Transcript: Kestra Medical Techs Q1 2027 Earnings Conference Call

Kestra Medical Techs (NASDAQ: KMTS ) released first-quarter financial results and hosted an earnings call on Monday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

5%. The company has raised its fiscal year 2027 revenue guidance to $141 million, representing 48% growth, driven by market expansion, improved revenue cycle management, and increased in-network patient mix. Strategic initiatives include investments in AI and automation to enhance patient support, revenue access, and commercial demand acceleration, with a focus on improving key operating metrics and achieving mid-70s gross margins in the coming years.

Operational highlights include territorial expansion and increased share in the WCD market, with a reported 14% market growth and significant opportunities in underpenetrated areas, including a new contract with a major national payer. 1 million. Full Transcript OPERATOR Good afternoon, and welcome to Kestra Medical Techs' first quarter fiscal 2027 earnings conference call. This conference call is being recorded for replay purposes.

We will be facilitating a question-and-answer session following prepared remarks from management. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Nilodkar, Vice President of Investor Relations, for introductory comments. Nilodkar, Vice President of Investor Relations Thank you.

Good afternoon. Thank you for joining Kestra's first quarter fiscal 2027 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. During today's call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Please refer to our earnings release for a reconciliation of these measures to their most directly comparable GAAP financial measures. With that, I will turn the call over to Brian. Brian Webster, Chief Executive Officer Thanks, Neil. Good afternoon, and thank you for joining us on today's conference call.

We're excited to discuss the strong financial performance we had in the first quarter and the continued progress we are making on our key operational objectives. I'd like to begin, though, with a reminder of the purpose behind our work: providing innovative, intuitive medical technologies that protect and support at-risk patients. That mission guides both the technology we create and the experience we deliver, helping patients remain engaged, connected, and protected throughout their care. One patient's experience this quarter demonstrates how those forms of protection work together.

The patient was prescribed the ASSURE WCD for protection during the high-risk period between removal of his implanted defibrillator and a scheduled lead extraction. Shortly after fitting, the ASSURE system recorded more than 120 diverted therapies in one night, prompting immediate outreach from our Heart Alert Services team. The team learned the patient was driving alone through rural Utah with his two dogs. He initially resisted seeking care.

Heart Alert Services remained in close contact until he agreed to go to the nearest emergency department. The team sent his clinical reports. They had the support team at the emergency department. Upon arrival, clinicians determined he needed to be airlifted to a Las Vegas hospital for specialized electrophysiology care.

After eight days in the hospital, he underwent a successful lead extraction and received a replacement device. This case demonstrates the differentiated value of our integrated care model. ASSURE provided continuous protection and clinical insight, while Heart Alert Services turned that insight into action, moving a patient from unseen risk to urgent, specialized care—in this case, across state lines. This is the Cardiac Recovery System platform in action: therapeutic protection, clinical insight, and responsive support working together when it matters most.

I would now like to turn to our recent financial performance. In the first quarter, we continued to reach more patients at risk of dangerous cardiac arrhythmias while delivering another quarter of strong financial performance. Revenue advanced sequentially off a strong fourth quarter and grew 60% year over year to $31 million. 5% increased over 10 points year over year and 175 basis points sequentially.

This was the 11th quarter in a row of sequential gross margin expansion, demonstrating the attractive unit economics and volume leverage of our business model. Based on the progress to date, we are increasingly confident that Kestra Medical Techs can achieve mid-70s gross margin percentage in the next few years. This represents a meaningful increase from our previously communicated target of 70%. Importantly, though, Kestra Medical Techs is not simply a gross margin story.

With strong revenue growth and gross margin expansion, we are enhancing the operating leverage in our business. This leverage supports investments we are making in key growth drivers that we believe will yield significant earnings power and long-term value for Kestra Medical Techs and its stakeholders in the years ahead. We have been deliberately building towards this point. For example, we have invested in building the foundational technology stack needed to scale the business, including cloud platforms, enterprise data capabilities, workflow automation, and system integration layers.

Those investments are now enabling the next phase of value creation through AI and automation. Our AI roadmap is highly disciplined and firmly grounded in measurable business outcomes. Every initiative is linked to a specific operating KPI and evaluated based on its ability to improve growth efficiency or enhance scalability. We are initially prioritizing three areas where we believe AI and automation can create significant value.

First, patient support and adherence, where AI-powered patient support agents and automated outreach can help maintain patient engagement and wear compliance while increasing the productivity of the Kestra Medical Techs team, supporting a rapidly growing patient base. Second, revenue access and collections, where automating intake, prior authorization, and reimbursement workflows can improve our fittings-to-claim conversion and collections while materially reducing administrative effort. And third, commercial demand acceleration, where AI assists our sales representatives with call preparation, follow-up, account prioritization, and clinical documentation.

The objective here is straightforward: increase rep productivity as measured by patient fittings per rep without requiring a proportional increase in headcount. Together, these initiatives demonstrate the leverage in the technology foundation we have built and how AI and automation can improve key operating metrics while bending the operating expense curve as transaction volumes continue to grow. Turning to our commercial organization, our territory managers are continuing to win share in competitive accounts while simultaneously expanding the WCD market as prescribers increasingly recognize the benefits of protecting more patients than they have historically.

Our newest reps are ramping faster than prior cohorts, while our legacy reps continue to generate strong growth in same-store sales in some of our largest markets. We have been deliberate and strategic about splitting high-volume platinum territories to go deeper and reach more prescribers in existing accounts. We are finding that when we split a territory and a clinical account specialist—more feet on the ground, closer to the customer—compounds growth. It's how we ultimately turn a foothold into a fully penetrated account and put both territories on a path to becoming high-volume platinum territories.

This is a powerful model for growth and operating leverage. Higher territory manager productivity is a meaningful driver of operating leverage and also positions us to more effectively capitalize on a significant growth opportunity ahead of us, given how underpenetrated the WCD category remains. As we have previously noted, despite the overwhelming evidence that an external defibrillation shock is effective at terminating dangerous cardiac rhythms, WCD therapy remains underutilized. In 2025, six out of seven patients that were indicated for a WCD were not protected by one.

This statistic speaks to the enormous potential in front of us. The innovation and clinical evidence we have brought to the category is beginning to change this. Based on our financials and those of the incumbent, the WCD market grew approximately 14% on a dollar basis in the 12 months ended July of 2026. We believe 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.

Turning to market access, we continue to bring more payers in network while also making progress on improving our RCM capabilities. At the time of our IPO 18 months ago, approximately 70% of our fittings were for patients with in-network benefits. This figure is now in the low 80s, and we expect this to increment higher in our FY27 as we sign new contracts in target markets. Higher in-network mix meaningfully increases our team's efficiency and positively impacts all RCM metrics, including revenue per patient.

S. Department of Veterans Affairs. S. and covers 9 million members, nearly 50% of whom are over the age of 65.

Over the last six months, we have seen a steady increase in volumes at the VA and still have a significant multiyear opportunity to grow our share within these facilities. , so there is still a long tail of regional and local payers we are working to bring under contract. Of note, this month a significant national payer has expanded their coverage to non-ischemic patients undergoing guideline-directed medical therapy. This is the first time this large payer has covered both the ischemic and non-ischemic patients.

This is significant since over 60% of the typical WCD populations are non-ischemic. We believe this is a strong signal that the recent clinical evidence is having an impact on payer policies for WCDs. Innovation also continues to be a central area of focus and investment for Kestra Medical Techs. We are progressing as planned with our Biomed Technologies partnership to integrate noninvasive blood pressure monitoring into the ASSURE platform.

In addition, our team is completing an exciting late-stage R&D project intended to further extend our clinical advantage with the performance of the ASSURE system and also bring new first-in-category capabilities to the market. We expect to discuss this further in the next quarter. Over time, we believe innovation will help us accelerate market growth and 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.

In conclusion, the fundamentals of Kestra Medical Techs' story have never been stronger. Our product differentiation is clear and compelling. The WCD market is expanding rapidly with tremendous room for further penetration. Kestra Medical Techs continues to deliver top-tier MedTech revenue growth.

Gross margin has expanded consistently, and meaningful opportunity remains. We have a strong balance sheet, and our execution continues to be crisp, and the foundation we have built positions Kestra Medical Techs for strong and durable growth for years to come. I'd like to thank our incredible team in the field and also here at the home office in Kirkland for their passion and commitment to the Kestra Medical Techs mission. I will now turn it over to Vaseem, who will discuss first quarter financial results in more detail and provide our updated fiscal year 2027 revenue guidance.

Vaseem Mahboob, Chief Financial Officer Thank you, Brian, and good afternoon, everyone. We had a strong financial performance across the board in the first quarter. Total revenue was $31 million, an increase of 60% compared to the prior-year period. Revenue growth was driven by continued WCD market expansion, competitive share gains, a higher mix of in-network patients, and ongoing improvements in our revenue cycle management capabilities.

We continue to see improvements in all three key drivers of our revenue model: our prescription fill rate, our bill rate, and our collections performance. As we continue to bring more payers in network, we expect to see benefits in revenue growth, gross margin, and our profitability profile. As Brian noted in his prepared remarks, we are investing in revenue cycle, AI tools, and other automation projects that we believe will drive significant operating leverage as we scale the business. 7% in the prior-year period.

This continued expansion in our gross margin was driven by attractive unit economics inherent in Kestra Medical Techs' business model, an increase in revenue per fit from more in-network patients, and a decline in cost per fit driven by volume leverage and execution of cost improvement projects. In the quarters ahead, we expect to see steady and consistent increases in our gross margin as our rental model benefits from higher fittings. We are confident in our ability to achieve a mid-70% margin in the next few years, which is higher than our prior outlook of 70% gross margins. 7 million in the prior-year period.

4 million of nonrecurring items related to a BioBeat milestone payment and one-time professional fees related to a key R&D project that Brian noted we will be discussing in detail in the next quarter. 3 million in the prior-year period. The increase was primarily attributable to growth in expenses related to the company's commercial expansion and accelerated investment in our late-stage R&D programs. 8 million in the prior-year period.

4 million in the prior-year period. 3 million. As expected, our Q1 cash burn was higher on a sequential basis, driven by payout of our companywide bonus and timing of payments to suppliers. We expect our burn to decline sequentially throughout fiscal year 2027, as it did in fiscal year 2026.

In July we announced a new $200 million term loan facility. This nondilutive financing was a great outcome for Kestra Medical Techs. It fortifies our balance sheet, reduces our cost of capital, and provides significant financial flexibility to invest in our commercial strategies and expand our fleet to drive durable, best-in-class growth for years to come. Cash, cash equivalents, and investments totaled $245 million as of July 31.

Including unused committed availability under our term loan agreement, Kestra Medical Techs has liquidity of approximately $320 million. In summary, we continue to deliver top-tier MedTech revenue growth while significantly expanding our gross margins and fortifying our balance sheet. Our investments in the field team, RCM capabilities, and R&D initiatives position Kestra Medical Techs to capitalize on the large and growing WCD market opportunity and drive durable revenue growth for years to come.

And while we are continuing to invest in our growth strategy in fiscal year 2027, you will see Kestra Medical Techs drive increasing levels of operating leverage each year going forward.