretty good about what that's telling us. And it definitely says that we're definitely taking share where we put reps, and we're also growing the market.

Our next question will come from the line of David Roman from Goldman Sachs.

I know there's been a lot of focus on the ACE-PAS data here and what they might be able to do for guidelines. But as you kind of reflect on what you're seeing on a day-to-day real-world basis, what are some of the things that you view as contributing to this acceleration in overall category growth? And as we think through things like the conversion rate and some of the other metrics that kind of inform the model on a go-forward basis, maybe just update us on where you think we are in some of the key drivers there, like the prescriptions to fitting and then the fitting to what's revenue and where you are on kind of average were time. I know I threw a lot out there, but I'll leave it at that for my question and follow-up then?

Yes. Thanks, David. And by the way, you was a little early. So I think I got your questions. I'll let Vaseem talk to the the conversion rate stuff. But when it comes to the clinical data and what we're seeing, I think the biggest impact of it is, it's -- everybody knows extraoral works. We've proven that patients will wear our device for extremely long periods of time, if necessary. So the remaining question was this question around risk.

And our competitor recently published a big German study which was a national registry and it was really a study that was trying to do and what the risk of cardiac risk was in these patients, including the non-ischemic cardiomyopathy patients. So now on top of that 19,000 patient study, we come in with a 21,000 patient study that has, among other metrics and has that data. And it confirms that risk level in an entirely different health care system, the United States system.

So now we have 2 different countries, 2 different systems that are both saying the same thing about the risk of these patients, especially in the first 90 days. that's the ever for these clinicians. They're saying, "I didn't realize the risk was that great and that's leading them to assess the decisions that they're making about ACDs. It is early. We're just getting started with the data, but the early returns are certainly positive.

Vaseem, you want to talk a little bit about the impacts of insurance coverage and in-network?

Sure. So David, thanks for the question. I think when I look at the conversion rate metric, I think we have made such tremendous progress over the last few years. And just to remind everybody, our conversion rate in fiscal year 2024 were 38%, fiscal year 2025 was 44%. And we just for this quarter, our conversion rate is going to be approximately 49%. So a huge, huge improvement.

And I think that kind of goes to the point that you were making there, which is all of those KPIs, whether it's a prescription fill rate or the in-network mix rate, which really drives the conversion rate and our collections performance, they're all tracking in the right direction, and we continue to make good progress on that. And our strategy for the in-network mix remains unchanged. As we have said in the past, we are deploying new reps into high prescription density areas and also deploying them into high coverage area.

So that's really helping us moved the rate along. And again, I want to remind everybody, the gap to close for us is not from 48% to 100%, it's just to those high 60s, which is where we think Zoll with 25 years.

Our next question will come from the line of Marie Thibault from BTIG.

I wanted to ask here quickly about the prescription volumes A couple of quarters here above 50%. Do you expect that to be sustainable? Or did you see anything kind of out of the ordinary in the quarter? And as part of that, are you also sort of seeing prescribers kind of alternate prescribers like physician assistant and nurse practitioners starting to join up as prescribers. Just would love to hear a little bit more of what you're seeing on the ground from the prescribers?

Yes. Thanks for the question, Marie. I think when it comes to the more 50% rate, we don't see anything that that will reduce that. We're winning not only are we further penetrating existing accounts, but we're also continuing to add additional hospitals to our account list. So we expect to continue to see nice prescription acquisition rates.

When it comes to the prescribers themselves, I think the typical prescribers for us, they're not all just the physicians. We get a lot of physician systems. We give a lot of other people in the providers who are actually executing on those. Obviously, under the under the umbrella of the position.

So when we talk about medical education and some of our strategies around that, especially with the clinical results, we're not just targeting physicians. We're also targeting and other clinicians in the practice because we know that they're really central to the strategy there. So I think the good news about the high prescription rate in Q2, was that -- that didn't have the benefit of the new clinical results. So I think those stood on their own and there was no sort of on-off events or anything else that you might point to and say, "Hey, that's a -- that's kind of an unusual event." This is just -- this is literally, as Vaseem said earlier, it's a day by day, week by week, month by month business and just out there competing every single day in the territories that we're in. And the fact is that we're winning where we're competing.

Yes. Very helpful and good point on ACE-PAS not being in the quarter. I wanted to follow up here then with any detail on sort of OpEx spending plans. I noticed a little bit of a tick up this quarter. Obviously, the new territory reps that would make sense. Is this kind of the new sustained level going forward? Anything you want to give us on cadence of OpEx going forward this fiscal year.

Marie, thanks for the question. And I think on the OpEx, we are in -- we are overachieving versus our kind of guidance that we had put out initially. And we know that, that comes with some level of investment and reinvestment. And we continue to make sure that we are deploying our investments into the 2 key areas, which is one expansion of the team; and two, on the revenue cycle management capability.

And as Brian has mentioned in the past, this is a service level business. We have to make sure that not only do we have the right level of coverage, we want to make sure that we have the right level of CapEx to support those teams. And at the same time, to be able to convert those prescriptions into cash and revenue, we have to have the right revenue cycle management capability. So again, we feel that the run rate that we are on will help us get to not only the guidance, but also continue to accelerate growth into 2027, and we'll continue to make those investments.

Our next question will come from the line of Travis Steed from Bank of America Securities.

This is Stephanie Piazzola, on for Travis. And congrats on a good quarter. Last quarter, you talked about the expanded clinical specialist role to support further penetration in existing accounts. So just wanted to follow up on that and see if there's anything you can share on how that strategy is going and the impact on the business and penetration within existing accounts since making that change?

Thanks, Stephanie, for the question. Yes, I think as we reported last quarter, we were we were starting to hire some clinical specialists to put those in some of our really high producing accounts. And the basic strategy there is once you get a hunting performance account up and running, you have a clinical specialist who can come in and really maintain that account and get that territory rep a little more bandwidth to go open up new accounts. And that's really the core of the strategy.

We started to implement that program in the last quarter, and we hired our first kind of cohort of those clinical specialists. So far, the feedback on that has been really good. I don't see this as a case where we're going to add 1 to 1 for every rep, but I do think that we will selectively put more clinical specialists out there to help manage just the day-to-day care and feeding of those significant accounts. So, so far, we're so good on that. The earning turns are positive, and we like the strategy.

That's helpful. And then for my follow-up, I just wanted to ask on gross margin, it was another great quarter of expansion there, reached above 50% and have talked about getting to 70% in the next few years. So I just wanted to follow up on the path to get there? And then any help in how we should think about gross margin for this year?

Yes. Thanks, Stephanie, for the question. On gross margins, again, as Brian mentioned in his prepared remarks, 8 quarters in a row, we have expanded our gross margins. And I think that goes back to the high sale that we have kind of constantly so we're going to develop something and done it. And we feel really good about the work that's gone into getting us to the 15% plus range. And I think the unit economics that we have talked about, plus the leverage that you get on the depreciation and the volume and the fact that the progress we are making with the in-network mix on on rev cycle is really, really helping us expand our gross margins.

And we feel at this point that. We have good clear line of sight to the margins in the next couple of years, and we'll continue that journey as we run more volume through the P&L. And as we continue to make progress on that in network mix, we should see sustained margins expansion in the near term and the long-term line of sight to the 70% plus gross margins.

Our next question will come from the line of [ Rick Weiss ] from Stifel.

This is Andy on for Rick. So last quarter, you hinted at the potential for new product or technology launches at Kestra could you give us a sense for what kind of innovation you might be working on? Are you focused on updating your existing systems or potentially developing completely new products?

Yes. Andy, thanks for the question. We're not ready to disclose our full product pipeline for competitive reasons, of course. But we do have we -- very intentionally design the Assure system to be 3 distinct platforms: the WCD platform, the wearable platform and the digital platform. And what we're doing is in our pipeline, we're innovating in each of those 3 platforms. Some of that innovation is extending our current capabilities to further differentiate our product. Some of that is bringing new capability, new therapeutic capability and diagnostic capability of the product.

I'll say this, we just published a 21,000 patient clinical study with an incredible amount of data, and we're going to follow that data to develop solutions for unmet needs and other patient conditions where our technologies can be useful. And that's really our focus. And I think if you look into the details of that data, it will give you some clues as to where we're going. And we're excited about using that data to help us to be an even better solution.

So we have a steady stream of innovation coming over the next 2 or 3 years, and we'll be excited to get that out into the market at the appropriate time. So thank you for the question.

I'm not showing any further questions at this time. I would now like to turn the call back over to Brian Webster for closing remarks.

Okay. Well, thank you, everyone, for joining the call today. And as we mentioned earlier, we're pleased with the quarter that we have. We've got a really exciting momentum going. And as I said, the core Kestra thesis is intact, and we're picking up steam on it. So we're excited about the back half of the year. And I'm very proud of the Kestra team for the -- the way the team is executed our business plan, every day, every week and throughout the quarter.

So thank you for joining us. We look forward to seeing you in the next call. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good afternoon, and welcome to the Kestra Medical Technologies 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. [Operator Instructions]. I would now like to turn the call over to Neil Bhalodkar, Vice President of Investor Relations for introductory comments.

Thank you. Thank you for joining this afternoon's First Quarter Fiscal 2026 Earnings Call. With me today are Brian Webster, President and Chief Executive Officer; and Ms. Vaseem Mahboob, 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 the current uncertainties, risks and assumptions that are difficult to predict. Actual outcomes and results could differ materially from any results, performance or achievements expressed or implied by the forward-looking statements due to various factors.

Please review Kestra's most recent filings with the SEC, particularly the risk factors described in our Form 10-K for additional information. Any forward-looking statements provided during this call, including projections of future performance, are based on management's expectations as of today. Castro undertakes no obligation to update these statements, except as required by applicable law.

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

Thanks, Neil. Good afternoon, everyone, and thank you for joining us on today's conference call. We are excited to discuss the strong start we had to our fiscal and the continued progress we have made in our key operational objectives. But before we jump into that, I'd like to again highlight the purpose behind the mission that drives the Kestra team.

At the center of everything we do are the lives we protect each day and the impact we have on patients, their families and the providers who care for them. Recently, one of our territory managers or sales reps, gave an overview of the ASSURE system to a provider where they discussed how the ASSURE system tracks hurt rate trends and how this capability can provide critical insights for identifying patients with previously undiagnosed arrhythmias.

The fact that patients could trigger their own ECG recordings, with a simple push of a button on their wearable best stood out to the provider. Soon after the impact of this capability came into sharper focus when the same provider prescribed the ASSURE system for a 53-year-old patient at elevated risk of synocardiac arrest.

The patient had hypertension, non-ischemic cardiomyopathy, frequent extra heart fees and a cardiac output injection fraction of just 3%. And during the fitting, the patient, Beyonce candidly share her anxiety about the unpredictability of our one condition to provide reassurance the care team advised that the patient triggered heart rhythm recordings twice a day. Those recordings captured repeated irregularities in the patient's ferritin.

The Kestra representative promptly pointed out the recordings to the physician illustrating the clinical value of patient triggered rhythm recordings and the broader role of the cardiac recovery system in guiding care. The insights were significantly not that the patient was scheduled for a cardiac ablation. However, before the patient was able to undergo the cardiac procedure, lifesaving therapy was necessary.

The patient laid down for a minute, after feeling unwell while sleep, they went into a dangerous rhythm that quickly progressed in the cardiac arrest. The ASSURE system detected this and delivered a shock saving the patient's life. In the critical moments that follow, our ASSURE Assist service quickly helped connect the patient to emergency care and the patient was safely transported to the hospital.

The story illustrates the full continuum of care that our cardiac recovery system provides. Equipping providers with insights to guide treatment, protecting patients with life-saving therapy when it matters most, and ensuring rapid emergency support in the vulnerable periods that follow.

And while this is just one patient's experience in the first quarter of fiscal 2026, our team and technology help facilitate many similar life-saving events. We remain humbled by this responsibility and by the trust placed in us by providers, their patients and their families.

With that, I would now like to turn to our recent performance. In the first quarter, we continue to reach more patients at risk of cardiac arrest, accepting over 4,200 prescriptions written for the ASSURE system, an increase of 51% year-over-year.

Revenue grew 52% year-over-year to $19.4 million. Continued improvements in revenue per fitting from higher in-network mix and reductions in cost per fitting from volume leverage drove the seventh quarter in a row of gross margin expansion. First quarter gross margin was 45.7% compared to 32.9% in the prior year period.

We expect continued gross margin expansion in FY '26 and remain confident that Kestra is on the path to 70% plus gross margins. With the strong revenue growth that Kestra is generating, we are seeing nice operating leverage in the business. This leverage supports the investments we are making in the company's key growth drivers that we believe will yield significant long-term value for Kestra and stakeholders.

A quick overview of the 4 of those growth drivers. First, we continue to expand our sales organization with the goal of further penetrating existing accounts as well as calling on new potential Assured prescribers. We are targeting geographies in which a high volume of WCD prescriptions re being written and where we also have strong in-network payer coverage.

As we noted on our last earnings call, we ended fiscal year '25 with approximately 80 sales territories. While this will not be a data point that we will be updating on a quarterly basis, I can say that our territory additions in the first quarter were in line with our hiring plan, and we continue to aggressively expand our sales coverage.

Of note, we also have an updated commercial strategy that includes an expanded clinical specialist role that will complement our sales territory managers. We expect that this strategy will support further penetration of existing accounts.

Second, we continue to make progress on improving our revenue cycle management capabilities while also bringing more payers and network. At the time of our right how 6 months ago, approximately 70% of our fittings were for patients with in-network benefits. This figure is now approaching 80%, the higher in-network mix meaningfully increases our team's efficiency and positively impacts all key RCM metrics.

It is important to note that there are over 3,000 payers in the United States. So there will be a long tail of regional and local players. We are working to bring under contract. The RCM actives increased the speed and rate of our collections are process driven, and we expect to see further improvements over time.

For example, in the early days of commercialization, we have a small RCM team that was not specialized. The same individual may have been tasked with following a claim from bidding all the way to cash.

Our RCM function has grown significantly, particularly in the last 12 months with team members specializing in specific areas such as prior authorization, medical review, toll management, et cetera.

Third, as you all know, we utilize a lease business model, our substantial investment in our fleet of devices, each with the capacity for approximately 3 patient wares 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 are continuing to add to our fleet at a measured pace as we grow our field team.

Fourth, we are continuing to build the body of clinical evidence supporting the safety, efficacy and benefits of the ASSURE system. We recently achieved a major clinical milestone with the conclusion of enrollment in our FDA post-approval study. This is a really significant achievement for the Kestra team and took a ton of really hard work by our entire team.

We were also recently notified that our study was chosen for a late breaker presentation of our clinical data at the American Heart Association Scientific Sessions, which will be conducted in November.

At the time that our bus approval study is presented, we expect this to be in the single largest study ever published in the WCD category. This is the biggest stage in cardiology for our exciting results. All of these growth drivers further our mission of protecting even more patients that are at risk of sudden cardiac arrest.

We have previously noted that despite the overwhelming evidence that an external Afibrillation shock is effective at terminating dangerous cardiac rhythms WCD therapy remains underutilized, reaching just 14% of the eligible U.S. patient population. That means 6 out of 7 patients that are indicated for WCD are not being protected by lung.

Last quarter, I shared with you 2 examples of hospitals that transition from underutilization of WCD to significantly expanding their use of WCDs by establishing therapy protocols with the ASSURE system as their preferred solution. I would like to share another data point that gives us confidence that the WCD market will continue to expand into a multibillion-dollar market over the coming years. The results of a large German WCD study sponsored by the incumbent competitor were recently published.

The SCD PROTECT study evaluating the risk of sudden cardiac death in over 19,000 patients in the first few months after they were newly diagnosed with heart failure or post myocardial infarction or heart attack. Despite why overall use of guideline-directed medical therapy drugs, the study found higher-than-expected sudden cardiac arrest risk in this patient population, suggesting a need for greater WCD protection in the early high-risk period of the patient's journey.

Investment in this study is further evidence that the incumbent is focused on market expansion to help make up for a lost share to Kestra.

In conclusion, the simplicity of the Kestra story continues. We are competing in a large existing market that is growing consistently in both unit volume and price. We have an underserved medical condition where we offer a clearly superior solution. We have rapidly closed the gap on payer endorsement of our product and we are implementing a commercial expansion plan to rapidly grow the business.

We are seeing strong execution across all elements of our business and the foundation we have built has positioned Kestra for strong growth this fiscal year and beyond. I would like to thank our incredible team in the field and here at the home office in Kirkland for their passion and commitment to the customer mission.

I will now turn it over to my partner, Vaseem, who will discuss first quarter financial results in more detail and provide our updated fiscal year 2016 revenue guidance. Vaseem?

Thank you, Brian, and good afternoon, everyone. Total revenue was $19.4 million in the first quarter, an increase of 52% compared to the prior year period. Revenue growth was driven by a 51% year-over-year increase in prescriptions reflecting market share gains with existing customers and activation of new accounts.

Gross margin was 45.7% in the first quarter compared to 32.9% in the prior year period. As Brian mentioned, we have now expanded our gross margins sequentially for 7 quarters in a row. The continued expansion in gross margin was driven by the attractive unit economics inherent in Kestra rental model, a higher revenue per fit from more in-network patients and a lower cost per fan, driven by volume leverage and our cost improvement projects.

Cost per foot decreased approximately 20% compared to the prior year period, while adjusted revenue per pet increased approximately 20% compared to the prior year period.

In the years ahead, you should expect to see steady and consistent increases in our gross margins as our rental model benefits significantly from the volume and depreciation leverage. We remain confident in our ability to achieve 70% plus margins over the next few years.

As we have discussed previously, higher in-network mix unlocks the power of the Kestra business model. You can see this in our steadily expanding year-over-year conversion rate. We ended the quarter with a conversion rate of approximately 47% compared to an adjusted conversion rate of approximately 40% in the prior year period.

The higher conversion rate reflected improvements in all 3 key drivers of our conversion rate, prescription fund rate, our bid rig and our collections performance. As we continue to bring more players in network and enhance our revenue cycle management processes, we will see benefits in our revenue growth, gross margins and our profitability profile.

Moving on. GAAP operating expenses were $37.7 million in the first quarter and included $2.9 million of nonrecurring new public company costs. GAAP operating expenses were $22.6 million in the prior year period. Excluding those nonrecurring costs and our stock-based compensation expense, operating expenses were $30.3 million in the first quarter of 2026.

The increase was primarily attributable to growth investments in our commercial and revenue cycle resources. GAAP net loss was $25.8 million in the first quarter compared to a GAAP net loss of $20.3 million in the prior year period. Adjusted EBITDA loss was $19.4 million in the first quarter compared to an adjusted EBITDA loss of $15.7 million in the prior year period.

Cash and cash equivalents totaled $201.2 million as of July 31, 2025. We continue to expect our existing cash balance to be sufficient for cast to reach cash flow breakeven and profitability. I would also note that based on our trailing 12-month revenue, an additional $15 million front of our existing term loan has become available to us to draw on through July 31, 2026.

At present, this tranche of $15 million remains undrawn. I will now provide an update on fiscal year 2026 guidance. We expect revenue of $88 million, an increase of 47% compared to fiscal year 2025. This compares to prior year guidance of $85 million.

Underpinning this guidance is our expectation that we will continue to see strong growth in prescriptions as our market share increases with existing customers and as we activate new accounts. We expect revenue per fit to continue to benefit from a higher mix of in-network patients and improvements in our revenue cycle management capabilities.

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

Certainly. Our first question for today comes from the line of Travis Steed from BofA Securities.

Congrats on another quarter. Maybe to start on guidance. Nice to see raised by more than the beat. Just helping us understand kind of what's driving the confidence to raise this much in beginning of the year and how to think about any cadence over the course of the year as we update our models?

Yes, Travis, thanks for the question. And I would say we certainly have a really strong Q1 and we're certainly bullish about the rest of the year. It's early in the year. So we're going to see if things play out over the next quarter or 2. But right now, we're comfortable with that guidance update. And I'm excited about marching into our second quarter.

All right. Great. And I wanted to maybe double-click on some of the end network mix things you mentioned. Just kind of understanding like what you guys are doing on the ground to improve the mix, where the mix can be over the course of this year and next few years and and maybe to think about the impact on gross margins as well as to go forward.

Yes. As we mentioned, at the point of IPO, we were about we have over 90% covered lives in the U.S., which just means that the total number of insurance covered lives in the U.S. We have about 90% of those under contract, but when you look at the actual patients that we're taking, that's the real -- that's where we get the real revenue from. And so we've seen that number go from 70% at the IPO to, as we mentioned here, about 80%.

We think that will continue a slow incline as we add more payers. There is a long tail, as I mentioned in my comments, of some 3,000 payers. So it takes a while to engage with the local and regional players. And quite frankly, there are some payers that we're just not going to get there on price. And so we're going to continue to work those. But you'll see those gradually go up as we engage more players.

And I think it's important to reinforce our strategy around when we are having sales territories, we're doing it, where we have known WCD demand and we have good payer coverage. So we're trying to be very efficient about territory expansion when it comes to that. But I think what you can expect is continuing gradual contribution from the in-network payers as we increase that. And then you'll see that impacting, overall, our revenue per fitting or per patient will continue to grow with that.

And our next question comes from the line of Rick Wise from Stifel.

Two things I'd like to follow up on a little bit. One, actually, you just touched on in your response to Travis, Brian, this notion, and you've said it from the beginning, this notion of expanding into areas where there's greater in-network opportunity or however, I should phrase the words, I know you know what I mean. Where are you in that process? And I mean, is there any way to quantify or give us a more granular understanding of like what happened in the last few months and what's going to happen now this year in terms of that kind of move. So just so we better understand where you are.

Yes. Thanks for the question, Rick. It's obviously important to our business model. I don't think you can think of the payer additions in a straight linear line over time. You have to think of it more as sort of the sawtooth curve because in one period, we may add a good-sized regional payer in the next period it may be some smaller regional payers that we're trying to add to support specific territories where we have a lot of demand.

So I think it will continue to go up and to the right, as we get more coverage and that will continue to benefit the business model, benefit our ability to go after these territories. It's really impactful when you're in a territory and you're a territory manager trying to sell your product and the competitor has insurance coverage, and you don't. That puts you at a disadvantage.

And so what we're trying to do with that strategy is we're trying to make sure that when we make the investment to add new reps, we're giving them all the tools that they need, including insurance coverage so that they can be successful.

And if I can add 1 more comment to that. I think -- and we've kind of talked about it in the past and one of the big things that we want to remind everyone is, when you think about the impact on the conversion rate as a result of the in-network mix we have said it that we don't have to go to 80%, 90%. What's baked into our financial model is for us to go from the high 40s that we are today to getting to the 50s here over the next couple of years.

So to Brian's point, as you provide coverage and conversions on that 3,000 towards a higher mix it will lend itself automatically to get to that higher conversion rate. But again, we don't have to get to all 3,000 immediately. There's just going to be a gradual process, and that's already factored into the messaging that we have had in the past.

Great. And Vaseem, I just wanted to touch on the -- as we reflect on the quarterly flow, I mean, obviously, this is a good quarter. You had a solid raise, very encouraging setting the stage as I think about the rest of the year. But help us think about the quarterly flow and I mean, with these extra wonderful few million we're adding to our model, is -- do we take our current models and -- is it more back-end loaded? Does it change the quarterly cadence? Just help us make sure our models are in the right place, if you would.

Yes, that's a great question, Rick. I think, again, what's really great about this quarter is now we've taken our guidance from being 42% year over growth to a 47% growth year-over-year. And as you guys have heard us communicated in the past, we are in a ramp. We are adding new territory managers, as Brian talked about. That's where most of the OpEx investment is going.

So as we have said in the past, there is a start and that ramp that needs to happen. So we should expect not to be back-end loaded, but we see a really nice steady increase in our top line as we go through the remaining of the quarters for the rest of the year. But really, really excited about having to raise the guidance by the levels that we have and just based on, as Brian said, the comfort that we take in the performance of the business in the first quarter.

And our next question comes from the line of Matthew O'Brien from Piper Sandler.

Would love to talk about the prescription number in the quarter because that was really strong. up about 300 sequentially. This time last year, we were roughly flat. So I would just love to hear about the improvements that we're seeing on the prescription side of the business. And I think I think you're now roughly annualizing to about 14% of all cases that you're going after right now. So just where can we think about the company kind of exiting the year in terms of percentage of all prescriptions being written for sure.

Yes. Thanks for the question, Matt. I think the good news in from my perspective in the prescription number is we -- because we are ramping the commercial team, we look at the metrics broken into a couple of different buckets. One bucket is what we call a base rep or a fully onboarded fully productive rep. And we look at the month-over-month, week-over-week, month-over-month, quarter-over-quarter metrics for those reps.

And the good news there is the folks that have been here been in the seat for a while. The metrics continue to improve with those reps. Now that's not the full story, of course, because we're hiring a bunch of new reps. And so the question is, can you get those reps on boarded? Can they get up to some productivity levels in a reasonable amount of time. And so we really aggressively track those numbers as well. And what we're seeing there is a similar story, which is they're coming up the curve.

They're hitting the kind of productivity numbers weekly, monthly kind of numbers that we're expecting. And so that bodes well. And that gives us confidence, which is why we continue to expand the commercial footprint. So the math you're seeing on the sequential growth is the impact of both of those effects on prescriptions.

Okay. That's helpful. And then just kind of staying on that topic, Brian. Just the reps are coming in, are they really focusing on the low-hanging fruit, which is really just converting existing accounts over to ASSURE from the competitor? Or are some of the more legacy reps really being more successful in kind of doing both, which is converting market share but also expanding the market because your commentary about the competitor and the clinical trial, I thought was interesting too, just given how underpenetrated the whole category is.

Yes. We -- I think that study is important because it's it's all us rise on the time, right? And that's going to really shine a light on ongoing need, especially in these heart failure patients. But Matt, when it comes to -- when it comes to getting these reps on board, we're really trying to be focused on getting them -- if you're a new rep, you're coming in and literally the day you open up your Salesforce.com instance, you've got all the appraisal of all the high prescribers and you know exactly what your initial targets are, and they are absolutely going to go there first.

Now the only caveat to that is some of these reps that we're hiring, they come in with preexisting relationships and they'll go to those relationships first. And some of those may not be the high prescribers. But I think in general, the strategy with the new reps is let's go where the business is and then go sideways from there and start to expand the market.

As I said previously, with the pre-existing reps or the already ramped reps, they have already done that. And so they're focused on further penetrating those accounts. But what they're also doing is they're going into new accounts and they're opening up new accounts that have not been big WCD prescribers in the past. And so that's part of how we're growing the market.

And our next question comes from the line of Lawrence Biegelsen from Wells Fargo.

Two for me. One, on the conversion rate, one back on market share. So Vaseem, what is the guidance assume for the year-over-year increase in the conversion rate? It looks relatively small, a relatively small increase is assumed for the fiscal year versus the first quarter, which looks like about 700 basis points.

And secondly, if I heard correctly, in network is now almost 80%, which is relatively high what are the drivers to get you to that best-in-class conversion rate that I think you said on the Q4 call was 76% from 47% today?

No, that's a great question. Thanks, Larry. So we've seen a consistent year-over-year increase in our cordon rate, and I'm happy to report that -- and as we've indicated here, we continue to make progress on all 3 elements of our conversion rate, and they're all trending in the right direction. Obviously, the biggest contributor of that converted rate is the improvement in the in-network patient mix, and that has gone up 10 points since the IPO, which is really positive.

And as Brian said, we'll continue to move that in the right direction. So our strategy is working. And I think the main focus areas for us on the conversion rate continues to be, as Brian mentioned, deploying the therapy managers into these high prescription and high bar regions. And that will organically happen as the commercial team expands and that will continue to that positive growth in the conversion rate.

Secondly, we are focused heavily on, as Brian mentioned, again, on these Tier 2 for example, we signed Oscar Health last week, which is a nice small program. It's regional. And so there will be a lot of those that are in the queue and the market access team is working on those. Finally, not the least as we continue to invest in the RCM team and has the capability to have on people and process on systems, so we do all of that, what's reflected in the guidance here is about a 2.5, 3-point increase in our conversion rate.

And we think it's very achievable. And obviously, we've got a lot of game to play here in the remainder of the year. So you'll continue to see that progress on the conversion rate. But again, what we have said in the past, we are -- the conversion rate is a year-over-year metric that we got to assess that, and we'll continue to drive improvements on the day.

That's helpful. Brian, on market share, the press release talked about category leadership. So I guess my question is maybe back to math 14%. Where do you think you are today? And is it prescription share, fitting share -- and what's the -- how long is it going to take to achieve category leadership?

Yes. Thanks, Larry. I think time will tell how long it takes us to get to that position. But I think there's a couple of different drivers that I would say. With regards to where we stand today, we're probably somewhere around 12% market share is my math. I would say that the key driver, now that we've got the insurance coverage in place and we've got a high percentage of our patients are coming in with coverage. That's not as big a focus as just pure sales coverage is. And right now, we're a little over 50% of the U.S. do we have covered in terms of actually having a rep in a territory.

Now that doesn't mean we're 50% of the competitor. It means that in a city like pick a city like let's call it, Minneapolis, we might right now, we don't have a rep there. They might have 3 reps there. So when we put a rent in there, we would say, at least we've got representation there. So right now, we're still just a little over 50% territory coverage in the U.S. So we've got a lot of room to go in terms of being able to cover the market.

And we're going deep in certain territories that we know are high-producing territories now. but also, you'll see us starting to broad that out and cover some of these other territories in the future. But that's going to be the biggest driver. The rate at which we do that will determine how quickly we can get to that category leadership position.

Our next question comes from the line of Michael Polark from Wolfe Research.

Brian, I want to follow up on one of your prepared remarks comments about the expanded clinical specialist role to complement certain territory managers to penetrate existing accounts. I guess can you just help us better understand, I was under the assumption you had specialists already. what's the expanded role look like what is this person doing that's different? And how are they incentivized? And is this something you expect to deploy for all territories? Or is this to be focused on the biggest accounts? Any color here would be helpful.

Yes, Mike, thanks for the question. So -- and we'll start by just going back to the service model that's inherent in this category. At the point in time that we receive a prescription from a prescriber they are expecting that within 24 to 48 hours, we will have come in and fit and train that patient and allow them to then discharge the patient to go home. So there's a heavy service model that has to be deployed here, which really informs the way the rate at which we bring in new territories and open up our commercial footprint.

And so as part of that, -- what we recognize is as we get strong penetration into certain accounts, we can start to adopt a model where some of the account management responsibilities can be transitioned away from the sales representative over to a clinical specialist. And that allows then that sales representative to go and cultivate new prescribers and new accounts. And so that's the strategy. It's a partnership.

What we will initially be doing is putting those roles in some of our high-performing territories where we've already demonstrated the ability to go in and capture significant market share, so that we can give those rents some leverage to be able to go and expand beyond those accounts.

And then as we see the progress we make in that, then we will -- that will really determine how far down the scale we go when it comes to adding those resources. But it's a -- I think it's a strategy that's not an unusual strategy in medtech. We've seen it in other categories. It's one that I think will be successful for us, but we will start with the high performers and kind of go from there.

That's helpful. The follow-up is on the late breaker coming at AHA for your post-approval study. Can you remind us just some of the high-level specs of that post approval study size, kind of focused patient the period in which it enrolled. And then without -- if you want to preview the data, great. But what would you hope this shows? Is this going to be a narrative changing on patient compliance? Is that the major hook? Is it simply just scale of quality data solidifies the pitch? Is it differentiated insights on the MI versus the heart failure patient, the first MI patient. What -- the solid of this presentation will you hope, be what?

Well, shall I just read the whole presentation to you now, Mike, and then we'll just come to the chase.

Obviously. You're free to do that. This is a public forum.

Yes. Yes, look, it's really a significant milestone for the company. We started the post-approval study soon after we launched the product. So we've been at it for about 3 years, and we expect that the study will have somewhere between 24,000 and 25,000 patients in it. And that's a huge body of work to be deriving clinical results from. The endpoints of the study include shock success rate or call shock success rate. That's the primary endpoint and safety end point will be inappropriate shocks.

And then we have other endpoints that we will report on around false alarm rate and also patient compliance. So those are sort of the big 4. Now as you start to peel back the onion on this incredible set of data, then you have the opportunity to report on some of the differences between the post-MI patients in the non-ischemic patients and lots of other data that we expect will be published out of this data set over the coming quarters and the next couple of years.

So the report out at HA will be -- it will be big news in that one of the biggest competitive points in our -- the incumbent competitor [ Mace ] about Kestra is we don't have as much published clinical data as they have. Now when we bring a 25,000 patient study to the table, it takes that argument, and it varies it really deep in the sand because we now have an incredible body of clinical data that we can point to and we're really excited about putting that objection away once and for all.

So we're excited about it. We don't have all the analytics completed yet, but we did recently get the late-breaker notification and it's a big milestone for the company, a big milestone for a lot of folks have been working incredibly hard. And I think what you're going to find is that the promise that we've made with the ASSURE system is going to come to light in the form of that clinical data coming up just in a couple of months.

And our next question comes from the line of Daniel Dams from Goldman Sachs.

Key topic at last week's HRX conference was on compliance rates and that it still remains a key barrier on WCD utilization. Can you just detail a little further what you are seeing and how compliance rates are evolving across your user base as experience grows?

Yes, sure. Thank you for the question. I would say that compliance in any at home vision and any at-home category, whether it's blood pressure monitoring or drugs or wearables like ours. Compliance is the single biggest challenge and the therapies don't work if the patients aren't willing to take them, use them wear them.

And so compliance has been single biggest priority for us as we designed our product. And we think about compliance in 2 different ways. We think about what is the daily average sort of the median daily rate wear time? And then is the -- what does that wear time look like as you go from 1 month to second month to third month and beyond.

In other words, do they continue to be compliant. And so I think our metrics are pretty clear -- we've published before that our daily median rate is over 23 hours a day. That answers that question. very clearly that patients are willing to wear our product.

And then the second half of that, which is what's the duration that they're willing to wear and you see a downward slope in the curve, over time can they get sick of wearing it. And the answer to that is remarkably sound that once patients -- once they get past that sort of first week of wearing our device, they will wear it through the duration of their prescription.

And that means that they can tolerate it not just for the short term, for the long term, and that gives them the protection that they need. So these are the 2 goals that we had, as I mentioned, and we feel really good about the way our data is tracking for those goals.

That's very helpful. And just the second question is just on the cadence of OpEx investments through the course of the year. Last quarter, we had talked about some of the investments the new commercial offer was making. We've discussed the new territory manager expansion today, but any color on the pace of those investments through the rest of the year and what those might be focused on? I think the name of the game is going to be steady and measured.

We are adding to our commercial footprint, as we've talked about. I think last quarter, we talked about the prior quarter, we got a little bit aggressive with some of our OpEx because we had an opportunity to really invest in the leadership team and the training capability of all these new reps, et cetera.

Now as we go into our new fiscal year, we have a business plan for the year. We're executing to it with pretty tight precision at this point. And what you're going to see is steady additions to the team so that we can consume those new territories and those new territory managers and provide them with all the support that they need to be successful.

And I think that's really the strategy behind of the base. This is not a -- this is not one of those categories where you can just say, hey, I'm going to go out and hire as many reps as I can as quickly as I can. That's not the game. We want high-quality reps that are going to come in, do a great job of serving our customers and their patients and really build a durable commercial team. That's our strategy.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Brian Webster, President and CEO, for any further remarks.

Okay. Thank you, and thank you for the great questions. I think, again, the story of Q1, we're off to a new start in a fiscal year. And it's an exciting start, but we've got a business plan. We're executing to that plan. And I'm thrilled by the level of commitment that the Kestra team has and the culture that we're building around performance and commitment. And we're looking forward to getting back with you all in 90 days or so and give you an update on Q2.

We continue to put a really bright shiny light on the focus we have around patients and the lives that we save every day, every week, we report on those to our team. Every Monday, we report on the patients' lives that we're saying by our product last week. And that continues to be the guiding line for this company and will continue to be so. So thank you for attending today, and we look forward to updating you again in 90 days. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good afternoon, and welcome to Kestra Medical Technologies Fourth Quarter Fiscal 2025 Earnings Conference Call. This conference call is being recorded for replay purposes. [Operator Instructions]

I would now like to turn the call over to Neil Bhalodkar, Vice President of Investor Relations. Please go ahead.

Thank you for joining Kestra's Fourth Quarter Fiscal 2025 Earnings Call. With me today are Brian Webster, President and Chief Executive Officer; and Vaseem Mahboob, 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. 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-1 and the annual report we'll 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.

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 in summer, beautiful summer day. We're excited to discuss the details of our strong performance in the fourth quarter and the significant progress Kestra made in 2025.

Before we jump in, I'd like to share a patient story with you that demonstrates why the Kestra team is so passionate about our mission and the incredible impact our products and people have on the lives of patients.

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 23 hours per day for more than 2 months. This highlights the effectiveness of patient education at the time of fitting and the comfort of the ASSURE system.

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 our 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. She's alive today because everyone played their part: the team, the technology and the patient herself.

This is just one patient story. In fiscal year 2025, 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. In the fourth quarter, we continue 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 Kestra generating revenue of $17.2 million, 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 '25 gross margin was 44.3% compared to 13.9% in the prior year. In fiscal year '25, gross margin was 40.5% compared to just 1.3% in fiscal year '24. We expect continued improvement in fiscal year 2026 and remain confident that Kestra is on the path to 70% plus gross margin over the next few years.

With the strong revenue growth that Kestra 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.

First, we continue to expand our sales organization with the goal of further penetrating existing accounts and also calling on new potential ASSURE 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 '25, 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.

Second, we 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 285 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 a lease business model. When a patient's wear time is concluded, the ASSURE device is returned for reprocessing and reintroduction into Kestra's distribution system. Our substantial investment in our fleet of devices, each with the capacity for approximately 3 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 365 patent assets. On the product development front, our team has some exciting projects in flight to further extend our clinical advantage with the performance of the ASSURE system and also bringing 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 96%, and a false rate of only 6%. This extremely low false alarm rate compares very favorably to the 46% rate reported by the competitor's device. This has contributed to a median daily use of 23.2 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 furthered 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 14% of the eligible U.S. patient population of 850,000 patients annually. That means 6 out of 7 patients that are indicated for WCD are not being protected by [indiscernible]. 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 device.

What the science shows about WCD is that if a patient wears the device and they experienced 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 Kestra.

I would like to highlight one such market expansion study. At the start of fiscal year 2024, two regional hospitals within a large integrated health system in the Midwest had little to no adoption of WCDs. 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 2024. Providers were largely unaware of updated clinical evidence and existing guidelines and therefore, continue to rely on outdated methods of protecting their patients. Through focused education, in-service support and streamlined coordination with case management and EMR teams, Kestra helped shift clinical behavior. Within a year, that hospital had placed 74 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 6 WCDs prescribed in fiscal year 2024 to 52 in fiscal 2025. As you can see, within 12 months, both hospitals transitioned from underutilization to establishing a WCD protocol with the ASSURE system as the preferred solution. It's important to note that these weren't just simple market share conversions. 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. 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 2026 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 2026 revenue outlook. Vaseem?

Thank you, Brian, and good afternoon, everyone. As Brian noted, total revenue was $17.2 million 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 2025, total revenue was $59.8 million, an increase of 115% compared to fiscal year 2024. In both the fourth quarter and in fiscal year 2025, revenue growth continued to benefit from a higher mix of in-network patients and improvements in our rev cycle management capabilities.

Gross margin was 44.3% in the fourth quarter compared to 13.9% in the prior year period. For fiscal year 2025, gross margins improved from -- to 40.5% from 1.3% in fiscal year 2024. 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 3 key drivers of our conversion rate: our prescription fill rate, our bill rate and our collections performance. For fiscal year 2025, our revenue conversion rate was 46.8% and adjusted for onetime items, it was 44.1%. This compares to 38.4% in fiscal year 2024.

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 3 medical device, and as such, is not subject to competitive bidding.

Moving on. GAAP operating expenses were $55.8 million in the fourth quarter and included $22.3 million of stock-based compensation expense and $3.8 million of professional services expenses related to the company's IPO.

Stock-based compensation expense of $22.3 million in the fourth quarter included the nonrecurring impact of 2 organizational items at the time of our IPO in March. First, we recognized the impact of accelerated vesting of incentive units as Kestra transition from a privately held company to being a public company; and second, the issuance of stock options to company's team members. Excluding stock-based compensation and professional services expenses related to the IPO, operating expenses were $29.7 million in the fourth quarter compared to $21.4 million in the prior year period. The increase was primarily attributable to growth in commercial and revenue cycle resources.

For fiscal year 2025, we reported GAAP operating expense of $130.6 million, which included $24.3 million of stock-based compensation expense. Excluding stock-based compensation and professional services expenses related to the IPO, operating expenses were $100.6 million in fiscal year 2025 compared to $83.9 million in fiscal year 2024.

With Kestra'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 million to GAAP operating expenses in fiscal year 2026. GAAP net loss was $51.1 million in the fourth quarter compared to GAAP net loss of $22.3 million in the prior year period.

Adjusted EBITDA loss was $20.3 million in the fourth quarter compared to an adjusted EBITDA loss of $16.5 million in the prior year period. For fiscal year 2025, GAAP net loss was $113.8 million compared to GAAP net loss of $94.1 million in fiscal year 2024. Adjusted EBITDA loss was $68.4 million in fiscal year 2025 compared to an adjusted EBITDA loss of $72 million in fiscal year 2024. Cash and cash equivalents totaled $237.6 million as of April 30, 2025.

I will now provide our fiscal year 2026 guidance. We expect revenue of $85 million, an increase of 42% compared to fiscal year 2025. We expect prescription growth to be driven by a higher share of wallet with existing customers and activation of new accounts. 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 Kestra 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 underpenetrated WCD market opportunity.

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

[Operator Instructions] Our first question of the day will come from the line of Travis Steed of Bank of America.

This is [ Stephanie Piazzola ] on for Travis. 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 million revenue guide and how we should think about some of the key assumptions like market growth and market share capture and commercial organization expansion and the conversion rate?

Thanks, Stephanie. This is Brian. 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 in 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.

Yes. Thanks, Brian. So Stephanie, our revenue growth, as Brian said, is historically being 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. 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.

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 [ vest ] 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.

Yes. 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 those flow through the P&L.

And our next question will be coming from the line of Michael Polark of Wolfe Research.

Brian, I want to follow up on one of the things you mentioned in your script, you said sole source -- you won a sole source contract with a risk-bearing provider network. Can you talk more about, is this special? If so, why the customer made this decision and why the customer didn't want to dual source? And to what extent this could be emblematic of emerging trends in the market?

Yes. Thanks, Mike, for the question. And by the way, congratulations there, daddy. And yes, I think the -- 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, 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 or 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. 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 kind of patients.

Can I ask one for Vaseem on the guidance. Just obviously, you have an unusual quarter and 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?

Yes. And thanks, Mike. I think from our perspective, I think the prescriptions in terms of our growth rate, we are saying we're going to grow our prescriptions on average 40% for every quarter as we head into fiscal year 2026. And then in terms of the phasing, there's always a timing component to when we actually do the fittings and when we actually convert that into cash. And as we have said, the conversion rate is the best indicator for 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, and that's how the business is built from a seasonality perspective.

And our next question will be coming from the line of Matthew O'Brien of Piper Sandler.

Great. I guess there's 2 things that kind of stand out, I think, from this print that will 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. But if I look at the absolute growth in dollars year-over-year, '25 was about $32 million, and you're guiding to about $25 million in '26 fiscal, and that's with improved conversion rates, bigger sales force, et cetera. So that absolute deceleration probably is going to give some attention. Is there anything of competitive response-wise, et cetera, to really call out as far as why, on an absolute basis, it would be even better in fiscal '26 versus '25? And then I have a follow-up.

Yes. 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 was previously a long-term monopoly. But nothing out of the ordinary. 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.

Vaseem, any other comments?

Yes. And I think, Matt, if you remember, we talked extensively about this as part of the IPO and in conversations since then with investors. The fact that we were with those 48 territory managers that we talked about at the end of fiscal year 2024 and the fact that we were in cash consummation mode, we have added reps in the second half of last year. And if you remember, we actually very clearly talked about the -- as those reps are scaling up, and this is the time frame in the first half of the year when they really ramp up and start contributing, they're already contributing in a very nice manner.

So just the normal scaling up and the territory ramp-up that we have talked about in the past, that's really driving the guidance. There's absolutely no change in the model, if you will, or the assumptions in the model that would lead you to believe that there's a slowdown or any issues. So we feel really excited about the quality of the talent that bringing in and the fact that we're actually able to fill them so quickly is a testament to, again, the [ standing ] of the company from the past.

Got it. And then, Vaseem, this question is for you. You beat my model anyway by about 10% here in fiscal Q4. Nice to see gross margin lift here a little bit. I would have expected, I think, a little higher improvement in the gross margin side. I don't know if there was extra expediting costs 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, it's a little bit worse on a loss basis. So anything else just onetime there to call out? Anything changing in terms of cost structure of the business to think about in fiscal '26?

So on the top line, first of all, starting on 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 2 things. One, we are making the transition to a public company. So we did see slightly higher professional fees related to accounting and legal and just general public company costs.

And then the second one is we have brought in a new Chief Commercial Officer, and he is making some investments and some enhancements to the leadership within the commercial organization that's going to drive a little bit of a higher run rate on OpEx.

So there's -- those are investments that you want us to see. 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 fitting. 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&L.

Our next question will be coming from the line of David Roman of Goldman Sachs.

Maybe we can start on the 44.8% 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 of 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 sales force expansion to getting the message out, clinical data that might drive greater adoption? Is it payer coverage? Maybe help us think about the bridge to what drives that 44.8% higher and which are the metrics you can most readily influence?

Yes. So David, thanks for the question. And again, we have talked about the 3 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 false alarms, we think we can make more progress than our competitor has.

On the second bucket, which is really the ability to convert their 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 on getting more patients in-network. And as we have said, being in-network totally unlocks the rental business model.

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 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, listen, we're making the right investments. We're investing in the team, investing in the capability and we have -- it's just process. So we're going to be able to close that gap soon.

So overall, like I said, all 3 elements of our conversion rates are trending in the right direction, and we really feel confident about where we're going into fiscal year 2026 and beyond.

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 Kestra that may not be fully contemplated in the outlook today or on a longer-term basis?

So let me take the [ zole ] or the incumbent and what we have and the best information. We know that the -- 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. The results have 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 to be some flux on the payer landscape. So we think that they're in that 95% range. And then on collections, [ DME ] best-in-class is 95%.

So when you do the math on that, David, you come up with a potential best-in-class conversion rate of 76%. And let me just remind you fiscal year 2026, we are expecting to be at 46.6%. So not only have we made good progress from where we were back in fiscal year 2024 at 38.4%, we think it's the single biggest opportunity in front of us outside of all of the other commercial execution we got to do.

Brian, do you want to comment?

Yes. I think, David, on your second question, it's a little early to sort of unpack that, what the real meaning of that announcement is going to be. But I will say that we believe that we're in a space and positioned really well for ambulatory patients. I mentioned our post-approval registry where we've got 20,000 patients worth of data now well, that's going to 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 put our system on the patient, they go home, they wear it because it's -- they can tolerate it and they are willing to wear it. And then we can monitor them and 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 actual tailwind at this stage.

And the next question is coming from the line of Rick Wise of Stifel.

Did you call me? The line broke up. Do you hear me okay?

Yes, we can hear you.

Okay. Great. Just to start off, I was hoping, Vaseem, you -- or Brian, you could expand further on your comments. I think you said several times about considerable operating leverage ahead. Obviously, Brian, I heard your commitment or recommitment to the 70% plus over the next few years. But you spent a little more on the OpEx side this quarter, Vaseem same.

Maybe help us better understand the key drivers of the operating leverage 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 going to see more of that clearly compelling operating leverage visibility.

Yes. I'll start that, and then Vaseem, you can jump in. I 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 to expand. We think that gross margin expansion will occur at a rate along with the revenue generation that allows us to be growing that top line at a much faster rate than we're growing the OpEx line. Even though we're clearly making investments in OpEx and investments in the commercial team as we've said consistently, as well as continuing investments in R&D and the rev cycle management capabilities.

So we think there's a really exciting opportunity to see the operating leverage of the business model. But 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 the leverage that we want to that P&L.

I don't know, Vaseem, any other comments?

I think, Brian, I think we talk about the concept of leverage, Rick, all the way down the P&L. And I think the prescriptions are going to be up 40%. Revenue is going to 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 the gross margin numbers that you guys have already put in your models and with the consensus number, which we are, at this point, [indiscernible] and saying we have 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. So our OpEx for the year will be 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.

Got it. And Brian, you highlighted innovation, continued innovation and exciting products on [ top ], I think you said, and new products. Again, you said it several times. I feel like you're being a little more emphatic, 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 generation of existing products? How should we think about that innovation and the timing and the impact?

Yes. I appreciate that question as well, Rick. We're being a little careful just for competitive reasons about the level of detail on 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 #1 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.

And then job #2 is we have additional patient situations that we believe we can bring therapy to help, and then we can add more features and capability to the cardiac recovery system.

And then job #3 is really how do you make sure that you're going to 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. We'd be happy to do that because we have a great team of clinical people and engineers that really know how to innovate.

And our next question is coming from the line of Larry Biegelsen of Wells Fargo.

This is [indiscernible] back 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?

Yes, [ Nathan, ] thanks for the question. I don't think we've announced any plans for doing that at this point. But what we've been pretty laser-focused on is executing to the post-approval study. And when you -- I'm sure you can appreciate that 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. 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 advisers that we're working very, very closely with. And we are very anxious to 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 an exciting work. We've got a lot 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.

Great. And just for my follow-up, I know you talked about cadence for fiscal '26. But any finer point you could put on fiscal Q1, whether consensus numbers are kind of in line with your expectations for the quarter?

Yes. And I think, [ Nathan ], unfortunately, we don't provide quarterly guidance. But at this point, I'd say is again, I think Matt asked that question earlier, I go back to the messaging when 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 to 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. But we're very comfortable with the numbers that are out there. And I think this guide just supplements our commentary.

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.

Okay. Well, thank you, everyone, for joining our fourth quarter fiscal year '25 earnings call. As we've -- as you've heard on the call, we're excited about the strong close we had. It's a big year for Kestra. Executing an IPO is a heck of a way to distract an organization from executing on their business plan. 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 look forward to getting everybody back up to speed on the next call. Thank you very much.

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